Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 10 - Income Taxes

As of December 31, 2011 and 2010, the types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts which gave rise to deferred taxes, and their tax effects were as follows:

	As of December 31,
	2011			2010
	(in thousands)
Net operating loss carryforwards (NOL)	$	63,711		$	59,507
Capital loss		3,515			3,343
Write-off of long-lived assets		526			501
Amortization of intangibles		(608	)		(579	)
Stock-based compensation		2,582			2,397
Capitalized software development costs and fixed assets		136			26
Deferred revenue		840			644
Alternative minimum tax credit carryforward		43			39
Inventory reserve		27			21
Accruals		2,554			2,459
Impairment loss		2,752			2,618
Derivative gain/loss		6,832			8,107
Interest expense		3,076			2,926
Total deferred tax assets		85,986			82,009
Valuation allowance		(85,986	)		(82,009	)
Net deferred tax asset	$	-		$	-

Due to the uncertainty of the utilization and recoverability of the loss carry-forwards and other deferred tax assets, we have provided a valuation allowance for the deferred tax assets, as it is more likely than not that the deferred tax assets will not be realizable.

For the years ended December 31, 2011 and 2010, the income tax benefit differed from the amount computed by applying the statutory federal rate of 34% as follows:

	Year Ended December 31,
	2011			2010
	(in thousands)
Expense/(benefit) at federal statutory rate	$	(289	)	$	11,888
State income taxes, net of federal benefit		(33	)		709
Permanent and other difference, net		580			626
Affects of change in state rates		(4,236	)		-
Decrease/(increase) in valuation allowance	$	(3,978	)	$	13,223

As of December 31, 2011, we had net operating loss carry forwards for federal tax purposes totaling approximately $168.3 million, which may be used to offset future taxable income and which, if unused, expire between 2012 and 2029 and a capital loss carry-forward of $9.3 million. As a result of certain of our equity activities, we anticipate that the annual usage of our pre-1998 net operating loss carry forwards should be further restricted pursuant to the provisions of Section 382 of the Internal Revenue Code.

In addition to the above, our subsidiary NeoMedia Europe, had foreign operations and is not included in our consolidated income tax balances above. NeoMedia Europe did not have income tax expense during the years ended December 31, 2011 and 2010.

NeoMedia Europe has net operating loss carry forwards that are estimated to be $8.6 million and $7.2 million as of December 31, 2011 and 2010, respectively, provided a valuation allowance for the deferred tax assets stated above, that are fully offset. Due to the uncertainty of the utilization and recoverability of the loss carry forwards we have reserved for the deferred tax assets through a valuation allowance, as it is more likely than not that the deferred tax assets will not be realizable.

We follow the guidance in FASB ASC Topic 740 Accounting for Uncertainty in Income Taxes. We have not taken any uncertain tax positions on any of our open income tax returns filed through the period ended December 31, 2011. Our methods of accounting are based on established income tax principles in the Internal Revenue Code and are properly calculated and reflected within our income tax returns. In addition, we have filed income tax returns in all applicable jurisdictions in which we had material nexus warranting an income tax return filing.

We re-assess the validity of our conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit. We have determined that there were no uncertain tax positions for the years ended December 31, 2011 and 2010. Due to the carry forward of NOL’s, Federal and state income tax returns are subject to audit for varying periods beginning in 1992.