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INCOME TAXES (Notes) | 12 Months Ended
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Jun. 30, 2012
Income Tax Disclosure [Abstract] |
INCOME TAXES | 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 (benefit) in 2012 and 2011 consisted of the following:
Year Ended June 30, |  | 2012 |  | 2011
Current: |  |  |  |  |  |
Federal |  | $ | 953,682 |  |  | $ | 867,051 |
State |  | (194,875 | ) |  | (193,058 | )
Deferred |  | 341,284 |  |  | 1,269,627 |
Total income tax provision |  | $ | 1,100,091 |  |  | $ | 1,943,620 |
The 2012 and 2011 tax results in an effective rate different than the federal statutory rate because of the following:
Year Ended June 30, |  | 2012 |  | 2011
Federal income tax expense (benefit) at statutory rate |  | $ | 1,373,772 |  |  | $ | 2,147,763 |
State income tax expense, net of federal income tax benefit |  | 80,810 |  |  | 244,860 |
Decrease in valuation allowance |  | (471,254 | ) |  | (1,018,838 | )
Research and development credits |  | (34,835 | ) |  | (13,585 | )
Stock-based compensation |  | 32,442 |  |  | 353,099 |
Unrecognized tax benefits |  | — |  |  | 50,000 |
Other |  | 119,156 |  |  | 180,321 |
Total income tax provision |  | $ | 1,100,091 |  |  | $ | 1,943,620 |
Temporary differences which give rise to deferred income tax assets and liabilities at June 30 include:
|  | 2012 |  | 2011
Deferred Income Tax Assets: |  |  |  |  |  |
Deferred compensation |  | $ | 812,639 |  |  | $ | 731,978 |
Stock-based compensation |  | 362,585 |  |  | 364,071 |
Accrued expenses and reserves |  | 1,249,817 |  |  | 1,318,002 |
Package design and trademarks |  | 46,997 |  |  | 62,790 |
Unauthorized transactions |  | 458,284 |  |  | 1,480,000 |
Federal and state net operating loss carryforwards |  | 1,500,198 |  |  | 590,473 |
AMT and research and development credit carryforwards |  | 153,045 |  |  | 72,901 |
Valuation allowance |  | (200,486 | ) |  | (671,740 | )
Total deferred income tax asset |  | 4,383,079 |  |  | 3,948,475 |
Deferred Income Tax Liabilities: |  |  |  |  |  |
Equipment and leasehold improvements |  | (466,250 | ) |  | (311,962 | )
Capitalized research and development costs |  | (1,592,415 | ) |  | (972,465 | )
Other |  | (3,711 | ) |  | (2,061 | )
Net deferred income tax asset |  | $ | 2,320,703 |  |  | $ | 2,661,987 |
Deferred income tax assets as presented on the consolidated balance sheets:
|  | 2012 |  | 2011
Current deferred income tax assets |  | $ | 963,303 |  |  | $ | 1,028,796 |
Noncurrent deferred income tax assets |  | 1,357,400 |  |  | 1,633,191 |
Net deferred income tax assets |  | $ | 2,320,703 |  |  | $ | 2,661,987 |
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 full value of such expected benefits. The Company has federal net operating loss carryforwards of $3,537,198 which expire in the fiscal years ended 2030 through 2032. There are net operating loss carryforwards in the state of Wisconsin totaling $7,944,240 which expire in fiscal year 2025. Accounting Standards Codification (“ASC”) Topic 740 prescribes 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. There were no significant 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 year ended June 30, 2012. As part of the unauthorized transactions, the Company has accrued interest of $150,624 and $498,806 at June 30, 2012 and 2011, respectively.
|  | 2012 |  | 2011
Accrued interest at beginning of year |  | $ | 498,806 |  |  | $ | 660,989 |
Interest charges to expense |  | 44,015 |  |  | 325,370 |
Interest charges paid |  | (140,712 | ) |  | — |
Interest charges reversed |  | (251,485 | ) |  | (487,553 | )
Accrued interest at end of year |  | $ | 150,624 |  |  | $ | 498,806 |
Additionally, ASC Topic 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no penalties related to income taxes that have been accrued or recognized as of and for the years ended June 30, 2012 and 2011. The Company records interest related to unrecognized tax benefits in interest expense. For the year ended June 30, 2012, the Company decreased the interest it had accrued related to its tax reporting of the unauthorized transactions. The Company reversed the accrued interest related to the tax return that was filed for the year ended June 30, 2007 because of the statute of limitations for this return. During the year ended June 30, 2012, the Company accrued interest related to the tax reporting of the unauthorized transactions for years ending after June 30, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | 2012 |  | 2011
Unrecognized tax benefits at beginning of year |  | $ | 599,938 |  |  | $ | 300,000 |
Gross increases — tax positions in prior years |  | 546,113 |  |  | 299,938 |
Unrecognized tax benefits at end of year |  | $ | 1,146,051 |  |  | $ | 599,938 |
The Company files income tax returns in the United States federal jurisdiction and in a state jurisdiction. The Company’s federal tax returns through tax year June 30, 2006 are settled and the income tax returns for tax years beginning July 1, 2006 are open. For states in which Koss files state income tax returns, the statue of limitations is generally open for tax years ended June 30, 2008 and forward. The following are the changes in the valuation allowance:
Year Ended June 30, |  | Balance, Beginning of Year |  | Increase in Valuation Allowance |  | Release of Valuation Allowance |  | Balance, End of Year
2012 |  | $ | (671,740 | ) |  | — |  |  | 471,254 |  |  | $ | (200,486 | )
2011 |  | $ | (1,690,578 | ) |  | — |  |  | 1,018,838 |  |  | $ | (671,740 | )

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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