8. Income Taxes

Due to the Company's taxable losses from operations prior to fiscal 2013, there was no provision for income taxes and no taxes were paid during the years ended June 30, 2013 and 2012. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows at June 30:

	2013			2012
Deferred tax assets:
Net operating loss and credit carryforwards	$	35,210,000		$	36,606,000
Intangible assets		148,000			248,000
Capital loss and R&D credits		1,442,000			1,496,000
Research development expenses		652,000			694,000
Inventory		100,000			57,000
Accrued expenses and other		56,000			110,000

Gross deferred tax assets		37,608,000			39,211,000
Valuation allowance for deferred tax assets		(37,246,000	)		(38,800,000	)
Total deferred tax assets		362,000			411,000
Deferred tax liabilities:
Depreciation and other		(362,000	)		(411,000	)
Net deferred tax liability	$	—		$	—

The reconciliation of income tax attributable to operations computed at the United States federal statutory tax rates and the actual tax provision of zero results primarily from the change in the valuation allowance.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $93.5 million prior to the expiration of net operating loss carry-forwards from 2014 through 2033. Based on the level of historical taxable income, management has provided for a valuation adjustment against the deferred tax assets of $37,234,000 at June 30, 2013, a decrease of approximately $1,566,000 over June 30, 2012.

At June 30, 2013, in addition to net operating loss carry forwards, the Company also has research and development credit carry forwards of approximately $1,442,000. A portion of the net operating loss carry forwards may be subject to certain limitations of the Internal Revenue Code Section 382 which would restrict the annual utilization in future periods due principally to changes in ownership in prior periods.