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, 2018,

the Company had approximately

$414,000

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:

	2018			2017
Current:
Federal	$	58,304		$	1,091,216
State		80,367			11,580
Total current tax provision		138,671			1,102,796
Deferred:
Federal		(495,233	)		831,148
State		---			---
Total deferred tax provision		(495,233	)		831,148
Income tax (benefit)/expense	$	(356,562	)	$	1,933,944

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

	2018			2017
Deferred income tax assets:
Allowance for doubtful accounts	$	5,060		$	773
Inventory capitalization		6,197			6,813
Depreciation and amortization		-			70,272
Research & development tax credits		413,680			496,930
Compensation costs		1,035,983			838,643
Vacation accrual		167,644			179,309
Interest expense carryforward		66,149			---
Net operating loss carryforward		832,565			---
Capital loss carryforward		16,446			16,446
Total deferred tax asset		2,543,724			1,609,186
Deferred incomes tax liability:
Property and equipment - tax over book depreciation		(439,310	)		---
Less valuation allowance		---			---
Net long-term deferred tax asset	$	2,104,414		$	1,609,186

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

	2018			2017
Expected provision at federal statutory tax rate (21% and 34%, respectively)	$	(1,167,092	)	$	2,446,421
Foreign tax loss		99,215			293,589
Adjustment to 2017 tax return		58,304			-
State taxes, net of federal benefit		80,367			11,580
Stock-based compensation expense		185,675			(161,429	)
Net operating loss carryforward		-			7,280
Federal research & development credit		(83,245	)		(781,760	)
Other permanent differences		470,214			118,263
Income tax expense/(benefit)	$	(356,562	)	$	1,933,944

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

$463,000,

which would provide a

$102,000

deferred tax asset as of

December 31, 2018,

based on the standard corporate tax rate of

22%

in Denmark. For the year ended

December 31, 2017

the Company had a loss of

$865,000

with a deferred tax asset of

$190,000.

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