INCOME TAXES

9 Months Ended

Mar. 31, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

7. INCOME TAXES

The Company has significant deferred tax assets, a substantial amount of which result from operating loss carryforwards. The Company routinely evaluates its ability to realize the benefit of these assets to determine whether it is more likely than not that such benefit will be realized. In periods prior to March 31, 2014, the Company’s evaluation of its ability to realize the benefit from its deferred tax assets resulted in a full valuation allowance against such assets. Based upon earnings performance that the Company has achieved currently and in the recent past along with its belief that such performance will continue into future years, the Company, as of March 31, 2014, has determined that it is more likely than not that a substantial portion of its deferred tax assets will be realized and has reduced $26,713,897 of its valuation allowances recorded in prior periods.

The reduction in the valuation allowance was primarily the result of the following facts at the point we reduced the allowance: (i) our net income of $854,123 for the 2013 fiscal year; (ii) our net income (excluding the benefit from income taxes related to the valuation allowance) of $873,170 during the first nine months of the 2014 fiscal year; (iii) our forecasts which show earnings sufficient to utilize these tax assets; and (iv) the nature of our recurring revenue service model which supports our forecasts of earnings.

The evaluation of the amount of net deferred tax assets expected to be realized involves forecasting the amount of taxable income that will be generated in future years. We have forecasted future results using estimates management believes to be conservative in nature. As an example, in our forecast, the Company assumed that significantly fewer net connections would be added to its service per year than what it has historically achieved during each of the previous five fiscal years (fiscal year 2009 through fiscal year 2013). In connection with its recurring revenue service model, net connections are a key metric which drives our future growth, including earnings. In connection with our forecasts, we also took into account several industry analysts who have projected that demand for technology and services similar to ours will continue to grow in the markets in which we serve. Based upon our outlook for future periods, at March 31, 2014, we estimated that it was more likely than not that approximately $69 million of our net operating loss carryforwards would be utilized to offset corresponding future taxable income.

If in future periods, the Company demonstrates its ability to grow future taxable earnings in excess of the forecast described above, we will re-evaluate the need to keep some, or all, of the remaining valuation allowance of $22,833,664 on its deferred tax assets.

The reduction of the $26,713,897 in valuation allowances is reflected as an income tax benefit in the provision for income taxes for the three months and nine months ended March 31, 2014. The provision for income taxes for the three months ended March 31, 2014 also reflects a benefit of $13,823 which represents the provision for income taxes recorded through December 31, 2013 relating to amortization of indefinite life intangible assets and goodwill for income tax purposes and not subject to offset against finite life assets when full valuation allowances were reflected against deferred tax assets.

	Three months ended			Nine months  ended
	March 31, 2014			March 31, 2014
Income before benefit from income taxes	$	138,806		$	855,474
Estimated annual effective tax rate		0	%		0	%
Provision (benefit) for income taxes	$	-		$	-
Reversal of provision for income taxes recorded for the six months ended December 31, 2013	$	(13,823	)	$	-
Benefit from reduction of valuation allowances		(26,713,897	)		(26,713,897	)
Benefit from income taxes	$	(26,727,720	)	$	(26,713,897	)

A provision for income taxes of $6,911 and $20,734 (all deferred income taxes) was recorded for the three months and nine months ended March 31, 2013, respectively. The provision for income taxes related to amortization of indefinite life intangible assets and goodwill that are being amortized for income tax purposes but not for financial reporting purposes giving rise to basis differences in such assets between financial and income tax reporting. As of March 31, 2013 there was a full valuation allowance against the Company’s deferred tax assets.