INCOME TAXES

12 Months Ended

Jun. 30, 2015

Income Tax Disclosure [Abstract]

INCOME TAXES

10. 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 benefits of these assets to determine whether it is more likely than not that such benefit will be realized. In periods prior to the year ended June 30, 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 had achieved along with the belief that such performance will continue into future years, the Company determined during the year ended June 30, 2014 that it was more likely than not that a substantial portion of its deferred tax assets would be realized and reduced its valuation allowances recorded in prior years by approximately $27 million, which includes $40,245 of deferred tax liabilities recorded as of June 30, 2013 reversing in the current year.

In addition to considering recent periods’ performance, the evaluation of the amount of deferred tax assets expected to be realized involves forecasting the amount of taxable income that will be generated in future years. The Company has forecasted future results using estimates that management believes to be conservative. The number of connections added in a service year are a key metric, which in the Company’s recurring revenue service model become an important ingredient in driving future growth and earnings. The forecasts the Company used assumes that significantly fewer net connections would be added to its service year than what it has historically achieved during each of its previous five fiscal years. With respect to its forecasts, the Company also has taken into account several industry analysts who have projected that demand for technology and services similar to the Company’s will continue to grow in the markets the Company serves. Using these forecasts, the Company estimated that it was more likely than not that approximately $64 million of its operating loss carryforwards would be utilized to offset corresponding future years’ taxable income.

If in future periods the Company demonstrates its ability to grow taxable income in excess of the forecasts described above, it will re-evaluate the need to keep some, or all, of the remaining valuation allowances of approximately $23 million on its deferred tax assets.

The benefit (provision) for income taxes for the years ended June 30, 2015, 2014 and 2013 is comprised of the following:

	2015			2014			2013
Current:
Federal	$	(58,028	)	$	(21,021	)	$	-
State		(6,325	)		-			-
		(64,353	)		(21,021	)		-
Deferred:
Federal		365,143			20,970,149			(20,842	)
State		(589,931	)		6,306,270			(6,804	)
		(224,788	)		27,276,419			(27,646	)
	$	(289,141	)	$	27,255,398		$	(27,646	)

The provision for income taxes for the year ended June 30, 2015 includes $395,605 for the state and federal income tax effects of a decrease in the applicable state tax rate used to tax effect deferred tax assets caused by a state income tax law change. The provision for income taxes for the years ended June 30, 2013 was recorded for the future potential income tax effects for basis differences between financial reporting and income tax purposes for indefinite life intangible assets and goodwill that are being amortized for income tax purposes but not for financial reporting. Because there was a full valuation allowance reflected against deferred tax assets as of June 30, 2013, the potential future income tax effects associated with such indefinite life assets were not subject to offset deferred tax assets with finite lives.

A reconciliation of the benefit (provision) for income taxes for the years ended June 30, 2015, 2014 and 2013 to the indicated benefit (provision) based on income (loss) before benefit (provision) for income taxes at the federal statutory rate of 34% is as follows:

	2015			2014			2013
Indicated benefit (provision) at federal statutory rate of 34%	$	272,116		$	(93,586	)	$	(299,801	)
Effects of permanent differences		(215,271	)		(8,168	)		71,379
State income taxes, net of federal benefit		(410,410	)		(17,989	)		(4,490	)
Income tax credits		40,000			-			-
Changes related to prior years		187,373			-			-
Change in valuation allowances		(162,949	)		27,375,141			205,266
	$	(289,141	)	$	27,255,398		$	(27,646	)

At June 30, 2015 the Company had federal operating loss carryforwards of approximately $163 million to offset future taxable income expiring through approximately 2035. The timing and extent to which the Company can utilize operating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations (i.e. IRS Code Section 382). The changes in ownership limitations under IRS Code Section 382 have had the effect of limiting the maximum amount of operating loss carryforwards as of June 30, 2015 available for use to offset future years’ taxable income to approximately $125 million. Those operating loss carryforwards start to expire June 30, 2022.

The net deferred tax assets arose primarily from net operating loss carryforwards, as well as the use of different accounting methods for financial statement and income tax reporting purposes as follows:

	June 30,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	46,919,363		$	47,776,042
Asset reserves		791,915			391,155
Deferred research and development costs		1,009,303			710,640
Intangibles		605,836			907,274
Deferred gain on assets under sale-leaseback transaction		632,317			460,902
Stock-based compensation		223,883			250,426
Other		436,510			348,885
		50,619,127			50,845,324
Deferred tax liabilities:
Fixed assets		(491,990	)		(683,159	)
Intangibles and goodwill		(84,520	)		(67,459	)
Deferred tax assets, net		50,042,617			50,094,706
Valuation allowance		(22,996,634	)		(22,833,685	)
Deferred tax assets (liabilties), net of allowance		27,045,983			27,261,021
Less current portion		1,257,796			907,691
Deferred tax assets (liabilties), non-current	$	25,788,187		$	26,353,330