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Income Taxes
 12 Months Ended
Jun. 30, 2012
Income Taxes  
Income Taxes

 

Note 10 — Income Taxes

 

We file a consolidated federal income tax return in the United States and various combined and separate filings in several state and local jurisdictions.

 

There were no unrecognized tax benefits nor any accrued interest or penalties associated with unrecognized tax benefits during the year ended June 30, 2012, 2011 and 2010.  We believe that we have appropriate support for the income tax positions taken and to be taken on the Company’s tax returns and that the accruals for tax liabilities are adequate for all open years based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. The Company’s tax returns are open to audit under the statute of limitations for the years ending June 30, 2008 through June 30, 2011 for federal tax purposes and for the years ended June 30, 2008 through June 30, 2011 for state tax purposes.

 

As a result of our net operating losses during the tax years ended June 30, 2010, 2009, and 2008, and the refunds we claimed as a result of our carry backs of those losses to our tax years ended June 30, 2006 and 2007, we are under a limited scope IRS audit.  The IRS limited scope audit is pending joint committee review.  We do not expect that the limited scope audit will have a significant effect on our financial condition and results of operations.

 

The components of our income tax provision (benefit) are as follows:

 

 

 

June 30,
2012

 

June 30,
2011

 

June 30,
2010

 

Current:

 

 

 

 

 

 

 

Federal

 

$

309,632

 

$

(64,068

)

$

(608,339

)

State

 

841,698

 

132,596

 

207,952

 

Total current income tax provision (benefit)

 

1,151,330

 

68,528

 

(400,387

)

Deferred:

 

 

 

 

 

 

 

Federal

 

2,542,662

 

360,174

 

(553,326

)

State

 

6,930

 

20,212

 

(218,111

)

Total deferred income tax provision (benefit)

 

2,549,592

 

380,386

 

(771,437

)

Total income tax provision (benefit)

 

$

3,700,922

 

$

448,914

 

$

(1,171,824

)

 

The 2012 effective tax rate is in excess of the federal statutory rate primarily due to the incentive based stock compensation and increased Louisiana state income tax (due to the increased Delhi revenue).  The 2011 effective rate is well in excess of the federal statutory rate primarily due to the reversal of permanent deductions take in prior years that were recomputed as a result of the federal NOL carryback claims as well as incentive based stock compensation.  The rate appears abnormally high as a result of the fixed dollar nature of the permanent items in relation to the nearly breakeven pretax book income.  The 2010 effective tax rate is slightly below the federal statutory rate primarily due to a pretax book loss offset by a permanent addition for incentive based stock compensation.  The following is a reconciliation of statutory income tax expense to our income tax provision (benefit):

 

 

 

June 30,
2012

 

June 30,
2011

 

June 30,
2010

 

Income tax provision (benefit) computed at the statutory federal rate:

 

$

3,003,238

 

$

70,503

 

$

(1,210,241

)

Reconciling items:

 

 

 

 

 

 

 

State income taxes, net of federal tax benefit

 

560,095

 

100,853

 

(10,413

)

Stock-based compensation (primarily incentive stock options)

 

83,115

 

140,620

 

105,402

 

Expiring NOLs related to 2004 reverse merger

 

4,348,495

 

 

 

 

 

Deferred tax asset valuation adjustment

 

(4,348,495

)

—

 

—

 

Reversal of Section 199 deductions as a result of carry-backs

 

—

 

141,920

 

—

 

Rate adjustment

 

—

 

(7,172

)

(42,651

)

Other

 

54,474

 

2,190

 

(13,921

)

Income tax provision (benefit)

 

$

3,700,922

 

$

448,914

 

$

(1,171,824

)

 

Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are classified as either current or noncurrent on the balance sheet based on the classification of the related asset or liability for financial reporting purposes.  Deferred tax assets and liabilities not related to specific assets or liabilities on the financial statements are classified according the expected reversal date of the temporary difference or the expected utilization date for tax attribute carryforwards.  The change in the NOL is primarily due to expiring NOLs related to the 2004 reverse merger as well as utilization of NOL to offset potential current year taxable income.  The components of our deferred taxes are detailed in the table below:

 

 

 

June 30,
2012

 

June 30,
2011

 

June 30,
2010

 

Deferred tax assets:

 

 

 

 

 

 

 

Non-qualified stock-based compensation

 

$

774,720

 

$

959,547

 

$

866,035

 

Net operating loss carry-forwards**

 

1,336,769

 

5,910,275

 

5,389,065

 

AMT credit carry-forward*

 

714,571

 

682,456

 

645,938

 

Other

 

29,929

 

23,626

 

21,306

 

Gross deferred tax assets

 

2,855,989

 

7,575,904

 

6,922,344

 

Valuation allowance

 

(893,410

)

(5,187,983

)

(5,187,983

)

Total deferred tax assets

 

1,962,579

 

2,387,921

 

1,734,361

 

Deferred tax liability:

 

 

 

 

 

 

 

Oil and natural gas properties

 

(7,842,437

)

(5,718,187

)

(4,684,241

)

Total deferred tax liability

 

(7,842,437

)

(5,718,187

)

(4,684,241

)

Net deferred tax liability

 

$

(5,879,858

)

$

(3,330,266

)

$

(2,949,880

)

 

 

* Total AMT credit carry-forward is $844,440.  Our net deferred tax liability does not include $129,869 of AMT credit carry-forward associated with the windfall tax benefit.

 

** Excluded from our net tax liability is an estimated tax benefit of $394,487 related to net operating losses associated windfall tax benefits.

 

We recovered approximately $1.0 million in federal income taxes as a result of the carry-back of tax losses incurred during June 30, 2010.  The loss carry-back was primarily the result of significant intangible drilling costs incurred during that year, which we deducted for federal income tax purposes.

 

At June 30, 2012, we have a federal tax loss carry-forward of approximately $3.9 million, exclusive of the $1.1 million non-benefitted NOL related to unutilized windfall tax benefits.  Included in the deferral tax loss carry-forward is approximately $3.1 million that we acquired through the reverse merger in May 2004, of which, approximately $0.4 million is available to us to use in equal amounts through 2023.  We have applied a valuation allowance against the portion of the federal tax loss carry-forward that has been disallowed through IRC Section 382.