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Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2014

Note 10 – Income Taxes

At December 31, 2014, the Company had approximately $27,000 in capital loss carryforwards, $2,808,000 in net operating loss carryforwards, and $696,000 of federal research and development tax credits.

If not utilized, a portion of the capital loss carryover will expire in 2015, the investment tax credits expire from 2015 through 2029 and the research and development tax credits expire from 2029-2034. Based on the available objective evidence, including the Company’s history of taxable income and the character of that income, management believes it is more likely than not that these components of the Company’s deferred tax assets will be fully utilized. The Company has provided for a partial valuation allowance against its total net deferred tax assets at December 31, 2014 and December 31, 2013 of approximately $475,000 attributable to these components.

The (benefit) expense for income taxes includes the following:

	2014			2013
Current:
Federal	$	240,591		$	----
State		7,258			----
Total current tax provision		247,849			----
Deferred:
Federal		(1,865,134	)		(1,230,271	)
State		381,345			(166,136	)
Total deferred tax provision		(1,483,789	)		(1,396,407	)
Income tax benefit	$	(1,235,940	)	$	(1,396,407	)

The tax effects of temporary differences giving rise to significant portions of the net deferred taxes are as follows:

	2014			2013

Allowance for doubtful accounts	$	16,826		$	45,148
Inventory capitalization		23,185			36,591
Depreciation and amortization		(371,669	)		(385,907	)
Investment tax credits		475,000			600,000
Research & development tax credits		696,865			683,495
Compensation costs		375,080			239,876
Vacation accrual		242,099			274,307
Accrued loss on legal settlement		1,674,500
Net operating loss carryforward		1,674,500
Capital loss carryforward		26,627			1,135,794
Gross deferred tax asset		4,113,093			2,629,304
Less valuation allowance		(475,000	)		(475,000	)
Net deferred tax asset	$	3,638,093		$	2,154,304

Net current deferred tax asset		2,887,960			1,443,321
Net long-term deferred tax asset		750,133			710,983
Net deferred tax asset	$	3,638,093		$	2,154,304

The reconciliation of the federal statutory income tax rate to our effective tax rate is as follows:

	2014			2013

Expected provision at federal statutory tax rate (34%)	$	(1,261,218	)	$	(665,288	)
State taxes, net of federal benefit		7,258			(109,650	)
Stock-based compensation expense		(307,737	)		(217,648	)

Deferred gain on sale of building					(301,742	)
Capital loss carryforward		--			190,517
Net operating loss carryforward		(37,327	)		--
Federal research & development credit		(181,782	)		(248,444	)
Other permanent differences		163,521			(44,152	)
Impact of New York State taxation change		381,345
Income tax benefit	$	(1,235,940	)	$	(1,396,407	)

- 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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