9. INCOME TAXES.

Federal and State income tax expense (benefit) from continuing operations consist of the following:

	2012			2011			2010
Federal:
Current	$	665,615		$	(91,975	)	$	—
Deferred	372,886			—			(586,045		)
	1,038,501			(91,975		)	(586,045		)

State:
Current	(150,354		)	(309,025		)	86,485
Deferred	(1,198,337		)	—			999,185
	(1,348,691		)	(309,025		)	1,085,670
Total	$	(310,190	)	$	(401,000	)	$	499,625

Deferred tax assets and deferred tax liabilities were as follows:

	2012			2011
Deferred tax assets:
Receivables	$	38,500		$	77,000
Inventories	1,544,285			762,541
Accrued liabilities	1,560,629			1,915,898
Federal and State net operating losses and credit carryforwards	1,269,848			4,233,269
Other	170,050			41,983
Total deferred tax assets	4,583,312			7,030,691

Deferred tax liabilities:
Property, plant and equipment	(2,919,247		)	(2,081,866		)
Prepaids and other	(838,614		)	(359,651		)
Total deferred tax liabilities	(3,757,861		)	(2,441,517		)

Net deferred income tax assets	825,451			4,589,174
Valuation allowance	—			(4,589,174		)
	$	825,451		$	—

Due to economic conditions in prior years, the Company believed it was more likely than not that the benefit from net deferred tax assets, including federal and state net operating loss and credit carryforwards, would not be realized and, accordingly, a valuation allowance aggregating $4.9 million was established at December 25, 2010. Of this amount, $3.8 million was allocated to continuing operations and $1.1 million was allocated to discontinued operations. As of December 31, 2011 the valuation allowance was $4.6 million. During 2012, the Company determined that based on recent operating results, as well as an assessment of expected future operating results, the realization of its remaining deferred tax assets is more likely than not. As a result, the Company reversed the entire valuation allowance during 2012. The release of the valuation allowance was determined in accordance with the provisions of ASC 740, “Income Taxes,” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable.

For the year ending December 29, 2012, the Company realized benefits of $2.5 million from the utilization of federal and state net operating losses generated in previous years. At December 29, 2012, the Company had state tax loss carryforwards of approximately $18 million available to offset future taxable income, expiring in various amounts through December 31, 2031.

A reconciliation of the provision for income taxes from continuing operations to the amount computed by applying the statutory federal income tax rate (35% in 2012 and 34% in 2011 and 2010) to income before income taxes is as follows:

	2012			2011			2010
Income taxes at the federal statutory rate	$	4,032,979		$	97,219		$	(2,758,079	)
State income taxes, net of federal tax effect	337,042			60,704			(227,236		)
Tax-exempt underwriting income of wholly- owned small captive insurance subsidiary	—			—			(404,600		)
Domestic production deduction	(304,300		)	—			—
Research and development tax credits	—			(147,617		)	(280,153		)
Alternative fuel tax credit	—			(87,166		)	(25,000		)
Stock-based compensation	30,577			(35,685		)	150,668
Change in valuation allowance	(4,589,176		)	(359,713		)	3,833,625
Other, net	182,688			71,258			210,400
Total	$	(310,190	)	$	(401,000	)	$	499,625

Uncertain Tax Positions

The Company recognizes income tax benefits only when it is more likely than not that the tax position will be allowed upon examination by taxing authorities, which is presumed to occur. The amount of such tax benefit recorded is the largest amount that is more likely than not to be allowed. A reconciliation of the change in the unrecognized tax benefits for the three years ended December 29, 2012 is as follows:

Unrecognized tax benefits at December 26, 2009	$	1,005,258
Gross increases - tax positions in prior periods	34,796
Unrecognized tax benefits at December 25, 2010	1,040,054
Gross increases - tax positions in prior periods	80,558
Lapse of statute of limitations	(401,000		)
Unrecognized tax benefits at December 31, 2011	719,612
Gross increases - tax positions in prior periods	22,430
Lapse of statute of limitations	(222,430		)
Unrecognized tax benefits at December 29, 2012	$	519,612

The entire balance of approximately $519,612 at December 29, 2012 relates to unrecognized tax positions that, if recognized, would affect the annual effective tax rate. The Company is subject to U.S. federal income tax as well as various state taxes. The Company is no longer subject to examination by federal taxing authorities for the fiscal year ended 2007 and earlier. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease over the next twelve months. Interest and penalties related to income tax matters are recognized in income tax expense. Interest and penalties accrued for, and recognized during, the fiscal years ended 2012, 2011, and 2010 were immaterial.