Income Taxes

The components of the Company's net deferred tax assets at December 31 are as follows:



	2016			2015

Deferred Tax Assets
Net operating loss and tax credits	$	3,881,415		$	2,274,994
Property and equipment and intangibles	331,301			326,499
Allowance for accounts receivable	170,733			145,200
Reserve for expired product	771,034			849,579
Inventory	214,654			1,154,507
Deferred charges	738,541			660,973
Cumulative compensation costs incurred on deductible equity awards	639,263			1,675,757
Total deferred tax assets	6,746,941			7,087,509

Deferred Tax Liabilities
Intangible assets	(3,238,511		)	(3,162,502		)
Net deferred tax assets, before valuation allowance	3,508,430			3,925,007
Less: deferred tax asset valuation allowance	(388,500		)	(185,497		)
Net deferred tax assets	$	3,119,930		$	3,739,510

The following table summarizes the amount and year of expiration of the Company's federal and state net operating loss carryforwards as of December 31, 2016:



Years of expiration	Federal		State

2017 - 2019	$	—	$	454,898
2020 - 2028	—		38,884,460
2029	44,149,007		10,489,653
2030 - 2036	6,008,921		5,061,020
Total federal and state net operating loss carryforwards	$	50,157,928	$	54,890,031

The Company has total recognized carryforward tax assets of $0.2 million for foreign tax credits and AMT carryforwards. In addition, the Company has recognized as of December 31, 2016 federal Orphan Drug and Research and Development tax credits of $1.2 million that expire between 2021 and 2036. These credits include approximately $0.2 million that is subject to a valuation allowance at December 31, 2016.

The Company has unrecognized federal net operating loss carryforwards as a result of the exercise of nonqualified options of approximately $44.1 million. These benefits occurred as a result of the actual tax benefit realized upon an employee's exercise exceeding the cumulative book compensation charge associated with the awards and will be recognized in the year in which they are able to reduce current income taxes payable. Accordingly, deferred tax assets are not recognized for these net operating loss carryforwards or credit carryforwards resulting from the exercise of nonqualified options. The Company has $54.9 million of state net operating loss carryforwards. This amount includes $45.4 million from the exercise of nonqualified options during 2009 and 2015. The state net operating loss carryforwards above include approximately $4.2 million that is subject to a valuation allowance at December 31, 2016.

Income tax (expense) benefit includes the following components for the years ended December 31:



	2016			2015			2014

Current:
Federal	$	867,041		$	(41,326	)	$	(1,440,010	)
State and other	83,463			(44,276		)	(250,064		)
Total current income tax (expense) benefit	950,504			(85,602		)	(1,690,074		)

Deferred:
Federal	(537,965		)	(385,723		)	213,552
State	(81,615		)	(104,504		)	95,778
Total deferred income tax (expense) benefit	(619,580		)	(490,227		)	309,330
Total income tax (expense) benefit	$	330,924		$	(575,829	)	$	(1,380,744	)

Deferred income tax is comprised of the following components for the years ended December 31:



	2016			2015			2014

Deferred tax (expense) benefit, excluding items below	$	4,803		$	26,193		$	85,844
Inventory	(939,853		)	(257,970		)	(83,418		)
Operating loss carryforwards	1,537,003			34,465			17,424
Tax credit carryforwards	69,418			35,272			43,398
Valuation allowance due to changes in net deferred tax asset balances	(203,003		)	(33,405		)	(20,457		)
Deductible equity awards	(1,036,494		)	(972		)	298,039
Allowance for accounts receivable	25,532			(26,808		)	(63,438		)
Deferred charges	77,567			(59,028		)	838,556
Reserve for expired product	(78,544		)	31,784			217,330
Intangible assets	(76,009		)	(239,758		)	(1,023,948		)
Deferred income tax (expense) benefit	$	(619,580	)	$	(490,227	)	$	309,330

The valuation allowance at December 31, 2016 is primarily related to federal tax credits, which will expire in 2021, and state tax benefits at CET and CPSC that will likely not be realized.

The Company’s effective income tax rate for 2016, 2015 and 2014 reconciles with the federal statutory tax rate as follows:



	2016		2015		2014

Federal tax expense at statutory rate	34	%	34	%	34	%
State income tax expense (net of federal income tax benefit)	4	%	4	%	5	%
Permanent differences associated with general business credits	5	%	(3	)%	(1	)%
Change in valuation allowance	(15	)%	3	%	1	%
Other permanent differences	(2	)%	7	%	1	%
Other	(1	)%	1	%	(3	)%
Net income tax expense	25	%	46	%	37	%

During 2012, the Company’s 2009 federal tax return was examined with no significant findings or adjustments. Federal tax years that remain open to examination are 2010 through 2015. Due to a 2009 net operating loss carryback, federal tax years 2006 through 2008 remain open to the extent of net operating losses utilized in those years. State tax years that remain open to examination are 2008 to 2015. The Company has no unrecognized tax benefits in 2016, 2015 and 2014.

Excluding the alternative minimum tax (AMT) tax credits, the Company will need to generate future taxable income in order to realize its deferred tax assets. Based upon the level of taxable income over the last three years and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2016. The amount of deferred tax assets considered realizable, however, could be reduced in the future periods if estimates of future taxable income during the carryforward period are reduced.