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 2014 and 2013 consisted of the following:



Year Ended June 30,	2014			2013
Current:
Federal	$	(1,863,204	)	$	1,697,085
State	69,984			(156,039		)
Deferred	(2,608,369		)	729,720
Total income tax provision (benefit)	$	(4,401,589	)	$	2,270,766

The 2014 and 2013 tax results in an effective rate different than the federal statutory rate because of the following:



Year Ended June 30,	2014			2013
Federal income tax expense (benefit) at statutory rate	$	(3,382,307	)	$	2,617,484
State income tax expense (benefit), net of federal income tax benefit	(285,802		)	147,516
Increase in valuation allowance	148,000			21,890
Stock-based compensation	58,187			49,561
Adjustments for unrecognized tax benefits	(546,113		)	(449,938		)
Federal income tax credits	(187,349		)	—
Other	(206,205		)	(115,747		)
Total income tax provision (benefit)	$	(4,401,589	)	$	2,270,766

Temporary differences which give rise to deferred income tax assets and liabilities at June 30, 2014 and June 30, 2013 include:



	2014			2013
Deferred income tax assets:
Deferred compensation	$	858,434		$	886,750
Stock-based compensation	714,350			524,387
Accrued expenses and reserves	2,701,144			1,177,771
Federal and state net operating loss carryforwards	371,744			267,944
Valuation allowance	(370,409		)	(222,409		)
Other	22,806			—
Total deferred income tax assets	4,298,069			2,634,443

Deferred income tax liabilities:
Equipment and leasehold improvements	(98,717		)	(22,025		)
Capitalized research and development costs	—			(1,015,838		)
Other	—			(5,597		)
Net deferred income tax assets	$	4,199,352		$	1,590,983

Deferred income tax assets as presented on the consolidated balance sheets:



	2014		2013
Current deferred income tax assets	$	2,576,023	$	1,171,453
Noncurrent deferred income tax assets	1,623,329		419,530
Net deferred income tax assets	$	4,199,352	$	1,590,983

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 utilized all of the federal net operating loss carryforwards in the fiscal year ended and will carry back the net operating loss generated in the current year to fiscal year ended June 30, 2013. The Company has net operating loss carryforwards in the state of Wisconsin totaling $5,470,820 of which $4,096,353 and $1,374,467 will expire in fiscal years 2026 and 2030, respectively.

ASC Topic 740 "Income Taxes" 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 additional 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, 2014. As part of the unauthorized transactions, the Company has accrued interest of $0 and $49,150 as of June 30, 2014 and 2013, respectively.



	2014			2013
Accrued interest at beginning of year	$	49,150		$	150,624
Interest charges to expense	24,575			44,014
Interest charges reversed	(73,725		)	(145,488		)
Accrued interest at end of year	$	—		$	49,150

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, 2014 and 2013. The Company records interest related to unrecognized tax benefits in interest expense. For the year ended June 30, 2014, 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, 2008 because the statute of limitations expired for this return.

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



	2014			2013
Unrecognized tax benefits at beginning of year	$	696,113		$	1,146,051
Gross increases - tax positions in prior years	25,000			—
Reductions due to lapse in statute	(546,113		)	(249,938		)
Reductions based on settlements with taxing authorities	—			(200,000		)
Unrecognized tax benefits at end of year	$	175,000		$	696,113

All of the Company's unrecognized tax benefits as of June 30, 2014 and 2013 would affect the effective tax rate.

The Company files income tax returns in the United States federal jurisdiction and in several state jurisdictions. The Company’s federal tax returns through tax year June 30, 2010 are settled and the income tax returns for tax years beginning July 1, 2010 are open. For states in which the Company files state income tax returns, the statue of limitations is generally open for tax years ended June 30, 2010 and forward. The Company's Federal return for the fiscal year ended June 30, 2013 is currently under examination.

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
2014	$	(222,409	)	(148,000	)	—	$	(370,409	)
2013	$	(200,486	)	(21,923	)	—	$	(222,409	)