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Note 9 - Income Taxes

6 Months Ended

Jun. 30, 2014

NOTE 9: INCOME TAXES

The provision for income taxes includes the following:

	Six Months Ended June 30,
	2014			2013

Current:
Federal	$	----		$	----
State		----			----
Total Current Provision		----			----
Deferred:
Federal	$	(223,152	)	$	(269,073	)
State		381,345			(62,475	)
Total deferred		158,193			(331,548	)
Income tax expense/(benefit)	$	158,193		$	(331,548	)

In March 2014, New York State eliminated the state income tax for qualified manufacturing companies such as CVD. Due to this change in tax law, the Company was required to write off state-level deferred tax assets which would have been used to offset future taxes payable to New York State. Though this change led to the loss of benefits we had recorded for previous operating losses, it will reduce total income tax expense for future periods, as essentially all of our operations are in New York State.

Tax Rate Reconciliation

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:

	Six Months Ended
	June 30,
	2014			2013
Income tax benefit at federal statutory rate [34%]	$	31,286		$	34,725
State and local income tax benefit net of federal tax benefit		--			(55,258	)
Change in capitalized inventory (Section 263A)		477			(4,681	)
Change in vacation accrual		(10,392	)		26,372
Change in other accruals		(24,228	)		4,119
Difference between tax and book deprecation		(24,091	)		110,559
Change in capital loss carryforward		--			(301,742	)
Stock-based compensation		(86,271	)		(40,995	)
Research and development credits		(109,933	)		(104,647	)
Impact of New York State taxation change		381,345			--
Income tax expense (benefit)	$	158,193		$	(331,548	)

- 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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