15.	INCOME TAXES

The provision for income tax benefit from continuing operations for the years ended December 31, 2011, 2010 and 2009 consists of the following:

(thousands)	2011			2010			2009
Income taxes (benefit):
Current:
Federal	$	(235	)	$	(148	)	$	(564	)
State		54			50			95
Total current		(181	)		(98	)		(469	)
Deferred:
Federal		18			17			-
State		-			-			-
Total deferred		18			17			-
Income tax benefit	$	(163	)	$	(81	)	$	(469	)

The provisions for the income tax benefit for the years ended December 31, 2011, 2010 and 2009 are different from the amounts that would otherwise be computed by applying a graduated federal statutory rate (34% in each of the years presented) to income before income taxes.

A reconciliation of the differences related to continuing operations is as follows:

(thousands)	2011			2010			2009
Rate applied to pretax (benefit) loss	$	2,824		$	389		$	(2,010	)
State taxes, net of federal tax effect		54			50			(83	)
Deferred tax valuation allowance		(3,048	)		(311	)		1,397
Other		7			(209	)		227
Income tax benefit- continuing operations	$	(163	)	$	(81	)	$	(469	)

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in deductible or taxable amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is the tax payable or refundable for the current period plus or minus the change in deferred tax assets and liabilities during the period.

Current conditions in the residential and manufactured housing and credit markets and the general economy in the U.S. continue to present challenges in terms of sustaining the Company's levels of profitability in the future. In the absence of specific favorable factors, the Company records a valuation allowance for deferred tax assets in a tax jurisdiction when a company has cumulative financial accounting losses over several years.

As of January 1, 2009, the Company had a tax valuation allowance for deferred tax assets net of deferred tax liabilities not expected to be utilized of $18.0 million. An additional $1.4 million valuation allowance was provided for deferred tax assets net of deferred tax liabilities incurred during 2009. Given the accumulated net operating loss after carry-backs in the prior three years, the net loss reported for the year ended December 31, 2009, and current economic conditions, it was more likely than not at that time that the deferred tax assets would not be realized. In 2010, the valuation allowance was reduced by $0.3 million. In 2011, the valuation allowance was further reduced by an additional $3.5 million. The tax valuation allowance balance as of December 31, 2011 was $15.6 million. Deferred tax assets will continue to require a tax valuation allowance until the Company can demonstrate their realizability through continued profitability and/or from other factors. The tax valuation allowance does not impact the Company's ability to utilize its net operating loss carryforwards to offset taxable earnings in the future.

For the years ended December 31, 2011 and 2010, the Company reported net income of $8.5 million and $1.2 million, respectively. The taxable income for 2011 and 2010 was offset by prior years' net operating losses. For the year ended December 31, 2009, the Company incurred a net loss of approximately $4.5 million. The valuation allowance offsets the benefits of the net loss for 2009, except for an intra-period tax adjustment related to taxable income from discontinued operations, and recognized in the year ended December 31, 2009. As a result, the effective tax rate on continuing operations (exclusive of the valuation allowance and the intra-period tax adjustment in 2009) was 36.6% in 2011 compared to 20.1% in 2010 and 31.6% for 2009. The effective tax rate varies from the expected statutory rate primarily due to the recognition in 2011 and 2010 of the deferred tax asset resulting from the utilization of federal and state net operating loss carryforwards that offset the tax benefit of the net loss from continuing operations for the periods presented. The effective tax rate for 2011 and 2010 is zero due to the utilization of federal and state tax loss carryforwards and the aforementioned valuation allowance on the net deferred tax assets.

The composition of the deferred tax assets and liabilities is as follows:

(thousands)	As of December 31	2011			2010
Gross deferred tax assets:
Trade receivables allowance		$	302		$	147
Inventory capitalization			152			219
Accrued expenses			1,496			810
Deferred compensation			993			1,083
Non-compete agreements			23			40
Inventory reserves			259			316
AMT and other tax credit carry-forwards			456			489
Federal and State NOL carry-forwards			7,987			11,200
Share-based compensation			299			188
Depreciation expense			937			353
Pension liability			103			100
Interest rate swaps			-			460
Intangibles			2,663			3,735
Valuation allowance			(15,587	)		(19,053	)
Gross deferred tax assets			83			87
Gross deferred tax liabilities:
Indefinite-lived intangible assets			(1,344	)		(1,326	)
Prepaid expenses			(76	)		(87	)
Share-based compensation			(7	)		-
Gross deferred tax liabilities			(1,427	)		(1,413	)
Net deferred tax liabilities		$	(1,344	)	$	(1,326	)

The deferred tax amounts above have been reflected on the consolidated statements of financial position as of December 31, 2011 and 2010 as follows:

(thousands)	2011			2010
Current deferred tax assets	$	-		$	-
Long-term deferred tax liabilities		(1,344	)		(1,326	)
Deferred tax liabilities, net	$	(1,344	)	$	(1,326	)

The tax valuation allowance does not impact the Company's ability to utilize its net operating loss carryforwards to offset taxable earnings currently and in the future. At December 31, 2011, the Company had a federal net operating loss carryforward of approximately $21.0 million that will begin to expire in 2028 and state net operating loss carryforwards of approximately $27.1 million that will expire in varying amounts between 2012 and 2029. At December 21, 2011, the Company's federal and state net operating loss carryforwards exceeded taxable income for 2011.

At December 31, 2011, the Company has federal AMT credit carry-forwards of $0.2 million and state manufacturing credit carry-forwards of $0.1 million which are available to be directly offset against future federal and state income tax liabilities. The state manufacturing carry-forwards expire in 2013. The AMT credits do not expire.

There were no federal or state income taxes paid in each of the three years ended December 31, 2011, 2010 and 2009.

The Company is subject to periodic audits by domestic tax authorities. Currently, the Company has no audits scheduled. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2007.