Annual report pursuant to section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2011
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 15 – INCOME TAXES

The provision for (benefit from) income taxes consisted of the following:

   
Year ended December 31,
  
   
2011
    
2010
    
2009
  
Current federal provision (benefit)
   $ 3,076,000     $ 1,021,949     $ (4,866,532 )
Current state provision
     191,266       5,549       89,571  
                         
Deferred federal provision
     854,980       662,817       8,959,098  
Deferred state provision
     4, 662       12,501       161,831  
                         
Income tax expense
   $ 4,126,908     $ 1,702,816     $ 4,343,968  


The difference between the effective tax rate in income tax expense and the Federal statutory rate of 34% is as follows:

   
2011
    
2010
    
2009
  
Income taxes at U.S. statutory rate
   $ 4,269,455     $ 1,492,080     $ 3,736,766  
State taxes, net of federal benefit
     132,136       96,144       230,187  
Prior year overpayments
     --       (14,566 )     (13,998 )
Permanent and other items
     (363,933 )     10,158       25,720  
Increase in valuation allowance
     89,250       119,000       365,293  
    Total tax expense
   $ 4,126,908     $ 1,702,816     $ 4,343,968  


Permanent and other items primarily include non-deductible expenses offset by the manufacturers' deduction under §199 of the Internal Revenue Code.
 
Tax effects of temporary differences that give rise to significant portions of federal and state deferred tax assets and deferred tax liabilities were as follows:

   
December 31,
  
   
2011
    
2010
  
Deferred tax liabilities:
            
  Plant, pipeline and equipment
   $ (7,654,559 )   $ (5,925,379 )
  Contractual based asset
     (205,763 )     (290,906 )
  Unrealized loss on swap agreements
     (136,167 )     (61,503 )
  Total deferred tax liabilities
   $ (7,996,489 )   $ (6,277,788 )
                 
Deferred tax assets:
                
  Accounts receivable
     186,918       162,250  
  Inventory
     91,737       35,437  
  Mineral interests
     365,293       365,293  
  Unrealized loss on interest rate swap
     385,555       379,515  
  Environmental
     119,000       119,000  
  Post-retirement benefits
     355,804       351,911  
                 
Investment in AMAK
     720,375       631,125  
Stock-based compensation
     569,096       355,505  
Deferred revenue
     560,605       -  
  Gross deferred tax assets
     3,354,383       2,400,036  
Valuation allowance
     (1,204,668 )     (1,115,418 )
Total net deferred tax assets
   $ 2,149,715     $ 1,284,618  
  Net deferred tax liabilities
   $ (5,846,774 )   $ (4,993,170 )

The current and non-current classifications of the deferred tax balances are as follows:

   
2011
    
2010
  
             
Current deferred tax asset
   $ 1,169,124     $ 487,513  
                 
Non-current deferred tax liability:
                
                 
Deferred tax assets
     2,010,568       1,822,834  
Deferred tax liability
     (7,821,798 )     (6,188,099 )
Valuation allowance
     (1,204,668 )     (1,115,418 )
Non-current deferred tax liability, net
     (7,015,898 )     (5,480,683 )
                 
Total deferred liabilities, net
   $ (5,846,774 )   $ (4,993,170 )

The Company has provided a valuation allowance in 2011 and 2010 against certain deferred tax assets because of uncertainties regarding their realization.  The 2011 increase in the valuation allowance of $89,250 is related to the tax basis in AMAK.  The net decrease in the valuation allowance of $1,109,090 in 2010  is the result of the write-off of capital loss carryovers which expired unused.

The Company elected to carry-back the taxable loss for the year ended December 31, 2009 of approximately $13,900,000 to prior years.  The Company had recorded $4,726,708 in taxes receivable as of December 31, 2009 related to the carry-back of which approximately $4,510,000 collected and adjusted in 2010.  The remaining taxes receivable at December 31, 2010 is $216,461 which was collected in 2011.

The Company had no Saudi Arabian income tax liability in 2011, 2010, or 2009.
 
The Company files an income tax return in the U.S. federal jurisdiction and Texas. Tax returns for various jurisdictions remain open for examination for the years 2008 through 2010.  In late 2010 the IRS opened an examination of the Company's 2009 tax return which was subsequently closed without change.