6. Income Taxes

The provision for income tax expense was as follows:

	Fiscal Year Ended

(In thousands)	2012			2011			2010
Currently payable:
Federal	$	—		$	—		$	—
State		68			42			4

		68			42			4
Deferred:
Federal		651			1,369			(44	)
State		96			201			(7	)

		747			1,570			(51	)
Valuation allowance for deferred tax assets		(747	)		(1,570	)		51

Deferred provision		—			—			—

Total	$	68		$	42		$	4

Net deferred tax assets (liabilities) are comprised of the following:

(In thousands)	December 29, 2012			December 31, 2011

Federal net operating loss carry forward	$	22,671		$	22,675
State net operating loss carry forwards		2,206			2,696
Depreciation		1,230			1,243
Goodwill and other intangible assets		165			265
Deferred compensation		106			174
Other		(334	)		(262	)
Valuation allowance		(26,044	)		(26,791	)

Net deferred tax assets	$	—		$	—

Current	$	—		$	—
Non-current		—			—

	$	—		$	—

We record a valuation allowance to reduce our deferred tax assets to an amount we believe will more likely than not be realized. The Financial Accounting Standards Board guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence that can be objectively verified. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, historical and projected future taxable income, tax planning strategies and recent financial operations. Our three-year historical cumulative loss has been a significant negative factor in recent fiscal years in determining that a valuation allowance on these assets continued to be appropriate.

As of December 29, 2012, the Company was no longer in a three-year cumulative loss position. However, the realization of tax benefits of deductible temporary differences and operating loss or tax credit carry-forwards will depend on whether we have sufficient taxable income of an appropriate character within the carry-back and carry-forward periods permitted by the tax law to allow for utilization of the deductible amounts and carry-forwards. Significant management judgment is required in determining if a valuation allowance should continue to be recorded against deferred tax assets. We evaluated our ability to recover the deferred tax assets and weighed all available positive and negative evidence based on its objectivity and subjectivity. Such evidence included the lack of long-term, sustained positive operating results and trends, our ability to carry back losses against prior taxable income and uncertainty around projections of future taxable income. In estimating future taxable income, we developed assumptions including the amount of future federal and state pre-tax operating income and the reversal of temporary differences. These plans and projections require us to make estimates about a number of factors, including future revenues, prices, inflation, and expenses. Giving consideration to all relevant facts and circumstances, we concluded that the weight of the positive evidence was not sufficient to overcome the negative evidence and have concluded it is appropriate to maintain a full valuation allowance of $26.0 million against our deferred tax assets.

As of December 29, 2012, we had a tax benefit from the federal and state net operating loss carry-forwards of approximately $22.7 million and $2.2 million, respectively. The federal net operating loss carry forward benefits of $3.3 million, $1.1 million, $1.7 million, $3.6 million, $11.1 million, $1.6 million, $0.1 million and $0.2 million expire in 2025, 2026, 2027, 2028, 2029, 2030, 2031, and 2032, respectively. The state net operating loss carry-forward benefits expire as follows: $0.7 million in 2013 through 2020 and $1.5 million in 2021 and beyond.

The provision for income taxes differs from the amount of income tax determined by applying the federal statutory income tax rates to pretax (loss) income as a result of the following differences:

	Fiscal Year Ended

(In thousands)	2012			2011			2010
Income tax (benefit) at statutory federal rate	$	135		$	1,120		$	(157	)
State and local taxes, net of federal (benefit)		36			189			(20	)
Valuation allowance for deferred tax assets		(747	)		(1,570	)		51
Meals and entertainment		80			50			53
Goodwill		(22	)		(22	)		(22	)
Expired state net operating loss deductions		434			217			187
State income tax expense		68			42			4
Other		84			16			(92	)

Total tax provision	$	68		$	42		$	4

The provisions of ASC 740 clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of December 29, 2012, we determined our positions will more likely than not be sustained if challenged.

We recognize interest and penalties related to uncertain tax positions within interest expense. During fiscal years 2012, 2011 and 2010, we have not recognized expense for interest and penalties and do not have any amounts accrued as of December 29, 2012 and December 31, 2011, respectively, for the payment of interest and penalties.

We file a consolidated income tax return in the US federal jurisdiction. We also file consolidated or separate company income tax returns in most states, Canada federal and Ontario province. As of December 29, 2012, there was one state tax audit in progress. The financial assessment is not yet final; however, we estimate the financial impact to be approximately $10,000, and it is provided for in our uncertain tax positions as of December 29, 2012. Aside from the aforementioned, there are no other federal, state or foreign income tax audits in progress. We are no longer subject to US federal audits for tax years before 2009, and with few exceptions, the same for state and local audits.