7. Income Taxes

The Company's income tax expense (benefit) consists of the following for fiscal years 2013 and 2012:

	2013			2012

Income tax expense allocated to continuing operations	$	565			702

Income tax benefit allocated to discontinued operations		(254	)		(61	)
Total income tax expense (benefit)	$	311			641

Income tax expense (benefit) attributable to continuing operations for fiscal years 2013 and 2012 consists of:

	Current			Deferred		Total
2013:
Federal	$	108			147		256
State		123			186		309
		231			333		565
2012:
Federal		(59	)		440		381
State		128			193		321
	$	69			633		702

Income tax expense attributable to continuing operations was $0.6 million and $0.7 million for fiscal years 2013 and 2012, respectively, and differs from the amounts computed by applying the Federal statutory income tax rate of 34% as a result of the following:

	2013			2012
Computed "expected" tax expense	$	778			835
State income taxes, net of the Federal income tax benefit		190			214
Adjustment for prior period taxes		(110	)		4
Federal employment credits		(393	)		(429	)
Share-based compensation		53			31
Other, net		47			47
	$	565			702

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at February 3, 2013 and January 29, 2012 are presented below:

	2013		2012
Deferred tax assets:
Capital leases	$	384		311
Other liabilities		412		551
Insurance reserves		1,041		1,208
Vacation and sick pay accrual		436		436
Stock options		238		155
Inventory		1,202		318
Deferred gain on property and equipment		1,149		1,306
Deferred Rent		896		905
Net operating loss carryforwards		1,606		3,532
Credit carryforwards		3,236		2,463
Total deferred tax assets		10,600		11,185

Deferred tax liabilities:
Property and equipment, due to differences in depreciation		3,890		4,519
Property taxes		88		184
481 (a) adjustments		255		530
Dividend income		649		479
Other assets		728		403
Total deferred tax liabilities		5,610		6,115

Net deferred tax asset	$	4,990		5,070

At February 3, 2013, the Company has total federal and state net operating loss carryforwards of $2.7 million and $13.4 million, respectively, which are available to offset future taxable income. The federal net operating loss will expire after fiscal 2031. The state net operating losses will begin expiring in fiscal 2014.

The Company also has federal credits in the amount of $3.2 million that are available to offset future federal taxable income. Approximately $2.8 million of these credits will begin to expire in fiscal year 2029, and the remaining credits have no expiration. The history of earnings and projected future results, the Company believes it is more likely than not those future operations will generate sufficient taxable income to realize the deferred tax assets. As such, at February 3, 2013 and January 29, 2012 there is no valuation allowance on the deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

	2013		2012
Gross unrecognized tax benefits at the beginning of the year:	$	—		57
Increases related to prior period tax positions		—		—
Decreases related to prior period tax positions		—		(57	)
Settlements		—		—
Gross unrecognized tax benefits at the end of the year:	$	—		—

None of the amounts included in the $57 thousand of unrecognized tax benefits at January 30, 2011, would affect the effective tax rate if recognized. The net interest expense (benefit) recorded on unrecognized tax benefits during fiscal years 2013 and 2012 totaled $0 and ($14) thousand, respectively. No amounts were accrued for penalties with respect to the unrecognized tax benefits. The Company records interest and penalties in interest expense.