NEOMEDIA TECHNOLOGIES INC - FORM 10-Q

Attached files

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EX-31.2 - NEOMEDIA TECHNOLOGIES INC	v193729_ex31-2.htm
EX-31.1 - NEOMEDIA TECHNOLOGIES INC	v193729_ex31-1.htm
EX-32.2 - NEOMEDIA TECHNOLOGIES INC	v193729_ex32-2.htm
EX-32.1 - NEOMEDIA TECHNOLOGIES INC	v193729_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10 - Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ____________

Commission File Number 0-21743

NeoMedia Technologies, Inc.

(Exact Name of Issuer as Specified In Its Charter)

Delaware	36-3680347
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Two Concourse Parkway, Suite 500, Atlanta, GA 30328

(Address, including zip code, of principal executive offices)

678-638-0460

(Registrants’ telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ¨ No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The number of outstanding shares of the registrant’s Common Stock on August 9, 2010 was 22,675,678.

NeoMedia Technologies, Inc.

Form 10-Q

For the Quarterly Period Ended June 30, 2010

Index

		Page

PART I	Financial Information	2

ITEM 1.	Financial Statements	2
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	31
ITEM 4.	Controls and Procedures	31

PART II	Other Information	32

ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	33
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
ITEM 3.	Defaults Upon Senior Securities	33
ITEM 4.	(Removed and Reserved)	33
ITEM 5.	Other Information	33
ITEM 6.	Exhibits	34

Signatures		41

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

NeoMedia Technologies, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

	June 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	673		$	198
Trade accounts receivable		236			374
Inventories, net of allowance of $113 and $136		100			124
Prepaid expenses and other current assets		122			294
Total current assets		1,131			990

Property and equipment, net		96			129
Goodwill		3,418			3,418
Proprietary software, net		1,745			2,076
Patents and other intangible assets, net		1,870			1,996
Cash surrender value of life insurance policies		612			659
Other long-term assets		186			156
Total assets	$	9,058		$	9,424

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	357		$	558
Taxes payable		5			4
Accrued expenses		8,132			7,292
Deferred revenues and customer prepayments		459			791
Note payable		15			69
Note payable - YA Global		-			500
Accrued purchase price guarantee		4,535			4,535
Deferred tax liability		706			706
Derivative financial instruments - warrants		2,399			9,912
Derivative financial instruments - Series C and D preferred stock and debentures payable		7,422			50,985
Debentures payable - carried at amortized cost		14,411			12,523
Debentures payable - carried at fair value		19,864			37,678
Total current liabilities		58,305			125,553

Commitments and contingencies (Note 7)

Series C convertible preferred stock, $0.01 par value, 27,000
shares authorized, 8,642 and 8,642 shares issued and outstanding,
liquidation value of $8,642 and $8,642		8,642			8,642
Series D convertible preferred stock, $0.01 par value, 25,000
shares authorized, 25,000 and 0 shares issued and outstanding,
liquidation value of $2,500 and $0		2,500			-

Shareholders’ deficit:
Common stock, $0.001 par value, 5,000,000,000 shares authorized, 22,707,093 and
22,707,093 shares issued and 22,675,678 and 22,675,678 shares
outstanding, respectively		23			23
Additional paid-in capital		153,157			153,059
Accumulated deficit		(212,651	)		(276,985	)
Accumulated other comprehensive loss		(139	)		(89	)
Treasury stock, at cost, 2,012 shares of common stock		(779	)		(779	)
Total shareholders’ deficit		(60,389	)		(124,771	)
Total liabilities and shareholders’ deficit	$	9,058		$	9,424

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

NeoMedia Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

	Three Months Ended
	June 30,			June 30,
	2010			2009

Revenues	$	221		$	136
Cost of revenues		255			281
Gross profit (deficit)		(34	)		(145	)

Sales and marketing expenses		262			178
General and administrative expenses		1,041			863
Research and development costs		418			350

Operating loss		(1,755	)		(1,536	)

Gain (loss) on extinguishment of debt		(363	)		-
Gain (loss) from change in fair value of hybrid financial instruments		1,180			23,343
Gain (loss) from change in fair value of derivative liability - warrants		4,305			20,879
Gain (loss) from change in fair value of derivative liability -
Series C and D preferred stock and debentures		6,645			37,978
Interest expense related to convertible debt		(510	)		(2,600	)

Net income (loss)		9,502			78,064

Dividends on convertible preferred stock		-			(368	)

Net income (loss) attributable to common shareholders		9,502			77,696

Comprehensive income (loss):
Net income (loss)		9,502			78,064
Other comprehensive income (loss):
Foreign currency translation adjustment		(26	)		(22	)

Comprehensive income (loss)	$	9,476		$	78,042

Net income (loss) per share, basic and diluted:
Basic	$	0.42		$	4.89
Fully diluted	$	(0.01	)	$	0.25

Weighted average number of common shares:
Basic		22,675,678			15,882,816
Fully diluted		302,104,430			67,928,736

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

NeoMedia Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

	Six Months Ended
	June 30,			June 30,
	2010			2009

Revenues	$	576		$	626
Cost of revenues		594			808
Gross profit (deficit)		(18	)		(182	)

Sales and marketing expenses		581			464
General and administrative expenses		2,136			1,787
Research and development costs		701			673

Operating loss		(3,436	)		(3,106	)

Gain (loss) on extinguishment of debt		(6,006	)		-
Gain (loss) from change in fair value of hybrid financial instruments		19,552			312
Gain (loss) from change in fair value of derivative liability - warrants		10,856			(12,402	)
Gain (loss) from change in fair value of derivative liability -
Series C and D preferred stock and debentures		46,824			(9,676	)
Interest expense related to convertible debt		(956	)		(3,663	)

Net income (loss)		66,834			(28,535	)

Dividends on convertible preferred stock		(2,500	)		(743	)

Net income (loss) attributable to common shareholders		64,334			(29,278	)

Comprehensive income (loss):
Net income (loss)		66,834			(28,535	)
Other comprehensive income (loss):
Foreign currency translation adjustment		(50	)		(79	)

Comprehensive income (loss)	$	66,784		$	(28,614	)

Net income (loss) per share, basic and diluted:
Basic	$	2.84		$	(1.98	)
Fully diluted	$	(0.02	)	$	(1.98	)

Weighted average number of common shares:
Basic		22,675,678			14,785,746
Fully diluted		299,092,068			14,785,746

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

NeoMedia Technologies, Inc. and Subsidiaries

Consolidated Statement of Shareholders’ Deficit (Unaudited)

(in thousands, except share data)

	Common Stock					Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Treasury Stock					Total Shareholders' Equity
	Shares		Amount			Capital		Income (Loss)			Deficit			Shares		Amount			(Deficit)
Balance, December 31, 2009, as previously reported		22,675,678	$	22,676		$	130,406	$	(89	)	$	(276,985	)		2,012	$	(779	)	$	(124,771	)

Effect of 1 for 100 share reverse stock split and change in par value		-		(22,653	)		22,653		-			-			-		-			-

Balance, December 31, 2009, after retroactive adjustment		22,675,678		23			153,059		(89	)		(276,985	)		2,012		(779	)		(124,771	)

Deemed dividend on Series D Preferred Stock issued to YA Global												(2,500	)							(2,500	)

Stock-based compensation expense		-		-			98		-			-			-		-			98

Comprehensive income - foreign currency translation adjustment		-		-			-		(50	)		-			-		-			(50	)

Net income		-		-			-		-			66,834			-		-			66,834
Balance, June 30, 2010		22,675,678	$	23		$	153,157	$	(139	)	$	(212,651	)		2,012	$	(779	)	$	(60,389	)

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

NeoMedia Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended
	June 30,
	2010			2009
Cash Flows from Operating Activities:
Net income (loss)	$	66,834		$	(28,535	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		497			512
(Gain) loss on extinguishment of debt		6,006			-
(Gain) loss from change in fair value of hybrid financial instruments		(19,552	)		(312	)
(Gain) loss from change in fair value of derivative liability - warrants		(10,856	)		12,402
(Gain) loss from change in fair value of derivative liability -
Series C and D preferred stock and debentures		(46,824	)		9,676
Interest expense related to convertible debt		956			3,663
Stock-based compensation expense		98			177
Decrease (increase) in value of life insurance policies		47			(58	)

Changes in operating assets and liabilities
Trade and other accounts receivable		138			46
Inventories		24			(50	)
Prepaid expenses and other assets		142			113
Accounts payable and accrued liabilities		(537	)		(198	)
Deferred revenue and other current liabilities		(332	)		(124	)
Net cash used in operating activities		(3,359	)		(2,688	)

Cash Flows from Investing Activities:
Acquisition of property and equipment		(7	)		(24	)
Net cash provided by (used in) investing activities		(7	)		(24	)

Cash Flows from Financing Activities:
Proceeds from issuance of Series D convertible preferred stock		2,500			-
Costs attributed to issuance of Series D convertible preferred stock		(100	)		-
Repayment of note payable - YA Global		(500	)		-
Borrowings under convertible debt instruments, net		1,885			1,660
Net proceeds from exercise of stock options		-			116
Net cash provided by financing activities		3,785			1,776

Effect of exchange rate changes on cash		56			(20	)

Net increase (decrease) in cash and cash equivalents		475			(956	)

Cash and cash equivalents, beginning of period		198			1,259
Cash and cash equivalents, end of period	$	673		$	303

Supplemental cash flow information:
Interest paid during the period	$	1		$	3
Accretion of dividends on Series C Convertible Preferred Stock	$	-		$	743
Series C Convertible Preferred Stock converted to common stock	$	-		$	720
Deemed dividend on Series D Convertible Preferred Stock issued	$	2,500		$	1,337
Fair value of common shares issued to satisfy purchase price guarantee obligations	$	-		$	445

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

NeoMedia Technologies, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - General

Business - NeoMedia utilizes the mobile phone by leveraging barcodes (printed symbols) as a seamless mechanism to link brands, advertisers, carriers, retailers and consumers using the power of the mobile internet.

With our barcode ecosystem technology, NeoMedia transforms mobile phones with cameras into barcode scanners that provide instant access to mobile web content whenever a barcode is scanned. A barcode makes any medium immediately interactive, and the code links consumers to the multimedia capability of the mobile web. We believe that combining this technology with analytics and reporting capabilities improves the way advertisers market to mobile consumers.

NeoMedia provides the infrastructure to facilitate mobile barcode scanning and its associated commerce worldwide. Our mobile barcode ecosystem software reads and transmits data from 2D barcodes to its intended destination. Our code management and clearinghouse platforms create, connect, record, and transmit the transactions embedded in the barcodes, ubiquitously and reliably.

In order to provide complete mobile marketing solutions, NeoMedia also offers barcode scanning hardware that reads barcodes displayed on mobile phone screens or printed media. NeoMedia provides infrastructure solutions to enable mobile ticketing and couponing programs – including scanner hardware and system support software for seamless implementation.

This technology is supported by our patents. In addition, NeoMedia has an open standards philosophy designed to make integration and use of the technology easy for handset manufacturers, mobile operators and advertisers; and the consumer’s experience safe, reliable and interoperable.

Going Concern – We have historically incurred net losses from operations and we expect that we will continue to have negative cash flows as we implement our business plan. There can be no assurance that our continuing efforts to execute our business plan will be successful and that we will be able to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with United States Generally Accepted Accounting Principals (“US GAAP”), which contemplate our continuation as a going concern. Net income (loss) for the six months ended June 30, 2010 and 2009 was $66.8 million and ($28.5) million, respectively and net cash used by operations during the same periods was $3.4 million and $2.7 million, respectively. During 2010 and 2009, $77.2 million of net income and $21.3 million of net loss was attributed to the change in fair values of hybrid financial instruments and derivative liabilities. At June 30, 2010, we have an accumulated deficit of $212.7 million. We also have a working capital deficit of $57.2 million, of which $44.1 million is related to our financing instruments, including $22.3 million related to the fair value of warrants and those debentures that are recorded as hybrid financial instruments, and $21.8 million related to the amortized cost carrying value of certain of our debentures and the fair value of the associated derivative liabilities.

The items discussed above raise substantial doubts about our ability to continue as a going concern.

We currently do not have sufficient cash to sustain us for the next twelve months. We will require additional financing in order to execute our operating plan and continue as a going concern. Our management’s plan is to attempt to secure adequate funding to bridge the commercialization of our barcode ecosystem business. We cannot predict whether this additional financing will be in the form of equity, debt, or another form and we may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that these financing sources do not materialize, or that we are unsuccessful in increasing our revenues and profits, we may be unable to implement our current plans for expansion, repay our debt obligations as they become due or continue as a going concern, any of which circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations. Should our lender, YA Global Investments, L.P. (“YA Global”) choose not to provide us with capital financing, or if we do not find alternative sources of financing to fund our operations, or if we are unable to generate significant product revenues, we only have sufficient funds to sustain our current operations through approximately September 15, 2010. We currently do not have any commitments for additional financing.

The financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts or the amounts and classification of liabilities that might be necessary, should we be unable to continue as a going concern.

Note 2 - Summary of Significant Accounting Policies

The accompanying unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and Rule 8.03 of Regulation SX. They do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements of the Company as of December 31, 2009 and 2008, and for the years then ended, including notes thereto included in the Company’s Form 10-K.

Basis of Presentation – The consolidated financial statements include the accounts of NeoMedia Technologies, Inc. and our wholly-owned subsidiaries. We operate as one reportable segment. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates – The preparation of consolidated financial statements in conformity with US GAAP 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. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.

Basic and Diluted Income (Loss) Per Share – Basic net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period. During the six months ended June 30, 2010, and the three months ended June 30, 2010 and 2009, we reported net income per share and included dilutive instruments in the fully diluted net income per share calculation. During the six months ended June 30, 2009, we reported a net loss per share, and as such, basic and diluted loss per share were equivalent. We excluded all outstanding stock options, warrants, convertible debt and convertible preferred stock from the calculation of diluted net loss per share because these securities were anti-dilutive. The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share calculations for each period:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(in thousands except share and per share data)
Numerator:
Net income (loss)	$	9,502		$	78,064		$	66,834			(28,535	)
Adjustments to reconcile net income to income (loss)
applicable to common stockholders:
Accretion of preferred stock dividends		-			(368	)		(2,500	)		(743	)
Numerator for basic earnings per share - income available to common stockholders	$	9,502		$	77,696		$	64,334		$	(29,278	)

Effect of dilutive securities:
Adjustment for change in fair value of derivative liability-Series C and D preferred stock and debentures		(6,645	)		(37,978	)		(46,824	)		-
Adjustment for change in fair value of derivative liability- warrants		(4,305	)		-			(10,856	)		-
Adjustment for loss on extinguishment of debt		-						5,643			-
Adjustment for change in fair value of hybrid financial instruments		(1,180	)		(23,343	)		(19,552	)		-
Adjustment for dividends on convertible preferred stock		-			368			-			-
Adjustment for interest expense related to convertible debt		478			-			927			-
		(11,652	)		(60,953	)		(70,662	)		-
Numerator for diluted earnings per share-
income available for common stockholders
after assumed conversions of debentures and
exercise of warrants	$	(2,150	)	$	16,743		$	(6,328	)	$	(29,278	)

Denominator:
Weighted average shares used to compute basic EPS		22,675,678			15,882,816			22,675,678			14,785,746
Effect of dilutive securities:
Employee stock options		76,319			370,410			118,522			-
Derivative warrants		-			7,025,750			-			-
Convertible debentures		202,777,415			24,829,170			200,102,566			-
Convertible preferred stock		76,575,018			19,820,590			76,195,302			-
Dilutive potential common shares		279,428,752			52,045,920			276,416,390			-

Denominator for diluted earnings per share-
adjusted weighted average shares and assumed
conversions		302,104,430			67,928,736			299,092,068			14,785,746

Basic earning per share	$	0.42		$	4.89		$	2.84		$	(1.98	)
Diluted earnings per share	$	(0.01	)	$	0.25		$	(0.02	)	$	(1.98	)

The above table includes only dilutive instruments and their effects on earnings per common share.

The following outstanding stock options, warrants, convertible debt and convertible preferred securities for the three and six months ended June 30, 2010 and 2009, are anti-dilutive and therefore have been excluded from diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Stock options		839,830		737,071		872,662		904,554
Warrants		13,465,035		67,583		12,459,085		10,063,708
Convertible debt		-		-		-		24,829,170
Convertible preferred stock		-		-		-		19,820,590
		14,304,865		804,654		13,331,747		55,618,022

Inventories – Inventories are stated at the lower of cost or market and are comprised of barcode-reading equipment at our NeoMedia Europe location. Cost is determined using the first-in, first-out method.

Recent Accounting Pronouncements - The following Accounting Standards Codification Updates have been issued, or will become effective, after the end of the period covered by this discussion:

Pronouncement	Issued	Title

ASU No. 2010-12	April 2010	Income Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts

ASU No. 2010-13	April 2010	Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (A consensus of the FASB Emerging Issues Task Force)

ASU No. 2010-14	April 2010	Accounting for Extractive Activities—Oil & Gas—Amendments to Paragraph 932-10-S99-1 (SEC Update)

ASU No. 2010-15	April 2010	Financial Services—Insurance (Topic 944): How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments—a consensus of the FASB Emerging Issues Task Force

ASU No. 2010-16	April 2010	Entertainment—Casinos (Topic 924): Accruals for Casino Jackpot Liabilities—a consensus of the FASB Emerging Issues Task Force

ASU No. 2010-17	April 2010	Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition—a consensus of the FASB Emerging Issues Task Force

ASU No. 2010-18	April 2010	Receivables (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset—a consensus of the FASB Emerging Issues Task Force

ASU No. 2010-19	May 2010	Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates

ASU No. 2010-20	July 2010	Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

ASU No. 2010-21	August 2010	Accounting for Technical Amendments to Various SEC Rules and Schedules Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies (SEC Update)

To the extent appropriate, the guidance in the above Accounting Standards Codification Updates is already reflected in our consolidated financial statements and management does not anticipate that these accounting pronouncements will have any future effect on our consolidated financial statements.

Note 3 – Capital Stock

Common Stock – On March 30, 2010, we held a special meeting of our stockholders, at which our stockholders approved amendments to our certificate of incorporation as follows:

· To effect a 1 share for 100 shares reverse stock split of our outstanding common stock; and

· To fix the amount of authorized shares of common stock at 5,000,000,000 shares; and

· To effect a change in our common stock par value from $0.01 to $0.001.

In accordance with FASB ASC 260, Earnings per Share, and SAB Topic 4.C, Changes in Capital Structure, all of the share and per share information related to our common stock included in these financial statements has been retroactively re-stated to reflect the above changes.

We filed an amendment to our certificate of incorporation on April 1, 2010 to reflect the above amendments. On April 19, 2010, we filed for, and were assigned a new CUSIP number 640505-301 in connection with the issuance of new common stock securities pursuant to the reverse stock split. On April 21, 2010 we filed a request for regulatory approval from the Financial Industry Regulatory Authority (“FINRA”). On May 7, 2010, final regulatory approval was granted and became effective on May 10, 2010.

Holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders. Holders of our common stock do not have a cumulative voting right, which means that the holders of more than one half of our outstanding shares of common stock, subject to the rights of the holders of preferred stock, can elect all of our 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 our Board of Directors out of funds legally available for that purpose. Upon our liquidation, dissolution, or winding up, the holders 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, nor rights to convert their common stock into any other securities. Except as otherwise required 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 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 by proxy. Shares repurchased are held as treasury shares and used for general corporate purposes including, but not limited to, satisfying obligations under our employee benefit plans. Treasury stock is recorded at cost.

Note 4 – Financing

At June 30, 2010, our financing transactions with YA Global, an accredited investor, included shares of our Series C Convertible Preferred Stock issued in February 2006, Series D Convertible Redeemable Preferred Stock issued in January 2010, a series of sixteen secured convertible debentures issued between August 2006 and May 2010 and various warrants to purchase shares of our common stock.

On January 5, 2010, we entered into an investment agreement with YA Global which included i) the issuance to YA Global of 25,000 shares of our $100 Series D Convertible Redeemable Preferred Stock ii) the modification of the conversion terms of all of our outstanding secured convertible debentures and extension of their maturity dates to July 29, 2012 iii) issuance of additional warrants to acquire 225,000 shares of our common stock and, iv) modification of the terms of three outstanding warrants to acquire a total of 350,000 shares of our common stock. The gross amount of this transaction was $2.5 million and we received net proceeds of $1.9 million after fees of $100,000 and the redemption of a $500,000 promissory note issued to YA Global on December 23, 2009.

In addition, the January 5, 2010 investment agreement required us to seek shareholder approval to enact the following changes relating to our common stock, a 1 share for 100 shares reverse stock split, the fixing of our authorized shares at 5,000,000,000, and the reduction in the par value from $0.01 to $0.001. On March 30, 2010, we held a Special Meeting of our shareholders at which the shareholders approved amending the Company’s certificate of incorporation to reflect these changes. (See Note 3).

On May 27, 2010, we entered into a Securities Purchase Agreement to issue and sell a secured convertible debenture to YA Global in the principal amount of $2,006,137 and we also entered into an agreement which amended certain terms of all previously issued and outstanding warrants between us and YA Global which changed the ownership limitation provision from 4.99% to 9.99%.

Series D Convertible Redeemable Preferred Stock - The Series D Convertible Redeemable Preferred Stock issued on January 5, 2010 has a stated value of $100 per share and provides for an 8% cumulative dividend, subject to Board declaration. Each share of Series D Preferred is convertible, at the option of the holder, at a conversion price equal to the lesser of (i) $2.00 or (ii) 97% of the lowest closing bid price of our common stock for the 125 trading days preceding the date of conversion, provided that no conversion will be at a price less than the par value of the common stock. The conversion price is subject to adjustment for down-round, anti-dilution protection. Accordingly, if we sell common stock or common share indexed financial instruments below the conversion price, the Series D Preferred conversion price adjusts to that lower amount. The Series D Preferred conversion price is also subject to adjustment for traditional equity restructuring and reorganizations. The Series D Preferred has a liquidation amount equal to $100 per share plus all declared and unpaid dividends and is redeemable by us, at our option, at an amount of $100 per share plus a redemption premium of 10%. The instrument is also redeemable at the holder’s option upon certain events of default, which include events and factors that are not related to interest or credit risk.

The Series D Preferred is a hybrid financial instrument that embodies the risks and rewards typically associated with both equity and debt instruments. Accordingly, we are required to evaluate the features of this contract to determine its nature as either an equity-type contract or a debt-type contract. We determined that the Preferred Stock is generally more akin to a debt-type contract, principally due to its variable conversion price and redemption features. This determination is subjective. However, in complying with the guidance provided in FASB ASC 815, we concluded, based upon the preponderance and weight of all terms, conditions and features of the host contracts, that the Series D Preferred was more akin to a debt instrument for purposes of considering the clear and close relationship of the embedded derivative features to the host contract. The principal accounting concept requires bifurcation in these instances when the embedded feature and the host contract have risks that are not clearly and closely related. Certain exemptions to this rule, such as the traditional conventional convertible exemption and the common-indexed exemption were not available to us because the Preferred Stock is not indexed, as that term is defined, only to our common stock. Accordingly, the conversion feature, along with certain other features that have risks of equity, required bifurcation and classification in liabilities as a compound embedded derivative financial instrument. Derivative financial instruments are required to be measured at fair value both at inception and an ongoing basis.

As discussed in further detail below, the initial allocation of the basis in the Series D Preferred financing transaction resulted in no basis being ascribed to the redeemable preferred stock. According to FASB ASC 480-10, Distinguishing Liabilities from Equity, if the security is not currently redeemable and it is not probable that the security will be become redeemable, accretion to face value is not necessary. The Series D Preferred is convertible upon inception and there was no persuasive evidence that the Preferred Stock would not be redeemed. Based on this information, redemption could not be considered “not probable” of occurring and accretion was necessary. Redeemable preferred stock may be accreted to its redemption value through periodic charges to retained earnings or over the period from the date of issuance to the earliest redemption date. Because there was no term of redemption embodied in the contract, the issuance date was considered the earliest possible redemption date. As a result, a day-one deemed dividend of $2,500,000 was recorded to accrete the Series D Preferred to its redemption value.

In conjunction with the Series D Preferred financing, we also issued warrants to acquire 225,000 shares of our common stock. We evaluated the warrants for purposes of classification under FASB ASC 480 and determined the warrants require liability classification because they embody down-round anti-dilution that precludes the instrument from being considered indexed to the Company’s own stock.

Our accounting required the allocation of the proceeds to the individual financial instruments comprising the Series D Preferred financing. Current accounting concepts generally provide that the allocation is made, first to the instruments that are required to be recorded at fair value; that is, the compound embedded derivative and the warrants, and the remainder to the host instrument. The fair value of the embedded conversion feature and the warrants exceeded the proceeds which resulted in a day-one derivative loss.

The allocation of the basis arising from the issuance of Series D Preferred and warrants is summarized in the table below:

	Proceeds			Deemed			Total
	Allocation			Dividend			Allocation
	(in thousands)

Gross proceeds	$	2,500					$	2,500
Financing costs paid to investor		(100	)					(100	)
	$	2,400					$	2,400

Derivative liabilities:
Investor warrants	$	(2,431	)				$	(2,431	)
Compound derivative		(4,551	)					(4,551	)
Total derivative liabilities		(6,982	)					(6,982	)

Redeemable preferred stock:
Series D Preferred Stock		-			-			-
Deemed dividend		-		$	(2,500	)		(2,500	)
Total redeemable preferred stock		-			(2,500	)		(2,500	)

Accumulated deficit (deemed dividend)		-			2,500			2,500

Day-one derivative loss		4,582						4,582
	$	(2,400	)	$	-		$	(2,400	)

Series C Convertible Preferred Stock - On February 17, 2006, we issued 22,000 shares of $1,000 Series C 8% Convertible Preferred Stock, with a face value of $22 million, to YA Global. The Series C Preferred Stock was originally convertible into shares of common stock at the lower of $2.00 per share and 97% of the lowest closing bid price of the common stock for the 30 trading days immediately preceding the conversion date. On January 5, 2010, we entered into an amendment to the Series C Convertible Preferred Stock, which modified the conversion provisions to increase the look-back period in the variable conversion rate calculation to 125 days.

As of June 30, 2010, 13,358 shares of the original 22,000 shares of Series C Preferred have been converted into 1,240,037 of our common shares, leaving 8,642 shares of Series C Preferred with a face value of $8.6 million outstanding.

Secured Convertible Debentures - The underlying agreements for each of the fifteen debentures issued to YA Global are essentially the same, except in regard to the interest rate, varying conversion prices per share, and the number of warrants that were issued in conjunction with each of the debentures. The debentures are convertible into our common stock, at any time, at the option of the holder, at the lower of a fixed conversion price per share or a percentage of the lowest volume-weighted average price (“VWAP”) for a specified number of days prior to the conversion (the “look-back period”). The conversion is limited such that the holder cannot exceed 9.99% ownership, unless the holder waives their right to such limitation. All of the convertible debentures are secured according to the terms of a Security Pledge Agreement dated August 23, 2006, which was entered into in connection with the first convertible debenture issued to YA Global and which provides YA Global with a security interest in substantially all of our assets. The debentures are also secured by a Patent Security Agreement dated July 29, 2008.

As discussed above, on January 5, 2010, the terms of all of the debentures were modified to extend the stated maturity date to July 29, 2012. The January 5, 2010 amendments also increased the look-back period used to calculate the variable conversion price per share for all debentures to a period of 125 days and increased the fixed portion of the conversion price for certain of the debentures from $1.00 to $2.00.

On May 27, 2010, we entered into a Securities Purchase Agreement to issue and sell a secured convertible debenture to YA Global in the principal amount $2,006,137. The debenture bears interest at 14% and matures on July 29, 2012. The debenture provided net proceeds of $1,410,000 after payment of $90,000 in fees and the use of $506,137 to repay the outstanding principal and interest on a promissory note dated April 1, 2010 owed to YA Global. In addition to the debenture, we also issued a warrant to YA Global to purchase 5,000,000 shares of common stock for an exercise price of $0.30 per share for a period of five years. We have the right to redeem a portion or all amounts outstanding under the debenture at a redemption premium of 10%, plus accrued interest. YA Global may require cash redemption of all or a portion of the debenture at any time after August 26, 2010.

At inception, a summary of the allocation of the components of the new debenture and the extinguishment of the April 2010 note was as follows:

	Proceeds			Settlement of
	Received			April 2010 Note			Total
	(in thousands)

Gross proceeds	$	(1,500	)	$	(506	)	$	(2,006	)
Structuring and due diligence fee		90			-			90
	$	(1,410	)	$	(506	)	$	(1,916	)

Derivative liabilities:
Investor warrants	$	(684	)	$	(228	)	$	(912	)
Compound derivative		(1,473	)		(491	)		(1,964	)
Total derivative liabilities		(2,157	)		(719	)		(2,876	)

Day one derivative loss		747			-			747
Convertible debenture-initial carrying value		-			(150	)		(150	)
Loss on extinguishment		-			363			363
	$	(1,410	)	$	(506	)	$	(1,916	)

The compound derivative was valued using the Monte Carlo Simulation valuation method. Significant assumptions used to value the compound derivative as of inception of the financing included a conversion price of $0.1425, equivalent volatility of 182.57%, equivalent interest risk adjusted rate of 13.15% and an equivalent credit risk adjusted rate of 8.59% and estimated exercise behaviors. The warrants are valued using the Black-Scholes-Merton valuation methodology. Significant assumptions used in this model as of May 27, 2010 included an expected life equal to the five year term of the warrants, an expected dividend yield of zero, estimated volatility of 155.57%, and a risk-free rate of return of 2.18%. For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the term of the warrants and volatility is based upon our expected stock price volatility over the term of the warrants.

The table below summarizes the significant terms of each of the debentures as of June 30, 2010:

					Default	Conversion Price – Lower of Fixed Price or Percentage of VWAP for Preceding Period
	Face			Interest	Interest	Fixed			Default	Preceding
Debenture Issue Date	Amount		Maturity	Rate	Rate	Price		%	%	Period

August 24, 2006	$	5,000,000	7/29/2012	10%	n/a	$	2.00	90%	n/a	125 Days
December 29, 2006	$	2,500,000	7/29/2012	10%	n/a	$	2.00	90%	n/a	125 Days
March 27, 2007	$	7,458,651	7/29/2012	13%	n/a	$	2.00	90%	n/a	125 Days
August 24, 2007	$	1,775,000	7/29/2012	14%	n/a	$	2.00	80%	n/a	125 Days
April 11, 2008	$	390,000	7/29/2012	15%	24%	$	1.50	80%	75%	125 Days
May 16, 2008	$	500,000	7/29/2012	15%	24%	$	1.50	80%	50%	125 Days
May 29, 2008	$	790,000	7/29/2012	15%	24%	$	1.00	80%	50%	125 Days
July 10, 2008	$	137,750	7/29/2012	15%	24%	$	1.00	80%	50%	125 Days
July 29, 2008	$	2,325,000	7/29/2012	14%	24%	$	2.00	95%	50%	125 Days
October 28, 2008	$	2,325,000	7/29/2012	14%	20%	$	2.00	95%	50%	125 Days
May 1, 2009	$	294,000	7/29/2012	14%	20%	$	2.00	95%	50%	125 Days
June 5, 2009	$	715,000	7/29/2012	14%	20%	$	2.00	95%	50%	125 Days
July 15, 2009	$	535,000	7/29/2012	14%	20%	$	2.00	95%	50%	125 Days
August 14, 2009	$	475,000	7/29/2012	14%	20%	$	2.00	95%	50%	125 Days
May 27, 2010	$	2,006,137	7/29/2012	14%	20%	$	0.30	95%	50%	60 Days

All debentures with YA Global contain provisions for acceleration of principal and interest upon default. Certain debentures also contain default interest rates and conversion prices, as reflected in the table above.

In our evaluation of these financing transactions, we concluded that the conversion features were not afforded the exemption as conventional convertible instruments due to the variable conversion rate; and they did not otherwise meet the conditions set forth in current accounting standards for equity classification. Because equity classification was not available for the conversion features, we elected to bifurcate the compound derivatives, and carry them as derivative liabilities, at fair value. Each compound derivative consists of (i) the embedded conversion feature, (ii) down-round anti-dilution protection features, and (iii) default, non-delivery and buy-in puts which were combined into one compound instrument that is carried as a component of derivative liabilities.

Fair Value Considerations - In accordance with FASB ASC 815, Derivatives and Hedging, we determined that the conversion features of the Series C and Series D Convertible Preferred Stock, and the August 2006, December 2006, July 2008, October 2008, April 2009, May 2009, June 2009, July 2009, August 2009 and May 2010 Debentures met the criteria of embedded derivatives and that the conversion features of these instruments required bifurcation and accounting as derivative instrument liabilities. Changes in the fair value of the derivative liability for the embedded conversion option are charged or credited to income each period. As permitted by FASB ASC 815-15-25, Recognition of Embedded Derivatives, we elected not to bifurcate the embedded derivatives in the March 2007, August 2007, April 2008 or May 2008 Debentures and accordingly, these convertible instruments are being carried in their entirety at their fair values, with the changes in the fair value of the Debentures charged or credited to income each period.

Derivative financial instruments arising from the issuance of convertible financial instruments are initially recorded, and continuously carried, at fair value. Upon conversion of any of the convertible financial instruments, the carrying amount of the debt, including any unamortized premium or discount, and the related derivative instrument liability are credited to the capital accounts upon conversion to reflect the stock issued and no gain or loss is recognized.

Embedded Derivative Instruments – Series C and Series D Preferred Stock and August 2006, December 2006, July 2008, October 2008, April 2009, May 2009, June 2009, July 2009, August 2009 and May 2010 Convertible Debentures - Embedded derivative financial instruments arising from the convertible instruments consist of multiple individual features that were embedded in each instrument. For each convertible instrument, we evaluated all significant features and, as required under current accounting standards, aggregated the components into one compound derivative financial instrument for financial reporting purposes. For financings recorded in accordance with FASB ASC 815, the compound embedded derivative instruments are valued using the Monte Carlo Simulation methodology because that model embodies certain relevant assumptions (including, but not limited to, interest rate risk, credit risk, and conversion/redemption privileges) that are necessary to value these complex derivatives.

The conversion price in each of the convertible debentures is subject to adjustment for down-round, anti-dilution protection. Accordingly, if we sell common stock or common share indexed financial instruments below the stated or variable conversion price in the agreement, the conversion price adjusts to that lower amount.

As discussed above, on January 5, 2010, we entered into amendments to the convertible debentures, which extended the maturity dates to July 29, 2012, and modified the terms of the conversion prices. The modification changed the remaining term for the debentures from 0.52 - 0.58 years to 2.56 years.

The assumptions included in the calculations are highly subjective and subject to interpretation. Assumptions used as of June 30, 2010 included exercise estimates/behaviors and the following other significant estimates:

			Remaining		Equivalent	Equivalent
	Conversion		Term	Equivalent	Interest-Risk	Credit-Risk
	Prices		(years)	Volatility	Adjusted Rate	Adjusted Rate

Series C Convertible Preferred Stock	$	0.15	2.08	187%	7.51%	8.59%
Series D Convertible Preferred Stock	$	0.15	2.08	187%	7.51%	8.59%

August 24, 2006	$	0.14	2.08	187%	9.39%	8.59%
December 29, 2006	$	0.14	2.08	187%	9.39%	8.59%
July 10, 2008	$	0.12	2.08	187%	14.08%	8.59%
July 29, 2008	$	0.14	2.08	187%	14.08%	8.59%
October 28, 2008	$	0.14	2.08	187%	14.08%	8.59%
May 1, 2009	$	0.14	2.08	187%	14.08%	8.59%
June 5, 2009	$	0.14	2.08	187%	14.08%	8.59%
July 15, 2009	$	0.14	2.08	187%	14.08%	8.59%
August 14, 2009	$	0.14	2.08	187%	14.08%	8.59%
May 27, 2010	$	0.14	2.08	187%	14.08%	8.59%

Equivalent amounts reflect the net results of multiple modeling simulations that the Monte Carlo Simulation methodology applies to underlying assumptions.

Due to the variable component of the conversion price, rapid fluctuations in the trading market price may result in significant variations to the calculated conversion price. For each debenture, we analyze the ratio of the conversion price (as calculated based on the percentage of VWAP for the appropriate look back period) to the trading market price for a period of time equal to the term of the debenture to determine the average ratio for the term of the note. Each quarter, the ratio in effect on the date of the valuation is compared with the average ratio over the term of the debenture to determine if the calculated conversion price is representative of past trends or if it is considered unrepresentative due to a large fluctuation in the stock price over a short period of time. If the calculated conversion price results in a ratio that deviates significantly from the average ratio over the term of the agreement, the average ratio of the conversion price to the trading market price is then multiplied by the current trading market price to determine the variable portion of the conversion price for use in the fair value calculations. This variable conversion price is then compared with the fixed conversion price and, as required by the terms of the debentures, the lower of the two amounts is used as the conversion price in the Monte Carlo Simulation model used for valuation purposes. On June 30, 2010, the fixed conversion price for each of the debentures was equal to or higher than the calculated variable conversion price. Accordingly, the variable conversion price was used in the Monte Carlo Simulation model. This analysis is performed each quarter to determine if the calculated conversion price is reasonable for purposes of determining the fair value of the embedded conversion features (for instruments recorded under FASB ASC 815) or the fair value of the hybrid instrument (for instruments recorded under FASB ASC 815-15-25).

Hybrid Financial Instruments Carried at Fair Value – 2007 and 2008 Convertible Debentures - The March 2007, August 2007, April 2008 and May 2008 convertible debentures are recorded in accordance with FASB ASC 815-15-25 and the entire hybrid instrument was initially recorded at fair value, with subsequent changes in fair value charged or credited to income each period. These financial instruments are valued using the common stock equivalent approach. The common stock equivalent is calculated using the shares indexed to the debentures valued at the market price of our stock and the present value of the coupon.

Subsequent to the January 5, 2010 amendment, the shares indexed to the debentures were calculated using the variable conversion price based on the 125 day look-back period and the present value of the coupon from inception of the debentures to the revised maturity date of July 29, 2012.

Current Period Valuations - For the Series C Preferred Stock and the August 2006 and December 2006 debentures, due to our previous default position with respect to these instruments, the carrying value of each instrument in effect as of December 31, 2006 was written up to its full face value during the fourth quarter of 2006. For these instruments and the Series D Convertible Preferred Stock and the July 2008, October 2008, April 2009, May 2009, June 2009, July 2009, August 2009 and May 2010 debentures, the embedded derivative instrument, primarily the conversion feature, has been separated and accounted for as a derivative instrument liability, as discussed above. This derivative instrument liability is marked-to- market each reporting period.

The March 2007, August 2007, April 2008 and May 2008 debentures were each initially recorded at their full fair value pursuant to FASB ASC 815-15-25. That fair value is marked-to-market each reporting period, with any changes in the fair value charged or credited to income.

On January 5, 2010, the terms of all of the debentures were modified to extend the stated maturity date to July 29, 2012 and increase the look-back period used to calculate the variable conversion price per share for all debentures to a period of 125 days which increased our future anticipated cash flows related to those instruments. Because that increase exceeded the threshold prescribed by FASB ASC 470-50, Debt Modifications and Extinguishments, the modification of the amounts due under these instruments was accounted for as an extinguishment. Accordingly, the original convertible debentures were considered extinguished and the revised convertible debentures were recorded at their fair value, resulting in an extinguishment loss of approximately ($5.6) million.

For instruments which were recorded under FASB ASC 815-15, the instruments were first adjusted to fair value as of January 5, 2010 using the conversion rate and maturity date prior to the amendment. The fair value of the instrument was then calculated using the modified conversion rate and maturity date to determine the fair value of the instrument subsequent to the amendment. The difference in the fair value before and after the amendment was recorded as an extinguishment loss.

For instruments recorded under FASB ASC 815-10, the embedded conversion feature was first adjusted to fair value as of the date of the amendment using the conversion rate and maturity date prior to the amendment. The carrying value of the host instrument and the embedded conversion feature, less any deferred financing costs, was then compared with the fair value of the hybrid instrument subsequent to the amendment and the difference was recorded as an extinguishment loss.

For our Series C and Series D Convertible Preferred Stock and convertible debentures, the following table reflects the face value of the instruments and, as appropriate, either their amortized cost carrying value and the fair value of the separately-recognized compound embedded derivative or, for those debentures recorded in their entirety at fair value, their fair value, as well as for each of the instruments and the number of common shares (in thousands) into which the instruments are convertible as of June 30, 2010 and December 31, 2009.

					Embedded				Common
	Face		Carrying		Conversion				Stock
June 30, 2010	Value		Value		Feature		Fair Value		Shares
	(in thousands)

Series C Convertible Preferred Stock	$	8,642	$	8,642	$	861	$	-		59,393
Series D Convertible Preferred Stock	$	2,500	$	2,500		249		-		17,182

August 24, 2006	$	5,000	$	5,000		1,527		-		49,091
December 29, 2006		2,500		2,500		762		-		24,546
March 27, 2007		7,459		-		-		13,162		55,249
August 24, 2007		1,775		-		-		3,389		14,791
April 11, 2008		390		-		-		774		3,250
May 16 ,2008		500		-		-		986		4,167
May 29, 2008		790		-		-		1,553		6,583
July 10, 2008		138		138		82		-		1,488
July 29, 2008		2,325		2,325		799		-		20,703
October 23, 2008		2,325		2,325		814		-		20,133
May 1, 2009		294		294		87		-		2,554
June 5, 2009		715		653		327		-		5,768
July 15, 2009		535		535		199		-		4,258
August 14, 2009		475		475		178		-		3,742
May 27, 2010		2,006		166		1,537		-		14,262
Total	$	27,227	$	14,411	$	7,422	$	19,864		307,160

					Embedded				Common
	Face		Carrying		Conversion				Stock
December 31, 2009	Value		Value		Feature		Fair Value		Shares
	(in thousands)

Series C Convertible Preferred Stock	$	8,642	$	8,642	$	16,397	$	-		22,158

August 24, 2006	$	5,000	$	5,000		14,131		-		13,889
December 29, 2006		2,500		2,500		6,926		-		9,260
March 27, 2007		7,459		-		-		25,046		20,718
August 24, 2007		1,775		-		-		6,573		5,547
April 11, 2008		390		-		-		1,412		1,219
May 16 ,2008		500		-		-		1,803		1,563
May 29, 2008		790		-		-		2,844		2,469
July 10, 2008		137		127		337		-		430
July 29, 2008		2,325		2,109		4,618		-		6,118
October 28, 2008		2,325		2,130		4,594		-		6,118
May 1, 2009		294		120		580		-		774
June 5, 2009		715		71		1,410		-		1,882
July 15, 2009		535		253		1,056		-		1,408
August 14, 2009		475		213		936		-		1,250
Total	$	25,220	$	12,523	$	50,985	$	37,678		94,803

The terms of the embedded conversion features in the convertible instruments presented above provide for variable conversion rates that are indexed to our trading common stock price. As a result, the number of indexed shares is subject to continuous fluctuation. For presentation purposes, the number of shares of common stock into which the embedded conversion feature of the Series C and Series D Preferred Stock was convertible as of June 30, 2010 was calculated as face value plus assumed dividends (if declared), divided by the lesser of the fixed rate or the calculated variable conversion price using the 125 day look-back period. The number of shares of common stock into which the embedded conversion feature in the convertible debentures was convertible as of June 30, 2010 was calculated as the face value of each instrument divided by the variable conversion price using a 125 day look-back period.

The March 2007, August 2007, April 2008 and May 2008 debentures are carried in their entirety at fair value in accordance with FASB ASC 815-15-25 and the value of the embedded conversion feature is effectively embodied in those fair values.

Changes in the fair value of convertible instruments that are carried in their entirety at fair value (the March 2007, August 2007, April 2008 and May 2008 debentures) are reported as “Gain (loss) from change in fair value of hybrid financial instruments” in the accompanying consolidated statements of operations. The changes in fair value of these hybrid financial instruments were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(in thousands)				(in thousands)

March 27, 2007	$	717	$	15,915	$	12,805	$	(110	)
August 24, 2007		227		3,797		3,439		156
April 11, 2008		55		844		768		49
May 16, 2008		69		1,081		984		84
May 29, 2008		112		1,706		1,556		133
Gain (loss) from changes in fair value of hybrid instruments	$	1,180	$	23,343	$	19,552	$	312

The carrying value of our liability for convertible instruments carried at fair value decreased $17.8 million during the six month period from December 31, 2009 to June 30, 2010. However, the fair values of these liabilities decreased $19.5 million. The difference between the change in carrying value and change in fair value is an extinguishment loss of $1.7 million resulting from the January 5, 2010 amendment.

Changes in the fair value of derivative instrument liabilities related to the bifurcated embedded derivative features of convertible instruments not carried at fair value are reported as “Gain (loss) from change in fair value of derivative liability – Series C and Series D preferred stock and debentures” in the accompanying consolidated statement of operations. The changes in fair value of these derivative financial instruments were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(in thousands)						(in thousands)
Series C Convertible Preferred Stock	$	907		$	15,851		$	15,536		$	(11,389	)
Series D Convertible Preferred Stock		262			-			4,302			-

August 24, 2006		2,118			12,694			13,080			619
December 29, 2006		1,060			6,454			6,403			289
July 10, 2008		61			273			328			17
July 29, 2008		875			1,275			4,372			361
October 28, 2008		792			1,293			4,092			289
April 6, 2009		-			79			-			79
May 1, 2009		102			(33	)		572			(33	)
June 5, 2009		192			92			1,188			92
July 15, 2009		485			-			990			-
August 14, 2009		112			-			865			-
May 27, 2010		426			-			425			-
		7,392			37,978			52,153		$	(9,676	)
Less: Day-one loss from Series D Convertible Preferred financing		-			-			(4,582	)		-
Less: Day-one loss from May 27, 2010 financing		(747	)		-			(747	)		-
Gain (loss) from change in fair value of derivative liability	$	6,645		$	37,978		$	46,824		$	(9,676	)

Warrants - YA Global holds warrants to purchase shares of our common stock that were issued in connection with the convertible debentures and the Series C and Series D Preferred Stock. The warrants are exercisable at the lower of a fixed exercise price or a specified percentage of the current market price. From time to time, the fixed exercise prices of the warrants held by YA Global have been reduced as an inducement for YA Global to enter into subsequent financing arrangements. In addition to the warrants issued to YA Global, certain other warrants have been issued to consultants and other service providers.

The warrants issued to YA Global and others do not meet all of the established criteria for equity classification in FASB ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, and accordingly, are recorded as derivative liabilities at fair value. Changes in the fair value of the warrants are charged or credited to income each period.

The January 5, 2010 investment agreement with YA Global amended the exercise price of warrants indexed to 350,000 shares of common stock, which were issued in July 2008. Due to down-round anti-dilution provisions, the exercise price of the warrants prior to the amendment was based on the lowest conversion price of convertible debentures issued subsequent to July 2008; however, the amendment fixed the exercise price at $1.00, subject to subsequent adjustment for anti-dilution. The amendment reduced the exercise price of the July 2008 warrants resulting in an approximate decrease in fair value of $3,500.

In connection with the January 5, 2010 investment agreement, we also issued to YA Global warrants to purchase 225,000 shares of our common stock at an exercise price of $1.00, expiring after seven years. These warrants were accounted for as a derivative liability and their fair value at inception was approximately $2.4 million.

The following table summarizes the warrants outstanding (in thousands) and their fair value:

	June 30,		December 31,			June 30,				December 31,
	2010		2009			2010				2009
	Exercise		Exercise		Expiration			Fair				Fair
	Price		Price		Date	Warrants		Value		Warrants		Value

Series C Convertible Preferred Stock	$	0.12	$	0.32	2/17/2011		750	$	67		750	$	712
Series D Convertible Preferred Stock		0.16		—	1/5/2017		2,250		342		—		—

August 24, 2006		0.12		0.32	8/24/2011		1,750		189		1,750		1,697
December 29, 2006		0.12		0.32	12/29/2011		420		55		420		412
March 27, 2007		0.12		0.32	3/27/2012		1,250		164		1,250		1,238
August 24, 2007		0.12		0.32	8/24/2012		750		106		750		750
May 16, 2008		0.12		0.32	5/16/2015		75		11		75		77
May 29, 2008		0.12		0.32	5/29/2015		500		74		500		515
July 29, 2008		0.14		0.95	7/29/2015		1,000		148		1,000		1,000
July 29, 2008		0.16		0.95	7/29/2015		3,500		516		3,500		3,500
May 27, 2010		0.22		—	5/27/2015		5,000		727		—		—
Other warrants		1.10	$	1.10- $3.50	1/16/2011		1		—		67		11
					Total		17,246	$	2,399		10,062	$	9,912

The carrying value of warrants decreased $3.4 million during the three month period from March 31, 2010 to June 30, 2010 due to the issuance of warrants on May 27, 2010 with a fair value of $912,000, less warrant fair value adjustments of $4.3 million as shown in the table below.

The warrants are valued using the Black-Scholes-Merton valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in this model as of June 30, 2010 included an expected life equal to the remaining term of the warrants, an expected dividend yield of zero, estimated volatility ranging from 150.61% to 205.34%, and risk-free rates of return of 0.22% to 2.42%. For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the remaining term of the warrants and volatility is based upon our expected stock price volatility over the remaining term of the warrants.

Changes in the fair value of the warrants are reported as "(Gain) loss from change in fair value of derivative liability - warrants" in the accompanying consolidated statement of operations. The changes in the fair value of the warrants were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(in thousands)				(in thousands)
Series C Convertible Preferred Stock	$	171	$	1,496	$	645	$	(919	)
Series D Convertible Preferred Stock		806		-		2,088		-

August 24, 2006		581		3,570		1,508		(2,100	)
December 29, 2006		139		865		357		(504	)
March 27, 2007		423		2,562		1,074		(1,501	)
August 24, 2007		246		1,538		644		(907	)
May 16, 2008		26		161		66		(96	)
May 28, 2008		176		1,070		441		(635	)
July 29, 2008		1,551		9,525		3,836		(5,699	)
May 27, 2010		186		-		186		-
Other warrants		-		92		11		(41	)
Total	$	4,305	$	20,879	$	10,856	$	(12,402	)

Fair Value Considerations – As required by FASB ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments that are measured at fair value on a recurring basis under FASB ASC 815-15-25 or FASB ASC 815 are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following represents a reconciliation of the changes in fair value of financial instruments measured at fair value using Level 3 inputs during the three and six months ended June 30, 2010:

	Compound
	Embedded			Warrant
	Derivative			Derivative			Total

Beginning balance, December 31, 2009:	$	50,985		$	9,912		$	60,897

Issuances:
January 5, 2010		4,551			2,431			6,982

Extinguished:		2,076			-			2,076

Fair value adjustments:
Compound embedded derivatives		(44,761	)		-			(44,761	)
Warrant derivatives		-			(6,551	)		(6,551	)

Ending balance, March 31, 2010	$	12,851		$	5,792		$	18,643

Issuances:
May 27, 2010		1,964			912			2,876

Fair value adjustments:
Compound embedded derivatives		(7,393	)		-			(7,393	)
Warrant derivatives		-			(4,305	)		(4,305	)
Ending balance, June 30, 2010	$	7,422		$	2,399		$	9,821

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, valuation techniques are sensitive to changes in the trading market price of our common stock, which has a high estimated historical volatility. Because derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes.

Subsequent Event

Secured Convertible Debenture - On August 13, 2010, we issued a secured convertible debenture to YA Global in the principal amount of $550,000. The debenture accrues interest at 14% per annum and is payable on the maturity date, July 29, 2012, in cash, or provided that certain equity conditions are satisfied, in shares of common stock. At any time from the closing date until the maturity date, YA Global has the right to convert the convertible debenture into our common stock at the then effective conversion price, which varies relative to the our trading stock price, at the lesser of $0.20 per share, or 95% of the lowest weighted average price of our common stock during the sixty days preceding the conversion date, and adjusts to 50% of the lowest weighted average price of our common stock during the ten days preceding the conversion date, in the event of a default. The conversion is limited such that the YA Global cannot exceed 9.99% ownership, unless they waive their right to such limitation. We have the right to redeem a portion or the entire outstanding note at a 10% premium plus accrued interest. In addition to the debenture, we also issued to YA Global a warrant to purchase 1,000,000 shares of our common stock, for an exercise price of $0.20 per share.

The debenture is secured by certain Pledged Property, as such term is defined in the Security Agreement, dated July 29, 2008, and certain Patent Collateral, as defined in a security agreement (patent), entered into on July 29, 2008. Also on August 13, 2010 our wholly owned subsidiary, NeoMedia Europe AG, became a guarantor of the convertible debenture, and all outstanding prior financing transactions between us and YA Global, through a pledge of their intellectual property and their commitment to pledge their other movable assets. As security for our obligations to YA Global, all of our Pledged Property, Patent Collateral and other collateral was affirmed through the Second Ratification Agreement which was also executed in connection with this financing.

Note 5 – Stock-Based Compensation

A total of 200,000 stock options were issued to employees during the six months ended June 30, 2010. A total of 221,735 stock options were issued to employees during the six months ended June 30, 2009.

Of the 200,000 stock options issued during the six months ended June 30, 2010, on May 26, 2010, pursuant to the terms of the amended employment agreement with Iain A. McCready, our Chairman and Chief Executive Officer, we issued Mr. McCready 180,000 employee stock options with an exercise price of $0.199 per share.

The grant date fair values of the options issued during the six months ended June 30, 2010 and 2009 were $19,300 and $157,000, respectively, which amount is being recognized over the vesting period of the options. Total stock-based compensation expense recorded in the statement of operations was $39,700 and $98,000, for the three months ended June 30, 2010 and 2009, and $97,500 and $177,000 for the six months ended June 30, 2010 and 2009, respectively.

We used the following assumptions to value the stock options granted during the six months ended June 30, 2010 and 2009:

	Six months ended June 30,
	2010			2009
Volatility		168% - 210	%		138% - 282	%
Expected dividends		-			-
Expected term (in years)		6.5			5.6
Risk-free rate		0.50	%		0.50	%

A summary of the transactions during the six months ended June 30, 2010 with respect to our stock option plans follows:

								Weighted-
								Average
				Weighted-				Contractual
				Average		Aggregate		Life
				Exercise		Intrinsic		Remaining
	Shares			Price		Value		in Years
	(in thousands)					(in thousands)
Outstanding at December 31, 2009		946		$	2.00
Granted		200		$	0.20
Exercised		-		$	-
Forfeited		(46	)	$	1.17
Outstanding at June 30, 2010		1,100		$	1.90	$	-	6.2
Exercisable at June 30, 2010		765		$	2.49	$	-	7.3

A summary of the status of our non-vested options as of June 30, 2010 and changes during the three and six months ended is presented below:

				Weighted
				Average
				Grant Date
Nonvested Shares	Shares			Fair Value
	(in thousands)
Nonvested at December 31, 2009		249		$	1.00
Granted		200		$	0.20
Vested		(68	)	$	1.37
Forfeited		(46	)	$	0.73
Nonvested at June 30, 2010		335		$	0.48

The following table summarizes information about our stock options outstanding at June 30, 2010:

Options Outstanding							Options Exercisable
Exercise Prices	Number of Shares		Weighted- Average Remaining Life		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
	(in thousands)		(in years)				(in thousands)

$0.20 to $4.70		1,023		8.2	$	1.34		688	$	1.73
$5.00 to $10.00		52		5.0	$	7.59		52	$	7.59
$12.50		21		5.0	$	12.50		21	$	12.50
$17.50		4		5.6	$	17.50		4	$	17.50
		1,100		6.2	$	1.90		765	$	2.49

There were no stock options exercised during the six months ended June 30, 2010. During the six months ended June 30, 2009 options to purchase 116,000 shares of our common stock were exercised. The exercise price of these options was $1.00 per share, providing us with proceeds of $116,000.

Note 6 – Accrued Liabilities

Accrued liabilities consist of the following as of June 30, 2010 and December 31, 2009:

	June 30,		December 31,
	2010		2009
	(in thousands)

Accruals for disputed services	$	2,318	$	2,318
Accrued operating expenses		1,636		1,702
Accrued payroll related expenses		189		158
Accrued interest		3,989		3,114
Total	$	8,132	$	7,292

Note 7 – Contingencies

We are involved in various legal actions arising in the normal course of business, both as claimant and defendant. Although 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 is unlikely to have a material adverse effect on our financial position or operating results.

Ephrian Saguy, iPoint – media, plc. and iPoint – media, Ltd. – On or around March 5, 2008, we received a summons and notice that the plaintiffs had commenced a third party action in the Magistrate Court in Tel-Aviv-Jaffa, Israel seeking damages from us and YA Global for breach of contract and unjust enrichment related to services provided by iPoint, and investment by us and YA Global. We have entered into an assignment agreement with YA Global and have retained legal counsel in Israel to represent us. The Company plans to vigorously defend this lawsuit.

Rothschild Trust Holdings, LLC – On September 19, 2008, we received a complaint filed in the Circuit Court of the Eleventh Judicial Circuit, in and for Miami-Dade County, Florida, by Rothschild Trust Holding, LLC alleging we owed royalty payments for the use of certain patents. On February 25, 2009, we filed an answer to the complaint. On July 20, 2009 we entered into non-binding mediation and an interim agreement which required us to provide documentation for review by Rothschild Trust Holding, LLC. The non-binding mediation and interim agreement did not settle the matter. On January 4, 2010, we filed a motion for summary judgment seeking to terminate the litigation, but this motion was denied in a hearing held on April 28, 2010. We believe the complaint is without merit and we intend to vigorously defend against it.

The Hudson Consulting Group, LLC. – On June 15, 2010 we entered into a settlement agreement which resolved all outstanding issues between the parties. The amount of the settlement was not material.

William Klawonn v. Y.A. Global Investments, L.P. and NeoMedia Technologies, Inc. – On April 28, 2010, William Klawonn, a shareholder of NeoMedia, filed a derivative action, in the United States District Court for the District of New Jersey, against YA Global and us claiming trading activities that violated section 15 U.S.C. § 78p(b). On July 8, 2010, an order was granted in the case stipulating that the plaintiff had agreed that we have no liability in the action. The order also stipulated that we will be considered a nominal party to the action, and as such we remain subject to the discovery rights and obligations of the action. At this time, we are unable to predict with any certainty the outcome of this litigation including the merits or value of the complaint.

Note 8 – Geographic Reporting

We are structured and evaluated by our Board of Directors and management as one business unit.

Consolidated net revenues and net income/(loss) for the three and six months ended June 30, 2010 and 2009, and the identifiable assets as of June 30, 2010 and December 31, 2009 by geographic area were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(in thousands)						(in thousands)
Revenue:
United States	$	165		$	88		$	333		$	155
Germany		56			48			243			471
Total	$	221		$	136		$	576		$	626

Net income (loss):
United States	$	9,872		$	78,524		$	67,542		$	(27,752	)
Germany		(370	)		(460	)		(708	)		(783	)
Total	$	9,502		$	78,064		$	66,834		$	(28,535	)

							June 30,			December 31,
							2010			2009
Identifiable assets:
United States							$	8,488		$	8,738
Germany								570			686
Total							$	9,058		$	9,424

Note 9 – Transactions with Related Parties

On April 12, 2010, we entered into a consulting agreement with Laura A. Marriott, a member of our Board of Directors. Under the terms of the agreement, Ms. Marriott will serve as our interim Chief Marketing Officer and provide services on a per-diem basis plus expenses. During the six months ended June 30, 2010, in addition to her compensation as a member of our Board of Directors, we have paid Ms. Marriott $38,000 in fees, excluding reimbursement of her expenses.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

NeoMedia Technologies, Inc., a Delaware corporation (“NeoMedia”, and also refereed to herein as “us”, “we” and “our”) provides the infrastructure to make mobile barcode scanning and its associated commerce easy, universal, and reliable – worldwide. Our barcode ecosystem products, including NeoReader, and our mobile barcode reading software, read and transmit data from 2D barcodes to its intended destination. Our Code Management (NeoSphere) and Code Clearinghouse (NeoRouter) platforms create, connect, record, and transmit the transactions embedded in the barcodes, ubiquitously and reliably.

In order to provide complete mobile marketing solutions, we also offer barcode scanning hardware that reads barcodes displayed on mobile phone screens or printed media. We also provide infrastructure solutions to enable mobile ticketing and couponing programs – including scanner hardware and system support software for seamless implementation.

Our technology is supported by our patents. In addition, we have an open standards philosophy designed to make integration and use of the technology easy for handset manufacturers, mobile operators and advertisers; and the user experience safe, reliable and interoperable for consumers.

During 2009 and early 2010, we have taken steps to build on the developing barcode ecosystem based on the strengths of our patent portfolio. To accomplish this, we have entered into several licensing programs and resolved a significant outstanding legal matter.

On July 28, 2009, we entered into a three year non-exclusive patent licensing agreement with Mobile Tag, Inc. for machine readable mobile codes under our patent portfolio. Under the terms of that agreement, we will receive a percentage of revenue generated by Mobile Tag through the use and licensing of our patent portfolio.

On October 2, 2009, we entered into a four year agreement with Neustar, Inc. in which we granted to Neustar a non-exclusive license to a portion of our patent portfolio primarily for the purpose of establishing and providing registry and clearinghouse services within a defined field of use and geographic territory. The terms of the license also granted to Neustar an exclusive right to grant royalty bearing sub-licenses for the use of the same portion of our patent portfolio within the defined field of use and geographic territory, to resolution authorities for a period of not less than one year, and up to a maximum of four years depending on the achievement of certain milestones as set forth in the license agreement. In addition, Neustar will perform certain reservations, administration, billing and collection and other additional services for our benefit as well as for the benefit of Neustar and the sub-licensees. On January 22, 2010 we amended this agreement to further expand our opportunities by including several of our Mexican patents and expanding the geographical territory covered by this agreement to include Mexico.

On October 7, 2009, we entered into a four year agreement with Brand Extension Mobile Solutions, S.A., a Madrid (Spain) corporation (“BEMS”), in which we granted to BEMS a royalty-bearing, and non-exclusive license to use the licensed platform in an approved field of use within a certain geographical territory. The licensed platform will support BEMS’s performance of exclusive commercial operations under a particular cooperation agreement between BEMS and Telefónica Internacional, S.A.U., a subsidiary of Spain’s Telefonica S.A., one of the world’s largest telecommunication companies. BEMS intends to use us as their prime vendor in connection with their agreement with Telefónica. The license agreement grants to BEMS the right to distribute our barcode reading software via download or through its inclusion in mobile devices. The license agreement also requires BEMS to purchase twenty-five of our barcode scanning hardware products to support testing and marketing of barcode and mobile barcode based ticketing and couponing activities.

On October 16, 2009, we entered into a ten year settlement and license agreement with Scanbuy, Inc., in which we and Scanbuy settled all of our pending litigation against each other and granted non-exclusive licenses and a sublicense to each other. Pursuant to the terms of the agreement, we granted to Scanbuy a royalty-bearing, non-exclusive license to use a portion of the Company’s patent portfolio within a defined field of use and geographic territory.

On November 27, 2009 we entered into an agreement with Sony Ericsson Mobile Communications, AB, through which they have selected NeoMedia as their strategic 2D barcode partner. Sony Ericsson began shipping phones pre-loaded with our NeoReader barcode scanning application globally in the 1st half of 2010. The NeoReader will be pre-installed across all Sony Ericsson platforms.

On February 12, 2010 we entered into an agreement with Neustar to participate in and to facilitate a leadership role in the 2010 Neustar Mobile Codes Pilot Program. The Program combines all of the elements required to fulfill our goal of a seamless and interoperable barcode ecosystem and will allow advertisers to test the market and technology.

During 2010, we have entered into seven platform reseller agreements with resellers of our services. These resellers are typically advertising agencies representing brands in the United States and Europe. Through these agreements, we will provide barcode ecosystem advertising campaign management and support services to the resellers’ customers. Revenue derived from these services will be shared between us and the resellers. These agreements are expected to begin generating revenue during the second half of 2010.

Comparison of the Three and Six Months Ended June 30, 2010 and 2009

Results of Operations

Beginning in 2009 and continuing into 2010, we continued to focus on the development of our barcode ecosystem technology. During the three months ended June 2010 and 2009, respectively, operating losses were $1.8 million and $1.5 million. Our net income was $9.5 million and $78.1 million for the three months ended June 2010 and 2009, respectively. During the six months ended June 2010 and 2009, respectively, operating losses were $3.4 million and to $3.1 million. Our net income was $66.8 million for the six months ended June 2010 compared to a net loss of $28.5 million during the six months ended June 2009. Our operating results include non-cash gains and losses from the change in fair value of our hybrid financial instruments, warrants and debentures. We incur these non-cash gains and losses principally as a result of changes in the market value of our common stock. During the three and six months ended June 2010, we reported non-cash gains on our hybrid financial instruments, warrants and debentures, totaling $12.1 and $77.2 million, respectively.

The following table sets forth certain data derived from our consolidated statements of operations:

	Three months ended June 30,				Increase (decrease)
	2010		2009		$			%
	(in thousands)
Revenues:
Hardware	$	27	$	36	$	(9	)		-25	%
Lavasphere		22		8		14			175	%
Barcode ecosystem		5		2		3			150	%
Patent licensing		165		-		165			100	%
Legacy products		-		88		(88	)		-100	%
Other		2		2		0			0	%
Total revenues	$	221	$	136	$	85			63	%

	Six months ended June 30,				Increase (decrease)
	2010		2009		$			%
	(in thousands)
Revenues:
Hardware	$	162	$	429	$	(267	)		-62	%
Lavasphere		68		30		38			127	%
Barcode ecosystem		11		6		5			83	%
Patent licensing		330		10		320			3200	%
Legacy products		2		145		(143	)		-99	%
Other		3		6		(3	)		-50	%
Total revenues	$	576	$	626	$	(50	)		-8	%

Revenues. Revenues for the three months ended June 2010 and 2009, respectively, were $221,000 and $136,000, an increase of $85,000, or 62%. Revenues for the six months ended June 2010 and 2009, respectively, were $576,000 and $626,000, a decrease of $50,000, or 8%. Our revenues and product mix have changed as a result of changes in our operations and business strategy. For the three months ended June 2010 and 2009, respectively, our hardware product sales were $27,000 and $36,000, a decrease of 26%. For the six months ended June 2010 and 2009, respectively, our hardware product sales were $162,000 and $429,000, a decrease of 62%. During 2009, we introduced our newest barcode scanners and sold most quantities of our older models. Our hardware products tend to be sold in large transactions and revenues can fluctuate significantly from period to period. For the three months ended June 2010 and 2009, respectively, our Lavasphere product sales were $22,000 and $8,000, an increase of $14,000, or 175%. For the six months ended June 2010 and 2009, respectively, our Lavasphere product sales were $68,000 and $30,000, an increase of $38,000, or 125%, as a result of modest increased demand for these products and services. For the three months ended June 2010 and 2009, respectively, our Barcode ecosystem revenue was $5,000 and $2,000. For the six months ended June 2010 and 2009, respectively, our Barcode ecosystem revenue was $11,000 and $6,000, as a result of increased marketing campaigns in Europe. Revenues related to patent licensing agreements were $165,000 during the three months ended June 2010, and for the six months ended June 2010 and 2009, respectively, were $330,000 and $10,000, as a result of licensing agreements we entered into in late 2009 and 2010. In succeeding quarters, we expect these revenues to increase as we shift the focus of our efforts toward the barcode ecosystem. We believe this focus will deliver the most value in the future.

Cost of Revenues. Cost of revenues was $255,000 for the three months ended June 2010 compared with $281,000 for the three months ended June 2009, a decrease of $26,000, or 9%. Cost of revenues was $594,000 for the six months ended June 2010 compared with $808,000 for the six months ended June 2009, a decrease of $214,000, or 26%. Cost of revenues for NeoMedia Europe, related to our hardware products, was $23,000 and $45,000 for the three months ended June 2010 and 2009, respectively, and was $128,000 and $334,000 for the six months ended June 2010 and 2009, respectively. Amortization costs related to our patents, and the proprietary software of NeoMedia Europe was $232,000 and $236,000 for the three months ended June 2010 and 2009, respectively, and was $466,000 and $474,000 for the six months ended June 2010 and 2009, respectively.

Sales and Marketing. Sales and marketing expenses were $262,000 and $178,000 for the three months ended June 2010 and 2009, respectively, an increase of $84,000 or 47%, and $581,000 and $464,000 for the six months ended June 2010 and 2009, respectively, an increase of $117,000 or 25%. The increase in sales and marketing expense resulted from additional efforts in late 2009 and 2010 to promote our business strategy and core technology.

General and Administrative. General and administrative expenses were $1,041,000 and $863,000 for the three months ended June 2010 and 2009, respectively, an increase of $178,000, or 21%, and $2,136,000 and $1,787,000 for the six months ended June 2010 and 2009, respectively, an increase of $349,000, or 20%. Expenses increased as a result of increased professional services fees related to legal and accounting, as well as business travel related to increased business development.

Research and Development. Research and development expenses were $418,000 and $350,000 for the three months ended June 2010 and 2009, respectively, an increase of $68,000, or 19%, and $701,000 and $673,000 for the six months ended June 2010 and 2009, respectively, an increase of $28,000, or 4%. Research and development decreased as we completed the development of our upgraded hardware products and our barcode ecosystem products.

Loss from Operations. For the three months ended June 2010 and 2009, respectively, our loss from operations increased to $1.8 million, from $1.5 million. This increased loss of $219,000 was primarily the result of minimal increases in our sales and marketing expenses of $84,000, increased general and administrative expenses of $178,000, increased research and development expense of $68,000, and an increase in our gross profit margin of $111,000. For the six months ended June 2010 and 2009, respectively, our loss from operations was increased slightly to $3.4 million, from $3.1 million. This increased loss of $330,000 was primarily the result of minimal increases in our sales and marketing expenses of $117,000, increased general and administrative expenses of $349,000, increased research and development expense of $28,000, and an increase in our gross profit margin of $164,000.

Gain (Loss) from Change in Fair Value of Hybrid Financial Instruments. We carry certain of our convertible debentures at fair value, in accordance with FASB ASC 815-15-25, and do not separately account for the embedded conversion feature. The change in the fair value of these liabilities includes changes in the value of the interest due under these instruments, as well as changes in the fair value of the common stock underlying the instruments. For the three months ended June 2010 and 2009, respectively, liability related to these hybrid instruments decreased resulting in a gain of $1.2 million and a gain of $23.3 million, respectively. For the six months ended June 2010 and 2009, respectively, liability related to these hybrid instruments decreased resulting in a gain of $19.6 million and a gain of $0.3 million, respectively. These fair value changes were primarily the result of fluctuations in the value of our common stock during the period. Because our stock price has been volatile and because many of our hybrid financial instruments include relatively low fixed conversion prices, it is possible that further increases in the market price of our stock could cause the fair value of our hybrid financial instruments to increase significantly in future periods.

Gain (Loss) from Change in Fair Value of Derivative Liabilities - Warrants. We account for our outstanding common stock warrants that were issued in connection with the preferred stock and our debentures, at fair value. For the three months ended June 2010 and 2009, respectively, the liability related to warrants decreased resulting in a gain of $4.3 million and a gain of $20.9 million, respectively. For the six months ended June 2010, the liability related to warrants decreased resulting in a gain of $10.9 million. For the six months ended June 2009, the liability related to warrants increased resulting in a loss of $12.4 million. These fair value changes were primarily the result of fluctuations in the value of our common stock during the period. Because our stock price has been volatile and because many of our warrants include relatively low fixed exercise prices it is possible that further increases in the market price of our common stock could cause the fair value of our warrants to increase significantly in future periods.

Gain (Loss) from Change in Fair Value of Derivative Liabilities - Series C and D Preferred Stock and Debentures. For our Series C and D convertible preferred stock, and certain of our convertible debentures, we account for the embedded conversion feature separately as a derivative financial instrument. We carry these derivative financial instruments at fair value. For the three months ended June 2010 and 2009, respectively, the liability related to the derivative instruments embedded in the Series C and D preferred stock and these debentures decreased resulting in a gain of $6.6 million and $38.0 million, respectively. For the six months ended June 2010, the liability related to the derivative instruments embedded in the Series C preferred stock and these debentures decreased resulting in a gain of $46.8 million. For the six months ended June 2009, the liability related to the derivative instruments embedded in the Series C preferred stock and these debentures increased resulting in a loss of $9.7 million. These fair value changes were primarily the result fluctuations in the value of our common stock during the period. Because our stock price has been volatile and because many of our derivative financial instruments include relatively low fixed conversion prices, it is possible that further increases in the market price of our common stock could cause the fair value of our derivative financial instruments to increase significantly in future periods.

Interest Expense Related to Convertible Debt. Interest expense related to convertible debentures that are carried at amortized cost and which are not carried as hybrid financial instruments at fair value was $510,000 and $2.6 million for the three months ended June 2010 and 2009, respectively, and $956,000 and $3.7 million for the six months ended June 2010 and 2009, respectively. These positive changes were primarily the result of reductions in amortization of deferred financing cost and debt discounts not applicable during 2010, and other interest adjustments accounted for under ACS 815-15-25.

Net Income (Loss). As a result of the above, during the three months ended June 2010 and 2009, respectively, we experienced net income of $9.5 million, and $78.1 million, respectively, resulting in an overall decrease of $68.6 million. During the six months ended June 2010 and 2009, respectively, we experienced net income of $66.8 million, and a net loss of $28.5 million, respectively, resulting in an overall increase of $95.3 million. This positive change primarily resulted from gains associated with our derivative instruments of $99.0 million, offset by a loss on extinguishment of debt of $6.0 million, and an increase in our loss from operations of $330,000.

Liquidity and Capital Resources

As of June 30, 2010, we had $673,000 in cash and cash equivalents, an increase of $475,000, or 239%, compared with a total of $198,000 on December 31, 2009.

Cash used in operating activities increased to $3.4 million for the six months ended June 2010 compared with $2.7 million for the period ended June 2009, representing increased operational expenses in connection with furthering our sales and business development, and the continued development of our barcode ecosystem.

Cash used in investing activities was $7,000 and $24,000 for the six months ended June 2010 and 2009, respectively, representing the purchase of equipment.

Cash provided by financing activities during the six months ended June 2010 was $3,785,000, which included the following:

Gross proceeds of $2,500,000 of our Series D Preferred Stock, offset by fees paid of $100,000 and the repayment of a $500,000 promissory note issued December 23, 2009 and due to YA Global, resulting in net proceeds of $1,900,00; and,

Gross proceeds of $500,000 in connection with a promissory note issued to YA Global on April 1, 2010, accruing interest at 8% per annum, less structuring fees of $10,000 and monitoring fees of $15,000, resulting in net proceeds of $475,000; and,

Gross proceeds of $2,006,137 in connection with a Secured Convertible Debenture entered into with YA Global, accruing interest at 14% per annum and payable on the maturity date of July 29, 2012, less repayment of the April 1, 2010 promissory note of $500,000, less accrued interest on the promissory note of $6,137, less structuring and due diligence fees of $90,000, resulting in net proceeds of $1,410,000.

Cash provided by financing activities during the six months ended June 2009 was $1.8 million, which resulted from $1.7 million in convertible debt instruments, net of fees, from Y.A. Global, and proceeds received upon exercise of stock options by two former employees totaling $116,000.

As of June 30, 2010, we had a working capital deficiency of $57.2 million, of which $22.3 million relates to the fair value of hybrid and derivative financial instruments, and $21.8 million relates to the carrying value of certain of our debentures and the fair value of the derivative liabilities associated with those debentures and our Series C and D preferred stock.

Significant Liquidity Events

Going Concern – We have historically incurred net losses from operations and we expect that we will continue to have negative cash flows as we implement our business plan. There can be no assurance that our continuing efforts to execute our business plan will be successful and that we will be able to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with US GAAP, which contemplate our continuation as a going concern. Net income (loss) for the six months ended June 30, 2010 and 2009 was $66.8 million and ($28.5) million, respectively and net cash used by operations during the same period was $3.4 million and $2.7 million, respectively. At June 30, 2010, we have an accumulated deficit of $212.7 million. We also have a working capital deficit of $57.2 million, of which $44.1 million is related to our financing instruments, including $22.3 million related to the fair value of warrants and those debentures that are recorded as hybrid financial instruments, and $21.8 million related to the amortized cost carrying value of certain of our debentures and the fair value of the associated derivative liabilities.

The items discussed above raise substantial doubts about our ability to continue as a going concern.

We currently do not have sufficient cash to sustain us for the next twelve months. We will require additional financing in order to execute our operating plan and continue as a going concern. Our management’s plan is to secure adequate funding to bridge the commercialization of our barcode ecosystem business. We cannot predict whether this additional financing will be in the form of equity, debt, or another form and we may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that these financing sources do not materialize, or that we are unsuccessful in increasing our revenues and profits, we may be unable to implement our current plans for expansion, repay our debt obligations as they become due or continue as a going concern, any of which circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations. Should our lender YA Global Investments, L.P. (“YA Global”) choose not to provide us with capital financing, or if we do not find alternative sources of financing to fund our operations, or if we are unable to generate significant product revenues, we only have sufficient funds to sustain our current operations through approximately September 15, 2010. We do not have a commitment for any additional financing.

Sources of Cash and Projected Cash Requirements - As of June 30, 2010, our cash balance was $673,000. NeoMedia’s reliance on YA Global as our primary financing source has certain ramifications that could affect future liquidity and business operations. For example, pursuant to the terms of the convertible debenture agreements between us and YA Global, without YA Global’s consent we cannot (i) issue or sell any shares of our common stock or our preferred stock without consideration or for consideration per share less than the closing bid price immediately prior to its issuance, (ii) issue or sell any preferred stock, warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire our common stock for consideration per share less than the closing bid price immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of our assets or (iv) file any registration statements on Form S-8. In addition, pursuant to security agreements between us and YA Global, YA Global has a security interest in all of our assets. Such covenants could severely harm our ability to raise additional funds from sources other than YA Global, and would likely result in a higher cost of capital in the event we secured funding.

Additionally, pursuant to the terms of the Investment Agreement between us and YA Global in connection with our Series C convertible preferred stock sale, we cannot (i) enter into any debt arrangements in which we are the borrower, (ii) grant any security interest in any of our assets or (iii) grant any security below market price.

Subsequent Event

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures - Our management, with the participation of our CEO and CFO, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of June 30, 2010 at a reasonable assurance level, because of material weaknesses with respect to entity level controls over financial reporting, identified as of December 31, 2009, which we are in the process of remediating. Such weaknesses were:

Our senior management did not establish and maintain a proper tone as to internal control over financial reporting as of December 31, 2009. Specifically, our senior management was unable, due to time constraints, to promptly address the control weaknesses brought to their attention throughout the 2009 and 2008 audits;

We, through our senior management, failed to maintain formalized accounting policies and procedures as of December 31, 2009. Once implemented, the polices and procedures should provide guidance to accounting personnel in the proper treatment and recording of financial transactions, as well as proper internal controls over financial reporting

As noted, we have commenced efforts to address the material weaknesses in our internal control over financial reporting and the ineffectiveness of our disclosure controls and procedures and, although remediation efforts are underway, the above material weaknesses will not be considered remediated until new controls over financial reporting are fully designed and operating effectively for an adequate period of time.

Notwithstanding the material weaknesses described above, we believe that our consolidated financial statements presented in this Quarterly Report on Form 10−Q fairly present, in all material respects, our financial position, results of operations, and cash flows as of the end of the period covered herein.

Inherent Limitations - Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

Changes in Internal Control over Financial Reporting - There were no changes in the Company’s internal control over financial reporting during the period ended June 30, 2010, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

There have been no material developments relating to certain pending legal proceedings. For a description of certain non-material yet pending legal proceedings, see Note 7 – Contingencies, to the Consolidated Financial Statements set forth in this Form 10-Q.

ITEM 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. (Removed and Reserved)

Not Applicable

ITEM 5. Other Information

None

ITEM 6. Exhibits

(a) Exhibits:

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date

3.1	Articles of Incorporation of Dev-Tech Associates, Inc. and amendment thereto		SB-2	3.1	11/25/1996
3.2	Bylaws of DevSys, Inc.		SB-2	3.2	11/25/1996
3.3	Restated Certificate of Incorporation of DevSys, Inc.		SB-2	3.3	11/25/1996
3.4	By-laws of DevSys, Inc.		SB-2	3.4	11/25/1996
3.5	Articles of Merger and Agreement and Plan of Merger of DevSys, Inc and Dev-Tech Associates, Inc.		SB-2	3.5	11/25/1996
3.6	Certificate of Merger of Dev-Tech Associates, Inc. into DevSys, Inc.		SB-2	3.6	11/25/1996
3.7	Articles of Incorporation of Dev-Tech Migration, Inc. and amendment thereto		SB-2	3.7	11/25/1996
3.8	By-laws of Dev-Tech Migration, Inc.		SB-2	3.8	11/25/1996
3.9	Restated Certificate of Incorporation of DevSys Migration, Inc.		SB-2	3.9	11/25/1996
3.10	Form of By-laws of DevSys Migration, Inc.		SB-2	3.1	11/25/1996
3.11	Form of Agreement and Plan of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc.		SB-2	3.11	11/25/1996
3.12	Form of Certificate of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc.		SB-2	3.12	11/25/1996
3.13	Certificate of Amendment to Certificate of Incorporation of DevSys, Inc. changing our name to NeoMedia Technologies, Inc.		SB-2	3.13	11/25/1996
3.14	Form of Certificate of Amendment to Certificate of Incorporation of NeoMedia Technologies, Inc. authorizing a reverse stock split		SB-2	3.14	11/25/1996
3.15	Form of Certificate of Amendment to Restated Certificate of Incorporation of NeoMedia Technologies, Inc. increasing authorized capital and creating preferred stock		SB-2	3.15	11/25/1996
3.16	Certificate of Amendment to the Certificate of Designation of the Series "C" Convertible Preferred Stock date January 5, 2010.		8-K	3.1	1/11/2010
3.17	Certificate of Designation of the Series "D" Convertible Preferred Stock date January 5, 2010.		8-K	3.2	1/11/2010
3.18	Certificate of Amendment to the Certificate of Designation of the Series "D" Convertible Preferred Stock dated January 7, 2010		8-K	3.3	1/11/2010
3.19	Certificate of amendment to the certificate of designation of the series D convertible preferred stock issued by the Company to YA Global dated January 5, 2010.		8-K	3.1	3/11/2010
10.1	Warrant dated March 30, 2005, granted by NeoMedia to Thornhill Capital LLC		S-3/A	10.12	7/18/2005
10.2	Warrant dated March 30, 2005, granted by NeoMedia to Cornell Capital Partners LP		S-3/A	10.13	7/18/2005

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date

10.3	Definitive Sale and Purchase Agreement between NeoMedia and Gavitec		8-K	16.1	2/21/2006
10.4	Definitive Sale and Purchase Agreement between NeoMedia and Sponge		8-K	16.1	2/22/2006
10.5	Investment Agreement, dated February 17, 2006 between NeoMedia and Cornell Capital Partners		8-K	10.1	2/21/2006
10.6	Investor Registration Rights Agreement, dated February 17, 2006 between NeoMedia and Cornell Capital Partners		8-K	10.2	2/21/2006
10.7	Irrevocable Transfer Agent Instruction, dated February 17, 2006, by and among NeoMedia, Cornell Capital Partners and American Stock Transfer & Trust Co.		8-K	10.3	2/21/2006
10.8	Warrant, dated February 17, 2006		8-K	10.4	2/21/2006
10.9	Warrant, dated February 17, 2006		8-K	10.5	2/21/2006
10.10	Warrant, dated February 17, 2006		8-K	10.6	2/21/2006
10.11	Assignment Agreement, dated February 17, 2006 by NeoMedia and Cornell Capital Partners		8-K	10.7	2/21/2006
10.12	Assignment of Common Stock, dated February 17, 2006 between NeoMedia and Cornell Capital Partners		8-K	10.8	2/21/2006
10.13	Securities Purchase Agreement, dated August 24, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.1	8/30/2006
10.14	Investor Registration Rights Agreement, dated August 24, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.2	8/30/2006
10.15	Pledge and Security Agreement, dated August 24, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.3	8/30/2006
10.16	Secured Convertible Debenture, dated August 24, 2006, issued by the Company to Cornell Capital Partners, LP		8-K	10.4	8/30/2006
10.17	Irrevocable Transfer Agent Instructions, dated August 24, 2006, by and among the Company, Cornell Capital Partners, LP and American Stock Transfer & Trust Co.		8-K	10.5	8/30/2006
10.18	A Warrant, dated August 24, 2006		8-K	10.6	8/30/2006
10.19	B Warrant, dated August 24, 2006		8-K	10.7	8/30/2006
10.20	C Warrant, dated August 24, 2006		8-K	10.8	8/30/2006
10.21	D Warrant, dated August 24, 2006		8-K	10.9	8/30/2006
10.22	Amendment to Warrant No. CCP-002, dated August 24, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.1	8/30/2006
10.23	Amendment to “A” Warrant No. CCP-001, dated August 24, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.11	8/30/2006
10.24	Amendment to “B” Warrant No. CCP-002, dated August 24, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.12	8/30/2006
10.25	Amendment to “C” Warrant No. CCP-003, dated August 24, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.13	8/30/2006
10.26	Definitive share purchase and settlement agreement between NeoMedia and Sponge, dated November 14, 2006		8-K	16.1	11/20/2006
10.27	Securities Purchase Agreement, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.1	1/8/2007
10.28	Investor Registration Rights Agreement, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.2	1/8/2007
10.29	Secured Convertible Debenture, dated December 29, 2006, issued by the Company to Cornell Capital Partners, LP		8-K	10.3	1/8/2007
10.30	Irrevocable Transfer Agent Instructions, dated December 29, 2006, by and among the Company, Cornell Capital Partners, LP and American Stock Transfer & Trust Co.		8-K	10.4	1/8/2007

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date

10.31	A Warrant, dated December 29, 2006		8-K	10.5	1/8/2007
10.32	Amendment to Warrant No. CCP-002, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.6	1/8/2007
10.33	Amendment to “A” Warrant No. CCP-001, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.7	1/8/2007
10.34	Amendment to “B” Warrant No. CCP-002, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.8	1/8/2007
10.35	Amendment to “C” Warrant No. CCP-003, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.9	1/8/2007
10.36	Amendment to “A” Warrant No. CCP-001, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.1	1/8/2007
10.37	Amendment to “B” Warrant No. CCP-001, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.11	1/8/2007
10.38	Amendment to “C” Warrant No. CCP-001, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.12	1/8/2007
10.39	Securities Purchase Agreement, dated December 29, 2006, between the Company and Cornell Capital Partners, LP		8-K	10.13	1/8/2007
10.40	Amendment Agreement I to the Sale and Purchase Agreement between NeoMedia and certain former shareholders of Gavitec AG, dated January 23, 2007		8-K	10.1	1/29/2007
10.41	Consulting Agreement between the Company and SKS Consulting of South Florida Corp.		8-K	10.1	2/6/2007
10.42	Securities Purchase Agreement between NeoMedia and Cornell Capital Partners LP, dated March 27, 2007		8-K	10.1	3/27/2007
10.43	Investor Registration Rights Agreement between NeoMedia and Cornell Capital Partners LP, dated March 27, 2007		8-K	10.2	3/27/2007
10.44	Secured Convertible Debenture, issued by NeoMedia to Cornell Capital Partners, LP, dated March 27, 2007		8-K	10.3	3/27/2007
10.45	Irrevocable Transfer Agent Instructions, by and among NeoMedia, Cornell Capital Partners, LP and Worldwide Stock Transfer, dated March 27, 2007		8-K	10.4	3/27/2007
10.46	Warrant, issued by NeoMedia to Cornell Capital Partners, LP, dated March 27, 2007		8-K	10.5	3/27/2007
10.47	Master Amendment Agreement, by and between NeoMedia and Cornell Capital Partners, LP, dated March 27, 2007		8-K	10.6	3/27/2007
10.48	Security Agreement, by and between NeoMedia and Cornell Capital Partners, LP, dated on or about August 24, 2006		8-K	10.7	3/27/2007
10.49	Security Agreement, by and between NeoMedia and Cornell Capital Partners, LP, dated March 27,2007		8-K	10.8	3/27/2007
10.50	Security Agreement (Patent), by and between NeoMedia and Cornell Capital Partners, LP, dated March 27, 2007		8-K	10.9	3/27/2007
10.51	Pledge Shares Escrow Agreement, by and between NeoMedia and Cornell Capital Partners, dated March 27, 2007		8-K	10.1	3/27/2007
10.52	Completion of Acquisition of Disposition of Assets of BSD Software Inc.		8-K/A	10.1	6/8/2007
10.53	Registration Rights Agreement, by and between NeoMedia and YA Global Investments, L.P., dated August 24, 2007		8-K	10.1	8/30/2007
10.54	Secured Convertible Debenture, issued by NeoMedia to YA Global Investments, dated August 24, 2007		8-K	10.2	8/30/2007

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date

10.55	Irrevocable Transfer Agent Instructions, by and among NeoMedia, YA Global Investments, L.P. and Worldwide Stock Transfer, LLC, dated August 24, 2007		8-K	10.3	8/30/2007
10.56	Warrant issued by NeoMedia to YA Global Investments, L.P., dated August 24, 2007		8-K	10.4	8/30/2007
10.57	Repricing Agreement, by and between NeoMedia and YA Global Investments, L.P., dated August 24, 2007		8-K	10.5	8/30/2007
10.58	Security Agreement, by and between NeoMedia and YA Global Investments, L.P., dated August 24, 2007		8-K	10.6	8/30/2007
10.59	Security Agreement (Patent), by and between NeoMedia and YA Global Investments, L.P., dated August 24, 2007		8-K	10.7	8/30/2007
10.60	Secured Convertible Debenture, dated April 11, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.1	4/17/2008
10.61	Secured Convertible Debenture, dated May 16, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.1	5/22/2008
10.62	Warrant, dated May 16, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.2	5/22/2008
10.63	Secured Convertible Debenture, dated May 30, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.1	6/5/2008
10.64	Warrant, dated May 30, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.2	6/5/2008
10.65	Settlement Agreement and Release, dated June 3, 2008, by and between the Company and William Hoffman		8-K	10.5	6/5/2008
10.66	Employment Agreement, dated June 10, 2008, by and between NeoMedia Technologies, Inc. and Iain McCready		8-K	10.1	6/16/2008
10.67	Secured Convertible Debenture, dated July 10, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.1	7/16/2008
10.68	Securities Purchase Agreement, dated July 29, 2008, by and between the Company and YA Global Investments, L.P.		8-K	10.1	8/4/2008
10.69	Secured Convertible Debenture, dated July 29, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.2	8/4/2008
10.70	Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.		8-K	10.3	8/4/2008
10.71	Patent Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.		8-K	10.4	8/4/2008
10.72	Warrant 9-1A, dated July 29, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.5	8/4/2008
10.73	Warrant 9-1B, dated July 29, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.6	8/4/2008
10.74	Warrant 9-1C, dated July 29, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.7	8/4/2008
10.75	Warrant 9-1D, dated July 29, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.8	8/4/2008
10.76	Escrow Agreement, dated July 29, 2008, by and among the Company, YA Global Investments, L.P., Yorkville Advisors, LLC and David Gonzalez, Esq.		8-K	10.9	8/4/2008
10.77	Irrevocable Transfer Agent Instructions, dated July 29, 2008, by and among the Company, the Investor, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC		8-K	10.1	8/4/2008
10.78	Letter Agreement, dated September 24, 2008, by and among NeoMedia Technologies, Inc. and YA Global Investments, L.P.		8-K	10.1	10/1/2008

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date

10.79	Second Secured Convertible Debenture, dated October 28, 2008, issued by the Company to YA Global Investments, L.P.		8-K	10.3	11/3/2008
10.80	Revised Exhibit A to Escrow Agreement, dated October 28, 2008		8-K	10.12	11/3/2008
10.81	Letter Agreement, dated March 27, 2009, by and between the Company and YA Global Investments, L.P.		8-K	10.13	4/13/2009
10.82	Amendment Agreement, dated April 6, 2009, by and between the Company and YA Global Investments, L.P.		8-K	10.14	4/13/2009
10.83	Third Secured Convertible Debenture (first closing), dated April 6, 2009, issued by the Company to YA Global Investments, L.P.		8-K	10.15	4/13/2009
10.84	Waiver, effective as of December 31, 2008, by and between the Company and YA Global Investments, L.P.		8-K	10.16	4/13/2009
10.85	Fourth Secured Convertible Debenture (second amended third closing), dated May 1, 2009, issued by the Company to YA Global Investments, L.P.		8-K	10.15	5/7/2009
10.86	Agreement, dated June 5, 2009 (Additional Agreement), by and between the Company and YA Global Investments, L.P.		8-K	10.16	6/5/2009
10.87	Fifth Convertible Debenture (Additional Agreement closing), dated June 5, 2009, issued by the Company to YA Global Investments, L.P.		8-K	10.17	6/5/2009
10.88	Agreement, dated July 15, 2009 (Second Additional Agreement), by and between the Company and YA Global Investments, L.P.		8-K	10.18	7/21/2009
10.89	Sixth Convertible Debenture dated July 15, 2009, (Second Additional Debenture), issued by the Company to YA Global Investments, L.P.		8-K	10.19	7/21/2009
10.90	Agreement, dated July 17, 2009, by and between the Company and Silver Bay Software, LLC.		8-K	10.20	7/21/2009
10.91	Agreement, dated July 17, 2009, by and between the Company and Mr. Greg Lindholm.		8-K	10.21	7/21/2009
10.92	Non-Exclusive License Agreement between the Company and Mobile Tag, Inc. dated July 28, 2009		8-K	10.1	7/30/2009
10.93	Agreement dated August 14, 2009 (Third Additional Agreement) by and between the Company and Y.A. Global Investments, L.P.		10-Q	10.124	8/14/2009
10.94	Seventh Convertible Debenture dated August 14, 2009 (Fifth Additional Debenture) issued by the Company to Y.A. Global Investments, L.P.		10-Q	10.125	8/14/2009
10.95	Non-exclusive License Agreement with exclusive right to sub-license provision between Company and Neustar, Inc. dated October 2, 2009.		8-K	10.1	10/6/2009
10.96	Non-Exclusive License Agreement to use the Licenced Platform between the Company and Brand Extension Mobile Solutions, S.A., a Madrid (Spain) corporation (“BEMS"), dated October 7, 2009.		8-K	10.1	10/13/2009
10.97	Settlement Agreement and non-exclusive license and a sublicense between the Company and Scanbuy, Inc., dated October 16, 2009.		8-K	10.1	10/20/2009
10.98	Investment Agreement between Company and YA Global dated January 5, 2010.		8-K	10.1	1/11/2010

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date

10.99	Irrevocable Transfer Agent Instructions letter issued by Company to WorldWide Stock Transfer, LLC dated January 5, 2010.		8-K	10.2	1/11/2010
10.100	Monitoring Fee Escrow Agreement between Company and YA Global dated January 5, 2010.		8-K	10.3	1/11/2010
10.101	Investor Registration Rights Agreement between Company and YA Global dated January 5, 2010.		8-K	10.4	1/11/2010
10.102	Issuance of Warrants by Company to YA Global dated January 5, 2010.		8-K	10.5	1/11/2010
10.103	Amendment to the August 24, 2006 Secured Convertible Debenture No. CCP-1 between the Company and YA Global dated January 5, 2010.		8-K	10.6	1/11/2010
10.104	Amendment to the December 29, 2006 Secured Convertible Debenture No. CCP-2 between the Company and YA Global dated January 5, 2010.		8-K	10.7	1/11/2010
10.105	Amendment to the March 27, 2007 Secured Convertible Debenture No. NEOM-4-1 between the Company and YA Global dated January 5, 2010.		8-K	10.8	1/11/2010
10.106	Amendment to the August 24, 2007 Secured Convertible Debenture No. NEOM-1-1 between the Company and YA Global dated January 5, 2010.		8-K	10.9	1/11/2010
10.107	Amendment to the April 11, 2008 Secured Convertible Debenture No. NEO-2008-1 between the Company and YA Global dated January 5, 2010.		8-K	10.10	1/11/2010
10.108	Amendment to the May 16, 2008 Secured Convertible Debenture No. NEO-2008-2 between the Company and YA Global dated January 5, 2010.		8-K	10.11	1/11/2010
10.109	Amendment to the May 29, 2008 Secured Convertible Debenture No. NEO-2008-3 between the Company and YA Global dated January 5, 2010.		8-K	10.12	1/11/2010
10.110	Amendment to the July 10, 2008 Secured Convertible Debenture No. NEO-2008-4 between the Company and YA Global dated January 5, 2010.		8-K	10.13	1/11/2010
10.111	Amendment to the July 29, 2008 Secured Convertible Debenture No. NEOM-9-1 between the Company and YA Global dated January 5, 2010.		8-K	10.14	1/11/2010
10.112	Amendment to the October 28, 2008 Secured Convertible Debenture No. NEOM-9-2 between the Company and YA Global dated January 5, 2010.		8-K	10.15	1/11/2010
10.113	Amendment to the May 1, 2009 Secured Convertible Debenture No. NEOM-9-4 between the Company and YA Global dated January 5, 2010.		8-K	10.16	1/11/2010
10.114	Amendment to the June 5, 2009 Secured Convertible Debenture No. NEOM-9-5 between the Company and YA Global dated January 5, 2010.		8-K	10.17	1/11/2010
10.115	Amendment to the July 15, 2009 Secured Convertible Debenture No. NEOM-9-6 between the Company and YA Global dated January 5, 2010.		8-K	10.18	1/11/2010
10.116	Amendment to the August 14, 2009 Secured Convertible Debenture No. NEOM-9-7 between the Company and YA Global dated January 5, 2010.		8-K	10.19	1/11/2010
10.117	Amendment to the July 29, 2008 Secured Convertible Debenture No. NEOM-9-1B between the Company and YA Global dated January 5, 2010.		8-K	10.20	1/11/2010

Exhibit Number	Description	Filed Herewith	Form	Exhibit	Filing Date

10.118	Amendment to the July 29, 2008 Secured Convertible Debenture No. NEOM-9-1C between the Company and YA Global dated January 5, 2010.		8-K	10.21	1/11/2010
10.119	Amendment to the July 29, 2008 Secured Convertible Debenture No. NEOM-9-1D between the Company and YA Global dated January 5, 2010.		8-K	10.22	1/11/2010
10.120	Amendment of employment agreement entered into on June 10, 2008 between the company and Iain A. McCready.		8-K	10.2	1/20/2010
10.121	Amended and restated licensing agreement dated October 2, 2009 with NeuStar, Inc.		8-K	10.1	1/28/2010
10.122	Agreement with Neu Star, Inc., dated February 12, 2010 (the Neu Star Mobile Codes Pilot Program Agreement).		8-K	10.1	2/16/2010
10.123	First amendment to the investment agreement between Company and YA Global dated January 5, 2010.		8-K	10.1	3/11/2010
10.124	Special meeting of shareholders held March 30, 2010.		8-K	10.1	4/2/2010
10.125	Notification of new trading symbol "NEOMD" beginning May 10, 2010.		8-K		5/11/2010
10.126	Securities Purchase Agreement, dated May 27, 2010, by and between the Company and YA Global Investments, L.P.		8-K	10.1	6/3/2010
10.127	Secured Convertible Debenture, dated May 27, 2010, issued by the Company to YA Global Investments, L.P.		8-K	10.2	6/3/2010
10.128	Warrant No. 0510, dated May 27, 2010, issued by the Company to YA Global Investments, L.P.		8-K	10.3	6/3/2010
10.129	Global Warrant Amendment, dated May 27, 2010, issued by the Company to YA Global Investments, L.P.		8-K	10.4	6/3/2010
10.130	Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.		8-K	10.5	6/3/2010
10.131	Patent Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.		8-K	10.6	6/3/2010
10.132	Ratification Agreement, dated May 27, 2010, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.		8-K	10.7	6/3/2010
10.133	Irrevocable Transfer Agent Instructions, dated May 27, 2010, by and among the Company, the Investor, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC		8-K	10.8	6/3/2010

14	Code of Professional Ethics		10-K	14.1	4/3/2007
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NEOMEDIA TECHNOLOGIES, INC.
	(Registrant)

Dated: August 16, 2010	/s/ Michael W. Zima
	Michael W. Zima
	Chief Financial Officer & Principal Accounting Officer

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