Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 9 – Income Taxes

At December 31, 2021, the Company had $1,671,893 of federal research and development tax credits. If not utilized, the research and development tax credits expire from 2028-2040. For the year ended December 31, 2021 and 2020, the Company has provided a full valuation allowance against all of the net deferred tax assets in the amount of $2,990,093 and $3,381,133, respectively. This was based on management’s assessment, including the last two years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted by the United States Congress. As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) generated in 2018-2020 can now be carried back for five years and resulted in the Company recognizing approximately $1.5 million of a tax benefit, of which $.7 million is a receivable at December 31, 2021. We continue to evaluate for potential utilization of the Company’s deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the CVD Materials segment and cost containment measures.

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

	2021		2020
Current:
Federal	$	14,978	$	(1,528,305	)
State		13,399		950
Total current tax provision		28,377		(1,527,355	)
Deferred:
Federal		-		-
State		---		---
Total deferred tax provision		-		-
Income tax expense / (benefit)	$	28,377	$	(1,527,355	)

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

	2021			2020
Deferred income tax assets:
Allowance for doubtful accounts	$	12,926		$	35,442
Inventory capitalization		6,620			6,969
Impairment Charge		722,720			712,683
Research & development tax credits		1,671,893			1,719,598
Compensation costs		148,958			211,363
Vacation accrual		141,079			89,626
Interest expense carryforward		-			223,768
Net operating loss carryforward		808,163			925,912
Other items		94,235			12,248
Total deferred tax asset		3,606,594			3,937,609
Deferred incomes tax liability:
Property and equipment - tax over book depreciation		(616,501	)		(556,476	)
Less valuation allowance		(2,990,093	)		(3,381,133	)
Net long-term deferred tax asset	$	-		$	-

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

	2021			2020
Expected provision at federal statutory tax rate (21%)	$	1,002,721		$	(1,596,485	)
PPP loan forgiveness		(513,118	)		-
Provision for valuation allowance		(346,209	)		883,796
Foreign tax (income) loss		(115,863	)		70,492
Net operating loss carryback		-			(1,527,355	)
State taxes, net of federal benefit		5,787			(36,832	)
Federal research & development credit		(56,761	)		(64,266	)
Other permanent differences		51,820			743,295
Income (benefit) / tax expense	$	28,377		$	(1,527,355	)

The Company’s foreign subsidiary, CVD Tantaline ApS recognized income (loss) of approximately $552,000 and ($336,000) for the years ended December 31, 2021 and 2020, respectively. Based on the standard corporate tax rate of 22% in Denmark, the Company would have incurred a tax expense (benefit) in the amount of $121,000 and ($74,000) for the years ended December 31, 2021 and 2020, respectively, however, as sufficient uncertainty exists as to the realization of these assets, a full valuation allowance is necessary for the losses incurred prior to December 31, 2021.