(4) Income Taxes

The provision for income taxes from continuing operations consists of:

	2012		2011
Current:
Federal	$	507,000	$	1,530,000
State		251,000		825,000
Foreign		37,000		4,000
		795,000		2,359,000
Deferred:
Federal		1,183,000		2,220,000
State		133,000		97,000
		1,316,000		2,317,000
Income tax expense	$	2,111,000	$	4,676,000

The effective income tax rate from continuing operations for fiscal year 2012 was 54.9%, compared to the previous year's provisional tax rate of 44.4%. The higher income tax rate in fiscal 2012 was primarily due to non-tax deductible impairment loss of $1,791,000.

Foreign operations had a pre-tax loss of $307,000 in fiscal 2012 compared with $263,000 in pre-tax loss in fiscal 2011. Calgary facility shutdown cost was $566,000, which was included in the fiscal 2012 foreign operation pre-tax loss. The earnings associated with the Company's foreign subsidiary in Japan are reported net of tax and are included in operating income.

The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory tax rate on income from continuing operations before income taxes:

	2012			2011
Income before income taxes and noncontrolling interest	$	3,468,000		$	10,459,000
Federal income tax computed at statutory rate	$	1,178,000		$	3,556,000
State income taxes, net of federal benefits		254,000			608,000
Foreign income not subject to US tax		104,000			89,000
Foreign tax		37,000			4,000
Goodwill impairment		609,000			-
Earn-out adjustment		(136,000	)		-
Other, principally non-deductible expenses		65,000			419,000
Income tax expense	$	2,111,000		$	4,676,000

Deferred income taxes on the consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The primary components of the Company's deferred tax assets and liabilities at January 31 were as follows:

	2012					2011
	Current		Non-current			Current		Non-current
Deferred tax assets:
Bad debts reserves	$	263,000	$	-		$	214,000	$	-
Vacation accrual		1,065,000		-			915,000		-
State taxes		493,000		-			567,000		-
Deferred compensation		1,219,000		-			1,301,000		-
Net operating loss		211,000		-			211,000		-
Accrued costs on discontinued operations		188,000		-			188,000		-
Acquisition costs		242,000		-			127,000		-
Other		219,000		-			158,000		-
Total deferred tax assets	$	3,900,000	$	-		$	3,681,000	$	-

Deferred tax liabilities:
Goodwill & other intangibles	$	-	$	(3,317,000	)	$	-	$	(3,562,000	)
Gain on involuntary conversion		-		(1,176,000	)		-		(572,000	)
Tax over book depreciation		-		(8,761,000	)		-		(7,345,000	)
Sale of property		-		(92,000	)		-		(428,000	)
Other		-		(144,000	)		-		(49,000	)
Total deferred tax liabilities	$	-	$	(13,490,000	)	$	-	$	(11,956,000	)
Net deferred tax asset (liability)	$	3,900,000	$	(13,490,000	)	$	3,681,000	$	(11,956,000	)

The Company has reviewed its positions in recording income and expenses and has no reason to record a liability for income tax uncertainties. The Company files income tax returns in the U.S. on a federal basis and in many U.S. states and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company does not anticipate that its total unrecognized tax benefits will significantly change due to the settlement of examinations or the expiration of statutes of limitations during the next twelve months.