Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Significant Accounting Policies [Text Block]

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 S-X. 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 our financial statements as of December 31, 2010 and 2009, and for the years then ended, including notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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.

Stock-Based Compensation - FASB ASC 718, Stock Compensation, requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the grant date fair value of the award. We account for modifications of the terms of existing option grants as exchanges of the existing equity instruments for new instruments. The fair value of the modified option at the grant date is compared with the value at that date of the original option immediately before its terms are modified. Any excess fair value of the modified option over the original option is recognized as additional compensation expense.

Basic and Diluted Net 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 three and nine months ended September 30, 2011, we reported net income per share and included dilutive instruments in the fully diluted net income per share calculation. During the three months ended September 30, 2010, we reported a net loss per share, and as such, basic and diluted loss per share were equivalent. During the nine months ended September 30, 2010, we reported net income per share and included dilutive instruments in the fully diluted net income per share calculation.

The following is a reconciliation of the numerator and denominator of the basic and diluted net income (loss) per share calculations for each period:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(in thousands except share and per share data)
Numerator:
Net income (loss)	$	59,447		$	(25,631	)	$	12,376		$	41,495
Adjustments to reconcile net income to income (loss)
applicable to common stockholders:
Accretion of Series D Preferred stock		-			-			-			(2,500	)
Numerator for basic earnings per share - income available
to common stockholders		59,447			(25,631	)		12,376			38,995

Effect of dilutive securities:
Adjustment for change in fair value of derivative liability
Series C and D preferred stock and debentures		(43,727	)		-			(12,457	)		(31,263	)
Adjustment for change in fair value of derivative liability-
warrants		(568	)		-			(2,263	)		(9,751	)
Adjustment for change in fair value of hybrid financial
instruments		(17,631	)		-			(4,203	)		(12,611	)
Adjustment for loss on extinguishment of debt
(excluding non-dilutive instrument)		-			-			-			5,643
Adjustment for interest expense related to convertible debt		1,152			-			2,802			1,515
		(60,774	)		-			(16,121	)		(46,467	)
Numerator for diluted earnings per share-
income available for common stockholders
after assumed conversions of debentures and
exercise of warrants	$	(1,327	)	$	(25,631	)	$	(3,745	)	$	(7,472	)

Denominator for diluted earnings per share - adjusted weighted
average shares after assumed conversions and exercise of options:
Weighted average shares used to compute basic EPS		226,839,514			22,678,877			97,493,073			22,470,014
Effect of dilutive securities:
Employee stock options		-			-			-			99,337
Derivative warrants		1,910,389			-			-			-
Convertible debentures		2,616,568,043			-			2,529,846,469			204,313,469
Convertible preferred stock		594,867,557			-			594,867,557			74,384,038
Dilutive potential common shares		3,213,345,989			-			3,124,714,026			278,796,844

Denominator for diluted earnings per share-adjusted weighted
average shares and assumed conversions		3,440,185,503			22,678,877			3,222,207,099			301,266,858

Basic earning per share	$	0.26		$	(1.13	)	$	0.13		$	1.74
Diluted earnings per share	$	(0.00	)	$	(1.13	)	$	(0.00	)	$	(0.02	)

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 nine months ended September 30, 2011 and 2010, are anti-dilutive and therefore have been excluded from diluted net income (loss) per share:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Stock options		1,076,981		1,099,557		1,076,981		823,171
Warrants		27,684,611		17,621,125		27,845,000		14,412,242
Convertible debt		-		213,076,644		-		-
Convertible preferred stock		-		74,698,729		-		-
		28,761,591		306,496,055		28,921,981		15,235,413

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 recently been issued:

Pronouncement	Issued	Title

ASU No. 2011-08	September 2011	Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment

ASU No. 2011-09	September 2011	Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan

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 material future effect on our consolidated financial statements.