NOTE H – INCOME TAX

The expense for income taxes from continuing operations for the three years ended December 31 were as follows (in 000's):


	2011		2010		2009

Current	$	34	$	100	$	82
Deferred		—		—		—

Total	$	34	$	100	$	82

The reconciliation of the federal statutory income tax rate of 34.0% to the effective income tax rate for the three years ended December 31 was as follows:


	2011			2010			2009
Federal statutory income tax rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal		(5.6	)		(10.0	)		4.8
Non-deductible items		(3.6	)		(14.0	)		(2.7	)
Valuation allowance		(26.7	)		(14.2	)		(38.6	)
Alternative Minimum Tax		(1.1	)		(2.5	)		—
Other		0.8			(0.1	)		0.3

		(2.2	)%		(6.8	)%		(2.2	)%

Significant components of the Company's deferred tax assets and liabilities were as follows (in 000's):


	December 31,
	2011			2010
Deferred tax assets:
Inventory	$	522		$	477
Accounts receivable		49			46
Accrued expenses		678			733
State tax credits		866			866
AMT tax credit carryforward		57			76
Federal and state net operating losses		680			438
Goodwill		34			35
Stock options		699			733
Other		27			35

		3,612			3,439
Valuation allowance		(2,778	)		(3,238	)

		834			201

Deferred tax liabilities:
Property, plant & equipment		(760	)		(85	)
Other		(74	)		(116	)

		(834	)		(201	)

Net deferred income tax asset (liability)	$	—		$	—

As of December 31, 2011, the Company has federal net operating loss carry-forwards of $1.9 million that will expire between 2027 and 2031, as well as state net operating loss carry-forwards of $6.5 million that expire between 2011 and 2031. At December 31, 2011, the Company also has a net state tax credit carry-forward of approximately $1.4 million. Approximately $45,000 of the state tax credit carry-forward has a 15-year carry-forward limitation, which begins to expire in 2012. The remaining state tax credit carry-forward amounts have no expiration period.

ASC Topic 740 requires a valuation allowance to reduce reported deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, as of December 31, 2011, an allowance of $2.8 million has been established to reduce the deferred tax assets to the amount that will more likely than not be realized. During 2011, the valuation allowance decreased $460,000 primarily as a result of changes in cumulative temporary differences and the effect of the loss incurred during the year. During 2010, the valuation allowance increased $497,000. The effects in any of the quarters presented were not material.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Increases or decreases to the unrecognized tax benefits could result from the Company's belief that a position can or cannot be sustained upon examination based on subsequent information or potential lapse of the applicable statute of limitation for certain tax positions. The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions and has open tax years and ongoing tax examinations in major jurisdictions for the years ending December 31, 2007 through 2010.