9.	INCOME TAXES

The provision for income taxes consists of the following at June 30:

	2012			2011			2010

Current expense	$	0		$	0		$	0
Deferred benefit		(522,000	)		(846,000	)		878,000
Increase (decrease) in valuation allowance		522,000			846,000			(878,000	)

Total provision for income tax	$	0		$	0		$	0

The total provision differs from the amount computed by applying federal statutory rates to loss before income taxes due to the following at June 30:

	2012			2011			2010

Provision for income tax at the statutory rate of 34%	$	(1,001,000	)	$	(966,000	)	$	(996,000	)

Increase (decrease) in taxes due to
Change in valuation allowance		522,000			846,000			(878,000	)
Disallowed expense		2,000			2,000			1,000
Expiration of net operating loss		477,000			118,000			0
Expiration of capital loss		0			0			425,000
Change in deferred stock-based compensation		0			0			1,448,000
Total provision for income tax	$	0		$	0		$	0

The Company has used a federal statutory rate of 34%. All of the Company's operations are in Washington State, which has no corporation income tax, so no provision for state income tax is needed.

Deferred tax assets and liabilities reflect the tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The Company has net deferred income tax assets which have been reduced to zero through a valuation allowance because of uncertainties relating to utilization of future tax benefits. The increase (decrease) in the valuation allowance for the years ended June 30, 2012, June 30, 2011 and June 30, 2010 are respectively $522,000, $846,000 and ($878,000). The components of the net deferred income tax assets, calculated at an effective rate of 34%, are as follows at June 30:

	2012			2011			2010

Deferred income tax assets
Current deferred tax assets
Accrued liabilities	$	0		$	0		$	14,000
Valuation allowance		0			0			(14,000	)

Total current deferred tax assets		0			0			0

Non-current deferred tax assets
Net operating loss carry-forwards		9,455,000			9,048,000			8,102,000
Non-qualified stock options		1,038,000			923,000			762,000
Capital loss carry-forwards		0			0			0
Investment reserve		0			0			247,000
Legal dispute reserve		182,000			182,000			182,000
Basis difference of fixed assets		1,000			1,000			1,000
Valuation allowance		(10,676,000	)		(10,154,000	)		(9,294,000	)

Total non-current deferred tax assets		0			0			0

Non-current deferred tax liabilities		0			0			0

Net deferred tax asset	$	0		$	0		$	0

For tax purposes, the Company has unused net operating losses available to carry-forward to future tax years. At June 30, 2012, the amounts and expiration dates of the Company's net operating loss carry-forwards are as follows.

Year Ended	Expires	Amount

June 30, 1998	June 30, 2018	$	999,000
June 30, 1999	June 30, 2019		1,361,000
June 30, 2000	June 30, 2020		1,091,000
June 30, 2001	June 30, 2021		2,002,000
June 30, 2002	June 30, 2022		2,527,000
June 30, 2003	June 30, 2023		1,364,000
June 30, 2004	June 30, 2024		2,162,000
June 30, 2005	June 30, 2025		2,208,000
June 30, 2006	June 30, 2026		2,373,000
June 30, 2007	June 30, 2027		1,177,000
June 30, 2008	June 30, 2028		1,676,000
June 30, 2009	June 30, 2029		1,439,000
June 30, 2010	June 30, 2030		1,699,000
June 30, 2011	June 30, 2031		3,129,000
June 30, 2012	June 30, 2032		2,600,000

Total		$	27,807,000

Current federal tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize net operating loss and tax credit carry-forwards may be limited as a result of such ownership changes, which could result in the expiration of carry-forwards before they are utilized.

For tax purposes, the Company had $1,405,000 unused net operating losses available for carry-forward to future tax years that expired unused as of June 30, 2012.

In July 2006, the FASB released the Final Interpretation No. 48 Accounting for Uncertainty in Income Taxes (formerly FIN 48, now ASC740-10). ASC740-10 prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC740-10 also requires additional disclosure of the beginning and ending unrecognized tax benefits and details regarding the uncertainties that may cause the unrecognized benefits to increase within a twelve month period.

The Company has an unrecognized tax benefit of $336,000 as of June 30, 2012, including no accrued amounts for interest and penalties. In addition, the Company has not completed an analysis under IRC section 382 to determine if there have been any direct and/or indirect ownership changes that would limit the use of net operating loss in future years.

The Company's policy will be to recognize interest and penalties related to income taxes as a component of income tax expense. The Company is subject to income tax examinations for US income taxes from the year ended June 30, 1996 forward. We do not anticipate that total unrecognized tax benefits will significantly change prior to June 30, 2013.