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Monday, May 15, 2006 7:07:17 PM
Gain and loss on extinguishment of debt. NeoMedia incurred a loss on extinguishment of debt of $1,964,000 for the three months ended March 31, 2006 in connection with the Series C preferred stock issued and sold to Cornell on February 17, 2006. A loss was incurred on the surrender of a certain promissory note to Cornell dated March 30, 2005 in connection with the preferred stock sale. During the three months ended March 31, 2005, NeoMedia recognized a gain on extinguishment of debt of $138,000, resulting from the payment of debt at a discount to the book value of the debt. These gains resulted from a difference between the cash or market value of stock issued to settle the debt and the carrying value of the debt at the time of settlement.
Gain on derivative financial instruments. Gain on derivative financial instruments was $4,768,000 for the three months ended March 31, 2006. The gain is on the derivatives associated with the preferred stock sale on February 17, 2006. Certain derivatives were created at the time of the offering and those derivatives are recorded at fair value on the accompanying balance sheet. The gain for the three months ended March 31, 2006 is the reduction in value of the derivative from February 17, 2006 to March 31, 2006 and is due almost entirely to a reduction in NeoMedia’s stock price from February 17, 2006 to March 31, 2006. There was no such gain or loss on derivative financial instruments for the three months ended March 31, 2005.
Net Loss. The net loss for the three months ended March 31, 2006 was $1,317,000, which represented a $98,000, or 8% increase from a $1,219,000 loss for the three months ended March 31, 2005. The increase in net loss is due to the increase in loss from operations coupled with the loss on extinguishment of debt and was offset to a large degree by the gain on derivative financial instruments.
Thanks in advance.
SS9173
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