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Note 9 - Income Taxes

9 Months Ended

Sep. 30, 2014

NOTE 9: INCOME TAXES

The provision for income taxes includes the following:

	Nine Months Ended September 30,
	2014			2013

Current:
Federal	$	281,748		$	----
State		25,572			----
Total Current Provision		307,320			----
Deferred:
Federal	$	(191,472	)	$	(498,382	)
State		381,345			(8,629	)
Total deferred		189,873			(507,011	)
Income tax expense/(benefit)	$	497,193		$	(507,011	)

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:

	Nine Months Ended
	September 30,
	2014			2013
Income tax expense/(benefit) at federal statutory rate [34%]	$	438,244		$	(174,018	)
State and local income tax benefit net of federal tax benefit		--			(30,709	)
Change in capitalized inventory (Section 263A)		3,159			(5,760	)
Change in vacation accrual		(23,913	)		(26,137	)
Change in other accruals		(4,023	)		10,023
Difference between tax and book depreciation		(91,385	)		140,516
Change in capital loss carryforward		--			(224,137	)
Stock-based compensation		(97,041	)		(10,825	)
Research and development credits		(109,193	)		(185,964	)
Impact of New York State taxation change		381,345			--
Income tax expense/(benefit)	$	497,193		$	(507,011	)

- 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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