Note 13 - Income Taxes

12 Months Ended

Jul. 28, 2012

Income Tax Disclosure [Text Block]

13.           INCOME TAXES

The Company’s consolidated (loss) income before income taxes for fiscal years 2012, 2011 and 2010 of $6,662, $3,009 and $308 reflects foreign pre-tax net income of $9,673, $4,245 and $2,659 for fiscal years 2012, 2011 and 2010, respectively, and a U.S. pre-tax loss of ($3,011), ($1,237) and ($2,351), respectively.

Provision (benefit) for income taxes consists of the following:

	FOR FISCAL YEARS ENDED
	JULY 28, 2012			JULY 30, 2011		JULY 31, 2010
CURRENT TAX EXPENSE:
Federal	$	41		$	36	$	-
Foreign		172			143		(25	)
State and local		-			4		-
DEFERRED PROVISION (BENEFIT):
Federal		-			-		-
State and local		-			-		--
Foreign		(122	)		-		-
NET PROVISION (BENEFIT)	$	91		$	183	$	(25	)
Additional tax expense included in discontinued operations	$	1,454		$	1,696	$	1,125

The following is a reconciliation of the statutory Federal and effective income tax rates:

	FOR FISCAL YEARS ENDED
	JULY 28, 2012			JULY 30, 2011			JULY 31, 2010
Statutory Federal income tax rate		34.0	%		34.0	%		34.0	%
State tax, less Federal tax effect		0.0	%		(0.3	)%		0.0	%
Foreign taxes		(1.2	) %		0.0	%		0.0	%
Valuation allowance adjustment		(32.9	)%		(34.0	)%		(34.0	)%
Provision (reversal) for undistributed earnings of foreign subsidiary		0.0	%		0.0	%		0.0	%
Provision for distributed earnings of foreign subsidiary		0.0	%		(11.8	) %		(4.9	)%
Other		(3.1	) %		0.0	%		0.0	%
Effective tax rate		(3.2	)%		(12.1	)%		(4.9	)%

Deferred income tax assets (liabilities) are comprised of the following:

	JULY 28, 2012			JULY 30, 2011
Deferred income tax assets:
Federal net operating loss carry forward	$	11,096		$	11,207
State tax credits and operating loss carry forwards		1,495			2,097
Reserve for inventory obsolescence		467			532
Allowances and reserves not currently deductible		35			184
Stock-based compensation		1,097			920
Gross deferred income tax assets		14,190			14,940
Deferred income tax liabilities:
Fixed assets		(91	)		(253	)
Other		-			-
Gross deferred income tax liabilities		(92	)		(253	)
Less: valuation allowance		(14,557	)		(15,267	)
Net deferred income tax (liability) asset	$	(458	)	$	(580	)

Deferred income tax assets and (liabilities) are recorded in the consolidated balance sheets as follows:

	JULY 28, 2012			JULY 30, 2011
Deferred income tax assets - non-current	$	-		$	-
Deferred income tax liabilities - non-current		(458	)		(580	)
	$	(458	)	$	(580	)

The Company accounts for deferred income taxes in accordance with ASC 740 “Income Taxes” whereby it recognizes deferred tax assets and liabilities for temporary differences between financial reporting basis and income tax reporting basis and for tax credit carry forwards.

The Company periodically assesses the realization of its net deferred income tax assets.  This evaluation is primarily based upon current operating results and expectations of future operating results.  A valuation allowance is recorded if the Company believes its net deferred income tax assets will not be realized.  Its determination is based on what it believes will be the more likely than not result.

During fiscal year 2012, the Company’s U.S. and foreign tax reporting entities were profitable.  The U.S. reporting entity was profitable due to the sale of its foreign subsidiary, Villa.  During fiscal years 2011 and 2010, the Company’s discontinued foreign tax reporting entity was profitable, and its U.S. tax reporting entities incurred a loss.  Based primarily on these results, the Company concluded that it should maintain a 100% valuation allowance on its net U.S. deferred tax assets as of July 28, 2012.

On November 3, 2011, the Company completed the sale of its foreign subsidiary, Villa.  The Company received gross proceeds in cash of $22,696 and an unsecured promissory note, initially valued at $688.  As part of the transaction, the Company received a dividend of cash held by Villa as of the closing date in the amount of $4,538.  Additionally, the Company retained the building in Milan, Italy that houses Villa’s operations.  The projected tax consequences of this transaction are a $14,780 capital gain on the sale of Villa’s assets (net of the Company’s tax basis and installment sale treatment); $4,538 cash dividend and $2,841 property dividend for the distribution of the building in Milan, Italy.

At July 28, 2012, the Company has federal net operating loss carry forwards of $32,383 that expire at various times between July, 2020 and July, 2030.

It is the Company’s practice to recognize interest and/or penalties related to income tax matters in tax expense.  As of July 28, 2012, there were no material interest or penalty amounts to accrue.  The Company does not expect any significant changes in its computation of interest, penalties or unrecognized tax benefits within the next 12 months.

The Company or one of its subsidiaries files income tax returns in the U.S., various state and/or local jurisdictions, and a non-U.S. jurisdiction.  With few exceptions, the Company is no longer subject to U.S., state and local tax examinations for years before the fiscal year ended in 2009 and non-U.S. income tax examinations for years before the fiscal year ended in 2008.  The Company is not currently under an income tax examination by any taxing jurisdiction.