Income Taxes

12 Months Ended

Jun. 30, 2023

Income Taxes [Abstract]

Income Taxes

7.    INCOME TAXES

The Company utilizes the liability method of accounting for income taxes. The liability method measures the expected income tax impact of future taxable income and deductions implicit in the Consolidated Balance Sheets. The income tax provision in 2023 and 2022 consisted of the following:

Year Ended June 30,	2023		2022
Current:
Federal	$	230,139	$	—
State		87,238		7,517
Deferred		—		—
Total income tax provision	$	317,377	$	7,517

The 2023 and 2022 tax results in an effective rate different than the federal statutory rate because of the following: 

Year Ended June 30,	2023		2022
Federal income tax liability at statutory rate	$	1,803,000	$	267,945
State income tax liability, net of federal income tax effect		323,565		47,765
Utilization of net operating loss carryforwards		(1,720,747)		—
(Decrease) increase in valuation allowance		(44,841)		1,486,001
Stock option (deduction)		(24,218)		(1,966,822)
Non-deductible officers' compensation		—		127,612
All other permanent items		(41,701)		(50,573)
R&D credit		(19,340)		(34,936)
Return-to-provision		(54,414)		(38,863)
Expiration of stock options and tax credits		—		7,573
State tax rate change		83,094		157,716
Uncertain tax position		25,269		—
Other		(12,290)		4,099
Total income tax provision	$	317,377	$	7,517

For the year ended June 30, 2023, as a result of additional income generated by licensing fees, partially offset by related legal fees and expenses, taxable income for the period was generated. On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted which changed the rules for deducting net operating losses (NOLs). Before 2017, NOLs were fully deductible and could be carried back two years and carried forward 20 years. For NOLs arising in tax years beginning after December 31, 2017, the TCJA limits the NOL deduction to 80 percent of taxable income. As such, the utilization of the Company’s net operating loss carryforwards from fiscal years after 2018 were limited to 80 percent of the resulting taxable income. The Company’s NOL carryforwards from fiscal 2017 and 2018 could be utilized to offset taxable income at 100 percent. The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $230,139 and $87,238, respectively, for the year ended June 30, 2023. For the year ended June 30, 2022, a state tax provision of $7,517 was recorded. The federal income tax expense was zero for the year ended June 30, 2022.

Temporary differences which give rise to deferred income tax assets and liabilities at June 30, 2023 and June 30, 2022 include: 

	2023		2022
Deferred income tax assets:
Deferred compensation	$	491,608	$	479,340
Stock-based compensation		117,607		107,499
Accrued expenses and reserves		571,719		551,562
Deferred revenue		138,665		176,447
Federal and state net operating loss carryforwards		8,216,671		9,942,511
IRC Section 174 research and development costs		63,855		—
Credit carryforwards		169,552		292,155
Equipment and leasehold improvements		136,294		122,764
Lease liability		744,431		803,603
Valuation allowance		(9,906,018)		(11,671,606)
Total deferred income tax assets		744,384		804,275
Equipment and leasehold improvements		—		—
ROU asset		(742,386)		(803,603)
Other		(1,998)		(672)
Net deferred income tax assets	$	-	$	-

Deferred income tax balances reflect the effects of temporary differences between the tax bases of assets and liabilities and their carrying amounts. These differences are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The recognition of these deferred tax balances will be realized through normal recurring operations and, as such, the Company has recorded the value of such expected benefits. The Company has federal net operating loss carryforwards of approximately $31,793,000 which can be carried forward indefinitely. The Company has state net operating loss carryforwards totaling approximately $10,944,000 in Wisconsin, which expire in tax years 2030 through 2041, and approximately $15,090,000 in other states. In the year ended June 30, 2023, the Company estimates that federal net operating loss carryforwards of approximately $7,006,000 will be utilized to offset taxable income. At the state level, net operating loss carryforwards of $4,565,000 in Wisconsin and all other states combined are expected to be utilized.

The Company's remaining tax loss carryforward as of June 30, 2023 is expected to be approximately $31,800,000. Taxable income was generated during the year ended June 30, 2023, mainly as a result of non-recurring license proceeds and, as such, the future realization of this continues to be uncertain. The valuation allowance was adjusted to continue to fully offset the deferred tax asset as there is sufficient negative evidence to support a full valuation allowance.

The need for a valuation allowance is evaluated each accounting period based on the Company’s evaluation of positive and negative evidence concerning the usage of their deferred tax assets. As of the end of the period, the Company has evaluated all evidence concerning the usage of their deferred tax assets and the determination has been made to maintain a full valuation allowance on the Company’s net deferred tax asset. The need for a valuation allowance is an estimate at period-end, which is subject to change once additional evidence is obtained in future periods.

Generally accepted accounting principles in the United States (“GAAP”) prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The Company recorded a liability of approximately $25,000 as a reserve for an uncertain tax position (“UTP”) related to the research and development credits taken. The reserve for UTP was recorded in income taxes receivable on the Consolidated Balance Sheet as of June 30, 2023. There were no other matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return that have been recorded on the Company’s Consolidated Financial Statements for the years ended June 30, 2023 and 2022.

Additionally, GAAP provides guidance on the recognition of interest and penalties related to income taxes. No interest or penalties related to income taxes has been accrued or recognized as of and for the years ended June 30, 2023 or 2022. The Company records interest related to unrecognized tax benefits in interest expense.

The Company files income tax returns in the United States federal jurisdiction and in several state jurisdictions. The Company’s federal tax returns for tax years and state income tax returns are open for the standard statutory period.

The following are the changes in the valuation allowance: 

	Balance,		Decrease (Increase)
	beginning		in valuation		Balance,
Year Ended June 30,	of year		allowance		end of year
2023	$	(11,671,606)	$	1,765,588	$	(9,906,018)
2022	$	(10,185,605)	$	(1,486,001)	$	(11,671,606)