NOTE

INCOME TAXES

December 22, 2017,

the Tax Cuts and Jobs Act was enacted in the U.S. Tax Reform significantly lowering the amount of current and future income tax expense primarily due to the reduction in the U.S. statutory tax rate from

35.0%

21.0%.

This provision went into effect on

January 1, 2018

and resulted in the loss of our ability to take the domestic production activities deduction which has been repealed and requires us to remeasure our deferred tax assets and liabilities.

The provision for income taxes includes the following:

	Six Months Ended June 30,
	2019			2018
Current:
Federal	$	---		$	48,330
State		7,303			3,500
Total current provision		7,303			51,830
Deferred:
Federal	$	(698,000	)	$	56,888
State		------			----
Total deferred (benefit) provision		(698,000	)		56,888
Income tax expense (benefit) provision	$	(690,697	)	$	108,718

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,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(895,428	)	$	(139,314	)
Foreign tax loss		28,175			82,715
State taxes		3,000			3,500
Difference between tax and book depreciation		48,144			39,827
Stock compensation		62,505			140,052
Other Permanent differences		62,907			(18,062	)
Income tax (benefit) expense	$	(690,697	)	$	108,718

The Company’s foreign subsidiary, CVD Tantaline ApS incurred a loss of approximately

$134,000

for the

six

months ended

June 30, 2019

which would provide a

$28,000

deferred tax asset, based on the standard corporate tax rate of

22%

in Denmark. For the

six

months ended

June

31,

2018

the Company had a loss of

$394,000

with a deferred tax asset of

$83,000.

However, sufficient uncertainty exists as to the realizability of these assets such that a full valuation allowance has been necessary.

We continue to evaluate for potential utilization of the Company’s deferred tax asset on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the new CVD Materials segment and cost containment measures.