Entity information:

NOTE 9 – INCOME TAXES

 

The Company recorded a benefit for state income taxes of approximately $15,000 and zero for the years ended March 31, 2017 and 2016, respectively, as a result of the losses and change in valuation allowance for each year.

 

   2017   2016 
 Current taxes:          
 Federal  $(15,000)  $— 
 State   —    — 
    (15,000)   — 
 Deferred taxes:          
 Federal   —    — 
 State   —    — 
    —    — 
 Total  $(15,000)  $— 

 

The following is a reconciliation between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate to income from continuing operations before income taxes for the years ended March 31, 2017 and 2016:

 

   2017   2016 
 Computed at expected tax rates (34%)  $(30,307,001)  $(8,652,916)
 Meals and entertainment   237,099    50,598 
 Return to accrual true-up   (15,000)   (13,068)
 NOLs limitation resulting from change in control   15,134,586    — 
 Change in valuation allowance   14,935,316    8,615,386 
 Total  $(15,000)  $— 

 

 

Tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred liabilities are presented below:

 

   At March 31, 
   2017   2016 
Deferred tax assets:          
Net operating tax loss carryforwards  $3,912,500   $14,638,485 
Gain on sale of oil and gas properties   7,197,260    6,696,052 
Depletion   1,101,236    1,678,175 
Unrealized net loss on available-for-sale securities   123,955    123,954 
Share-based compensation   402,388    387,564 
Total deferred tax assets   12,737,339    23,524,230 
Deferred tax liabilities:          
Intangible drilling costs   25,949,194    (959,124)
Depreciation   (4,165,651)   (3,014,952)
Other   109,102    144,903 
Total deferred tax liabilities   21,892,645    (3,829,173)
Subtotal   34,629,984    19,695,027 
Less: valuation allowance   (34,629,984)   (19,695,057)
Total  $—   $— 

 

The Company experienced an “ownership change” within the meaning of IRC Section 382 during the year ended March 31, 2017. As a result, certain limitations apply to the annual amount of net operating losses that can be used to offset post ownership change taxable income. The Company has estimated that $44.7 million of its pre-ownership change net operating loss could potentially be lost due to the IRC Section 382 limitation.

 

At March 31, 2017, the Company had estimated net operating loss carry-forwards for federal and state income tax purposes of approximately $11.7 million, adjusted for the ownership change limitation discussed above, which will begin to expire, if not previously used, beginning in the year 2029.

 

The above estimates are based upon management’s decisions concerning certain elections which could change the relationship between net income and taxable income. Management decisions are made annually and could cause the estimates to vary significantly.

 

The Company files income tax returns for federal and state purposes. Management believes that with few exceptions, the Company is not subject to examination by United States tax authorities for tax periods prior to 2012.