There's trouble on the line at VeriFone Holdings, the mega point-of-sale electronic payment device maker.

An internal review of its company financials found that the company understated its earnings for 2007. It might be too late for the company's stock price, which dropped precipitously on the news of the faulty financial report.

The San Diego company now has to do the unthinkable - restate earnings for the first three quarters of 2007. It will also hold off on reporting for 2008 until last year's paperwork is straightened out. That's a big red flag on Wall Street, where trust in financial numbers is the one non-negotiable point for stock market analysts. So, where company officials can hem and haw over product and service deadlines, research inventories and pipelines, and markets and competitiveness - with great latitude - they cannot post unreliable revenue numbers. In doing so, they lose credibility with investors and with analysts.

The response is brutal: nobody wants to pour money into a company that posts unreliable financial numbers.

So VeriFone has a big problem and the finger pointing has already begun. According to a press release from the company, "Results reported Wednesday morning indicate internal control failures and remain up for review by VeriFone’s public accounting firm and the Securities and Exchange Commission."

The damage was worse than company insiders thought, according to a report last week from Business Technology News. Verifone reported that now it expects gross margin percentages for the period ended Oct. 31, 2007 to be between 32%-to-34%, compared to a reported 46% in the year-earlier period. Says Business Technology News, increased costs, which lead to lower gross profit margins, are largely due to excess inventory and liabilities surrounding purchase obligations.

"In light of the day’s news, share prices dropped $3.19, or 19.0% to close at $13.64 in Wednesday (April 9) trading," says Business Technology News, VeriFone's shares have fallen 71.6% since Nov. 30, 2007, the last trading day before VeriFone announced its accounting woes."

The internal fallout at VeriFone, too, has been heavy. Both the firm's supply chain controller and its Chief Financial Officer Barry Zwarenstein, are out of a job.

But it's the company's investors who will suffer the most. VeriFone has a lot of explaining to do - and company lawyers may wind up being the ones doing the explaining.