(

)

Income Taxes

The Company’s income (loss) before income taxes from domestic and foreign operations (which include the U.K., Canada, China, Denmark and Ireland), is as follows (in thousands):

	Fiscal year ended
	February 1,			February 2,
	2020			2019
Domestic	$	4,862		$	(4,175	)
Foreign		(3,301	)		(14,332	)
Total income (loss) before income taxes	$	1,561		$	(18,507	)

The components of the income tax expense (benefit) are as follows (in thousands):

	Fiscal year ended
	February 1,			February 2,
	2020			2019

Current:
U.S. Federal	$	1,068		$	(508	)
U.S. State		498			(263	)
Foreign		(45	)		(448	)
Deferred:
U.S. Federal		31			(836	)
U.S. State		(311	)		239
Foreign		59			1,242
Income tax expense (benefit)	$	1,300		$	(574	)

The provision for income taxes was

$1.3

million in fiscal

2019

compared to an income tax benefit of

$0.6

million in fiscal

2018.

The

2019

effective rate of

83.0%

differed from the statutory rate of

21%

primarily due to the valuation allowance recorded in certain foreign jurisdictions and the

$0.2

million negative tax impact of equity awards. The

2018

effective rate of

3.1%

differed from the statutory rate of

21%

primarily due to the valuation allowance recorded in certain foreign jurisdictions.

As the Company has incurred a cumulative book loss in the U.K. over the

three

-year period ended

February 2, 2019

, management evaluated the realizability of the Company’s U.K. deferred tax assets, including an analysis of all available positive and negative evidence. The

three

-year cumulative loss is a significant piece of negative evidence. ASC

740

requires objective historical evidence be given more weight than subjective evidence, such as forecasts of future income. Accordingly, in the

fourth

quarter of fiscal

2018,

the Company recorded a

$3.7

million valuation allowance on its U.K. deferred tax assets, in addition to a valuation allowance of

$0.5

million in certain other foreign jurisdictions. In fiscal

2019,

the Company recorded an additional valuation allowan

ce of

$0.7

million on its

deferred tax assets in certain foreign jurisdictions due to cumulative losses and uncertainty about future earnings forecast. We continue to assess the realizability of our deferred tax assets and

may

record additional valuation allowances during

2020

due to the negative impact of the COVID-

pandemic.

Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

	February 1,			February 2,
	2020			2019

Deferred tax assets:
Operating lease liability	$	36,301		$	3,740
Net operating loss carryforwards		3,049			4,371
Deferred revenue		2,693			2,661
Deferred compensation		1,893			1,729
Accrued compensation		1,340			88
Investment in affiliates		1,202			-
Receivable write-offs		664			477
Inventories		593			987
Intangible assets		588			1,201
Carryforward of tax credits		87			861
Other		853			1,056
Total gross deferred tax assets		49,263			17,171
Less: Valuation allowance		(6,774	)		(5,079	)
Total deferred tax assets, net of valuation allowance		42,489			12,092

Deferred tax liabilities:
Operating lease right-of-use assets		(31,062	)		-
Depreciation		(3,667	)		(3,650	)
Deferred revenue		(2,726	)		(4,088	)
Deferred expense		(1,257	)		(763	)
Other		(366	)		(492	)
Total deferred tax liabilities		(39,078	)		(8,993	)
Net deferred tax assets	$	3,411		$	3,099

As of

February 1, 2020

, the Company had gross net operating loss (NOL) carryforwards of approximately

$15.4

million, most of which relate to the U.K. where NOLs have

expiration date.

The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is

not

practical to estimate the income tax liability on the outside basis differences.

As of

February 1, 2020

, the Company had total unrecognized tax benefits of

$0.2

million, of which approximately

$0.2

million would favorably impact the Company’s provision for income taxes if recognized. As of

February 2, 2019

, the Company had total unrecognized tax benefits of

$0.4

million, of which approximately

$0.2

million would favorably impact the Company’s provision for income taxes if recognized. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included within other liabilities in the consolidated balance sheets were less than

$0.1

million for both years ended as of

February 1, 2020

and

February 2, 2019

. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the consolidated statement of operations. For the years ended

February 1, 2020

and

February 2, 2019

, the Company recognized an expense of less than

$0.1

million for interest and penalties for each year.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance as of December 30, 2017 (1)	$	659
Increases for prior year tax positions		288
Decreases for prior year tax positions		(333	)
Settlements		(183	)
Lapse of statute of limitations		(13	)
Balance as of February 2, 2019		418
Increases for prior year tax positions		67
Decreases for prior year tax positions		(288	)
Lapse of statute of limitations		(19	)
Balance as of February 1, 2020	$	178

(

)

For the

five

-week transition period ending

February 3, 2018,

there was

activity.

Management estimates it is reasonably possible that the amount of unrecognized tax benefits could decrease by as much as

$0.2

million in the next

twelve

months as a result of the resolution of audits currently in progress involving issues common to multinational corporations and the lapsing of the statute of limitations.

The following tax years remain open in the Company’s major taxing jurisdictions as of

February 1, 2020

United States (Federal)	2016 through 2019
United Kingdom	2017 through 2019