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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
INCOME TAXES
(7) Income Taxes

In 2009, the Company generated a net operating loss as a result of the exercise of nonqualified options. These benefits will be recognized in the year in which they are able to reduce current income taxes payable. The usage of these net operating losses and related carryforwards resulted in the Company paying minimal income taxes in 2009 through 2011, and expects to pay minimal income taxes in 2012.

Components of the net deferred tax assets at December 31 are as follows:

 

      September 30,       September 30,  
    2011     2010  
     

Deferred Tax Assets

                

Net operating loss and tax credits

   $ 1,025,621     $ 957,888  

Property and equipment and intangibles

     92,470       181,156  

Allowance for accounts receivable

     92,977       62,951  

Reserve for expired product

     735,992       559,492  

Inventory

     1,079,541       141,492  

Deferred charges

     563,141       507,306  

Cumulative compensation costs incurred on deductible equity awards

     584,212       914,540  
   

 

 

    

 

 

  
     

Total deferred tax assets

     4,173,954       3,324,825  
     

Deferred Tax Liabilities

                

Intangibles

     (2,500,642 )      —    
   

 

 

    

 

 

  
      1,673,312       3,324,825  

Less deferred tax asset valuation allowance

     (94,459 )      (80,862 ) 
   

 

 

    

 

 

  

Net deferred tax assets

   $ 1,578,853     $ 3,243,963  
   

 

 

    

 

 

  

The deferred tax liability was primarily due to the write-off for tax purposes of the net book value of the Kristalose product license rights. For book purposes, the net book value was capitalized as a component of Kristalose product rights and will be amortized over the useful life of the asset.

 

The following table summarizes the amount and year of expiration of federal and state net operating loss carryforwards as of December 31, 2011:

 

      September 30,       September 30,  

Year of expiration

   Federal     State  
     

2014

   $ —       $ 2,685,129  

2015 - 2017

     —         499,034  

2018 - 2024

     —         60,573,367  

2029

     57,614,797       —    
   

 

 

    

 

 

  
    $ 57,614,797     $ 63,757,530  
   

 

 

    

 

 

  

The state net operating loss carryforwards above include approximately $2.0 million that is subject to a full valuation allowance at December 31, 2011

Income tax benefit (expense) includes the following components:

 

      September 30,       September 30,       September 30,  
    2011     2010     2009  
       

Current:

                        

Federal

   $ (1,992,804 )    $ (2,665,404 )    $ (2,240,827 ) 

State

     (422,290 )      (518,365 )      (308,832 ) 
   

 

 

    

 

 

    

 

 

  
      (2,415,094 )      (3,183,769 )      (2,549,659 ) 
   

 

 

    

 

 

    

 

 

  
       

Deferred:

                        

Federal

     (1,543,261 )      268,563       528,602  

Stat10e

     (121,849 )      63,786       (3,135 ) 
   

 

 

    

 

 

    

 

 

  
      (1,665,110 )      332,349       525,467  
   

 

 

    

 

 

    

 

 

  
    $ (4,080,204 )    $ (2,851,420 )    $ (2,024,192 ) 
   

 

 

    

 

 

    

 

 

  

The Company’s deferred tax expense in 2011 was primarily due to the write-off for tax purposes of the Kristalose license rights but maintained as a component of products rights for book purposes, and inventory write-downs. The deferred tax benefit for 2010 was primarily due to rent and expired product expenses recognized for book purposes in 2010 that will not be deductible for tax purposes until the future. The deferred tax benefit for 2009 was primarily due to the expense for nonqualified stock options issued to employees.

The deferred income tax benefit (expense) is comprised of the following components for the years ended December 31:

 

      September 30,       September 30,       September 30,  
    2011     2010     2009  
       

Deferred tax benefit exclusive of components listed below

   $ 439,744     $ 459,575     $ 125,367  

Inventory write-downs

     817,840       31,228       —    

Creation (utilization) of operating loss carryforwards

     11,348       9,567       (60,266 ) 

Creation (utilization) of tax credit carryforwards

     56,395       (3,115 )      7,172  

Change in valuation allowance due to changes in net deferred tax asset balances

     (13,597 )      (10,750 )      (11,342 ) 

Deductible equity awards

     (330,329 )      (132,193 )      419,255  

Intangible assets

     (2,646,511 )      (21,963 )      45,281  
   

 

 

    

 

 

    

 

 

  
       

Deferred income tax (expense) benefit

   $ (1,665,110 )    $ 332,349     $ 525,467  
   

 

 

    

 

 

    

 

 

  

The valuation allowance at December 31, 2011 and 2010 is primarily related to state tax benefits at CET that will likely not be realized.

 

The Company’s effective income tax rate for 2011, 2010 and 2009 reconciles with the federal statutory tax rate as follows:

 

      September 30,       September 30,       September 30,  
    2011     2010     2009  

Federal tax expense at statutory rate

     35 %      34 %      34 % 

State income tax expense (net of federal income tax benefit)

     4       6       4  

Permanent differences associated with tax grants

     —         5       —    

Permanent differences associated with stock options

     2       4       2  

Other permanent differences

     2       4       1  

Other

     (1 )      1       (1 ) 
   

 

 

    

 

 

    

 

 

  
       

Net income tax expense

     42 %      54 %      40 % 
   

 

 

    

 

 

    

 

 

  

During 2010, the Company applied for and received tax-free grants under the Therapeutic Discovery Project. Qualifying expenses certified under this program are nondeductible for federal income tax purposes. Approximately $0.4 million of qualifying expenses related to 2009 for which the Company filed an amended tax return in 2011. The Company also incurred expenses in 2011, 2010 and 2009 associated with the grant of incentive stock options. These expenses are nondeductible for federal income tax purposes.

The Company’s 2009 federal tax return is currently under examination. Federal tax years that remain open to examination are 2010 and 2011. Due to a 2009 net operating loss carryback, federal tax years 2006 – 2008 remain open to the extent of net operating losses utilized in those years. State tax years that remain open to examination are 2006 to 2011.