Note 8 - Income Taxes

12 Months Ended

Feb. 26, 2012

Income Tax Disclosure [Text Block]

NOTE 8.  INCOME TAXES

There is no current federal tax provision for fiscal 2012 and 2011.  The state and local tax provisions for fiscal 2012 and 2011 are a provision of $39,000 and a benefit of $1,000, respectively.  The deferred tax provisions for fiscal 2012 and 2011 are $351,000 and $638,000, respectively and resulted from changes in the balance of deferred tax liabilities associated with indefinite lived intangible assets and the valuation allowance for deferred tax assets.

A reconciliation of the provision for income taxes and income taxes calculated at the statutory tax rate of 34% is as follows:

	2012			2011
Tax provision (benefit) at statutory rate	$	(439,000	)	$	(120,000	)
State and local taxes, net of federal benefit		26,000			(1,000	)
Deferred tax provision-change in valuation allowance		966,000			745,000
Deferred tax provision-change in deferred state and local income taxes		(63,000	)		(12,000	)
Deferred tax provision-change in effective tax rate		-			11,000
Deferred tax provision-change in estimated deferred tax items		-			85,000
Employment tax credits		(106,000	)		(68,000	)
Other		6,000			(3,000	)
	$	390,000		$	637,000

The components of deferred tax assets (liabilities) at February 26, 2012 and February 27, 2011 are as follows:

	2012			2011
Accrued expenses not currently deductible	$	350,000		$	266,000
Prepaid expenses		(143,000	)		(224,000	)
Inventory valuation		5,000			5,000
Current portion of advance payments		15,000			54,000
Current deferred tax valuation allowance		(227,000	)		(99,000	)
Current portion of deferred taxes		-			2,000
Operating loss carryforwards		1,015,000			2,078,000
Charitable contributions		-			43,000
Accrued expenses not currently deductible		49,000			-
Tax credit carryforwards		692,000			514,000
Stock options		55,000			55,000
Property and equipment		249,000			1,409,000
Deferred gain on sale/leaseback		4,283,000			1,476,000
Advance payments		73,000			88,000
Intangible assets		(181,000	)		(161,000	)
Deferred tax asset valuation allowance		(6,236,000	)		(5,398,000	)
Net non-current deferred tax asset		-			104,000
Deferred tax liabilities associated with indefinite lived intangible assets		(2,862,000	)		(2,616,000	)
Net total non-current deferred taxes	$	(2,862,000	)	$	(2,512,000	)

The valuation allowance increased $966,000 during fiscal 2012 and increased $745,000 during fiscal 2011 from changes in projections regarding the future realization of deferred tax assets.  The valuation allowance was calculated based on arriving at a net deferred tax asset equal to the deferred items expected to be realized, which is more likely than not to be achieved.  During the fiscal 2012 the Company changed its estimate regarding the realization of its net deferred tax assets and accordingly, it increased the valuation allowance and reduced its net deferred tax assets to zero which resulted in an increase in its deferred tax provision of $106,000.

At February 26, 2012, the Company has net operating loss carryforwards which, if not utilized, will expire as follows:

2028	$	708,000
2029		997,000
2030		232,000
2031		1,144,000
Total	$	3,081,000

The net operating loss carryforwards include $438,000 attributable to stock options exercised where the tax benefit has not yet been realized.  The tax benefit of $168,000 will be credited to equity if realized.  The Company also has alternative minimum tax net operating loss carryforwards of $2,739,000 that will expire, if not utilized, in varying amounts through fiscal 2031.  These carryforwards are available to offset up to 90% of alternative minimum taxable income that would otherwise be taxable.  As of February 26, 2012, the Company had alternative minimum tax credit carryforwards of $108,000 and employment tax credit carryforwards of $584,000.

In connection with the provisions of ASC Topic 740, the Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.  The earliest year that the Company is subject to federal and state examination is the fiscal year ended March 2, 2008.  However, net operating loss carryforwards generated from 2002 through 2007 remain subject to adjustment by taxing authorities.

The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.  Therefore, no reserves for uncertain income tax positions were recorded in its financial statements.  The Company does not expect any material change in the next 12 months of unrecognized tax benefits or recognition of amounts that would affect the Company’s annual effective tax rate.