Note 8. Income Taxes

Pre-tax loss consists of the following jurisdictions (in thousands):


	Year ended June 30,
	2013			2012
Domestic	$	(11,185	)	$	(8,547	)
Foreign		—			1,024

Pre-tax loss	$	(11,185	)	$	(7,523	)

The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense attributable to loss arising during development stage is as follows (in thousands):


	Year Ended June 30,
	2013						2012
	$			%			$			%
Tax benefit at U.S. statutory rates	$	3,803			34	%	$	2,557			34	%
State tax		652			6	%		474			6	%
Australian tax		—			0	%		41			1	%
Expiration of foreign tax losses		—			0	%		(28,202	)		-375	%
(Increase)/ decrease in valuation allowance		(4,456	)		-40	%		25,129			334	%

	$	(1	)		0	%	$	(1	)		0	%

Deferred tax liabilities and assets are comprised of the following (in thousands):


	Year ended June 30,
	2013			2012
Deferred tax liabilities:
Change in accounting method adjustments	$	(1,607	)	$	(2,411	)

Total deferred tax liabilities		(1,607	)		(2,411	)
Deferred tax assets:
Tax carried forward losses		2,463			4,153
Share-based payments		1,057			458
Consultant and other accruals		29			27
Fixed and intangible assets		12,315			7,656
Compensation accruals		240			161
Capital loss carryforward		26,382			26,382

Total deferred tax assets		42,486			38,837
Valuation allowance for deferred tax assets		(40,879	)		(36,426	)

Net deferred tax assets and liabilities	$	—		$	—

Management evaluates the recoverability of the deferred tax assets and the amount of the required valuation allowance. Due to the uncertainty surrounding the realization of the tax deductions in future tax returns, the Company has recorded a valuation allowance against its net deferred tax assets at June 30, 2013 and 2012. At such time as it is determined that it is more likely than not that the deferred tax assets will be realized, the valuation allowance would be reduced.

The Company had federal and state net operating loss carryforwards of approximately $6,531,000 and $4,166,000 at June 30, 2013. The federal and state net operating losses will begin to expire in 2022 and 2029, respectively. Due to the dissolution of the Company’s foreign subsidiary, all foreign tax losses expired unutilized during the year ended June 30, 2012.

The Company’s ability to utilize its net operating loss carryforwards may be substantially limited due to ownership changes that have occurred or that could occur in the future under Section 382 of the Internal Revenue Code and similar state laws. The Company has not completed a study to determine whether one or more ownership changes have occurred.

The Company did not previously record a deferred tax asset for any basis difference in its subsidiary because the Company intended to permanently reinvest any subsidiary earnings. However, in the year ended June 30, 2011, the Company determined that it might wind up its subsidiary. As such, the Company recorded a deferred tax asset for this difference. The Company realized this loss for tax purposes during the year ended June 30, 2012, which resulted in a capital loss carryforward of $66,230,000. This capital loss will expire in 2017.

None of the Company’s prior income tax returns has been selected for examination by a major taxing jurisdiction; however, the statutes of limitations for various filings remain open. The oldest filings subject to potential examination for federal, state, and foreign purposes are 2009, 2011, and 2008, respectively. If the Company utilizes a net operating loss related to a closed year, the statute for that year would re-open. The Company has not reduced any tax benefit on its financial statements due to uncertain tax positions at June 30, 2013 and it is not aware of any circumstance that would significantly change this result through the end of fiscal year 2014. To the extent the Company incurs income-tax related penalties or interest, the Company recognizes them as additional income tax expense.