Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2015

Note 1

– Income Taxes

At December 31, 2015, the Company had approximately $27,000 in capital loss carryforwards, and $1,134,000 of federal research and development tax credits.

If not utilized, the investment tax credits expire from 2016 through 2030 and the research and development tax credits expire from 2030-2035. 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, 2015 and December 31, 2014 of approximately $475,000 attributable to these components.

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

	2015		2014
Current:
Federal	$	--	$	240,591
State		3,070		7,258
Total current tax provision		3,070		247,849
Deferred:
Federal		1,317,125		(1,865,134	)
State		-		381,345
Total deferred tax provision		1,317,125		(1,483,789	)
Income tax expense/(benefit)	$	1,320,195	$	(1,235,940	)

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.

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

	2015			2014

Allowance for doubtful accounts	$	6,345		$	16,826
Inventory capitalization		11,540			23,185
Depreciation and amortization		228,610			(371,669	)
Investment tax credits		475,000			475,000
Research & development tax credits		1,134,168			696,865
Compensation costs		730,909			375,080
Vacation accrual		323,860			242,099
Accrued loss on legal settlement		--			1,674,500
Net operating loss carryforward		--			954,580
Capital loss carryforward		26,627			26,627
Gross deferred tax asset		2,479,839			4,113,093
Less valuation allowance		(475,000	)		(475,000	)
Net deferred tax asset	$	2,004,839		$	3,636,093

Net current deferred tax asset		398,009			2,887,960
Net long-term deferred tax asset		1,606,830			750,133
Net deferred tax asset	$	2,004,839		$	3,638,093

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

	2015			2014

Expected provision at federal statutory tax rate (34%)	$	1,538,565		$	(1,261,218	)

State taxes, net of federal benefit		3,070			7,258
Stock-based compensation expense		(252,288	)		(307,737	)

Net operating loss carryforward		954,581			(37,327	)
Federal research & development credit		(437,303	)		(181,782	)
Other permanent differences		(486,430	)		163,521
Impact of New York State taxation change		--			381,345
Income tax expense/(benefit)	$	1,320,195		$	(1,235,940	)