At June 30, 2013, the Company had net operating loss carryforwards of $167,517,976 to offset future taxable income expiring through approximately 2033.

The timing and extent to which the Company can utilize future tax deductions in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations (i.e. IRS Code Section 382). The changes in ownership limitations under IRS Code Section 382 have had the effect of limiting the maximum amount of net operating loss carryforwards as of June 30, 2013 and 2012 available for use to offset future years’ taxable income to $129,313,279 and $127,024,196, respectively. Those net operating loss carryforwards start to expire June 30, 2022.

At June 30, 2013 and 2012, the Company recorded net deferred tax assets of $51,078,657 and $51,708,064, respectively, which were offset by a valuation allowance of $51,118,902 and $51,720,663 as of June 30, 2013 and 2012, respectively, as the realization of the deferred tax asset is not likely, principally due to the lack of earnings history.

As of June 30, 2013and 2012, net deferred tax liabilities of $40,245 and $12,599, respectively, were recorded representing the future potential state and federal income tax effects for basis differences between financial reporting and income tax purposes as of those respective dates for indefinite life intangible assets and goodwill that are being amortized for income tax purposes but not for financial reporting. The potential future income tax effects associated with such indefinite life assets are not subject to offset against deferred tax assets with finite lives.

These deferred tax liabilities resulted in a provision for income taxes for the years ended June 30, 2013 and 2012 of $27,646 and $12,599,respectively, which are comprised of deferred state income taxes of $6,804 and $3,101, respectively, and deferred federal income taxes of $20,842 and $9,498, respectively.

For the year ended June 30, 2013 an income tax provision of $299,801 at the federal statutory rate of 34% is indicated based upon the income before provision for income taxes. In recording the provision for income taxes the indicated provision was reduced for the effects of decreases in the valuation allowance of $205,266 for federal income taxes associated with deferred tax assets, decreased for the effects of permanent differences of $71,379 and increased by state income taxes net of federal benefit of $4,490.

For the year ended June 30, 2012 an income tax benefit of $1,767,537 at the federal statutory rate of 34% is indicated based upon the loss before provision for income taxes. In recording the provision for income taxes that benefit was reduced for the effects of increases in the valuation allowance of $2,372,354 for federal income taxes associated with deferred tax assets, increased for the effects of permanent differences of $594,264 and reduced by state income taxes net of federal benefit $2,046.

The net deferred tax assets arose primarily from net operating loss carryforwards, as well as the use of different accounting methods for financial statement and income tax reporting purposes as follows:


	June 30,

	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	49,534,732		$	48,825,628
Deferred research and development costs		135,189			185,940
Intangibles		1,132,471			1,059,409
Stock-based compensation		230,452			694,407
Other		671,947			955,279
		51,704,791			51,720,663
Deferred tax liabilities:
Intangibles and goodwill		(40,245	)		(12,599	)
Fixed Assets		(585,889	)
Deferred tax assets, net		51,078,657			51,708,064
Valuation allowance		(51,118,902	)		(51,720,663	)
Deferred tax (liabilities) assets, net of allowance	$	(40,245	)	$	(12,599	)