Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes

Income Taxes

8. Income Taxes

        Significant components of our deferred tax assets, net of any deferred tax liabilities, are as follows:

	December 31, 2012			January 2, 2012
	(in thousands)
Deferred tax assets:
Net operating loss carryforward	$	84,296		$	82,682
Depreciation expense and impairment of long-lived assets		14,829			15,140
Contractual lease increases		1,040			1,311
Deferred franchise revenue		1,250			1,306
Stock-based compensation		1,163			1,137
Lease termination accrual		85			97
Accrued expenses		45			47
Allowance for doubtful accounts		121			101
Total deferred tax assets		102,829			101,821
Valuation allowance		(102,829	)		(101,821	)
Net deferred taxes	$	—		$	—

        As of December 31, 2012, we have federal net operating tax loss carryforwards (NOL's) of approximately $212.9 million which, if not used, will expire from 2018 through 2032. We have recorded a valuation allowance to offset the benefit associated with the deferred tax assets described above due to the uncertainty of realizing the related benefits.

        Below is a reconciliation of the statutory federal income tax rate to the effective tax rate as a percentage of income before income taxes:

	December 31, 2012			January 2, 2012			December 27, 2010
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes		4.6			4.6			3.0
		39.6			39.6			38.0
Less valuation allowance		(39.6	)		(39.6	)		(38.0	)
Effective Tax Rate		0.0	%		0.0	%		0.0	%

        Under the Internal Revenue Code, an "ownership change" with respect to a corporation can significantly limit the amount of pre-ownership change NOLs and certain other tax assets that the corporation may utilize after the ownership change to offset future taxable income. An ownership change generally would occur if the aggregate stock ownership of holders of at least 5% of our stock increases by more than 50 percentage points over the preceding three year period. We do not believe that the rights offering and the related private placement of common stock that we completed in fiscal 2010 have triggered an ownership change. The purchase of shares of our common stock pursuant to the rights offering and private placement of common stock that we completed during the third quarter of fiscal 2012 may trigger an ownership change with respect to our common stock. In addition, a limitation would not have an impact on our consolidated financial statements as we have recorded a valuation allowance for the entire amount of our deferred tax assets.