Note 8 - Income Taxes

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. The Company is subject to audit by the IRS and various states for tax years dating back to 2008. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Income tax expense for 2011 and 2010 consisted of $100 and $73, respectively, of state income taxes. The actual expense differs from the expected tax (expense) benefit as computed by applying the U.S. federal statutory income tax rate of 34 percent, during fiscal year:

	2011			2010
Tax (expense) benefit at U.S. federal statutory rate	$	682		$	1,551
State taxes (net of federal income tax benefit)		-			155
Change in cash surrender value of life insurance		(197	)		(6	)
Change in valuation allowance attributable to operations		(520	)		(1,272	)
Other, net		(65	)		(501	)
Tax expense	$	(100	)	$	(73	)

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities as of fiscal year-end:

	2011			2010
Deferred income tax assets:
Plant and equipment, principally due to differences in depreciation	$	662		$	630
Inventory reserves and other inventory related temporary basis differences		357			1,481
Warranty, vacation, deferred rent and other liabilities		970			1,631
Retirement liabilities		1,614			1,750
Net operating loss carryforwards		65,356			62,903
Credit carryforwards		1,428			1,428
Other		955			999
Total deferred income tax assets		71,342			70,822
Less valuation allowance		(71,342	)		(70,822	)
Net deferred income tax assets		-			-
Deferred income tax liabilities:
Total deferred income tax liabilities		-			-
Net deferred income tax assets and liabilities	$	-		$	-

Worldwide loss before income taxes consisted of the following:

	2011			2010
United States	$	(2,005	)	$	(4,561	)
Foreign		-			(10	)
Total	$	(2,005	)	$	(4,571	)

Income tax (expense) benefit consisted of the following:

	2011			2010
Current
U.S. federal	$	-		$	-
State		(100	)		(73	)
Foreign		-			-
Total	$	(100	)	$	(73	)
Deferred
U.S. federal	$	235		$	1,069
State		285			203
Foreign		-			-
Total		520			1,272
Valuation allowance increase		(520	)		(1,272	)
Total	$	-		$	-

E&S has total federal net operating loss carryforwards of approximately $170,000 which expire from 2012 through 2031. The Company has various federal tax credit carryforwards of approximately $1,400, a portion of which expire between 2012 and 2016. E&S also has state net operating loss carryforwards of approximately $148,500 that expire at various dates depending on the rules of the states to which the loss or credit is allocated.

During the years ended December 31, 2011 and 2010, the valuation allowance on deferred income tax assets increased by $520 and $1,272, respectively. Valuation allowances were established according to the belief that it is more likely than not that these net deferred income tax assets will not be realized.