Income Tax

12 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Income Tax

8. Income Tax

The provision for income tax for the years ended March 31, 2012 and 2011 is comprised of the following:

	2012		2011
Current:
Federal	$	215,000	$	93,000
State		25,000		11,000
Total current income tax expense		240,000		104,000
Deferred:
Federal		382,000		95,000
State		30,000		7,000
Total deferred income tax expense (benefit)		412,000		102,000
Income tax expense	$	652,000	$	206,000

A reconciliation between the income tax provision at the statutory rate on income tax and the income tax provision for the years ended March 31, 2012 and 2011 follows:

	2012			2011
Federal tax at statutory rate	$	1,336,000		$	615,000
State taxes, net of federal benefit		68,000			26,000
Excess percentage depletion		(486,000	)		(270,000	)
Change related to tax return amendments		(131,000	)		—
Changes in state rates and other adjustments to deferred tax assets		(135,000	)		(165,000	)
Income tax expense	$	652,000		$	206,000
Effective tax rate expressed as a percentage of income before income tax		16.6	%		11.4	%

The overall effective tax rate expressed as a percentage of book income before income tax for year ended March 31, 2012, as compared to the ended March 31, 2011, was higher primarily due to the tax gain on the sale of the D-J Basin properties, offset by the utilization of greater percentage depletion as a result of recognizing the gain from the this property sale.

Net income tax payments were $1,000 and $204,000 for the years ended March 31, 2012 and 2011, respectively.

Net deferred tax assets and liabilities as of March 31, 2012 and 2011 were comprised of:

	2012			2011
Deferred tax assets:
Statutory depletion carry-forward	$	1,232,000		$	1,110,000
Asset retirement obligation		669,000			703,000
Other accruals		88,000			69,000
Allowance for doubtful accounts		22,000			34,000
Gross deferred tax assets		2,011,000			1,916,000
Deferred tax liabilities:
Depletion, depreciation and intangible drilling costs		(4,742,000	)		(4,235,000	)
Gross deferred tax liabilities		(4,742,000	)		(4,235,000	)
Deferred tax liabilities, net	$	(2,731,000	)	$	(2,319,000	)

Projections of future income taxes and their timing require significant estimates with respect to future operating results.  Accordingly, deferred tax assets and liabilities are continually re-evaluated and numerous estimates are revised over time.  As such, deferred taxes may change significantly as more information and data is gathered with respect to such events as changes in commodity prices, their effect on the estimate of oil and gas reserves and the depletion of these long-lived reserves.

The Company is subject to U.S. federal income tax and income tax from multiple state jurisdictions.  The tax years remaining subject to examination by tax authorities are the years ended March 31, 2008 through 2012.