Management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences.  Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years or losses expected in early future years. At the end of 2008, poor economic conditions included decreases in building and real estate values and a sharp decline in the stock market.  Management concluded at the end of 2008 that it was more likely than not that deferred tax assets would not be realized and recorded a full valuation allowance on all deferred tax assets during the fourth quarter of fiscal 2008.

Management reevaluated the need for a full valuation allowance at the end of 2009.  Management evaluated both positive and negative evidence.  Although operating results improved significantly compared to the prior year,  the weight of negative factors and level of economic uncertainty in our current business continued to support the conclusion that the realization of its deferred tax assets does not meet the more likely than not standard.  Therefore, a full valuation allowance will remain against the net deferred tax assets.

 As of October 30, 2009, we had net operating loss carryforwards of approximately $3,347 and $2,624 for federal and state purposes, respectively.  These loss carryforwards will expire at various dates from 2012 through 2028.

In July 2006, the FASB issued guidance to clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This interpretation prescribed 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. The guidance also discussed derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The cumulative effect, if any, of applying this guidance is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption.  The provisions of this guidance have been incorporated into ASC 740-10.

As of October 30, 2009, we have provided a liability of $103 for unrecognized tax benefits related to various federal and state income tax matters.  This entire amount would generally reduce our effective income tax rate if recognized in future reporting periods.  However, due to the valuation allowance against its deferred tax assets, the unrecognized tax benefit would not have an effect on the Company’s effective income tax rate if recognized in future periods.  We have not identified any new unrecognized tax benefits.

As of October 31, 2008, we have provided a liability of $97 for unrecognized tax benefits related to various federal and state income tax matters. This entire amount would reduce our effective income tax rate if the asset is recognized in future reporting periods.  We have not identified any new unrecognized tax benefits.

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

We recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense.  As of October 30, 2009, we had approximately $5 in accrued interest and penalties which is included as a component of the $103 unrecognized tax benefit noted above.

We are subject to U.S. federal income tax, and are currently under audit by the Internal Revenue Service for the fiscal years ended November 1, 2002 and October 31, 2003 and November 3, 2006 and November 2, 2007. Our federal income tax returns are open to audit under the statute of limitations for the years ended October 31, 2006 through 2009.  Our statute of limitations for our fiscal years ended November 1, 2002 and  October 31, 2003 have been extended to October 31, 2010.  We believe the appropriate provisions for all outstanding issues have been made for all years under audit.