The Company accounts for income taxes utilizing the liability method under ASC 740, Income Taxes. The liability method measures the expected income tax impact of future taxable income and deductions implicit in the Consolidated Balance Sheets.

During the years ended June 30, 2026 and 2025, the federal tax provisions of $2,892 and $5,570, respectively, consisted entirely of the uncertain tax position related to research and development (R&D) costs taken in a prior year. The Company recognizes the tax benefits of uncertain tax positions only if it is more likely than not that the position will be sustained upon examination by taxing authorities. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

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. Due to positive taxable income in prior years, a significant portion of the Company’s federal R&D tax credits were taken, including carryovers. The claim for research and development (R&D) tax credits continues to be a highly scrutinized area by the Internal Revenue Service and, while the Company is confident in its credit claim, it cannot anticipate the impact that future guidance could have on current claims. Due to the costs of defense, the Company may also decide to settle for less than the full amount of the credits used on the returns. As a result, the Company believes that it is more likely than not that upon audit, the realization of the credits used would be 80% and accordingly recorded a liability as a reserve for an uncertain tax position (UTP) related to the R&D credits taken. The UTP balance was $35,980 and $33,088 at June 30, 2026 and 2025, respectively. The UTP increased each year for reserves for tax positions taken during the years related to R&D credits, along with potential interest and penalties on those amounts should they become due. The reserve for UTP is recorded in income taxes payable on the Consolidated Balance Sheets.

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


Years Ended June 30,	2026		2025
Beginning balance	$	33,088	$	28,225
Increases related to current year positions related to research and development costs		2,892		4,863
Ending balance	$	35,980	$	33,088

The Company does not expect its unrecognized tax benefits to change materially within the next twelve months.

State income tax expense of $8,000 and $11,912 was recorded during the years ended June 30, 2026 and 2025, respectively, which represented mostly the required minimum estimated state tax payments due.

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, 2026 or 2025. The Company records interest related to unrecognized tax benefits, when applicable, in interest expense.

The following table reconciles income taxes computed at the U.S. federal statutory income tax rate to the Company’s effective income tax rate:


Years Ended June 30,	2026			2025
		Amount	Percent		Amount	Percent
Federal income tax benefit at statutory rate	$	(79,920)	21.0%	$	(171,882)	21.0%
State income tax liability, net of federal income tax effect		8,000	(2.1)%		(28,359)	3.5%
Increase in federal valuation allowance		109,251	(28.7)%		207,876	(25.4)%
Stock option (deduction)		2,515	(0.7)%		(152,407)	18.6%
Tax-exempt increase in officer life insurance cash surrender value		(51,129)	13.4%		(52,603)	6.4%
All other nontaxable or nondeductible items		4,783	(1.3)%		5,565	(0.7)%
R&D credit		(1,841)	0.5%		(6,999)	0.9%
Deferred adjustment related to payroll tax withholding on disqualifying disposition of incentive stock options		-	-		33,665	(4.1)%
State tax rate change		-	-		43,812	(5.3)%
Uncertain tax position		2,278	(0.6)%		4,279	(0.5)%
Decrease in deferred tax assets due to expired options		24,374	(6.4)%		-	-
Decrease in deferred tax assets due to state net operating loss		-	-		119,059	(14.5)%
Other		(7,419)	2.0%		15,476	(1.9)%
Total income tax provision	$	10,892	(2.9)%	$	17,482	(2.0)%

The Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to an increase in the valuation allowance, the tax-exempt increase in the cash surrender value of officer life insurance and the impact of deferred tax assets as a result of expired stock options.

‎

Temporary differences which give rise to deferred income tax assets and liabilities at June 30, 2026 and 2025 include:


	2026		2025
Deferred income tax assets:
Deferred compensation	$	587,313	$	541,577
Stock-based compensation		3,249		34,315
Accrued expenses and reserves		510,340		498,423
Deferred revenue		111,145		123,766
Federal and state net operating loss carryforwards		8,847,148		8,697,265
IRC Section 174 research and development costs		21,532		127,053
Credit carryforwards		172,678		173,529
Equipment and leasehold improvements		218,076		184,868
Operating lease liability		546,018		618,268
Other		24,225		—
Valuation allowance		(10,503,176)		(10,384,574)
Total deferred income tax assets		538,548		614,490

Deferred income tax liabilities:
Equipment and leasehold improvements		—		—
Operating right-of-use asset		(538,548)		(612,516)
Other		—		(1,974)
Total deferred income tax liabilities		(538,548)		(614,490)
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 $34,600,000 which can be carried forward indefinitely and state net operating loss carryforwards totaling approximately $11,311,000 in Wisconsin, which expire in tax years 2030 through 2045 and approximately $15,849,000 in other states. Given recurring taxable losses with the exception of fiscal year 2023 whereby taxable income was generated mainly as a result of non-recurring license proceeds, 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. For the year ended June 30, 2026, $577,000 was added to the net operating loss carryforward (NOL) balance as a result of taxable net losses generated. Application of available NOLs to potential future taxable income would minimize any tax payment requirements. NOLs arising in tax years beginning after December 31, 2017 are limited to 80 percent of taxable income per the Tax Cuts and Jobs Act (“TCJA”) and, as such, future utilization of all federal NOLs available to the Company is so limited. For the year ended June 30, 2025, the Company added federal net operating loss carryforwards of approximately $1,150,000 as a result of a taxable net loss for that fiscal year.

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. Accordingly, the valuation allowance offsets substantially all deferred tax assets, including those related to NOL carryforwards, deductible temporary differences, and unrealized losses recognized in accumulated other comprehensive income. 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.