Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 8 - Income Taxes

As of December 31, 2012 and 2011, 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,
	2012			2011
	(in thousands)
Net operating loss carry forwards (NOL)	$	63,714		$	63,711
Capital loss		3,515			3,515
Write-off of long-lived assets		526			526
Amortization of intangibles		(670	)		(608	)
Stock-based compensation		2,596			2,582
Capitalized software development costs and fixed assets		136			136
Deferred revenue		1,568			840
Alternative minimum tax credit carry forward		43			43
Inventory reserve		-			27
Accruals		2,554			2,554
Impairment loss		2,752			2,752
Derivative gain/loss		9,375			6,832
Interest expense		3,380			3,076
Total deferred tax assets		90,546			85,986
Valuation allowance		(90,546	)		(85,986	)
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, 2012 and 2011, the income tax benefit differed from the amount computed by applying the statutory federal rate of 34% as follows:

	Year Ended December 31,
	2012			2011
	(in thousands)
Expense/(benefit) at federal statutory rate	$	(6,610	)	$	(289	)
State income taxes, net of federal benefit		(753	)		(33	)
Permanent and other difference, net		2,803			580
Effects of change in state rates		-			(4,236	)
Decrease/(increase) in valuation allowance	$	(4,560	)	$	(3,978	)

As of December 31, 2012, we had net operating loss carry forwards for federal tax purposes totaling approximately $165 million, which may be used to offset future taxable income and which, if unused, expire between 2013 and 2032, 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 may 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, 2012 and 2011.

NeoMedia Europe has net operating loss carry forwards that are estimated to be $11.4 million and $9.9 million as of December 31, 2012 and 2011, respectively. 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, 2012. 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, 2012 and 2011. Due to the carry forward of NOL’s, Federal and state income tax returns are subject to audit for varying periods beginning in 1992.