Note 11 - Income Taxes

6 Months Ended

Jun. 30, 2014

11.	Income Taxes

Provisions for income taxes were $5,906,298 and $14,747,080 for the three and six-month periods ended June 30, 2014, respectively, based on effective tax rates of 39% and 38%. Provisions for income taxes were $3,467,219 and $5,371,083 for the three and six-month periods ended June 30, 2013, respectively, based on effective tax rates of 37% for both periods. The increase in income taxes over the three-month period ended June 30, 2014 was primarily due to increased net income, which reflected $5,000,000 in milestone and contract revenue associated with our U.S. license agreement for MONOVISC. The increase in income taxes over the six-month period ended June 30, 2014 was primarily due to increased net income, which reflected $24,652,778 in milestone and contract revenue associated with our U.S. license agreement for MONOVISC. See the previous discussion under Note 10. The increase in the effective tax rate for each of the periods ended 2014, as compared to the same periods ended in 2013, was driven primarily by the unavailability of the federal R&D tax credit in 2014, due to its expiration on December 31, 2013, and a relative decrease to certain estimated production activities deduction.

The Company files income tax returns in the U.S. on a federal basis, in certain U.S. states, and in Italy. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. Our filings from 2010 through the present tax year remain subject to examination by the IRS and other taxing authorities for U.S. federal and state tax purposes. Our filings from 2009 through the present tax year remain subject to examination by the appropriate governmental authorities in Italy.

In connection with the preparation of the financial statements, the Company performed an analysis to ascertain if it was more likely than not that it would be able to utilize, in future periods, the net deferred tax assets associated with its net operating loss carryforward. We have concluded that the positive evidence outweighs the negative evidence and, thus, those deferred tax assets are realizable on a “more likely than not” basis. As such, we have not recorded a valuation allowance at June 30, 2014 or December 31, 2013.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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