INCOME TAXES

6 Months Ended

Dec. 31, 2011

Notes to Financial Statements

INCOME TAXES

NOTE 15— INCOME TAXES

The provision (benefit) for income taxes consists of the following:

	Six months ended December 31,
	2011			2010
Current	$	(181,800	)	$	—
Deferred		—			—
Provision (benefit) for income taxes	$	(181,800	)	$	—

The Company accounts for income taxes using an asset and liability approach which generally requires the recognition of deferred income tax assets and liabilities based on the expected future income tax consequences of events that have previously been recognized in the Company’s financial statements or tax returns. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized in the foreseeable future. Deferred income tax assets are reviewed for recoverability based on historical taxable income, the expected reversals of existing temporary differences, tax-planning strategies and projections of future taxable income. As a result of this analysis, the Company has provided for a valuation allowance against its net deferred income tax assets as of December 31, 2011 and 2010.

During the three and six months ended December 31, 2011, the Company recorded a $181,800 credit (benefit) for income taxes which represents a pro rata portion of an estimate of a refundable research and development tax credit we expect to receive from the government of Australia for the fiscal year ending June 30, 2012 based on the qualified expenditures the Company incurred during the three and six months ended December 31, 2011. The Company recorded an estimated income tax refund receivable of $164,640 for the year ended June 30, 2011 for the estimated refund related to qualified expenditures during the year ended June 30, 2011, related to a refundable Australian research and development tax credit for the year ended June 30, 2011.  The Company recognized a refund of $415,315 for expenditures incurred during the year ended June 30, 2010 for a refund claim filed in March 2011.  The Company became aware of the refund opportunity in March 2011and as a result had not provided for a benefit during the six month period ended December 31, 2010.  The Company has provided a valuation allowance against all deferred income tax assets as it is more likely than not that its deferred income tax assets are not currently realizable due to the net operating losses incurred by the Company since its inception.

The Company’s combined effective income tax rate differed from the U.S. federal statutory income rate as follows:

	Six months ended December 31,
	2011			2010
Income tax benefit computed at the U.S. federal statutory rate		-34	%		-34	%
Australia research and development credit		-4			0
Change in valuation allowance		34			34
Total		-4	%		0	%

Significant components of the Company’s net deferred income tax assets as of December 31, 2011 and June 30, 2011 were as follows:

	December 31, 2011			June 30, 2011
Federal net operating loss carryforwards		14,920,208		$	13,481,428
Federal - other		3,128			221,795
Wisconsin net operating loss carryforwards		1,762,387			1,544,877
Australia net operating loss carryforwards		1,485,393			1,560,010
Deferred income tax asset valuation allowance		(17,989,775	)		(16,808,110	)
Total deferred income tax assets	$	—		$	—

The Company has U.S. federal net operating loss carryforwards of approximately $44 million as of December 31, 2011, that expire at various dates between June 30, 2015 and 2032.  The Company also has $600,000 in other federal deferred tax assets comprised of charitable contributions carryforwards and intangible amortization.  The Company has U.S. federal research and development tax credit carryforwards of approximately $48,000 as of December 31, 2011 that expire at various dates through June 30, 2030.  As of December 31, 2011, the Company has approximately $34 million of Wisconsin net operating loss carryforwards that expire at various dates between June 30, 2013 and 2027.  As of December 31, 2011, the Company also has approximately $4 million of Australian net operating loss carryforwards available to reduce future taxable income of its Australian subsidiaries with an indefinite carryforward period.

A reconciliation of the beginning and ending balance of unrecognized income tax benefits is as follows:

	Six Months Ended December 31, 2011			Year Ended June 30, 2011
Beginning balance	$	219,500		$	—
Additions based on tax positions related to the current period		—			219,500
Additions for tax positions of prior years		—			—
Reductions for tax positions of prior years		—			—
Settlements		—			—
Lapses of statutes of limitations		—			—
Effect of foreign currency translation		(10,480	)
Ending balance	$	209,020		$	219,500

The unrecognized income tax benefits relate to the credit the Company claimed during fiscal 2011 related to a refundable Australian research and development tax credit for qualified expenditures incurred during fiscal year 2010.  If recognized, it would favorably affect the effective income tax rate.  The amount is included in accrued expenses in the accompanying condensed consolidated balance sheets.