yet another boo-boo in reporting
'Write-off of Deferred Financing Costs
In the third quarter of 2006, NeoMedia incurred a non-cash charge to income in the amount of $13,256,000 to write off deferred equity financing costs related to its $100 million Standby Equity Distribution Agreement. The costs were originally recorded in March 2005 and represent the fair value of warrants issued as financing costs associated with the 2005 SEDA. The Company believes that it can no longer consider the 2005 SEDA a viable financing source due to the utilization of the preferred stock financing and the debenture financing.
Restatement of previously reported financial results
The Company, in reviewing its accounting practices with respect to revenue recognition of its subsidiary NeoMedia Telecom Services, became aware that it incorrectly applied the principles of EITF 99-19, "Reporting Revenue Gross as a Principal vs. Net as an Agent." As a result, the company had overstated its net sales and its cost of goods sold during the three and nine months ended September 30, 2006. These amounts are reflected on the statement of operations. The adjustment does not affect net income (loss) during any period. The adjustment does not affect the statement of cash flows or balance sheet.
The NeoMedia Telecom Services business was acquired in March 2006 through the acquisition by the Company of BSD Software. Therefore the adjustment does not affect any results reported during the three and nine month periods ended September 30, 2005.
As a result, the Company has restated certain financial information that was previously reported in its unaudited quarterly reports on Form 10-Q for the three and nine month periods ended September 30, 2006. The following tables provide a reconciliation of amounts previously reported by the Company.
Previously Restatement Restated
Reported Adjustment Amount
Three months ended September 30, 2006
Net sales $ 6,249 ($2,658 ) $ 3,591
Cost of sales 4,112 (2,658 ) 1,454
Nine months ended September 30, 2006
Net sales $ 14,129 ($5,285 ) $ 8,844
Cost of sales 8,887 (5,285 ) 3,602'
niiiiice
