INCOME TAXES

3 Months Ended

Sep. 30, 2011

INCOME TAXES

INCOME TAXES

8. INCOME TAXES

Federal income taxes are not due since we have had losses since inception. The difference between the statutory tax rates and our effective tax rate is due to the valuation allowance applied against our net deferred tax assets. A reconciliation of the actual taxes to the U.S. statutory tax rate for the three months ended September 30, 2011 and 2010 (in thousands) is as follows:

	September 30, 2011			September 30, 2010
Income tax benefit at the statutory federal rate (35%)	$	(1,532	)	$	(1,009	)
Increase resulting from nondeductible stock compensation	(451		)	62
Decrease resulting from nontaxable gain on derivative liability	—			270
Other, net	4			2
Change in valuation allowance	1,979			675
Net	$	—		$	—