Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

INCOME TAXES

NOTE 7: INCOME TAXES

     The Company computes an estimated annual effective tax rate for interim financial reporting purposes. The estimated annual effective tax rate is used to compute the tax expense or benefit related to ordinary income or loss. Tax expense or benefit related to all other items is individually computed and recognized when the items occur. The Company’s effective tax rate for the three and nine months ended September 30, 2011 was 23.5% and 34.7%, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2010 was (2,022.2)% and 28.8%, respectively. The effective rate for the three and nine months ended September 30, 2010 reflected changes in the estimated tax provision related to the year ended December 31, 2009. The changes resulted from an increase in our net operating loss usage generating a tax benefit recognized in the three months ended September 30, 2010.

     The estimated annual effective tax rate for the year ending December 31, 2011 includes a benefit of approximately 27.6% related to a reduction in the valuation allowance offsetting deferred tax assets. As of the date of the Merger, Critical Therapeutics had approximately $64.0 million in deferred tax assets, primarily relating to net operating loss carryforwards (“NOLs”) and tax credits. The Company determined that utilization of these deferred tax assets was limited due to the requirements of Section 382 of the Internal Revenue Code. Therefore, the deferred tax assets resulting from these NOLs and tax credits were offset by a full valuation allowance. The reversal of the valuation allowance that relates to the Company’s use of these deferred tax assets in 2011 is projected to be $663,000 and is being recorded as a reduction to tax expense. The Company has not established any other valuation allowances.

     There were no changes in unrecognized tax positions for the nine months ended September 30, 2011. As of September 30, 2011, the Company had no unrecognized tax benefits, including those that would affect the effective tax rate. The Company does not reasonably expect any change to the amount of unrecognized tax benefits within the next 12 months.

     The Company recognizes any annual interest and penalties related to uncertain tax positions as operating expenses in its statements of income. For the three and nine months ended September 30, 2011, the Company recognized no interest or penalties related to uncertain tax positions in the statements of income.

     The 2008 through 2010 tax years of the Company are open to examination by federal tax and state tax authorities. The Company has not been informed by any tax authorities for any jurisdiction that any of its tax years is under examination.