NOTE 14 - FEDERAL AND STATE INCOME TAXES

12 Months Ended

Dec. 29, 2012

Income Tax Disclosure [Text Block]

NOTE 14 - FEDERAL AND STATE INCOME TAXES

The components of income tax expense (benefit) from continuing operations for the years ended December 29, 2012 and December 31, 2011 were as follows:

	2012		2011
	(dollars in thousands)
Current
Federal	$	—	$	824
State		193		573
		193		1,397
Deferred
Federal		6,808		(2,165	)
State		—		(63	)
		6,808		(2,228	)
Total tax provision	$	7,001	$	(831	)

The components of the deferred tax asset (liability) consisted of the following at December 29, 2012 and December 31, 2011:

	2012			2011
	(dollars in thousands)
Deferred tax asset
Allowance for doubtful accounts	$	926		$	688
Net operating loss carry-forward		7,197			1,204
Accruals not yet deductible for tax purposes		2,642			2,962
Goodwill		5,582			—
Stock options		1,058			1,054
Deferred tax assets		17,405			5,908
Less: Valuation allowance		(17,356	)		(461	)
Deferred tax assets		49			5,447
Deferred tax liabilities
Depreciation		(49	)		(150	)
Goodwill		—			(102	)
Deferred tax liability		(49	)		(252	)
Deferred tax asset, net	$	—		$	5,195

The Company had a federal net operating loss carry-forward at December 29, 2012 of approximately $17.5 million which is available for carry forward through 2032.  The Company also has a foreign net operating loss carry-forward at December 29, 2012 of approximately $0.5 million. This loss is available for utilization through 2017; however, application of the net operating loss is restricted to the income of ENGlobal Canada, ULC.

ASC Topic 825, “Income Taxes” requires all available evidence, both positive and negative, be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Based upon the Company's recent performance, management determined the realization of deferred tax assets is uncertain as the Company is unable to consider tax planning strategies or projections of future taxable income in its evaluation of the realizability of its deferred tax assets as of December 29, 2012. Under these circumstances, deferred tax assets may only be realized through future reversals of taxable temporary differences and carryback of net operating losses to available carryback periods. We have performed such an analysis and a valuation allowance of approximately $17.4 million has been provided against deferred tax assets as of December 29, 2012.

The following is a reconciliation of expected to actual income tax expense from continuing operations for the years ended December 29, 2012 and December 31, 2011:

	2012			2011
	(dollars in thousands)
Federal income tax benefit at 35% for 2012 and 2011	$	(8,072	)	$	(1,717	)
State and foreign taxes, net of federal income tax effect		127			318
Nondeductible expenses		97			95
Stock compensation expense		77			38
Prior year provision to return		(2,123	)		417
Change in valuation allowance		16,895			—
Other, net		—			18
Total tax provision	$	7,001		$	(831	)

As a result of the valuation allowance recorded against our deferred tax assets as of September 29, 2012, the effective income tax rate for the year ended December 29, 2012 was not meaningful.

At December 29, 2012 and December 31, 2011, the Company did not identify any material uncertain tax positions for the Company or its subsidiaries.  We recognize interest related to uncertain tax positions in interest expense and penalties related to uncertain tax positions in governmental penalties. For the years ended December 29, 2012 and December 31 2011, the Company did not recognize any interest and penalties related to uncertain tax positions.

The Company is currently not the subject of any examination by the Internal Revenue Service, and the open years subject to audit are currently tax years 2009-2012. In most states where the Company conducts business, the Company is subject to examination for the preceding three to six years.