D. INCOME TAXES

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under ASC Topic 740, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The accounting regulation requires current recognition of net deferred tax assets to the extent it is more likely than not such net assets will be realized. To the extent that the Company believes its net deferred tax assets will not be realized, a valuation allowance must be recorded against those assets.

In the fourth quarter of fiscal 2013, the Company entered into a three-year cumulative loss position and based on forecasts at that time, the Company expected the cumulative three-year loss to increase as of the end of fiscal 2014. Management determined that this represented significant negative evidence at February 1, 2014. While the Company has projected it will return to profitability, generate taxable income and ultimately emerge from a three-year cumulative loss, based on a consideration of all positive and negative evidence as of February 1, 2014, the Company recorded a charge of $51.3 million to establish a full allowance against its net deferred tax assets. Based on operating results for fiscal 2014 and the Company’s forecast for fiscal 2015, the Company believes that a full allowance remains appropriate at this time. Realization of the Company’s deferred tax assets, which relate principally to federal net operating loss carryforwards, which expire from 2022 through 2034, is dependent on generating sufficient taxable income in the near term.

As of January 31, 2015, the Company had net operating loss carryforwards of $130.5 million for federal income tax purposes and $68.3 million for state income tax purposes that are available to offset future taxable income through fiscal year 2034. Additionally, the Company has alternative minimum tax credit carryforwards of $2.3 million, which are available to further reduce income taxes over an indefinite period. Additionally, the Company has $0.1 million and $2.4 million of net operating loss carryforwards related to the Company’s operations in the Hong Kong and Canada, respectively, though both are expected to expire largely unutilized.

The utilization of net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards which may be used in future years.

Included in the net operating loss carryforwards for both federal and state income tax is approximately $13.3 million relating to stock compensation deductions, the tax benefit from which, if realized, will be credited to additional paid-in capital.

The components of the net deferred tax assets as of January 31, 2015 and February 1, 2014 are as follows (in thousands):

	January 31, 2015			February 1, 2014

Deferred tax assets, current:
Inventory reserves	$	2,602		$	2,911
Accrued Expenses and other		5,035			3,378
Gain on sale-leaseback		574			579
Valuation allowance ⁽¹⁾		(8,211	)		(6,868	)
Net deferred tax assets, current	$	-		$	-

Deferred tax assets, non-current:
Gain on sale-leaseback		5,745			6,368
Lease accruals		5,257			4,544
Net operating loss carryforward		46,048			38,082
Capital loss carryforward		3,021			3,162
Foreign tax credit carryforward		907			852
Federal wage tax credit carryforward		361			270
State tax credits		95			75
Unrecognized loss on foreign exchange		196			117
Unrecognized loss on pension and pension expense		3,840			2,585
Alternative minimum tax credit carryforward		2,292			2,292
Excess of tax over book depreciation/amortization		(21,170	)		(17,518	)
Goodwill and intangibles		5,768			7,656
Subtotal	$	52,360		$	48,485
Valuation allowance ⁽¹⁾		(52,360	)		(48,485	)
Net deferred tax assets, non-current	$	-		$	-

Deferred tax liability, non-current:
Goodwill and intangibles	$	(91	)	$	-
Deferred tax liability, non-current	$	(91	)	$	-

(1)	For fiscal 2014, the Company had total deferred tax assets of $81.7 million, total deferred tax liabilities of $21.2 million and a valuation allowance of $60.6 million.

The provision for income taxes from continuing operations consists of the following:

	FISCAL YEARS ENDED
	January 31, 2015		February 1, 2014		February 2, 2013

(in thousands)
Current:
Federal and state	$	97	$	77	$	96
Foreign		55		66		64
		152		143		160
Deferred:
Federal and state		91		45,518		5,084
Foreign		—		—		—
		91		45,518		5,084

Total provision ⁽²⁾	$	243	$	45,661	$	5,244

(2)	There was no benefit or provision recognized on the loss from discontinued operations for fiscal 2014, fiscal 2013 or fiscal 2012.

The following is a reconciliation between the statutory and effective income tax rates in dollars for the provision for income tax from continuing operations:

	FISCAL YEARS ENDED
	January 31, 2015			February 1, 2014			February 2, 2013

(in thousands)
Federal income tax at the statutory rate	$	(3,827	)	$	(5,108	)	$	4,632
State income and other taxes, net of federal tax benefit		(72	)		(810	)		631
Permanent items		141			171			209
Change in uncertain tax provisions		—			—			—
Charge/(income) for valuation allowance		4,034			52,463			(1	)
Other, net		(33	)		(1,055	)		(227	)
Provision for income tax from continuing operations	$	243		$	45,661		$	5,244

As discussed in Note A, the Company’s financial statements reflect the expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return, based solely on the technical merits of the tax position. The liability for unrecognized tax benefits at January 31, 2015 was approximately $3.1 million, and is associated with a prior tax position related to exiting the Company’s direct business in Europe during fiscal 2013. The amount of unrecognized tax benefits has been presented as a reduction in the reported amounts of our federal and state NOL carryforwards. No penalties or interest have been accrued on this liability because the carryforwards have not yet been utilized. The reversal of this liability would result in a tax benefit being recognized in the period in which the Company determines the liability is no longer necessary. At January 31, 2015, the Company had no material unrecognized tax benefits based on the provisions of ASC 740.

The Company made tax payments of $0.1 million, $0.2 million and $0.5 million for fiscal years 2014, 2013 and 2012, respectively.