Note

– Income Taxes

The Tax Cuts and Jobs Act was enacted on

December 22, 2017.

The Act provides for numerous significant tax law changes and modifications including the reduction of the U.S. federal corporate income tax rate from

35%

21.

In accordance with the accounting standard ASC

740

“Income Taxes”, companies are required to recognize the tax law changes in the period of enactment.

As a result of the reduction of the corporate income tax rate to

21%,

U.S. GAAP requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the period of enactment. The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional amount recorded for the remeasurement and resulting write-down of the deferred tax balance was

$689,000.

December 31, 2017,

the Company had approximately

$427,000

of federal research and development tax credits. If

not

utilized, the research and development tax credits expire from

2032

2037.

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

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

	201 7		2016
Current:
Federal	$	1,091,216	$	(71,070	)
State		11,580		2,504
Total current tax provision		1,102,796		(68,566	)
Deferred:
Federal		831,148		(435,495	)
State		-		---
Total deferred tax provision		831,148		(435,495	)
Income tax (benefit)/expense	$	1,933,944	$	(504,061	)

March 2014,

New York State eliminated the state income tax for qualified manufacturing companies such as CVD.

The tax effects of temporary differences giving rise to significant portions of

the net deferred taxes are as follows:

	201 7		201 6

Allowance for doubtful accounts	$	773	$	771
Inventory capitalization		6,813		19,071
Depreciation and amortization		70,272		(211,014	)
Investment tax credits		----		475,000
Research & development tax credits		496,930		1,278,690
Compensation costs		838,643		1,000,073
Vacation accrual		179,309		333,396
Net operating loss carryforward		---		(7,280	)
Capital loss carryforward		16,446		26,627
Net long-term deferred tax asset		1,609,186		2,915,334
Less valuation allowance		---		(475,000	)
Net long-term deferred tax asset	$	1,609,186	$	2,440,334

The

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

	2017			2016

Expected provision at federal statutory tax rate (34%)	$	2,740,010		$	(222,083	)
State taxes, net of federal benefit		11,580			2,504
Stock-based compensation expense		(161,429	)		(269,163	)
Net operating loss carryforward		7,280			(21,412	)
Federal research & development credit		(781,760	)		(144,522	)
Other permanent differences		118,263			150,615
Income tax expense/(benefit)	$	1,933,944		$	(504,061	)

The Company

’s foreign entity CVD Tantaline ApS incurred a loss of approximately

$865,000,

which would provide a

$190,000

deferred tax asset as of

December 31, 2017,

based on the standard corporate tax rate of

22%

in Denmark. However, sufficient uncertainty exists as to the realizability of these assets such that a full valuation allowance is necessary. There was

significant loss for the year ended

December 31, 2016.