Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

Note 10 – Income Taxes

At December 31, 2012, the Company had approximately $639,000 of capital loss carryforwards, $125,000 of New York State investment tax credit carryforwards and $435,000 of federal research and development credits.

If not utilized, a portion of the capital loss carryover will expire in 2014, the investment tax credits expire from 2013 through 2028 and the research and development tax credits expire from 2027-2032. 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 not be fully utilized. Accordingly, the Company provided for a partial valuation allowance against its total net deferred tax assets at December 31, 2012 and 2011 of approximately $475,000 attributable to these components.

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

	2012			2011
Current:
Federal	$	135,031		$	476,857
State		7,782			98,481
Total current tax provision		142,813			575,338
Deferred:
Federal		(150,999	)		454,559
State		(27,308	)		(21,380	)
Total deferred tax provision		(178,307	)		433,179
Income tax (benefit) expense	$	(35,494	)	$	1,008,517

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

	2012			2011
Allowance for doubtful accounts	$	13,618		$	10,873
Inventory capitalization		15,792			10,509
Depreciation and amortization		(585,231	)		(622,307	)
Investment tax credits		600,000			600,000
Research & development tax credits		435,051			431,006
Compensation costs		235,384			250,931
Vacation accrual		250,046			268,104
Capital loss carryforward		268,237			105,474
Gross deferred tax asset		1,232,897			1,054,590
Less valuation allowance		(475,000	)		(475,000	)
Net deferred tax asset	$	757,897		$	579,590
Net current deferred tax asset		189,153			189,510
Net long-term deferred tax asset		568,744			390,080
Net deferred tax asset	$	757,897		$	579,590

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

	2012			2011
Expected provision at federal statutory tax rate (34%)	$	136,031		$	1,627,798
State taxes, net of federal benefit		(12,887	)		50,887
Depreciation & amortization		----			----
Stock-based compensation expense		(112,008	)		(297,471	)
Domestic production activities deduction		(16,298	)		(145,453	)
Capital loss carryforward		104,138			(85,384	)
Federal research & development credit		(98,726	)		(169,172	)
Other permanent differences		(35,744	)		27,312
Income tax expense (benefit)	$	(35,494	)	$	1,008,517