As filed with the Securities and Exchange Commission on April 5, 2005

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

                                    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 402                     7373                          Charles T. Jensen
  Fort Myers, Florida 33901           (Primary Standard Industrial       2201 Second Street, Suite 402
       (239) 337-3434                  Classification Code Number)             (239) 337-3434 Fort
(Address and telephone number                                               Myers, Florida 33901-3083
  of Registrant's principal                                              Telecopier No.: (239) 337-3668
      executive offices)                                                  (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
    Title of each class of      Registered     Offering Price     Consideration     Offering        Amount of
 Securities to be Registered        (1)         Per Share (2)          (2)          Price (2)    Registration Fee
-----------------------------------------------------------------------------------------------------------------
                                                                                      
   Common Stock, par value      20,000,000         $0.227             $5.00        $4,530,005        $533.18
       $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, which
      is a date  within  five  business  days of the date of this  filing.  Cash
      consideration  is estimated at $0.05 per  shareholder,  times an estimated
      100 shareholders.

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 April 4, 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.

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 9 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 402             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.



                           NeoMedia Technologies, Inc.
                          2201 Second Street, Suite 402
                            Fort Myers, Florida 33901

_____________, 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 March 29,
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.

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

Sincerely,
/s/ Guy Fietz
------------------------------
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
   NeoMedia's Board of Directors after the Merger...................................5
   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......................................................
   Termination......................................................................6
   Fees.............................................................................6
   MATERIAL FEDERAL INCOME TAX CONSEQUENCES.........................................6
   Comparison of Rights of NeoMedia Shareholders and BSD Shareholders...............6
   Comparative Market Price Information.............................................6
   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........................................................................8
   Risks Related to the Merger......................................................8
   Risks Related to NeoMedia's Business............................................10
   Risks Relating To NeoMedia's Industry...........................................15
   Risks Specific To This Offering.................................................18
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.........................21
SELECTED HISTORICAL FINANCIAL DATA OF NEOMEDIA.....................................22
SELECTED HISTORICAL FINANCIAL DATA OF BSD..........................................23
COMPARATIVE PER SHARE DATA.........................................................24
COMPARATIVE STOCK PRICE DATA.......................................................25
THE MERGER.........................................................................26
   BSD's Reasons for the Merger....................................................26
   Interests of Certain Persons in the Merger; Conflicts of Interest...............27
   Anticipated Accounting Treatment................................................27
   Material United States and Canadian Federal Income
     Tax Consequences of the Merger................................................27
   Material Canadian Federal Income Tax Consequences of the Merger.................28
   Dissenters' Rights..............................................................29
   Federal or State Regulatory Requirements and Approvals..........................30
   Description of NeoMedia's and BSD's Securities..................................30
   Material Differences Between Rights of Holders of NeoMedia Common
     Stock Compared to BSD Common Stock............................................30
THE MERGER AGREEMENT...............................................................31
   General; Structure of Transaction; Distribution of Common Stock.................31
   Representations and Warranties..................................................32
   Conduct of Business Prior to the Effective Time of the Merger...................33
   No Solicitation.................................................................34
   Additional Covenants............................................................34
   Conditions to Completion of the Merger..........................................35
   Expenses and Termination Fees...................................................38
   Amendment; Extension and Waiver of the Merger Agreement.........................38
COMPARATIVE RIGHTS OF NEOMEDIA AND BSD SHAREHOLDERS................................39
NEOMEDIA'S BUSINESS................................................................44
   Company History.................................................................44
   Recent Developments.............................................................44


                                        i





                                                                               
   Industry Overview...............................................................47
   Products/Services...............................................................49
   Strategic Relationships.........................................................52
   Sales and Marketing.............................................................52
   Customers.......................................................................53
   Research and Development........................................................53
   Intellectual Property Rights....................................................54
   Competition.....................................................................54
   Employees.......................................................................55
   Properties......................................................................55
   Dividend Policy.................................................................55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS.....................................................56
   Overview........................................................................56
   Critical Accounting Policies....................................................59
   Results of Operations for the Year Ended December 31, 2004 as
     Compared to the Year Ended December 31, 2003..................................61
   Liquidity and Capital Resources.................................................62
NEOMEDIA'S MANAGEMENT..............................................................64
   Directors and Executive Officers................................................64
   Election Of Directors And Officers..............................................65
   Meetings Of The Board Of Directors..............................................65
   Committees Of The Board Of Directors............................................65
   Director Compensation...........................................................66
   Section 16(a) Beneficial Ownership Reporting Compliance.........................66
   NeoMedia's Executive Compensation...............................................66
   Employment Agreements...........................................................67
   Incentive Plan for Management...................................................67
   NeoMedia's Stock Option Plans...................................................67
   401(k) Plan.....................................................................68
   Options And Warrants Granted In NeoMedia's Last Fiscal Year.....................68
   Option And Warrant Exercises In Last Fiscal Year And
     Fiscal Year-End Values........................................................68
   Security Ownership of Certain Beneficial Owners and
     Management of NeoMedia........................................................69
   Certain Relationships and Related Transactions of NeoMedia......................70
   Section 16(a) Beneficial Ownership Reporting Compliance.........................71
   Code of Ethics..................................................................71
   Limitations on Director's Liability and Indemnification.........................71
DESCRIPTION OF NEOMEDIA'S CAPITAL STOCK............................................73
   Common Stock....................................................................73
   Preferred Stock.................................................................73
   Warrants And Options of NeoMedia................................................75
   Registration Rights.............................................................76
   Anti-Takeover Provisions Under bylaws and Laws..................................76
   Transfer Agent..................................................................77
DESCRIPTION OF BSD'S BUSINESS......................................................78
   Business Development............................................................78
   BSD's/Triton's Business.........................................................78
   Triton Recent Developments......................................................78
   Triton's Products & Services....................................................79
   Triton's Strategic Technology Alliances.........................................79
   Sales and Marketing Approach....................................................80
   Competitive Analysis............................................................81
   Triton/BSD Legal Matters........................................................82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS.....................................................83
   Overview........................................................................83
   Background Of Triton............................................................84
   Products and Services...........................................................84






                                                                               
   Results of Operations For The Three Months Ended January 31, 2005...............86
   Results of Operations For The Six Months Ended January 31, 2005.................87
   Results of Operations for the Year Ended July 31, 2004 as Compared
     to the Period Ended July 31, 2003.............................................88
   Critical Accounting Policies....................................................89
   BSD's Liquidity and Capital Resources...........................................90
BSD'S MANAGEMENT...................................................................92
   Directors and Executive Officers................................................92
   Summary Compensation Table......................................................94
   Employment Agreements.............................................................
   Stock Option Plan...............................................................94
   Options And Warrants Granted In BSD's Last Fiscal Year..........................94
   Option And Warrant Exercises In Last Fiscal Year And
     Fiscal Year end Values........................................................95
   Security Ownership of Certain Beneficial Owners and Management of BSD...........95
   Section 16(a) Beneficial Ownership Reporting Compliance.........................96
   Code of Ethics..................................................................96
   Limitations on Director's Liability and Indemnification.........................96
DESCRIPTION OF BSD'S CAPITAL STOCK.................................................98
   Common Stock....................................................................98
   Preferred Stock.................................................................98
   Warrants And Options............................................................98
   Registration Rights.............................................................98
   Anti-Takeover Provisions Under bylaws and Laws..................................98
   Transfer Agent..................................................................99
LEGAL MATTERS.....................................................................100
EXPERTS...........................................................................100
WHERE YOU CAN FIND MORE INFORMATION...............................................101

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-1
   Item 22. Undertakings.........................................................II-9

SIGNATURES......................................................................II-10




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


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 March 29,
2005, and the closing stock price of NeoMedia stock of $0.232 on March 29, 2005,
upon  completion of the merger the current  stockholders  of NeoMedia  would own
approximately  98% of  NeoMedia  and the  former  stockholders  of BSD would own
approximately 2% 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 $50,000 ($100,000 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, you will not
recognize  any gain or loss for United  States or  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-half of
2005. 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-half  of 2005,  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.

                                        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
103.
--------------------------------------------------------------------------------

The Companies

                           NeoMedia Technologies, Inc.
                          2201 Second Street, Suite 402
                               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 402
                               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
per share.

                                        4


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 62.7% 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 62.7% 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's  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,
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.

                                       5


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 July 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.

      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  SOLELY  FOR SHARES OF
NEOMEDIA COMMON STOCK WILL NOT RECOGNIZE ANY GAIN OR LOSS EXCEPT WITH RESPECT TO
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."

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 March
29,  2005,  the most  recent  practicable  date  prior to the  printing  of this
information  statement/prospectus,  the last sales price of BSD common stock was
$0.07 per share and the last sales price of NeoMedia common stock was $0.232 per
share. You are urged to obtain current market quotations.

                                       6


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 March 2, 2005,  the directors and officers of BSD, in the aggregate,
own approximately 28.9% of the outstanding common stock of BSD.

Interest of Directors and Officers of NeoMedia in the Merger

      As of March 2, 2005,  the  directors  and  officers  of  NeoMedia,  in the
aggregate, own approximately 29.5% 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 9 for a detailed  discussions of the
risks  associated with the merger,  the offering  described  hereunder,  and the
businesses of NeoMedia and BSD.

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.  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 dissenting  shareholders,
and a Dissenter's  Demand Notice Form is attached as Annex A to this information
statement/prospectus.

                                       7


                                  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. However, 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.  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 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
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.

                                       8


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

                                       9


                      Risks Related to NeoMedia's Business

NeoMedia has Historically Lost Money and Losses May Continue

      NeoMedia  has  incurred  substantial  losses  since  its  inception,   and
anticipates  continuing to incur substantial losses for the foreseeable  future.
NeoMedia  incurred 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  $83,377,000 as of December 31, 2004. As of December 31, 2004
and 2003, NeoMedia had a working capital (deficit) of approximately ($2,597,000)
and ($6,526,000),  respectively.  NeoMedia had stockholders' equity (deficit) of
$4,392,000  and  ($3,203,000)  at  December  31,  2004 and  2003,  respectively.
NeoMedia  generated  revenues of $1,700,000  and  $2,400,000 for the years ended
December 31, 2004 and 2003,  respectively.  In addition,  during the years ended
December  31,  2004  and  2003,  NeoMedia  recorded  negative  cash  flows  from
operations of $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.

      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.

                                       10


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.

A Large Percentage Of NeoMedia's Assets Are Intangible  Assets,  Which Will Have
Little Or No Value If NeoMedia's Operations Are Unsuccessful

      At December 31, 2004 and 2003, approximately 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.

                                       11


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.

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.

                                       12


      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.

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".

                                       13


      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.

                                       14


                      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


                                       15


      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.


                                       16


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.


                                       17


                         Risks Specific To This Offering

      As of December 31, 2004,  NeoMedia had 432,525,053  shares of common stock
outstanding,  and options and warrants to purchase up to an aggregate 71,629,121
shares of common  stock.  NeoMedia will also issue  additional  shares of common
stock in connection with the acquisition of BSD described  herein,  and up to an
additional 92,580,279 previously registered shares of common stock may be issued
under  NeoMedia's  Standby Equity  Distribution  Agreement with Cornell  Capital
Partners, LP. 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.

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;


                                       18


      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 has traded as low as $0.01 and as high as $0.299
between  January 1, 2003 and  December  31,  2004.  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 December  31,  2004,  NeoMedia  had  outstanding  stock  options and
warrants  to  purchase  71,629,121  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.

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 $0.18,  which was the closing  price on the last  trading day prior to
announcement of the merger),  if NeoMedia sold to Cornell Capital  Partners,  LP
the remainder of the 200,000,000 shares previously  registered under its Standby
Equity Distribution  Agreement,  and if all options and warrants were exercised,
NeoMedia would have up to 609,056,241 shares outstanding.


                                       19


      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 432,525,053  shares of common stock  outstanding as of
December 31, 2004, are, or upon  effectiveness  of this  registration  statement
will  be,  freely  tradable  without  restriction,  unless  held  by  NeoMedia's
"affiliates."


                                       20


           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.


                                       21


                 SELECTED HISTORICAL FINANCIAL DATA OF NEOMEDIA

      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."



                                                   Years Ended December 31,
                                 -------------------------------------------------------------
                                   2004         2003         2002         2001         2000
                                 ---------    ---------    ---------    ----------   ---------
                                           (in thousands, except for per share data)

                                                                      
Total net sales                  $   1,700    $   2,400    $   9,399    $   8,142    $  27,565
Net loss                         ($  7,230)   ($  5,382)   ($  7,421)   ($ 25,469)   ($  5,409)
Net loss per share               ($   0.02)   ($   0.04)   ($   0.26)   ($   1.55)   ($   0.39)
Weighted average shares
 outstanding during the period
(thousands)                        329,362      125,030       22,330       16,410       13,931

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



                                       22


                    SELECTED HISTORICAL FINANCIAL DATA OF BSD

         The following selected financial data for each of the five years in the
period ended July 31, 2003 have been derived from BSD's audited consolidated
financial statements. The financial data as of January 31, 2005 and 2004, and
for each of the three and six-month periods then ended, have been derived from
BSD's unaudited condensed 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 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."




                                      Six months ended
                                         January 31,                              Year Ended July 31,
                                    ----------------------    -------------------------------------------------------------
                                       2005         2004        2004(A)     2003(A)     2002(B)       2001(B)      2000(B)
                                    ---------    ---------    ---------    --------    --------      --------     ---------
                                         (unaudited)
                                                          (in thousands, except for per share data)
                                    ---------------------------------------------------------------------------------------
                                                                                              
Total net sales                       $3,258      $2,689      $6,091      $2,911      $5,382          $705         $210
Net income (loss)                       $149         $62         $45     ($4,860)       $193           $29          $51
Net income (loss) per share            $0.00       $0.00       $0.00     ($0.19)     $193.00(C)     $29.00(C)    $51.00(C)
Weighted average shares
 outstanding
    during the period (thousands)     32,735      32,305      31,494      25,494           1(C)          1(C)         1(C)

Total assets                          $1,204      $1,440      $1,158        $886      $1,269          $260         $108


----------

(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.


                                       23


                           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,  2004  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,
                                                          2004             2004
                                                      ------------    -------------
BSD Historical
                                                                  
   Earnings per share                                   $ 0.00            --
   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.


                                       24


                          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 29          $0.29        $0.22          $0.24        $0.07

      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 March 29, 2005, the most recent practicable  trading day
prior to the  printing  of this  information  statement/prospectus,  the closing
price of BSD common stock was $0.07 per share and the closing  price of NeoMedia
common  stock was $0.232 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.  On December 31,
2004,  there  were  31,810,897  shares  of  BSD  common  stock  outstanding  and
432,525,053 shares of NeoMedia common stock outstanding.


                                       25


                                   THE MERGER

      On  December  20,  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 62.7% 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;


                                       26


      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 and Canadian  Federal  Income Tax  Consequences  of the
Merger

The following is a material  United States federal income tax consequence of the
merger. The following  discussion is based on the United States Internal Revenue
Code of  1986,  as  amended  (the  "Code")  and  related  regulations,  existing
administrative  interpretations and court decisions and any related laws, all of
which could change,  possibly with retroactive  effect. This discussion does not
address  all  aspects  of United  States  federal  income  taxation  that may be
important to you in light of your particular circumstances or special rules that
may apply to you, such as rules relating to:

      o     shareholders who are not citizens or residents of the United States;

      o     financial institutions;


                                       27


      o     tax exempt organizations;

      o     insurance companies; or

      o     dealers in securities.

      This  discussion  assumes  you hold your  shares of BSD  capital  stock as
capital assets within the meaning of Section 1221 of the Code.

      It is expected  that the merger  will be treated  for  federal  income tax
purposes as a reorganization  within the meaning of Section  368(a)(1)(B) of the
Code,  and that BSD and  NeoMedia  will  each be a party to that  reorganization
within the meaning of Section 368(b) of the Code. Accordingly, since BSD will no
longer exist as a result of its merging into and becoming one with NeoMedia as a
result of BSD shareholders exchanging their BSD voting stock solely for NeoMedia
voting  stock,  shareholders  of BSD should not  recognize  any gain or loss for
United States federal income tax purposes.

      This  foregoing  discussion  is not intended to be a complete  analysis or
description of all potential  United States federal income tax  consequences  or
any other  consequences  of the merger.  In addition,  this  discussion does not
address  tax  consequences  which may vary  with,  or are  contingent  on,  your
individual  circumstances.  Moreover,  this  discussion  does  not  address  any
non-income tax or any foreign,  state or local tax  consequences  of the merger.
Accordingly,  you are  strongly  urged  to  consult  with  your tax  advisor  to
determine the particular United States federal,  state,  local or foreign income
or other tax consequences to you 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.

      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.


                                       28


      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.

      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.


                                       29


      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.

      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 78
and page 100 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.


                                       30


                              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.

      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.


                                       31


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.


                                       32


      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;


                                       33


      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;


                                       34


      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


                                       35


      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, 2004, 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, 2004, 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;

      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;


                                       36


      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  July 31,
            2005,  which date may be extended by mutual  consent of NeoMedia and
            BSD;

      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
            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.


                                       37


      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.


                                       38


               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               BSD's authorized capital stock            NeoMedia's authorized capital
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               The Board of Directors of BSD may,        Under the DGCL, NeoMedia may
dividends                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             Elected annually with a minimum of        The number of directors which
size of Board            one and no more than seven.  BSD          shall constitute the whole board
of 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.
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------



                                       39




-------------------------------------------------------------------------------------------------------
                                  BSD Software, Inc.                            NeoMedia
-------------------------------------------------------------------------------------------------------
                                                             
Removal of               A director may resign at any time         A director may resign at any time
directors                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             Any vacancy occurring in the Board        Any vacancy on the Board of
the 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 or
transactions             Board of Directors, or when               secretary at the request, in writing
                         requested in writing by the holders       of a majority of the Board of
                         of no less than 10% of all the            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 50%
                         shareholders shall be called for a        of the entire capital stock of the
                         date not less than 3 nor more than        corporation issued and outstanding
                         30 days after the request is made,        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 exercised
                         issued by the secretary, unless the       without a meeting if a consent in
                         president, the Board of Directors,        writing, setting for the action
                         or the shareholders requesting the        taken, is signed by all of the
                         meeting shall designate another           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 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.
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------



                                       40




-------------------------------------------------------------------------------------------------------
                                  BSD Software, Inc.                            NeoMedia
-------------------------------------------------------------------------------------------------------
                                                             
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 may be altered, amended, or        In furtherance and not in
bylaws                   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                Under Florida law, a shareholder is       Under Delaware law, no appraisal
rights                   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."
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------



                                       41




-------------------------------------------------------------------------------------------------------
                                  BSD Software, Inc.                            NeoMedia
-------------------------------------------------------------------------------------------------------
                                                             
Preemptive               Under Florida law, the shareholders       Under Delaware law, absent express
rights                   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.
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------



                                       42




-------------------------------------------------------------------------------------------------------
                                  BSD Software, Inc.                            NeoMedia
-------------------------------------------------------------------------------------------------------
                                                             
Consent of               Any action required to be taken at        Any action required to be taken at a
shareholders in          an annual or special meeting of           meeting of the stockholders, or any
lieu of meeting          shareholders, may be taken without        other action which may be taken at a
                         a meeting, without prior notice and       meeting of the stockholders, may be
                         without a vote, if a consent in           taken without a meeting and without
                         writing, setting forth the action         a vote, if a consent in writing,
                         so taken, shall be signed by the          setting forth the action so taken
                         holders of outstanding stock having       shall be signed (a) if five days
                         not less than the minimum number of       prior notice of the proposed action
                         votes that would be necessary to          is given in writing to all of the
                         authorize such action at a meeting        stockholders entitled to vote with
                         at which all shares entitled to           respect to the subject matter,
                         vote thereon were present and             hereof, by the holders of
                         voted.  A majority of the shares          outstanding shares having not less
                         entitled to vote, represented in          than the minimum number of votes
                         person or by proxy, shall                 that would be necessary to authorize
                         constitute a quorum at a meeting of       or take such action at a meeting at
                         shareholders.  If a quorum is             which all shares entitled to vote
                         present, the affirmative vote of a        thereon were present and voting; or
                         majority of the shares represented        (b) by all of the stockholders
                         at the meeting and entitled to vote       entitled to vote with respect to the
                         on the subject matter shall be the        subject matter thereof. Prompt
                         act of the shareholders unless            notice of the taking of the
                         otherwise provided by law.                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.
-------------------------------------------------------------------------------------------------------



                                       43


                               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

      $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
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.

      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.


                                       44


      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.

      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.

      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

      PaperClick(R) Developments

      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.


                                       45


      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
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. 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.


                                       46


      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.

      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. The two actions were  consolidated  and the parties
are currently engaged in discovery and discussing settlement opportunities.

      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.

      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.  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").  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:
United States 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.  The parties are currently  engaged in discovery and
discussing settlement opportunities.

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.


                                       47


      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.


                                       48


      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.

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:


                                       49


      Link Manager  Software.  Software for a PC that allows a product  owner to
      link words and codes to a specific URL;

      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.

      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.

            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:


                                       50


      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.

      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.


                                       51


      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 lawsuits against AirClic,  Scanbuy,  LScan,
and Virgin.

      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.

Sales and Marketing


                                       52


      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.

Research and Development

      NeoMedia Internet Switching Software


                                       53


      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.


                                       54


      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 402, Fort Myers,  Florida 33901.  NeoMedia
occupies  approximately 5,000 square feet under terms of a written lease from an
unaffiliated  party which  expires on July 31, 2005,  with monthly rent totaling
approximately $7,000.

      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, 2004, with
monthly rent totaling approximately $4,000.

      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.


                                       55


         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.


                                       56


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.

NCIS (Systems Integration) Business Unit Developments.


                                       57


      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
      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.

            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.

      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.

      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.


                                       58


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.

      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.


                                       59


      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.

      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.


                                       60


      (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 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.

      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.


                                       61


      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.

      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.


                                       62


      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.

      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.

      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.

      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.

      NeoMedia  may  obtain  up  to  $20  million  through  its  Standby  Equity
Distribution  Agreement with Cornell  Capital  Partners,  LP. As of December 31,
2004,  NeoMedia  had drawn $8 million  against the Standby  Equity  Distribution
Agreement,   leaving  an  available  balance  of  $12  million.   NeoMedia  sold
approximately  107  million  shares  during  2004 to  Cornell to draw $8 million
against the Standby Equity Distribution  Agreement.  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.  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.

      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.


                                       63


                              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.


                                       64


      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.


                                       65


      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)        --           --     10,000,000        --          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)       --     10,000,000        --          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.


                                       66


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


                                       67


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.


                                       68




                                                        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.

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 March 2, 2005, (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)          36,620,574          8.0%
    Common Stock            William Fritz(2)(4)              52,890,944         11.9%
    Common Stock            Charles T. Jensen(2)(5)          18,001,500          3.9%
    Common Stock            David A. Dodge(2)(6)              6,700,000          1.5%
    Common Stock            A. Hayes Barclay(2)(7)            2,405,000             *
    Common Stock            James J. Keil(2)(8)               4,388,619             *
                                                           ----------------------------

                            Officers and Directors as a
    Common Stock            Group (9 Persons)(9)             121,006,637        24.4%
--------------------


* - 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  439,538,529  shares of
      common stock  outstanding  as of March 2, 2005,  together with  securities
      exercisable or  convertible  into shares of common stock within 60 days of
      March 2, 2005, for each stockholder. Beneficial ownership is determined in
      accordance  with the rules of the United  States  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 March 2, 2005, 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 402, Fort Myers, Florida, 33901.

(3)   Charles W. Fritz is  NeoMedia'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,  18,000,000
      shares of common stock  issuable  upon  exercise of options  granted under
      NeoMedia's  2003,  2002 and 1998  stock  option  plans,  1,510,000  shares
      issuable  upon  exercise of stock  warrants,  15,567,605  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.


                                       69


(4)   William E. Fritz, an outside  director,  and his/her 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:  45,923,735 shares held directly by Mr. Fritz or his/her
      spouse,  2,540,000  shares to be issued upon the exercise of warrants held
      by Mr. Fritz or his/her spouse, and 2,750,000 shares to be issued upon the
      exercise of options held by Mr. Fritz or his/her  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  18,000,000  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  6,700,000 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
      2,400,000 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
      888,619 shares owned by Mr. Keil directly.

(9)   Includes an  aggregate  of  51,350,000  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 65,606,637 shares owned directly by NeoMedia's  officers
      and directors.

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.


                                       70


      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.

      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.

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   is   attached   to   this    information
statement/prospectus as Exhibit 10.52.

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.


                                       71


      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.

      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.


                                       72


                     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 December 31, 2004,  NeoMedia had 432,525,053  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.


                                       73


      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


                                       74


      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 December 31, 2004,  NeoMedia had outstanding options and warrants to
purchase   52,804,121  and  18,825,000,   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.


                                       75


      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


                                       76



the corporation and to guard against partial or two-tiered  tender 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.


                                       77


                          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. The details of the
acquisition are contained in Note 4 to the attached Financial Statements
attached.

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
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.


                                       78


      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.


                                       79


      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.


                                       80


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.


                                       81


      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.


                                       82


           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


                                       83


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 January  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  $227,212  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


                                       84


         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.


                                       85


Results of Operations For The Three Months Ended January 31, 2005

Revenue

We had  revenue of  $1,679,000  for the three  months  ended  January  31,  2005
compared to revenue of  $1,663,000 in the  comparable  period in the prior year.
This  lack  of  significant  change  is  primarily   attributable  to  marketing
activities  resulting in new business in call records being offset by one of our
major accounts losing a significant amount of business that in turn affected the
amount of  revenues  derived  from  them.  The  weakness  of the 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 for management's
estimate of calls that cannot be billed or collected.

Cost Of Revenues

We had cost of  revenues  of  $1,380,000,  or 82.16% of  revenue,  for the three
months ended January 31, 2005 compared to $1,203,000 or 72.38% of revenue in the
comparable period in the prior year. In the three months ended January 31, 2005,
we had a gross  margin of  $300,000  or 17.84% of  revenue,  compared to a gross
margin of $459,000,  or 27.62% of revenue, in the comparable period in the prior
year. Cost of goods sold, for the three months ended January 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 three  months  ended  January 31,  2005,  we had  operating  expenses of
$211,000  compared  to  $338,000  in the same  period  of the prior  year.  This
difference  was  primarily  attributable  to reduced legal fees and reduced rent
expense  as BSD  relocated  into  smaller  premises  at a lower  lease  rate and
subleased the previous premises for the full amount of the lease.


                                                             THREE MONTHS
                                                                ENDED
         DESCRIPTION                                       January 31, 2005
         ------------------------------------------------------------------

         Administration                                        $  35,000
         Professional Fees                                        18,000
         Rent                                                     16,000
         Payroll                                                 123,000
         Depreciation and amortization                            19,000
                                                               ---------
         TOTAL                                                 $ 211,000
                                                               =========

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.

Net Income

The items  specified  above  resulted  in a net income of $49,000  for the three
months  ended  January  31,  2005 after  recognizing  other  expenses  including
interest  expense of $30,000,  and a loss on disposal of assets in the amount of
$9,000.  In the  comparable  period in the  prior  year,  BSD had net  income of
$78,000 after recognizing interest expense of $43,000.  This change is primarily
attributed  to the reduced  gross margin  recognized on contracts in the current
period as well as reduced expenses in the current period.


                                       86


Results of Operations For The Six Months Ended January 31, 2005

Revenue

We had revenue of $3,257,000  for the six months ended January 31, 2005 compared
to  revenue of  $2,689,000  in the  comparable  period in the prior  year.  This
increase is  primarily  attributable  to marketing  activities  resulting in new
business in call records which more than offset the lost revenue from one of our
major accounts losing a significant amount of business that in turn affected the
amount of revenues  derived from them. The change in the 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 for management's estimate of calls
that cannot be billed or collected.

Cost Of Revenues

We had cost of revenues of $2,555,000,  or 78.45% of revenue, for the six months
ended  January  31,  2005  compared  to  $1,974,000  or 73.42% of revenue in the
comparable  period in the prior year.  In the six months ended January 31, 2005,
we had a gross  margin of  $702,000  or 21.55% of  revenue,  compared to a gross
margin of $715,000,  or 26.58% of revenue, in the comparable period in the prior
year. Cost of goods sold, for the six months ended January 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 six months ended January 31, 2005, we had operating expenses of $483,000
compared to $529,000 in the same period of the prior year.  This  difference was
primarily  attributable  to,  reduced legal fees and reduced rent expense as BSD
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.

                                                               SIX MONTHS
                                                                  ENDED
         DESCRIPTION                                         January 31, 2005
         ---------------------------------------------------------------------
         Administration                                        $  70,000
         Professional Fees                                        98,000
         Rent                                                     31,000
         Payroll                                                 245,000
         Depreciation and amortization                            39,000
                                                               ---------
         TOTAL                                                 $ 483,000
                                                               =========

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.

Net Income

The items  specified  above  resulted  in a net income of  $149,000  for the six
months  ended  January  31,  2005 after  recognizing  other  expenses  including
interest  expense of $61,000  and a loss on  disposal of assets in the amount of
$9,000.  In the  comparable  period in the prior  year,  we had a net  income of
$62,000 after  recognizing  interest expense of $175,000 and recording a gain on
the sale of  contracts  in the  amount of  $51,000.  This  change  is  primarily
attributed to the reduced expenses in the current period.


                                       87


Results of Operations for the Year Ended July 31, 2004 as Compared to the Period
Ended July 31, 2003

Revenue

      BSD had revenue of $6,091,101 for year the ended July 31, 2004 as compared
with  $2,910,883  for the period ended July 31, 2003, an increase of $3,180,218,
or  109%.  This  increase  is  primarily  attributable  to  increased  marketing
activities and new business in call records.  The revenue consisted primarily of
fees for  processing  Canadian  and United  States  terminated  call records for
telecommunications  companies.  Revenue is recognized at the time that calls are
accepted by the clearinghouse for billing to customers.  The increase in revenue
is due to  recording  revenue  for a full year as opposed to nine months for the
comparative period as well as an increase in the volume of records processed.

Cost of Goods Sold

      BSD had cost of goods sold of  $4,618,371,  or 75.8% of  revenue,  for the
year ended July 31, 2004  compared to  $2,532,475 or 87% of revenue for the year
ended July 31, 2003,  an increase of  $2,085,896  or 82%. In the year ended July
31, 2004, BSD had a gross margin of $1,472,730, or 24.2% of revenue, compared to
a gross  margin of  $378,408,  or 13.0% of revenue,  for the year ended July 31,
2003, and increase of $1,094,322 or 289%. The  improvement in BSD's gross margin
is primarily  attributable  to a change in product mix, as BSD began focusing on
its higher margin call records business as opposed to the hospitality  business.
Cost of goods sold,  for the year ended July 31,  2004,  consists of  settlement
fees to customers, carrier line charges and clearing costs levied by the LECs.

Expenses

      For the year ended July 31,  2004,  BSD had total  expenses of  $1,476,092
compared to total expenses of $1,793,465 before write downs for the period ended
July 31,  2003, a decrease of $317,373 or 18%.  This  difference  was  primarily
attributable  to reduced  administrative  costs,  reduced  interest  and finance
charges,  reduced  payroll  costs,  and reduced legal fees.  Total  expenses are
comprised of the following items:

                                                                       YEAR
                                                                      ENDED
                                                                      JULY 31,
                                   DESCRIPTION                         2004
                   -------------------------------------------------------------
                   Administration                               $  182,938
                   Interest and finance charges                    253,328
                   Professional Fees                               334,946
                   Rent                                             90,396
                   Payroll                                         537,391
                   Amortization                                     77,093
                   -------------------------------------------------------------
                   TOTAL                                        $1,476,092
                                                                ==========

      Administration  expenses decreased to $182,938 for the year ended July 31,
2004 from  $315,055  for the year ended July 31, 2003, a decrease of $132,117 or
42%. The decrease resulted primarily from reduced travel ($60,737),  and reduced
repair costs ($51,642).  Professional  fees consist of accounting and legal fees
incurred in the ordinary course of business.  Rent expense  consists of the rent
paid for our administrative offices located in Calgary,  Canada. Payroll expense
relates  to  the  payroll  of  eight  employees  and  includes  wages,  bonuses,
commissions  and  benefits.  Amortization  expense  consists  primarily  of  the
amortization of office  furniture,  computer  equipment,  fixtures and leasehold
improvements.


                                       88


Reduction in Carrying Value of Goodwill

      BSD recorded  $2,611,679 of goodwill in connection with the acquisition of
Triton in October  2002.  Goodwill  represents  the amount by which the purchase
price of Triton  exceeds  the net  tangible  book value of the net  identifiable
assets of Triton at the date of  acquisition.  During  the year  ended  July 31,
2003,  BSD wrote off and charged to operations the entire amount of goodwill due
to the impairment  associated with losses experienced  through our activities in
the  international  operator  services  market and the current  working  capital
deficiency,  which losses and deficiency had not been anticipated at the date of
acquisition.

Impairment of Property, Plant and Equipment

      Due to Triton's exit from the  international  operator services market BSD
wrote-off  unrecoverable  costs of $992,399 for the year ended July 31, 2003 for
the software  and hardware  related to the VOIP  platform.  Although  Triton has
identified market opportunities for the application of the platform it currently
does not have a business plan  developed  for the  platform's  utilization,  any
contracts in hand or the ability to generate cash flow from its use.

Net Profit

      The net profit of $44,549 for the year ended July 31 2004  represented  an
increase of $4,904,278, or 101% from the July 31, 2003 loss of $4,859,729.  This
is due to the increase in sales while at the same time reducing expenses and not
incurring a write-off  of goodwill  nor a write-off of the software and hardware
related to the VOIP platform.

Critical Accounting Policies

      Going Concern

      The  attached  BSD  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. There is significant doubt about the appropriateness of the use of the
going concern  assumption  because BSD has  experienced  operating  losses and a
significant working capital deficiency during the period.

      BSD's  ability  to  continue  as  a  going   concern  is  dependent   upon
management's ability to raise additional financing. During the period ended July
31, 2004, 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.

      On December 21, 2004, BSD signed a definitive Agreement and Plan of Merger
with NeoMedia  Technologies  Inc.  Pursuant to the Agreement and Plan of 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.  Closing is
subject to the terms and conditions outlined in the Merger Agreement, as well as
this  registration  statement  being  declared  effective  by the United  States
Securities and Exchange  Commission.  There is no assurance that the merger will
be completed.

      The  ability of BSD 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  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, 2005.

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 $239,939,  the full 100% of operating results
will be reported in BSD's statement of operations.

Property Plant & Equipment


                                       89


      Property, plant 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

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

      Property,  plant 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

      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 January 31, 2005, BSD had a cash balance of $ 45,000.  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 January 31, 2005, BSD had negative  working capital of $3,347,000.
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 $4,430,000  as they come due. Of the total current  liabilities,
BSD  expects  that a portion  of the  shareholder  loans  will be  satisfied  by
converting  into  equity.  BSD expects  that it will be able to satisfy its cash
needs  over  the  next 12  months  from  cash  generated  by  operations  and by
negotiating to pay some of its commitments over time.

Currently BSD has entered into debt for equity  agreements or amortized  payment
agreements with most of its creditors.  BSD has the ability to perform on all of
its  finalized  agreements  and will be able to  perform on the  commitments  it
agrees to with its creditors.  On June 9, 2004 BSD was relisted to the OTCBB and
consequently  has the  ability to execute  formal  agreements  on the letters of
intent mentioned below.

On March 20, 2003, BSD entered into two letters of intent to raise cash from the
sale of  securities  pursuant  to an  equity  line  of  credit  and  convertible
debenture.  With respect to the equity line, the investor has agreed to fund BSD
up to $10 million from time to time over 24 months after BSD has  registered the
resale of the common  stock to be  purchased  under the  equity  line of credit.
Under the equity line, BSD may request advances of $420,000 every 30-days,  with
a maximum of $140,000 per advance.  The purchase price of the common stock to be
issued under the equity will be equal to 95% of the lowest  closing bid price of
BSD's common stock during the 5 trading days  preceding an advance  notice.  BSD
has  agreed  to pay the  investor  5% of  each  advance,  as well as a  one-time
commitment fee equal to $400,000, payable by the issuance of common stock at the
closing bid price on the date the transaction is closed.

With respect to the  debentures,  the investor has agreed to fund BSD  $500,000.
The debentures will be convertible  into shares of common stock at a price equal
to either  (i) an amount  equal to 120% of the  closing  bid price of the common
stock  as of the  closing  date or (ii) an  amount  equal  to 80% of the  lowest
closing  bid price of the common  stock for the five  trading  days  immediately
preceding the conversion date. The convertible  debenture  accrues interest at a
rate of 5% per year and is convertible at the holder's  option and has a term of
two years. At BSD's option,  these debentures may be paid in cash at maturity or
redeemed at a 20% premium.  Both the equity line and  convertible  debenture are
subject to a number of conditions,  including filing all SEC reports required to
be filed prior to closing,  entering into definitive contracts and, with respect
to the equity  line,  registering  the shares of common stock to be issued under
the equity line with the Securities and Exchange Commission.


                                       90


BSD has not utilized any portion of the financing described above.

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

      Net Cash From  Operations.  Net cash provided from operations was $133,786
for the year ended July 31,  2004,  an increase of $393,461,  or 152%,  compared
with net cash used in  operations  of $259,675 for the year ended July 31, 2003.
The use of cash by  operations  was  principally  the result of  operations,  an
increase in accounts  payable of  $225,666,  amortization  of $77,093,  non-cash
financing  costs of $98,550,  a reduction  of prepaid  expenses in the amount of
$2,053 and an income tax  recovery  of 33,048  offset by an increase in accounts
receivable of $350,352.

      Net cash used by  operations  was $1,000 for the six months ended  January
31, 2005. The cash used by operations was  principally the result of operations,
and a  reduction  of  prepaid  expenses  in the  amount of  $9,000  offset by an
increase in accounts  receivable of $191,000 and a reduction of accounts payable
of $16,000.

      Net Cash Used in  Financing.  Net cash used in financing  was $112,700 for
the year ended July 31, 2004,  an increase of $968,137,  or 113%,  compared with
net cash  provided by financing  activities  of $855,437 for the year ended July
31, 2003. 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 $100,000 for the six months ended  January
31, 2005. This is entirely due to the paying down of notes payable,  shareholder
loans and the amount due to Wayside Solutions Inc.

      Net Cash From Investing.  Net cash from investing was $32,929 for the year
ended July 31, 2004 , an increase  of  $553,761 or 106%  compared  with net cash
used in investing for the year ended July 31, 2003 of $520,832,  resulting  from
proceeds  on sale of  property,  plant and  equipment  in the  amount of $35,188
offset by the purchase of additional  property,  plant and equipment for a total
of $2,259.

      Net cash from  investing for the six months ended January 31, 2005 was the
result  of  selling  excess  office  furnishings  no  longer  needed  due  to us
relocating to smaller premises


                                       91


                              BSD'S MANAGEMENT

Directors and Executive Officers

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



Name                      Age    Position
----                      ---    --------
                           
Guy Fietz                  39    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             52    Chief Financial Officer of BSD Software, Inc., Director of
                                 Triton Global Business Services Inc. (as of 4/26/04)
Robin Legg                 60    Vice President of Business Development
Gordon McLeod              31    Vice President of Sales and Marketing



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

      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.

      ROBIN LEGG. Mr. Legg has over 16 years of sales  management  experience in
the telecommunications  industry. He has extensive expertise in team leadership,
business  development,  strategic  sales  planning,  and  contract  negotiation.
Dedicated  Mr.  Legg  has  been  instrumental  in  developing  and  implementing
strategies  for Triton's  ongoing  customer  relationships  since joining BSD in
2002. Mr. Legg was Vice President of Sales at Telecom Cost  Management,  located
in  Hamilton,  Virginia.  From 1999 to 2001,  Mr.  Legg was  employed by Cantalk
Canada as the Vice President of Sales, North America.  Prior to that, he was the
Vice  President of Sales for BCI Commcor based in Chantilly,  Virginia from 1992
to 1999.

      GORDON F. MACLEOD. Mr. MacLeod joined Triton in 2003. From 1998 to 2003 he
was the  Manager of  National  Accounts  for Time iCR,  an  Ottawa-based  speech
recognition  application hosting and service provider.  Mr. MacLeod has 10 years
of direct experience within the telecommunication sector specializing in complex
solution  selling.  Mr. MacLeod  attended the University of Guelph from where he
graduated  with an Honors  degree in  Business/Commerce.  Mr.  MacLeod is also a
graduate of numerous  sales-focused  business  training  schools,  seminars  and
conventions  throughout  North America.  Mr. MacLeod is responsible for Triton's
overall corporate positioning, managing all customer communications, identifying
and opening new markets,  ensuring the  consistency,  quality and performance of
channel  partners,  sales and  customer  representatives  as well as the overall
growth of the business through strategic marketing initiatives.

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.


                                       92


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, 2004, BSD held nine directors' meetings and
each  incumbent  director  attended all meetings of the Board of Directors.  The
Board of Directors also acted once 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.


                                       93


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,  Chief Financial Officer and
Vice-Presidents  (collectively,  the "Named  Executive  Officers")  during 2004,
2003, and 2002. No other officer or employees of BSD or any of its  subsidiaries
earned total salary and bonus in excess of $100,000 during 2004, 2003, and 2002.



                                           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)                  2004   144,285   116,362            --         --        --         --          --
                                      2003    95,846        --            --         --        --         --          --
                                      2002    58,333        --   127,333 (1)         --        --         --          --

Gordon Ellison, Chief Financial
Officer, Director; Chief Financial
Officer at Triton Global Business
Services, Inc. and Triton Global
Communications, Inc. (both
subsidiaries of BSD)                  2004    24,129        --            --         --        --         --          --

Les Hammond, former CFO of BSD        2004    38,890        --            --         --        --         --          --
                                      2003    17,084        --            --         --        --         --          --

Robin Legg, Vice President of
Business Development at Triton
Global Communications, Inc. (a
subsidiary of BSD)                    2004    58,282     3,736         2,512         --        --         --          --
                                      2003    46,270        --            --         --        --         --          --
                                      2002    10,278        --            --         --        --         --          --

Gordon MacLeod, Vice President of
Sales and Marketing at Triton
Global Communications, Inc. (a
subsidiary of BSD)                    2004    70,900     8,889        11,896         --        --         --          --
                                      2003    12,813        --            --


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

(1)   These  represent the payment of dividends by Triton Global  Communications
      Inc. prior to the acquisition by BSD.

(2)   All  amounts  were paid  through  Triton  Global  Communications  Inc.  in
      Canadian dollars.  The amounts for the current year have been converted at
      .74721 and previous years have been converted at a .711845 exchange rate.

Employment Agreements

      Robin Legg has an  employment  agreement  dated March 24, 2003 that pays a
base salary of $59,940.  Gordon MacLeod has an employment agreement dated August
1, 2003 that pays a base salary of $59,020.  The agreements  allow for an annual
review  of  remuneration  and do not  have an  expiry  date.  Both of the  above
contracts allow for commissions and bonuses to be added to monthly  remuneration
as described in BSD's polices and procedures.  Both 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, 2004.


                                       94


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, 2004, or held any stock options as of July 31, 2004.

Security Ownership of Certain Beneficial Owners and Management of BSD

      The  following  table  sets  forth,  as  of  December  31,  2004,  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.



                        Name and Address Of                     Amount and Nature of
  Title of Class        Beneficial Owner                        Beneficial Ownership (1)       Percent of Class
-----------------------------------------------------------------------------------------------------------------
                                                                                           
  Common Stock          Guy Fietz (2)
                        90 Mt. Assiniboine Circle,  S.E.
                        Calgary, Alberta
                        Canada T2Z 2N8                               16,468,992                     51.8%

  Common Stock          SunTzu Trust
                        ANZ House, P.O. Box 11
                        Rarotonga, Cook Islands                       7,328,701                     23.0%

  Common Stock          Trans Research International Trust (3)
                        ANZ House, P.O. Box 11
                        Rarotonga, Cook Islands                       8,168,620                     25.7%
                        Merlexis Trust (3)
                        ANZ House, P.O. Box 11
                        Rarotonga, Cook Islands                       3,381,633                     10.6%

  Common Stock          Blair J. McInnes (4)
                        78 Kinkora Drive
                        Winnipeg, Manitoba
                        Canada R3R 2L6                                8,168,620                     25.7%

  Common Stock          David Worrall (5)
                        58 Amalia Crescent
                        R.R. # 5 Belwood,
                        Ontario Canada N0B 1J0                        3,381,622                     10.6%

                        Robin Legg
                        16 Valley Ponds Place N.W.
                        Calgary, Alberta
                        Canada T3B 5T5                                   35,000                       *
-----------------------------------------------------------------------------------------------------------------


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

*     Denotes ownership of less than 1% of the issued and outstanding  shares of
      BSD's common stock.

(1)   Based on 31,810,897  shares issued and  outstanding  at December 31, 2004.
      Applicable percentage of ownership is based on 31,810,897 shares of common
      stock outstanding as of December 31, 2004 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
      December  31,  2004 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.


                                       95



Certain Relationships and Related Transactions

      Wayside Solutions,  Inc., which is controlled by the brother-in-law of the
President of BSD paid certain operating expenses and advanced cash to BSD during
the year ended July 31, 2003. The cost of these services,  totaling  $127,579 in
2004 and $140,896 in 2003, was charged to professional fees expense.

      Accrued  interest  calculated  at 10% on the amount owing to Guy Fietz has
been  recorded  at $34,119  for the year  ended  July 31,  2004 and an amount of
$26,575 was recorded in the year ended July 31, 2003.

      For the year ended July 31, 2004,  BSD paid $20,370 and for the year ended
July 31, 2003 BSD, recorded $14,000 for legal services rendered by Jeremy Fietz,
a brother of the  President of BSD. The amount  recorded in fiscal 2003 was paid
by issuing 35,000 common shares of BSD in 2004

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, 2004,  all Section 16(a) filing  requirements  applicable to
the officers, directors and 10% beneficial owners were met.

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.

      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.


                                       96


      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.


                                       97


                       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  December  31,  2004,  BSD had  31,810,897  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 December  31, 2004,  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  December  31,  2004,  BSD  had  outstanding  warrants  to  purchase
1,000,000  shares of BSD's common  stock,  and  outstanding  options to purchase
750,000 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.


                                       98


      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

      BSD stock transfer agent is Florida Atlantic Stock Transfer, 7130 Nob Hill
Road, Tamarac, Florida, 33321.


                                       99


                                  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 years ended July 31, 2004 and 2003 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.


                                      100


                       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,  450 Fifth
Street,  N.W.,  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.

      As allowed by SEC rules,  this information  statement/prospectus  does not
contain all the information you can find in the  registration  statement on Form
S-4 filed by NeoMedia  and BSD to  register  the shares of stock to be issued in
the  merger  and the  exhibits  to the  registration  statement.  The SEC allows
NeoMedia and BSD to "incorporate by reference" information into this information
statement/prospectus,  which means that NeoMedia and BSD can disclose  important
information to you by referring you to other documents filed separately with the
SEC.  The  information  incorporated  by  reference is deemed to be part of this
information  statement/prospectus,  except  for any  information  superseded  by
information  in  this   information   statement/prospectus.   This   information
statement/prospectus  incorporates  by reference  the  documents set forth below
that  NeoMedia  and BSD have  previously  filed  with the SEC.  These  documents
contain important information about the companies and their financial condition.

      This information statement/prospectus  incorporates important business and
financial  information  about  NeoMedia  and BSD  from  documents  that  are not
included  in or  delivered  with  this  information  statement/prospectus.  This
information  is  available  to you  without  charge  upon your  written  or oral
request. You can obtain documents  incorporated by reference in this information
statement/prospectus  by requesting  them in writing,  by telephone or by e-mail
from the appropriate company at the following addresses:

       If a NeoMedia Stockholder:                    If a BSD Shareholder:
      NeoMedia Technologies, Inc.                      BSD Software, Inc.
     2201 Second Street, Suite 402              5824 Second Street SW, Suite 300
          Ft. Myers, FL 33901                  Calgary, Alberta, Canada, T2H-0H2
             Attention: CFO                              Attention: CFO
       Telephone: (239) 337-3434                   Telephone: (403) 259-7588
       Telecopier: (239) 337-3668                  Telecopier: (403) 257-6098


                                      101



                          INDEX TO FINANCIAL STATEMENTS



----------------------------------------------------------------------------------------- ------------------
                                  Financial Statement                                           Page
----------------------------------------------------------------------------------------- ------------------
                                                                                                
NeoMedia  Technologies,  Inc.  Consolidated  Financial  Statements  For The Years  Ended         F-2
December 31, 2003 And 2002
----------------------------------------------------------------------------------------- ------------------

----------------------------------------------------------------------------------------- ------------------
BSD  Software,  Inc.  Consolidated  Financial  Statements  For The Three- And  Six-Month        F-40
Periods Ended January 31, 2005 And 2004
----------------------------------------------------------------------------------------- ------------------

----------------------------------------------------------------------------------------- ------------------
BSD Software,  Inc. Consolidated  Financial Statements For The Years Ended July 31, 2004        F-47
And 2003
----------------------------------------------------------------------------------------- ------------------

----------------------------------------------------------------------------------------- ------------------
Pro Forma Financial Information                                                                 F-63
----------------------------------------------------------------------------------------- ------------------

----------------------------------------------------------------------------------------- ------------------
Financial Statements Of Acquired Business, CSI International,  Inc., For The Years Ended        F-69
August 31, 2003 And 2002
----------------------------------------------------------------------------------------- ------------------





             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-1


                  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-2


                  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-3


                  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
                                                                                      =======      =======

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-4


                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                        (In thousands, except share data)



                        -------------------------------------- --------------- ---------------- --------------
                                    Common Stock
                        --------------------------------------                   Accumulated
                                                  Additional      Deferred          Other
                                                    Paid-in        Stock        Comprehensive    Accumulated
                           Shares       Amount      Capital     Compensation        Loss           Deficit
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
                                                                              
BALANCE, DECEMBER 31,      30,746,968       $307      $65,442           (231)               $0      ($70,765)
2002
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------

----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Shares issued to
Cornell Capital
Partners under Equity
line of Credit             98,933,244        990        1,803             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Issuance of Common
Stock through private
Placement, Net of
$6,818 of issuance
costs                      25,000,000        250           50             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Exercise of employee
options                    15,599,175        156            0             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Exercise of Warrants       28,904,900        289         (39)             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Expense associated
with option & warrant
repricing                         ---        ---          774             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Fair value stock,
options, & warrants
issued for
professional services
rendered                    4,030,424         40          385             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Stock issued to pay
past due liabilities       40,776,546        408        2,505             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Issuance of warrants
and stock with debt               ---        ---           19             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Expense recognized
for options issued
with exercise price
below market price                ---        ---          626             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Change in Deferred
Stock Compensation                ---        ---          ---            (51)              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Net Loss                          ---        ---          ---             ---              ---        (5,382)
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
BALANCE, DECEMBER 31,     243,991,257     $2,440      $71,565          ($282)               $0      ($76,147)
2003
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------

----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Shares issued to
Cornell Capital
Partners under ELOC
and SEDA                  112,743,417      1,127        6,864             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Exercise of stock          12,860,616        129           43             ---              ---            ---
options
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Exercise of stock
warrants                   51,510,000        515        2,000             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Fair value stock,
options, & warrants
issued for
professional services
rendered                    2,013,375         20          785             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Stock issued to pay         2,406,388         24          242             ---              ---            ---
past due liabilities
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Stock issued in
connection with
acquisition of CSI
International               7,000,000         70          625             ---              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Expense associated                ---        ---          104             ---              ---            ---
with option repricing
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Fair value of                     ---        ---        2,500             ---              ---            ---
warrants issued with
debt
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Change in Deferred
Stock Compensation                ---        ---          ---           (163)              ---            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Comprehensive loss -
foreign currency
translation adjustment            ---        ---          ---             ---             (60)            ---
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
Net Loss                          ---        ---          ---             ---              ---        (7,230)
----------------------- -------------- ---------- ------------ --------------- ---------------- --------------
BALANCE, DECEMBER 31,     432,525,053     $4,325      $84,728           (445)            ($60)      ($83,377)
2004
======================= ============== ========== ============ =============== ================ ==============




                        --------------------- --------------
                           Treasury Stock
                        ---------------------
                                                  Total
                                              Stockholders'
                         Shares     Amount       Equity
----------------------- ---------- ---------- --------------
                                      
BALANCE, DECEMBER 31,     201,230     ($779)       ($6,026)
2002
----------------------- ---------- ---------- --------------

----------------------- ---------- ---------- --------------
Shares issued to              ---        ---          2,793
Cornell Capital
Partners under Equity
line of Credit
----------------------- ---------- ---------- --------------
Issuance of Common
Stock through private
Placement, Net of
$6,818 of issuance
costs                         ---        ---            300
----------------------- ---------- ---------- --------------
Exercise of employee          ---        ---            156
options
----------------------- ---------- ---------- --------------
Exercise of Warrants          ---        ---            250
----------------------- ---------- ---------- --------------
Expense associated            ---        ---            774
with option & warrant
repricing
----------------------- ---------- ---------- --------------
Fair value stock,             ---        ---            425
options, & warrants
issued for
professional services
rendered
----------------------- ---------- ---------- --------------
Stock issued to pay           ---        ---          2,913
past due liabilities
----------------------- ---------- ---------- --------------
Issuance of warrants
and stock with debt           ---        ---             19
----------------------- ---------- ---------- --------------
Expense recognized            ---        ---            626
for options issued
with exercise price
below market price
----------------------- ---------- ---------- --------------
Change in Deferred            ---        ---           (51)
Stock Compensation
----------------------- ---------- ---------- --------------
Net Loss                      ---        ---        (5,382)
----------------------- ---------- ---------- --------------
BALANCE, DECEMBER 31,     201,230     ($779)       ($3,203)
2003
----------------------- ---------- ---------- --------------

----------------------- ---------- ---------- --------------
Shares issued to
Cornell Capital
Partners under ELOC
and SEDA                      ---        ---          7,991
----------------------- ---------- ---------- --------------
Exercise of stock             ---        ---            172
options
----------------------- ---------- ---------- --------------
Exercise of stock
warrants                      ---        ---          2,515
----------------------- ---------- ---------- --------------
Fair value stock,             ---        ---            805
options, & warrants
issued for
professional services
rendered
----------------------- ---------- ---------- --------------
Stock issued to pay           ---        ---            266
past due liabilities
----------------------- ---------- ---------- --------------
Stock issued in               ---        ---            695
connection with
acquisition of CSI
International
----------------------- ---------- ---------- --------------
Expense associated            ---        ---            104
with option repricing
----------------------- ---------- ---------- --------------
Fair value of                 ---        ---          2,500
warrants issued with
debt
----------------------- ---------- ---------- --------------
Change in Deferred
Stock Compensation            ---        ---          (163)
----------------------- ---------- ---------- --------------
Comprehensive loss -
foreign currency
translation adjustment        ---        ---           (60)
----------------------- ---------- ---------- --------------
Net Loss                      ---        ---        (7,230)
----------------------- ---------- ---------- --------------
BALANCE, DECEMBER 31,     201,230     ($779)         $4,392
2004
======================= ========== ========== ==============


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


                                      F-5


                  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-6


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-7


    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.

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."

                                      F-8


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.

      (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.

                                      F-9


            (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
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)
                                                   =======        =======

                                      F-10


      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.

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-11


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.


                                      F-12


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.  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-13


      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-14


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-15


      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-16


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.

      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.

                                      F-17


      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.


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.

                                      F-18


            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-19


      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
                               ------------------------------------------------------------
                                                             (A)
                                                          Pro-forma
                                                CSI        Adjust-             Pro-forma
                                NeoMedia       Int'l        ments              Combined
                               ------------- ----------- -------------       --------------
                                                                  
Total net sales                      $1,700         791           (727) (A)    $     1,764
Loss from operations                ($4,681)     (1,746)         1,720  (A)        ($4,707)
Net loss                            ($7,230)     (2,639)         2,613  (A)        ($7,256)
Net loss per share-basic
  and diluted                        ($0.02)                                        ($0.02)
Weighted average
  number of common shares
  - basic and diluted           329,362,127                    690,411  (B)    330,052,538





                                               Year Ended December 31, 2003
                                ------------------------------------------------------------
                                                              (A)
                                                           Pro-forma
                                                  CSI       Adjust-            Pro-forma
                                  NeoMedia       Int'l       ments              Combined
                                -------------- ---------- ------------       ---------------
                                                                 
Total net sales                        $2,400         654         ---  (A)          $3,054
Loss from operations                  ($4,854)         34         ---  (A)         ($4,820)
Net loss                              ($5,382)         34         ---  (A)         ($5,348)
Net loss per share-basic
  and diluted                          ($0.04)                         (A)          ($0.04)
Weighted average
  number of common shares
  - basic and diluted             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-20


      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.

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-21


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                                       2070              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-22


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-23


      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.

      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.

                                      F-24


      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.

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-25


      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 thousands)                          (In 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-           Weighted-                                  Weighted-
                                                        Average             Average                                    Average
        Range of                Number                 Remaining           Exercise             Number                Exercise
    Exercise Prices          Outstanding           Contractual 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-26


      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.

      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.

                                      F-27


      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

      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.

                                      F-28


      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.

      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-29


      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-30


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.

                                      F-31


      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.

      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 foward.

      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.

      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 March 28, 2005, NeoMedia had not made
any payments against the principal. The note is scheduled to be repaid at a rate
of $1,120,000 per month  commencing May 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.


                                      F-32


BSD SOFTWARE, INC.
Consolidated Interim Balance Sheet (Unaudited)
January 31, 2005



-------------------------------------------------------------------------------------------------------
(U.S. dollars)
-------------------------------------------------------------------------------------------------------
                                                                                         
Assets

Current assets:
  Cash in bank                                                                              $    44,742
  Accounts receivable                                                                         1,026,120
  Prepaid expenses                                                                               12,281
-------------------------------------------------------------------------------------------------------
                                                                                              1,083,143

Property and equipment (net)                                                                    120,559
-------------------------------------------------------------------------------------------------------
                                                                                            $ 1,203,702
-------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Deficiency

Current liabilities:
  Accounts payable and accrued liabilities                                                  $ 3,210,089
  Shareholder loans                                                                             613,509
  Due to Wayside Solutions Inc.                                                                 579,774
  Notes Payable                                                                                  26,598
-------------------------------------------------------------------------------------------------------
                                                                                              4,429,970

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:
      31,810,897 common shares                                                                   31,811
      Additional paid-in capital                                                              3,688,028
  Accumulated Deficit                                                                        (5,827,028)
  Accumulated other comprehensive loss                                                       (1,119,079)
-------------------------------------------------------------------------------------------------------
                                                                                             (3,226,268)
Commitments and contingencies
-------------------------------------------------------------------------------------------------------
                                                                                            $ 1,203,702
-------------------------------------------------------------------------------------------------------


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


                                      F-33


BSD SOFTWARE, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)



                                                          Three Months Ended                             Six Months Ended
                                                             January 31                                      January 31
----------------------------------------------------------------------------------------------------------------------------------
(U.S. dollars)                                       2005                   2004                   2005                   2004
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   
Revenue                                          $  1,679,171           $  1,662,519           $  3,257,503           $  2,688,700

Cost of revenues                                    1,379,583              1,203,332              2,555,498              1,974,037
----------------------------------------------------------------------------------------------------------------------------------
                                                      299,588                459,187                702,005                714,663

Operating expenses:
  Administration                                       34,633                 35,797                 69,897                 66,719
  Professional fees                                    18,340                122,207                 98,215                149,173
  Rent                                                 15,953                 32,886                 31,042                 63,728
  Payroll                                             122,621                127,683                245,019                210,613
  Depreciation and amortization                        19,094                 19,586                 38,623                 38,474
----------------------------------------------------------------------------------------------------------------------------------
                                                      210,641                338,159                482,796                528,707
----------------------------------------------------------------------------------------------------------------------------------

Income from operations                                 88,947                121,028                219,209                185,956

Other income (expense)
  Interest expense                                    (30,317)               (42,759)               (61,178)              (174,970)
  Loss on sale of assets                               (9,167)                    --                 (9,167)                    --
  Gain on sale of contracts                                --                     --                     --                 51,090
----------------------------------------------------------------------------------------------------------------------------------
  Total other income (expense)                        (39,484)               (42,759)               (70,345)              (123,880)

Net income before provision for taxes                  49,463                 78,269                148,864                 62,076
  Income taxes                                             --                     --                     --                     --
----------------------------------------------------------------------------------------------------------------------------------
Net income                                             49,463                 78,269                148,864                 62,076

Other comprehensive income (loss):
  Foreign currency translation adjustment             125,499                 27,318               (438,476)              (353,307)
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                           174,962                105,587               (289,612)              (291,231)
----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted
earnings (loss) per share                        $       0.00           $       0.00           $       0.00           $       0.00
----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding                                        32,784,813             32,648,891             32,734,705             32,305,492
----------------------------------------------------------------------------------------------------------------------------------


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


                                      F-34


BSD SOFTWARE, INC.
Consolidated Statements of Cash Flows (Unaudited)



                                                                                   Six Months Ended
                                                                                     January 31
----------------------------------------------------------------------------------------------------------
(U.S. dollars)                                                                2005                2004
----------------------------------------------------------------------------------------------------------
                                                                                         
Cash flows from (used in):
  Operations:
    Net income                                                             $ 148,864           $  62,076
      Adjustments to reconcile net income to net cash provided by
        (used in) operating activities:
      Non-cash financing costs                                                    --              98,550
      Loss on sale of assets                                                   9,167                  --
      Depreciation and amortization                                           38,623              38,474
    Change in non-cash operating working capital:
      Accounts receivable                                                   (191,183)           (651,943)
      Prepaid expenses                                                         9,184               6,106
  Accounts payable and accrued liabilities                                   (15,560)            428,792
----------------------------------------------------------------------------------------------------------
                                                                                (905)            (17,945)

Investing:
  Proceeds on sale of property and equipment                                  16,677              35,188
----------------------------------------------------------------------------------------------------------
                                                                              16,677              35,188
Financing:
  Repayment of shareholder loans                                             (23,106)                 --
  Repayment of notes payable                                                  (8,752)                 --
  Repayment of due to Wayside Solutions Inc.                                 (68,117)            (52,838)
----------------------------------------------------------------------------------------------------------
                                                                             (99,975)            (52,838)
----------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                    (84,203)            (35,595)

Cash and cash equivalents, beginning of period                               128,945              74,930
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                   $  44,742           $  39,335
----------------------------------------------------------------------------------------------------------

Supplemental cash flow information:
  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               $  34,800           $      --


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


                                      F-35


BSD SOFTWARE, INC,.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 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  Notes to  Financial  Statements  contained  in the  Company's
audited  consolidated  financial  statements on Form 10-KSB for the period ended
July 31, 2004. In the opinion of management, all adjustments (consisting only of
normal recurring  accruals)  considered  necessary for a fair  presentation have
been  included  in the  consolidated  financial  position  of the  Company as of
January 31, 2005 and the  operating  results for the three and six month  period
ended  January 31, 2005 and 2004 and cash flows for the six month  periods ended
January 31, 2005 and 2004 are not necessarily indicative of the results that may
be expected for the year ended July 31, 2005.

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 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 the  Company.  At the  present  time there have been no  financial
transactions  between the companies.  There is no assurance that the merger will
be completed.


                                      F-36


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2005
(Unaudited)

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 gains and losses are included in income.

(c)   Revenue recognition:

Revenue is  recognized  at the time that calls are  transferred  to the clearing
house for billing to customers.

(d)   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. No
stock  based  compensation  has been  issued to  employees  during the six month
period ended January 31, 2005.

(e)   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.


                                      F-37


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2005
(Unaudited)


2.    Significant accounting policies (continued):

(f)   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.

(g)   Minority Interest in TGBSI

Although the Company  currently owns 90% of TGBSI,  operations  have resulted in
cumulative losses to January 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 $227,000,  the full 100% of operating results
will be reported with no off-setting minority interest.


3.    Share capital:

The  following  reflects  the  number of issued  common  shares at their  stated
capital of $0.001 per share.



--------------------------------------------------------------------------------------
                                                                          Number of
                                                        Shares         Paid-up capital
--------------------------------------------------------------------------------------
                                                                   
Balance, July 31, 2004                               31,684,597          $   31,685
Issued November 1, 2004 to January 31, 2005             126,300                 126
--------------------------------------------------------------------------------------
Balance, January 31, 2005                            31,810,897          $   31,811
--------------------------------------------------------------------------------------



In November of 2004,  126,300  shares were issued to retire debt owed to certain
creditor's of the Company. The total amount of the debt retired was $ 39,153.

As well, stock options to purchase 600,000 shares at a strike price of $0.01 per
share, expiring August 2, 2005 were approved by the Board of Directors on August
2, 2003. 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  with no expiry
date.  As of February  16, 2005 these  options  had not been  issued.  All stock
options issued to July 31, 2004 have been issued to non-employees.


                                      F-38


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2005
(Unaudited)

4.    Commitments and contingencies:

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.

5.    Related party transactions:

Wayside  Solutions,  Inc., a Corporation  affiliated with the Company,  provided
financing  services to the Company.  Accrued interest relating to these services
is included in interest and finance charges,  aggregating $32,572 in the current
6 month period (2004 - $36,122).

Included in  interest  and  finance  charges  for the current 6 month  period is
accrued  interest of $17,721 (2004 - $17,728) due to Guy Fietz, the President of
the company and a major shareholder.

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.

6.    Financial instruments:

Accounts receivable with two customers represent  approximately 75% (2004 - 75%)
of the balance of accounts  receivable as at January 31, 2005. It is the opinion
of management that these accounts do not represent a significant credit risk.

A majority  of the  Company's  purchases  are from four (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.

The fair  value of the  following  financial  assets and  financial  liabilities
approximates  fair value due to their  immediate or  short-term  maturity or for
related party amounts due to their lack of a ready market:

o     cash in bank;

o     accounts receivable;

o     accounts payable and accrued liabilities;

o     shareholder loans;

o     due to Guy Fietz;

o     due to Wayside Solutions Inc., and

o     notes payable.


                                      F-39


REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM


To the Board of Directors of BSD Software, Inc.

We have audited the  accompanying  consolidated  balance sheets of BSD Software,
Inc.  (the  "Company")  as at July 31, 2004 and July 31,  2003,  and the related
statements of operations  and deficit and cash flows for the periods 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 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 financial  position of the Company as of
July 31, 2004 and July 31, 2003,  and the results of its operations and its cash
flows for the periods  then ended 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 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


                                      F-40


BSD SOFTWARE, INC.
Consolidated Balance Sheets
July 31, 2004 and 2003



------------------------------------------------------------------------------------------------------------
(U.S. dollars)                                                                    2004              2003
------------------------------------------------------------------------------------------------------------
Assets

Current assets:
                                                                                           
       Cash in bank                                                             $   128,945      $    74,930
       Accounts receivable                                                          834,937          484,585
       Income taxes recoverable                                                          --           31,484
       Prepaid expenses                                                              21,465           23,518
------------------------------------------------------------------------------------------------------------
                                                                                    985,347         614,517

Property, plant and equipment (note 5)                                              172,976          271,852
------------------------------------------------------------------------------------------------------------
                                                                                $ 1,158,323      $   886,369
------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Deficiency
Current liabilities:
       Accounts payable and accrued liabilities                                 $ 3,002,563      $ 2,725,598
       Shareholder loans (note 6)                                                   305,781          296,146
       Due to Guy Fietz (note 7)                                                    329,946          333,865
       Due to Wayside Solutions Inc. (note 8)                                       666,433          726,366
       Advances from investors (note 9)                                                  --          929,983
       Notes payable (note 10)                                                       45,285               --
------------------------------------------------------------------------------------------------------------
                                                                                 4,350,008        5,011,958

Stockholders' deficiency:
       Share capital (note 11):
              Authorized:
                 Preferred stock 5,000,000 shares at $.001 par value Common
                 stock 50,000,000 shares at $.001 par value
              Issued and outstanding:
                 31,684,597 common shares (July 31, 2003 - 30,710,427)               31,685           30,711
                 Additional paid-in capital                                       3,433,125        2,213,161
       Deficit                                                                   (5,975,892)      (6,020,441)
       Accumulated other comprehensive loss (note 12)                              (680,603)        (349,020)
------------------------------------------------------------------------------------------------------------
                                                                                 (3,191,685)      (4,125,589)

Going concern (note 2)
Commitments and contingencies (note 14)
------------------------------------------------------------------------------------------------------------
                                                                                $ 1,158,323      $   886,369
============================================================================================================


See accompanying notes to consolidated financial statements.


                                      F-41


BSD SOFTWARE, INC.
Consolidated Statement of Operations and Deficit

For the periods ended July 31, 2004 and July 31, 2003




-------------------------------------------------------------------------------------------
(U.S. dollars)                                                  2004              2003
-------------------------------------------------------------------------------------------
                                                                        
Revenue                                                     $  6,091,101      $  2,910,883

Cost of goods sold                                             4,618,371         2,532,475
-------------------------------------------------------------------------------------------
                                                               1,472,730           378,408

Expenses:
       Administration                                            182,938           315,055
       Interest and finance charges                              253,328           298,463
       Professional fees                                         334,946           458,842
       Rent                                                       90,396            54,274
       Payroll                                                   537,391           604,231
       Amortization                                               77,093            62,600
       Reduction in carrying value of goodwill (note 4)               --         2,611,679
       Impairment of property, plant and equipment                    --           992,399
-------------------------------------------------------------------------------------------
                                                               1,476,092         5,397,543
-------------------------------------------------------------------------------------------

Loss before the undernoted                                        (3,362)       (5,019,135)

Loss on disposal of property, plant and equipment                 (3,179)               --
Gain on sale of contracts                                         51,090           159,406
-------------------------------------------------------------------------------------------
Net income (loss)                                                 44,549        (4,859,729)

Deficit, beginning of period                                  (6,020,441)       (1,160,712)
-------------------------------------------------------------------------------------------
Deficit, end of period                                      $ (5,975,892)     $ (6,020,441)
===========================================================================================
Basic and diluted earnings (loss) per share                 $       0.00      $      (0.19)
===========================================================================================
Weighted average shares outstanding                           31,494,009        25,494,457
===========================================================================================


See accompanying notes to consolidated financial statements.


                                      F-42


BSD SOFTWARE, INC.
Consolidated Statement of Cash Flows

For the periods ended July 31, 2004 and July 31, 2003





--------------------------------------------------------------------------------------------------------------
(U.S. dollars)                                                                    2004             2003
--------------------------------------------------------------------------------------------------------------
Cash flows from (used in):
Operations:
                                                                                         
       Net income (loss)                                                      $    44,549      $(4,859,729)
       Items not involving cash:
              Non-cash financing costs                                             98,550          242,148
              Amortization                                                         77,093           62,600
              Loss on disposal of property, plant and equipment                     3,179               --
              Reduction in carrying value of goodwill                                  --        2,611,679
              Impairment of property, plant and equipment                              --          992,399
       Change in non-cash operating working capital:
              Accounts receivable                                                (350,352)         207,012
              Income taxes recoverable                                             33,048
              Short term investments                                                   --           54,579
              Prepaid expenses                                                      2,053           37,932
              Accounts payable and accrued liabilities                            225,666          391,705
--------------------------------------------------------------------------------------------------------------
                                                                                  133,786         (259,675)

Financing:
       Increase (decrease) in shareholder loans                                   (15,717)         296,146
       Decrease in note payable                                                   (10,599)        (317,559)
       Increase (decrease)in due to Wayside Solutions Inc.                        (63,706)         394,714
       Increase in advances from investors                                             --          580,990
       Decrease in due to Guy Fietz                                               (22,678)         (50,537)
       Share issue costs                                                               --          (48,317)
--------------------------------------------------------------------------------------------------------------
                                                                                 (112,700)         855,437

Investing:
       Proceeds on sale of property, plant and equipment                           35,188               --
       Purchase of property, plant and equipment                                   (2,259)         (17,222)
       Advances to Triton Global Communications Inc. prior to acquisition              --         (487,411)
       Investment acquisition costs                                                    --         (265,823)
       Advances receivable                                                             --           93,934
       Cash acquired on acquisition of Triton Global Communications Inc.               --          155,690
--------------------------------------------------------------------------------------------------------------
                                                                                   32,929         (520,832)

--------------------------------------------------------------------------------------------------------------
Increase in cash position                                                          54,015           74,930
Cash position, beginning of period                                                 74,930               --

--------------------------------------------------------------------------------------------------------------
Cash position, end of period                                                  $   128,945      $     4,930
==============================================================================================================


See accompanying notes to consolidated financial statements.


                                      F-43


                               BSD SOFTWARE, INC.

Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003


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 (note 4).

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance with accounting principles generally accepted in the United States of
America for financial  information and with the  instructions to Form 10-KSB and
Regulation S-B of the Securities and Exchange Commission.

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.


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.
There is  significant  doubt about the  appropriateness  of the use of the going
concern assumption because the Company has experienced  operating losses and has
a significant working capital deficiency.

The  Company's  ability  to  continue  as a  going  concern  is  dependent  upon
management's  ability  to raise  additional  financing  and  restore  profitable
operations.  During the year ended July 31, 2004,  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.

On December 9, 2003,  the Company  signed a letter of intent (LOI) to merge with
NeoMedia  Technologies  Inc.  Pursuant to the LOI, it is  anticipated  that each
shareholder  of the Company would  receive one share of Neomedia's  common stock
for each share of the  Company's  common stock held, up to a total of 40 million
shares. However, the LOI states that the final exchange rate for the shares will
be  determined  within  ten  business  days of the date of the  approval  of the
merger.  The  transaction  is subject to the parties  entering  into  definitive
agreements, shareholder approval and other conditions. At the present time there
have been no financial transactions between the companies. There is no assurance
that the merger will be completed.

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  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 beyond July 31, 2005.


                                      F-44


                               BSD SOFTWARE, INC.
Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003

2.    Going concern (continued):

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.

      (b)   Property, plant and equipment

            Property,  plant 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

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

            Property,  plant 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 (note 12).


                                      F-45


                               BSD SOFTWARE, INC.
Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003

3.    Significant accounting policies (continued):

      (c)   Translation of foreign currency (continued):

            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:

            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.

      (f)   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.

      (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)   Goodwill:

            Goodwill represents the excess of costs over fair value of assets of
            businesses  acquired.  Goodwill  acquired  in  a  purchase  business
            combination and determined to have an indefinite  useful life is not
            amortized,  but instead  tested for  impairment at least annually in
            accordance with the provisions of SFAS No. 142.


                                      F-46


                               BSD SOFTWARE, INC.

Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003


4.    Change in control and acquisitions:

      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 of TGBSI (the  "TGBSI  Shareholders").
      TGBSI  was the sole  shareholder  of  Triton  Global  Communications  Inc.
      ("TGCI"), which is a provider of billings,  clearing house and information
      management services to the tele-communications  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 the Company 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 the Company,  who owned shares of the Company
      prior to the share exchange.

      As  a  result  of  these  transactions,   TGBSI  became  a  majority-owned
      subsidiary of the Company and the TGBSI Shareholders became the holders of
      88.3% of the then issued  30,123,251  common  shares of the  Company.  For
      accounting  purposes,  as the  Company  was not an active  business at the
      time, the TGBSI transaction is accounted for as a recapitalization.

      In connection with the share exchange,  Jeffrey Spanier, the President and
      sole employee and director of the Company, 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.

      As a result of this  recapitalization  whereby TGBSI acquired the Company,
      the holders of certain TGBSI common shares were offered the opportunity to
      exchange their shares for up to an additional  2,470,349  common shares of
      the  Company.  As a result,  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 of the Company.  In  connection  with the
      additional  exchange of shares,  the four majority  shareholders  of TGBSI
      have  agreed to  return to the  Company  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 of  September  24,  2004 these share
      transactions have not occurred.

      As the  TGBSI  Shareholders  ultimately  control  the  Company,  TGBSI was
      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 was charged to the Company'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.  The continuity of the Company's
      issued share capital is outlined in note 11.


                                      F-47


                               BSD SOFTWARE, INC.
Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003


4.    Change in control and acquisitions (continued):

      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
--------------------------------------------------------------------------------
                                                                      2,136,197
--------------------------------------------------------------------------------
Goodwill upon acquisition of TGC                                    $ 2,611,679
================================================================================

      $149,002 of the above  acquisition costs were included in accounts payable
      at July 31,  2004.  Subsequent  to the  acquisition  of TGCI,  the Company
      conducted  the  goodwill  impairment  test,  based upon a  combination  of
      present value of cash flows and asset  valuation  methods,  and determined
      the entire  amount of goodwill to be  impaired  as  significant  operating
      losses had occurred and TGCI had a significant working capital deficiency.
      As a result,  the entire amount of goodwill was written off and charged to
      operations during the year ended July 31, 2003.


      Although the Company  currently  owns only 90% of TGBSI,  operations  have
      resulted in cumulative  losses to July 31, 2004 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 $239,939 the
      full  100% of  operating  results  will be  reported  with no  off-setting
      minority interest.


                                      F-48


5.    Property, plant and equipment:

                                                                         2004
-----------------------------------------------------------------------------
                                                     Accumulated     Net Book
                                           Cost      Amortization     Value
-----------------------------------------------------------------------------
Office furniture and equipment           $126,306     $ 65,578     $ 60,728
Computer equipment                        165,020       85,413       79,607
Computer software                          95,003       71,317       23,686
Leasehold improvements                     16,553        7,598        8,955
-----------------------------------------------------------------------------
                                         $402,882     $229,906     $172,976
-----------------------------------------------------------------------------





                               BSD SOFTWARE, INC.

Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003


5.    Property, plant and equipment (continued):


--------------------------------------------------------------------------------
                                                                         2003
--------------------------------------------------------------------------------
                                                     Accumulated     Net Book
                                           Cost      Amortization     Value
--------------------------------------------------------------------------------

Office furniture and equipment               $119,821     $ 34,807     $ 85,014
Computer equipment                            204,134       68,763      135,371
Computer software                              89,912       47,913       41,999
Leasehold improvements                         13,526        4,058        9,468
--------------------------------------------------------------------------------
                                             $427,393     $155,541     $271,852
================================================================================


6.    Shareholder loans:

      Amounts due to shareholders bear interest at rates varying from 8%-10% per
      annum, are unsecured and due on demand.

7.    Due to Guy Fietz:

      Amounts due to Guy Fietz, a shareholder,  bear interest at 10% annum,  are
      unsecured and due on demand.

8.    Due to Wayside Solutions Inc.:

      Amounts due to Wayside  Solutions Inc., bear interest at 10% per annum and
      are due on demand. A general security agreement has been provided by TGBSI
      to Wayside Solutions Inc. as collateral.

9.    Advances from investors:

      During 2003, the Company received $929,983 from investors for the purchase
      of common shares of TGBSI.  Pursuant to Board of Directors  resolutions on
      January 30,  2004 and March 29,  2004 the  advances  from  investors  were
      converted to shares in TGBSI resulting in an $887,001 charge to additional
      paid-in capital. The remaining $42,982 was recorded as notes payable.

10.   Notes payable:

      Notes payable bear interest at rates varying from 5%-7%, are unsecured and
      due on demand.


                                      F-49


                               BSD SOFTWARE, INC.
Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003


11.   Share capital:

      The following  reflects the number of issued common shares at their stated
      capital of $0.001 per share.

                                               Number of Shares  Assigned Value

Balance, August 1, 2002                           1,893,600      $     1,894

Issued to TGBSI shareholders (note 4)            26,613,891           26,614

Issued to BSD shareholders (note 4)               1,615,760            1,616

Issued November 4, 2002 to January 31, 2003       5,632,778            5,632

Issued February 1 to April 30, 2003                 190,000              190

Shares cancelled                                 (5,235,602)          (5,235)
--------------------------------------------------------------------------------
Balance, July 31, 2003                           30,710,427           30,711

Issued August 1 to October 31, 2003                 317,170              317

Issued November 1, 2003 to January 31, 2004         657,000              657
--------------------------------------------------------------------------------
Balance, July 31, 2004                           31,684,597      $    31,685
================================================================================


The  5,632,778  shares  issued  from  November  4, 2002 to January 31, 2003 were
issued as compensation for services rendered and for anticipated debt financing.
As the debt  financing  did not  occur  5,235,602  shares  related  to this were
cancelled.

The  190,000  shares  issued  from  February 1 to April 30,  2003 were issued as
compensation  related to loans advanced to the Company on the basis of one share
for each dollar  advanced.  An expense of $38,000 has been recorded at a rate of
$0.20 per share as a financing cost included in interest and finance charges.

The 317,170 shares were issued as compensation  related to loans advanced to the
Company on the basis of one share for each dollar  advanced and as  compensation
for legal fees of $14,000 and payroll  costs of $12,000.  An expense of $100,868
had been  recorded at a rate of $0.40 per share as a financing  cost included in
interest and finance  charges for the year ended July 31,  2003.  The legal fees
and payroll costs were also recorded for the year ended July 31, 2003.

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.  The right to  exercise  the  warrants
expires  August  31,  2005.  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.

In  November  of  2002,  certain   shareholders  of  the  Company  entered  into
Accommodation  Agreements  with the Company to assist with  financing  corporate
operations.  Under those  Accommodation  Agreements  the Company  issued 657,000
shares in the period ended January 31, 2004.  Management's  best estimate of the
fair value of the shares at the time the Company  determined it was obligated to
issue the shares was approximately  $0.15, as a result an expense of $98,550 has
been recorded as financing fees during the period ended October 31, 2003.


                                      F-50


                               BSD SOFTWARE, INC.

Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003

11.   Share capital (continued):

      As well,  stock  options to purchase  600,000  shares at a strike price of
      $0.01 per share,  expiring  August 2, 2005 were  approved  by the Board of
      Directors  on August 2, 2003.  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  with no expiry  date.  As of  September  24,  2004  these
      options had not been  issued.  All stock  options  issued to July 31, 2004
      have been issued to non-employees.

12.   Comprehensive loss:

      Comprehensive  loss  consists  of net income  (loss)  and other  gains and
      losses  affecting  shareholders'  investment  that,  under  United  States
      generally accepted  accounting  principles,  are excluded from net income.
      Changes in the components of other comprehensive loss are as follows:


--------------------------------------------------------------------------------
                                                      2004             2003
--------------------------------------------------------------------------------

 Net income (loss)                                $    44,549      $(4,859,729)

 Other comprehensive loss:
      Foreign currency translation adjustments       (331,583)        (349,020)
--------------------------------------------------------------------------------

  Total comprehensive loss                        $  (287,034)     $(5,208,749)
================================================================================


      Accumulated  other  comprehensive  loss of  $(680,603)  (July  31,  2003 -
      $(349,020)) consists solely of foreign currency translation adjustments.

13.   Income taxes:

      Income tax  recovery  differs  from the amount  that would be  computed by
      applying  the  statutory  income  tax  rate of 35%  (2003  - 35%)  for the
      following reasons:

--------------------------------------------------------------------------------
                                                        2004               2003
--------------------------------------------------------------------------------

Computed income tax (recovery)                   $    15,592        $(1,608,202)

Non taxable items and other differences             (305,289)           457,044

Adjustment to future tax assets for enacted
  changes in tax losses and rates                     20,038                 --

Change in valuation allowance                       (269,659)         1,151,158
--------------------------------------------------------------------------------
                                                 $        --        $        --
================================================================================


                                      F-51


                               BSD SOFTWARE, INC.
Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003


13.   Income taxes (continued):

      The tax effects of  temporary  differences  that give rise to deferred tax
      assets and deferred tax liabilities are presented below:



-------------------------------------------------------------------------------------------------
                                                                       2004               2003
-------------------------------------------------------------------------------------------------
                                                                                        
Deferred tax assets:
Non-capital losses carried forward                                 $   788,659        $   324,864

Property, plant and equipment - difference in net book value
     and undepreciated capital cost                                    181,537            369,250

Tax value of investment greater than accounting                        450,621            457,044
-------------------------------------------------------------------------------------------------

                                                                     1,420,817          1,151,158
Less valuation allowance                                            (1,420,817)        (1,151,158)
-------------------------------------------------------------------------------------------------

Deferred tax liabilities                                                    --                 --
-------------------------------------------------------------------------------------------------

Net deferred tax assets                                            $        --        $        --
=================================================================================================



      The  Corporation  had  approximately   $2,345,803  of  non-capital  losses
      available at July 31, 2004 to reduce taxable income of future years. These
      losses expire in periods from 2005 through 2014.

14.   Commitments and contingencies:

      The Company  leases its  business  premises and certain  office  equipment
      under  operating  leases.  Total lease payments  during the current period
      totaled  $90,396  (2003 - $138,353),  net of sublease  revenue of $109,817
      (2003 -  $32,097).  Future  lease  payments  will  aggregate  $265,592  as
      follows:

                  2005                        $    63,759
                  2006                             61,604
                  2007                             58,242
                  2008                             51,781
                  2009                             30,206
                                              -----------
                                              $   265,592
                                              -----------

      In addition,  the Company  leases  premises with future lease  payments of
      approximately:  2005 - $136,667;  2006 - $132,317; 2007 - $113,165; 2008 -
      $105,435 which are subleased for corresponding  amounts over corresponding
      lease terms.

      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.


                                      F-52


                               BSD SOFTWARE, INC.

Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003

14.   Commitments and contingencies (continued):

      In June 2003,  PBJ Holdings Inc.  filed a Statement of Claim against TGBSI
      in the Court of Queen's  Bench of Alberta for breach of contract  alleging
      that TGBSI  failed to pay $125,000  for the  introduction  of TGBSI to BSD
      Software,  Inc.  TGBSI  believes the claim is without merit and intends to
      defend the claim.

      As of July 31, 2004  management  has accrued a provision  based upon their
      best estimate as to the likely outcome of these claims. This provision was
      charged to administration  expense during the year ended July 31, 2003 and
      adjusted in the current period for legal actions settled.

15.   Related party transactions:

      Wayside  Solutions,  Inc.,  a  Corporation  affiliated  with the  Company,
      provided  financing  services to the Company.  The cost of these services,
      aggregating  $127,579 (2003 - $140,896),  was charged to professional fees
      expenses.

      Included in interest  and finance  charges is accrued  interest of $34,119
      (2003 - $26,575)  due to Guy Fietz,  the  President  of the  company and a
      major shareholder.

      Jeremy Fietz, the brother of Guy Fietz,  provided professional services to
      the Company aggregating  $20,370 (2003 - $14,000),  which has been charged
      to professional fees. The amount recorded during 2003 was paid through the
      issuance of 35,000 common shares of the Company (note 11).

      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.

16.   Financial instruments:

      Accounts receivable with two customers represent approximately 73% (2003 -
      72%) of the balance of accounts  receivable as at July 31, 2004. It is the
      opinion of management  that these  accounts do not represent a significant
      credit risk.

      A majority of the Company's purchases are from three (2003 - one) 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.

      The fair value of the following financial assets and financial liabilities
      approximates  fair value due to their immediate or short-term  maturity or
      for related party amounts due to their lack of a ready market:

            o     cash in bank;

            o     accounts receivable;

            o     income taxes recoverable;

            o     accounts payable and accrued liabilities;

            o     shareholder loans;

            o     due to Guy Fietz;

            o     due to Wayside Solutions Inc.;

            o     advances from investors; and

            o     notes payable.


                                      F-53


                               BSD SOFTWARE, INC.

Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods  ended July 31, 2004 and July 31, 2003

17.   Comparative figures:

      Certain  comparative  figures have been  reclassified  to conform with the
      financial statement presentation adopted for the current period.


                                      F-54


PRO FORMA FINANCIAL INFORMATION

Notes to Pro Forma Condensed Combined Financial Statements (Unaudited)

1.    Basis of Presentation

Acquisition of CSI International

On February 6, 2004,  NeoMedia  acquired CSI  International,  Inc.,  of Calgary,
Alberta,  Canada ("CSI"),  a private  technology  products  company in the micro
paint repair  industry.  NeoMedia paid  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 Ft. 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 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.

The pro forma condensed combined historical statement of operations gives effect
to the  acquisitions  of BSD and CSI 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 CSI.

The pro forma condensed  combined balance sheet gives effect to the acquisitions
of BSD and CSI as if they had occurred as of December 31, 2004.

The pro forma combined  financial  statements  included in this filing have been
prepared by the managements of NeoMedia,  BSD and CSI 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, BSD and CSI
believe  that  the   disclosures  are  adequate  to  make  the  information  not
misleading.

The pro forma adjustments are based on currently available  information and upon
estimates   and   assumptions   that  we  believe  are   reasonable   under  the
circumstances.  The 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 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 included
in Form 10-KSB for the year ended July 31, 2004 (included herein), and CSI.

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, and the allocation reflected
in the unaudited pro forma combined  financial  statements  should be considered
preliminary and is subject to the completion of a more  comprehensive  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 had taken place 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-55


                           NeoMedia Technologies, Inc.
                   Pro-forma Condensed Combined Balance Sheet
                                December 31, 2004
                          (In thousands of US Dollars)
                                   (Unaudited)



                                                                                          Pro-forma         Pro-forma
ASSETS                                                         NeoMedia        BSD       Adjustments        Combined
                                                               --------      --------    -----------        --------
                                                                                                
Current assets:
          Cash and cash equivalents                            $  2,634      $     46            --         $  2,680
          Trade accounts receivable, net                            282           948            --            1,230
          Inventories, net                                          115            --            --              115
          Loans receivable                                           --            --            --               --
          Prepaid expenses and other current assets                 386            13            --              399
                                                               --------      --------      --------         --------
             Total current assets                                 3,417         1,007            --            4,424

          Property and equipment, net                               110           130            --              240
          Capitalized patents, net                                2,174            --            --            2,174
          Micro paint repair chemical formulations
            and proprietary process                               1,630            --            --            1,630
          Goodwill                                                1,099            --         5,584(A)         6,683
          Other intangible assets                                   221            --            --              221
          Investment in iPoint-media, Ltd.                        1,000            --            --            1,000
          Cash surrender value of life insurance policy             728            --            --              728
          Other long-term assets                                     27            --            --               27
                                                               --------      --------      --------         --------

               Total assets                                    $ 10,406      $  1,137      $  5,584         $ 17,127
                                                               ========      ========      ========         ========

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
          Accounts payable                                     $  1,911      $  3,174            --         $  5,085
          Amounts payable under settlement agreements               103            --            --              103
          Liabilities in excess of assets of
            discontinued business unit                              676            --            --              676
          Income taxes payable                                       --            --            --               --
          Sales taxes payable                                       108            --            --              108
          Accrued expenses                                        1,566            --            --            1,566
          Deferred revenues and other                               514            --            --              514
          Shareholder loans                                                       276           276               --
          Due to Guy Fietz                                           --           365            --              365
          Due to Wayside Solutions, Inc.                             --           599            --              599
          Bonuses payable                                            --            33            --               33
          Notes payable                                           1,136            30            --            1,166
                                                               --------      --------      --------         --------
               Total liabilities                                  6,014         4,477            --           10,491
                                                               --------      --------      --------         --------

Shareholders' deficit:
          Preferred stock                                            --            --            --               --
          Common stock (B)                                        4,325            32            53(A)         4,410
          Additional paid-in capital                             84,728         3,794        (1,634)(A)       86,888
          Deferred stock-based compensation                        (445)           --            --             (445)
          Accumulated other comprehensive                                          --            --               --
          income (loss) - currency translation adjustment           (60)       (1,064)        1,064(A)           (60)
          Retained earnings (accumulated deficit)               (83,377)       (6,102)        6,102(A)       (83,377)
          Treasury stock                                           (779)           --            --             (779)
                                                               --------      --------      --------         --------
             Total shareholders' deficit                          4,392        (3,340)        5,584            6,636
                                                               --------      --------      --------         --------
               Total liabilities and shareholders' deficit     $ 10,406      $  1,137      $  5,584         $ 17,127
                                                               ========      ========      ========         ========


Pro-forma Adjustments

(A)   -  Adjustment  for stock and cash  issued to acquire BSD  Software,  Inc.,
      assuming  acquisition  occurred as of December 31, 2004. Purchase price is
      calculated  as:(Number  of BSD shares  outstanding)  x (0.07) /  (NeoMedia
      stock  price  at the time of  acquisition).  Pro-forma  purchase  price is
      calculated  using  NeoMedia's  closing stock price on December 31, 2004 of
      $0.265,  and is  subject  to final  allocation  upon  consummation  of the
      merger,  which is equal to the fair  value of common  stock  issued in the
      amount  of $2,244  plus   negative  equity of BSD in the  amount of $3,340
      totaling   $5,584.   The  accumulated   deficit  and   accumulated   other
      comprehensive   income  of  BSD  have  been  eliminated  in  the  proforma
      adjustment.

(B)   -  NeoMedia's  $0.01 par value  common  stock  consists  of  1,000,000,000
      authorized  shares,  436,746,758  shares historical and 445,215,674 shares
      pro forma issued;  and  432,525,053  historical and  440,993,969 pro forma
      outstanding as of December 31, 2004.


                                      F-56


                           NeoMedia Technologies, Inc.
              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
                                                                                      CSI            Adjust-          Pro-forma
                                               NeoMedia(A)       BSD                 Int'l(B)         ments         Consolidated
                                            --------------   --------------      --------------   --------------  --------------
                                                                                                   
NET SALES:
        License fees                        $          343               --                  --               --  $          343
        Resale of software and
           technology equipment
           and service fees                            630               --                  --               --             630
        Micro paint revenue                            727               --                  64               --             791
        Telecom services revenue                        --            6,511                  --               --           6,511
                                            --------------   --------------      --------------   --------------  --------------
           Total net sales                           1,700            6,511                  64               --           8,275
                                            --------------   --------------      --------------   --------------  --------------

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               --                  35               --             576
        Telecom services direct cost
            of revenue                                  --            5,068                  --               --           5,068
                                            --------------   --------------      --------------   --------------  --------------
           Total cost of sales                       1,469            5,068                  35               --           6,572
                                            --------------   --------------      --------------   --------------  --------------

GROSS PROFIT                                           231            1,443                  29               --           1,703

        Selling, general and
          administrative expenses                    4,261            1,218                  55               --           5,534
        Research and development costs                 651               --                  --               --             651
                                            --------------   --------------      --------------   --------------  --------------

Income (loss) from operations                       (4,681)             225                 (26)              --          (4,482)
        Gain 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)                 --               --            (333)
                                            --------------   --------------      --------------   --------------  --------------

Income (loss) before provision
  for income taxes                                  (7,230)              69                 (26)              --          (7,187)
        Provision for income taxes                      --               --                  --               --              --
                                            --------------   --------------      --------------   --------------  --------------

Net income (loss)                                   (7,230)              69                 (26)              --          (7,187)

Other comprehensive income (loss):
        Foreign currency translation
          adjustment                                   (60)              --                  --               --             (60)
                                            --------------   --------------      --------------   --------------  --------------

Comprehensive income (loss)                 ($       7,290)  $           69      ($          26)             $--  ($       7,247)
                                            ==============   ==============      ==============   ==============  ==============

NET INCOME (LOSS) PER
        SHARE--BASIC AND DILUTED            ($        0.02)                                                       ($        0.02)
                                            ==============                                                        ==============

COMPREHENSIVE INCOME (LOSS)
        PER SHARE--BASIC AND DILUTED        ($        0.02)                                                       ($        0.02)
                                            ==============                                                        ==============

Weighted average number of common
  shares-basic and diluted                     329,362,127                                         16,879,621(C)     346,241,748
                                            ==============                                        ==============  ==============



Pro-forma Adjustments

(A)   - NeoMedia results include  operations of CSI International for the period
      February 6, 2004 (the date of acquisition) through December 31, 2004

(B)   - Results of CSI  International,  Inc. are for the period  January 1, 2004
      through February 6, 2004 (the date of acquisition)

(C)   - Adjustment  for: (i)  7,000,000  shares  issued in  connection  with CSI
      acquisition  as if  shares  were  issued  on  January  1,  2004;  and (ii)
      16,189,210  shares  that would  have been  issued in  connection  with BSD
      acquisition  if it had  occurred  on January 1, 2004 and been based on the
      price of NeoMedia common stock at that time.


                                      F-57


                          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-58


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-59


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-60


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-61


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-62


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-63


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-64


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-65


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-66


                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.

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       Incorporated  by reference
                  Dev-Tech   Associates,   Inc.       to    Exhibit    3.1    to
                  and amendment thereto               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


                                      II-1


Exhibit No.       Description                         Location
-----------       -----------------------------       --------------------------

3.3               Restated    Certificate    of       Incorporated  by reference
                  Incorporation of DevSys, Inc.       to    Exhibit    3.3    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       Incorporated  by reference
                  Agreement  and Plan of Merger       to    Exhibit    3.5    to
                  of DevSys,  Inc and  Dev-Tech       Registrant's  Registration
                  Associates, Inc.                    Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

3.6               Certificate   of   Merger  of       Incorporated  by reference
                  Dev-Tech   Associates,   Inc.       to    Exhibit    3.6    to
                  into DevSys, Inc.                   Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

3.7               Articles of  Incorporation of       Incorporated  by reference
                  Dev-Tech Migration,  Inc. and       to    Exhibit    3.7    to
                  amendment thereto                   Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

3.8               Bylaws      of       Dev-Tech       Incorporated  by reference
                  Migration, Inc.                     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       Incorporated  by reference
                  Incorporation    of    DevSys       to    Exhibit    3.9    to
                  Migration, Inc.                     Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

3.10              Form  of   Bylaws  of  DevSys       Incorporated  by reference
                  Migration, Inc.                     to    Exhibit    3.10   to
                                                      Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

3.11              Form of  Agreement  and  Plan       Incorporated  by reference
                  of   Merger    of    Dev-Tech       to    Exhibit    3.11   to
                  Migration,  Inc.  into DevSys       Registrant's  Registration
                  Migration, Inc.                     Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

3.12              Form   of    Certificate   of       Incorporated  by reference
                  Merger      of       Dev-Tech       to    Exhibit    3.12   to
                  Migration,  Inc.  into DevSys       Registrant's  Registration
                  Migration, Inc.                     Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996


                                      II-2


Exhibit No.       Description                         Location
-----------       -----------------------------       --------------------------

3.13              Certificate  of  Amendment to       Incorporated  by reference
                  Certificate of  Incorporation       to    Exhibit    3.13   to
                  of DevSys,  Inc. changing its       Registrant's  Registration
                  name       to        NeoMedia       Statement No.  333-5534 as
                  Technologies, Inc.                  filed   with  the  SEC  on
                                                      November 25, 1996

3.14              Form   of    Certificate   of       Incorporated  by reference
                  Amendment to  Certificate  of       to    Exhibit    3.14   to
                  Incorporation   of   NeoMedia       Registrant's  Registration
                  Technologies,            Inc.       Statement No.  333-5534 as
                  authorizing  a reverse  stock       filed   with  the  SEC  on
                  split                               November 25, 1996

3.15              Form   of    Certificate   of       Incorporated  by reference
                  Amendment     to     Restated       to    Exhibit    3.5    to
                  Certificate of  Incorporation       Registrant's        Annual
                  of   NeoMedia   Technologies,       Report  as filed  with the
                  Inc.  increasing   authorized       SEC on November 2, 2001
                  capital     and      creating
                  preferred stock

5.1               Opinion re: legality                To Be Filed By Amendment

10.1              Dev-Tech   Associates,   Inc.       Incorporated  by reference
                  1996 Stock Option Plan              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       Incorporated  by reference
                  Restatement    of    Dev-Tech       to  Exhibit  10.45  to the
                  Associates,  Inc.  1996 Stock       Registrant's  Registration
                  Option Plan                         Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

10.3              Form    of    Stock    Option       Incorporated  by reference
                  Agreement      -     Dev-Tech       to  Exhibit  10.46  to the
                  Associates, Inc.                    Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

10.4              Dev-Tech   Migration,    Inc.       Incorporated  by reference
                  1996 Stock Option Plan              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       Incorporated  by reference
                  Restatement    of    Dev-Tech       to  Exhibit  10.48  to the
                  Migration, Inc.                     Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

10.6              Form    of    Stock    Option       Incorporated  by reference
                  Agreement      -     Dev-Tech       to  Exhibit  10.49  to the
                  Migration, Inc.                     Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

10.7              Dev-Tech   Associates,   Inc.       Incorporated  by reference
                  401(k) Plan and amendments          to  Exhibit  10.50  to the
                                                      Registrant's  Registration
                                                      Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996


                                      II-3


Exhibit No.       Description                         Location
-----------       -----------------------------       --------------------------

10.8              First      Amendment      and       Incorporated  by reference
                  Restatement    of    NeoMedia       to  Exhibit  10.60  to the
                  Technologies,    Inc.    1996       Registrant's  Registration
                  Stock Option Plan                   Statement No.  333-5534 as
                                                      filed   with  the  SEC  on
                                                      November 25, 1996

10.9              NeoMedia  Technologies,  Inc.       Incorporated  by reference
                  1998 Stock Option Plan              to  Exhibit  10.9  to  the
                                                      Registrant's  Form  10-KSB
                                                      as filed on March 9, 2004

10.10             Amendment     to     NeoMedia       Incorporated  by reference
                  Technologies    1998    Stock       to Form 14A as filed  with
                  Option Plan                         the SEC on July 2, 1999

10.11             Sale and  Purchase  Agreement       Incorporated  by reference
                  between  Qode.com,  Inc.  and       to  Exhibit  10.48  to the
                  NeoMedia Technologies, Inc.         Registrant's       Current
                                                      Report   on  Form  8-K  as
                                                      filed   with  the  SEC  on
                                                      March 15, 2001

10.12             Warrant    repricing   letter       Incorporated  by reference
                  dated March 19, 2002                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       Incorporated  by reference
                  dated April 3, 2002                 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       Incorporated  by reference
                  licensing  agreement  between       to  Exhibit  10.18  to the
                  NeoMedia   and   A.T.   Cross       Registrant's   Form  S-1/A
                  Company                             as  filed  with the SEC on
                                                      April 24, 2002

10.15             Intellectual         Property       Incorporated  by reference
                  licensing  agreement  between       to  Exhibit  10.19  to the
                  NeoMedia      and      Symbol       Registrant's   Form  S-1/A
                  Technologies, Inc.                  as  filed  with the SEC on
                                                      April 24, 2002

10.16             Sponsorship  and  Advertising       Incorporated  by reference
                  Agreement   between  NeoMedia       to  Exhibit  10.20  to the
                  and About.com, Inc.                 Registrant's   Form  S-1/A
                                                      as  filed  with the SEC on
                                                      April 24, 2002

10.17             Letter  of  Intent  regarding       Incorporated  by reference
                  proposed            strategic       to  Exhibit  10.21  to the
                  transaction  between NeoMedia       Registrant's   Form  S-1/A
                  and AirClic, Inc.                   as  filed  with the SEC on
                                                      April 24, 2002

10.18             Form   of   Promissory   Note       Incorporated  by reference
                  issued to AirClic, Inc.             to  Exhibit  10.22  to the
                                                      Registrant's   Form  S-1/A
                                                      as  filed  with the SEC on
                                                      April 24, 2002

10.19             Form  of   Limited   Recourse       Incorporated  by reference
                  Promissory   Note  issued  in       to  Exhibit  10.23  to the
                  exchange   for   19   Million       Registrant's   Form  S-1/A
                  Shares of Common Stock              as  filed  with the SEC on
                                                      April 24, 2002


                                      II-4


Exhibit No.       Description                         Location
-----------       -----------------------------       --------------------------

10.20             Nasdaq  Staff   Determination       Incorporated  by reference
                  Letter   with    respect   to       to  Exhibit  10.24  to the
                  de-listing     of    NeoMedia       Registrant's   Form  S-1/A
                  securities  from  the  Nasdaq       as  filed  with the SEC on
                  SmallCap market                     April 24, 2002

10.21             Revised   warrant   repricing       Incorporated  by reference
                  letter dated April 3, 2002          to  Exhibit  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       Incorporated  by reference
                  Agreement,   dated   May   6,       to  Exhibit  10.17  to the
                  2002,     between    NeoMedia       Registrant's     Quarterly
                  Technologies    and   Cornell       Report  on  Form  10-Q  as
                  Capital Partners, LP                filed   with  the  SEC  on
                                                      August 14, 2002

10.23             Nasdaq    Staff     delisting       Incorporated  by reference
                  notification   letter   dated       to  Exhibit  10.18  to the
                  May 16, 2002                        Registrant's     Quarterly
                                                      Report  on  Form  10-Q  as
                                                      filed   with  the  SEC  on
                                                      August 14, 2002

10.24             Settlement          Agreement       Incorporated  by reference
                  relating      to     wrongful       to  Exhibit  10.19  to the
                  termination  lawsuit  brought       Registrant's  Form 10-Q as
                  by   former   president   and       filed   with  the  SEC  on
                  Chief Operating Officer             August 14, 2002

10.25             Mutual  settlement  agreement       Incorporated  by reference
                  by   and   between   NeoMedia       to  Exhibit  10.20  to the
                  Technologies     and     2150       Registrants  Form  10-Q as
                  Western Court Company, LLC          filed on November 14, 2002

10.26             Mutual  settlement  agreement       Incorporated  by reference
                  by   and   between   NeoMedia       to  Exhibit  10.21  to the
                  Technologies   and   Ripfire,       Registrants  Form  10-Q as
                  Inc.                                filed on November 14, 2002

10.27             Mutual  settlement  agreement       Incorporated  by reference
                  by   and   between   NeoMedia       to  Exhibit  10.22  to the
                  Technologies   and   Wachovia       Registrants  Form  10-Q as
                  Bank, N.A.                          filed on November 14, 2002

10.28             Mutual  settlement  agreement       Incorporated  by reference
                  by   and   between   NeoMedia       to  Exhibit  10.23  to the
                  Technologies   and   Marianne       Registrants  Form  10-Q as
                  LePera,              NeoMedia       filed on November 14, 2002
                  Technologies'  former General
                  Counsel

10.29             Equity    Line   of    Credit       Incorporated  by reference
                  Agreement,   dated   February       to  Exhibit  10.80  to the
                  11,  2003,  between  NeoMedia       Registrants  Form S-1/A as
                  Technologies    and   Cornell       filed on February 14, 2003
                  Capital Partners

10.30             Form   of   Placement   Agent       Incorporated  by reference
                  Agreement,   dated   November       to  Exhibit  10.84  to the
                  2002,     between    NeoMedia       Registrant's  Form  S-1 as
                  Technologies   and   Westrock       filed on February 12, 2003
                  Advisors, Inc.

10.31             Form  of  Escrow   Agreement,       Incorporated  by reference
                  dated November 2002,  between       to  Exhibit  10.85  to the
                  NeoMedia   Technologies   and       Registrant's  Form  S-1 as
                  Cornell Capital Partners            filed on February 12, 2003


                                      II-5


Exhibit No.       Description                         Location
-----------       -----------------------------       --------------------------

10.32             Form of  Registration  Rights       Incorporated  by reference
                  Agreement,   dated   November       to  Exhibit  10.86  to the
                  2002,     between    NeoMedia       Registrant's  Form  S-1 as
                  Technologies    and   Cornell       filed on February 12, 2003
                  Capital Partners

10.33             Promissory     Note,    dated       Incorporated  by reference
                  February  23,  2001,  between       to  Exhibit  10.87  to the
                  Digital           Convergence       Registrant's  Form  S-1 as
                  Corporation and NeoMedia            filed on February 12, 2003

10.34             Termination Agreement,  dated       Incorporated  by reference
                  August  21,   2001,   between       to  Exhibit  10.88  to the
                  About.com and NeoMedia              Registrant's  Form  S-1 as
                                                      filed on February 12, 2003

10.35             Memorandum    of   Terms   to       Incorporated  by reference
                  merge,  dated  March 7, 2003,       to  Exhibit   3.1  to  the
                  between   NeoMedia  and  Loch       Registrant's  Form  8-K as
                  Energy, Inc.                        filed on March 19, 2003

10.36             Binding  Letter  of  Intent to      Incorporated  by reference
                  merge,  dated  July 25,  2003,      to  Exhibit  99.5  to  the
                  between  NeoMedia  and  Secure      Registrant's  Form  10-QSB
                  Source Technologies, Inc.           as  filed  on  August  14,
                                                      2003

10.37             Definitive  Merger  Agreement,      Incorporated  by reference
                  dated    October    3,   2003,      to  Exhibit  99.1  to  the
                  between  NeoMedia  and  Secure      Registrant's  Form  8-K as
                  Source Technologies, Inc            filed on October 8, 2003

10.38             Standby  Equity  Distribution       Incorporated  by reference
                  Agreement,  dated October 27,       to  Exhibit  10.91  to the
                  2003,  between  NeoMedia  and       Registrant's  Form  SB-2/A
                  Cornell Capital Partners            as filed on  December  19,
                                                      2003

10.39             Form   of   Placement   Agent       Incorporated  by reference
                  Agreement,  dated October 27,       to  Exhibit  10.92  to the
                  2003,  between  NeoMedia  and       Registrant's  Form  SB-2/A
                  Newbridge          Securities       as filed on  December  19,
                  Corporation                         2003

10.40             Form of  Registration  Rights       Incorporated  by reference
                  Agreement,  dated October 27,       to  Exhibit  10.93  to the
                  2003,  between  NeoMedia  and       Registrant's  Form  SB-2/A
                  Cornell Capital Partners            as filed on  December  19,
                                                      2003

10.41             Form  of  Escrow   Agreement,       Incorporated  by reference
                  dated   October   27,   2003,       to  Exhibit  10.94  to the
                  between  NeoMedia and Cornell       Registrant's  Form  SB-2/A
                  Capital Partners                    as 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       Incorporated  by reference
                  CSI   International,    Inc.,       to  Exhibit   3.1  to  the
                  dated November 8, 2003              Registrant's  Form  8-K as
                                                      filed on November 13, 2003

10.44             Letter of  Intent to  acquire       Incorporated  by reference
                  BSD  Software,   Inc.,  dated       to  Exhibit   3.1  to  the
                  December 9, 2003                    Registrant's  Form  8-K as
                                                      filed on December 11, 2003


                                      II-6


Exhibit No.       Description                         Location
-----------       -----------------------------       --------------------------

10.45             Definitive  Merger Agreement,       Incorporated  by reference
                  dated   February   6,   2004,       to  Exhibit   3.1  to  the
                  between   NeoMedia   and  CSI       Registrant's  Form  8-K as
                  International, Inc.                 filed on February 10, 2004

10.46             $4  million  Promissory  note       Incorporated  by reference
                  payable  to  Cornell  Capital       to  Exhibit  10.49  to the
                  Partners,  dated  January 15,       Registrant's  Form  10-KSB
                  2004                                as filed on March 9, 2004

10.47             Form of Business  Development       Incorporated  by reference
                  Agreement             between       to  Exhibit   2.2  to  the
                  NeoMedia  and iPoint-media          Registrant's  Form  8-K as
                                                      filed  on  September   17,
                                                      2004

10.48             Form of Investment  Agreement       Incorporated  by reference
                  between      NeoMedia     and       to  Exhibit   2.3  to  the
                  iPoint-media                        Registrant's  Form  8-K as
                                                      filed  on  September   17,
                                                      2004

10.49             Form of  Registration  Rights       Incorporated  by reference
                  Agreement   between  NeoMedia       to  Exhibit   2.4  to  the
                  and iPoint-media                    Registrant's  Form  8-K as
                                                      filed  on  September   17,
                                                      2004

10.50             Form    of    Indemnification       Incorporated  by reference
                  Agreement   between  NeoMedia       to  Exhibit   2.5  to  the
                  and iPoint-media                    Registrant's  Form  8-K as
                                                      filed  on  September   17,
                                                      2004

10.51             Form  of   Merger   Agreement       Incorporated  by reference
                  among NeoMedia  Technologies,       to  Exhibit  16.1  to  the
                  Inc.,     NeoMedia    Telecom       Registrant's  Form  8-K as
                  Services,   Inc.,   and   BSD       filed on December 22, 2004
                  Software, Inc.

10.52             Form  of  NeoMedia's   Policy       Provided Herewith
                  Statement on Ethical Behavior

10.53             Form  of  Term   Sheet   with       Incorporated  by reference
                  Nextcode Corporation                to  Exhibit  10.54  to the
                                                      Registrant's  Form  10-KSB
                                                      as filed on March 7, 2005

10.54             Form  of   Letter  of  Intent       Incorporated  by reference
                  With Shelron Group, Inc.            to  Exhibit  10.55  to the
                                                      Registrant's  Form  10-KSB
                                                      as filed on March 7, 2005

10.54             Form  of  Letters  of  Intent       Incorporated  by reference
                  With Pickups Plus, Inc.             to Exhibits  16.1 and 16.2
                                                      to the  Registrant's  Form
                                                      8-K as  filed  on March 1,
                                                      2005

10.55             Form  of   Merger   Agreement       Provided Herewith
                  among NeoMedia  Technologies,
                  Inc.,     NeoMedia    Telecom
                  Services,   Inc.,   and   BSD
                  Software, Inc.

10.56             Letter  of   extension     of      Provided Herewith
                  outside date between NeoMedia
                  and BSD


                                      II-7


Exhibit No.       Description                         Location
-----------       -----------------------------       --------------------------

10.57             Co-Marketing          Partner       Incorporated  by reference
                  Agreement   between  NeoMedia       to  Exhibit  16.1  to  the
                  Technologies,  Inc. and Foote       Registrant's  Form  8-K as
                  Cone &  Belding,  a  division       filed on March 24, 2005
                  of FCB Worldwide L.L.C.

10.58             Standby  Equity  Distribution       Incorporated  by reference
                  Agreement,     dated    March       to  Exhibit  16.1  to  the
                  30,2005,   between   NeoMedia       Registrant's  Form  8-K as
                  and Cornell                         filed on April 1, 2005

10.59             Placement  Agent   Agreement,       Incorporated  by reference
                  dated    March   30,    2005,       to  Exhibit  16.2  to  the
                  between NeoMedia and Cornell        Registrant's  Form  8-K as
                                                      filed on April 1, 2005

10.60             Escrow    Agreement,    dated       Incorporated  by reference
                  March   24,   2005,   between       to  Exhibit  16.3  to  the
                  NeoMedia and Cornell                Registrant's  Form  8-K as
                                                      filed on April 1, 2005

10.61             Registration           Rights       Incorporated  by reference
                  Agreement,     dated    March       to  Exhibit  16.4  to  the
                  24,2005,   between   NeoMedia       Registrant's  Form  8-K as
                  and Cornell                         filed on April 1, 2005

10.62             Promissory  Note, dated March       Incorporated  by reference
                  24,2005,   between   NeoMedia       to  Exhibit  16.5  to  the
                  and Cornell                         Registrant's  Form  8-K as
                                                      filed on April 1, 2005

10.63             Security   Agreement,   dated       Incorporated  by reference
                  March    24,2005,     between       to  Exhibit  16.6  to  the
                  NeoMedia and Cornell                Registrant's  Form  8-K as
                                                      filed on April 1, 2005

23.1              Consent     of     Stonefield       Provided Herewith
                  Josephson,  Inc., independent
                  auditors      of     NeoMedia
                  Technologies, Inc.

23.2              Consent    of   KPMG,    LLP,       Provided Herewith
                  independent  auditors  of BSD
                  Software, Inc.

23.3              Consent   of   Eisner    LLP,       Provided Herewith
                  independent  auditors  of CSI
                  International, Inc.

Annex A           BSD  Initial   Dissenters'          Provided Herewith
                  Notice  Letter,  Dissenters'
                  Demand  Notice  Form,   and
                  Copies of Sections  607.1301
                  through   607.1333  of  the
                  Florida Business  Corporation
                  Act  Concerning   Dissenters'
                  Rights


                                      II-8


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-9


                                   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 April 1, 2005.

                                        NEOMEDIA TECHNOLOGIES, INC.


                                        By: /s/ Charles T. Jensen
                                            ------------------------------------
                                            Charles T. Jensen
                                            President, Chief Executive Officer,
                                            Chief Operating Officer and Director


      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                              April 1, 2005
Charles T. Jensen


/s/ William E. Fritz                 Director                                  April 1, 2005
-------------------------
William E. Fritz


/s/ Charles W. Fritz                 Chairman of the Board                     April 1, 2005
-------------------------
Charles W. Fritz


/s/ David A. Dodge                   Vice-President, Chief Financial
-------------------------            Officer and Controller                    April 1, 2005
David A. Dodge


/s/ Hayes Barclay                    Director                                  April 1, 2005
-------------------------
Hayes Barclay


/s/ James J. Keil                    Director                                  April 1, 2005
-------------------------
James J. Keil



                                     II-10