NOTE 6

Income Taxes

At March 4, 2018, the Corporation’s deferred tax assets of approximately $32.0 million consist of approximately $20.1 million in federal net operating loss and tax credit carryforwards, $7.2 million in state net operating loss carryforwards and $4.7 million resulting from temporary differences between financial and tax reporting. The federal net operating loss and tax credit carryforwards have a useful life ranging from ten to twenty years. The state net operating loss carryforwards have a useful life, depending on the state where a loss was incurred, ranging from one to twenty years. The Corporation has revalued the deferred tax account balances in accordance with the Tax Cuts and Jobs Act (TCJA) enacted December 22, 2017. The revaluation resulted in a $14.6 million decrease in both the net deferred tax assets and the valuation allowance account balances. The Corporation has recorded a full valuation allowance against this asset. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination.

The Corporation had no federal and state income tax benefit or expense for the quarters ended March 4, 2018 and February 28, 2017. For the first nine months of fiscal 2018, the Corporation reported the utilization of previously fully-reserved federal net operating loss carryforwards of $1,775,000 and state operating loss carryforwards of $412,000 and released corresponding amounts of the valuation allowance to offset federal and state income tax expense.