v3.22.1
Income Taxes
 12 Months Ended
Jan. 29, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 9—INCOME TAXES

The Company is subject to U.S. federal income tax, as well as income tax in multiple states and foreign jurisdictions. For all major taxing jurisdictions, the tax years 2007 through 2021 remain open to examination by the taxing authorities due to the carryforward of unutilized net operating losses. As of January 29, 2022, the Company does not expect any material changes to unrecognized tax positions within the next twelve months.

Components of the income tax provision are as follows for Fiscal 2022 and Fiscal 2021 (in thousands):

 

 

 

Fiscal Year

 

 

 

2022

 

 

2021

 

Current tax provision:

 

 

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

State

 

 

28

 

 

 

51

 

Total

 

 

28

 

 

 

51

 

Deferred tax provision:

 

 

 

 

 

 

 

 

Federal

 

 

—

 

 

 

—

 

State

 

 

—

 

 

 

—

 

Total

 

 

—

 

 

 

—

 

Total provision for income taxes

 

$

28

 

 

$

51

 

 

A reconciliation of income taxes computed by applying the federal statutory income tax rate of 21.0% to income (loss) from continuing operations before income taxes to the recognized income tax provision reported in the accompanying consolidated statements of operations is as follows for Fiscal 2022 and Fiscal 2021 (in thousands):

 

 

 

Fiscal Year

 

 

 

2022

 

 

2021

 

Income tax at U.S. federal statutory rate

 

$

(2,330

)

 

$

936

 

State taxes, net of federal benefit

 

 

6

 

 

 

51

 

Non-deductible (non-taxable) items, net

 

 

(612

)

 

 

(2,475

)

Foreign income tax rate differential

 

 

13

 

 

 

—

 

Valuation allowance

 

 

2,281

 

 

 

13

 

Expiration of net operating losses

 

 

—

 

 

 

1,966

 

Debt discount

 

 

647

 

 

 

—

 

Change in state rates

 

 

22

 

 

 

—

 

Other

 

 

1

 

 

 

(440

)

Total provision for income taxes

 

$

28

 

 

$

51

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has recorded a full valuation allowance against its deferred tax assets, as realization of such assets is uncertain based on the Company’s history of operating losses. Significant components of deferred tax assets and liabilities are shown below (in thousands):

 

 

 

January 29, 2022

 

 

January 30, 2021

 

Non-current deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss

 

$

8,563

 

 

$

3,959

 

Accrued compensation

 

 

895

 

 

 

527

 

Lease liability

 

 

3,079

 

 

 

2,396

 

Interest expense

 

 

732

 

 

 

597

 

Intangible assets

 

 

1,008

 

 

 

1,131

 

Other accruals and reserves

 

 

390

 

 

 

470

 

Total

 

 

14,667

 

 

 

9,080

 

Valuation allowance

 

 

(11,463

)

 

 

(6,009

)

Net deferred tax assets

 

 

3,204

 

 

 

3,071

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Depreciation

 

 

(288

)

 

 

(761

)

Right of use assets

 

 

(2,712

)

 

 

(2,310

)

Debt discount

 

 

(204

)

 

 

—

 

Net deferred tax liabilities

 

 

(3,204

)

 

 

(3,071

)

Net deferred tax accounts

 

$

—

 

 

$

—

 

 

 

At January 29, 2022, the Company had available net operating loss carryforwards of approximately $37,700,000 for federal income tax purposes, of which $27,200,000 were generated after 2017 and can be carried forward indefinitely under the Tax Cuts and Jobs Act.  The remaining federal net operating losses of $10,500,000, which were generated prior to 2018, will start to expire in 2027 if not utilized.  Approximately $29,800,000 of the Company’s federal net operating loss carryforward was attributable to continuing operations, and approximately $7,900,000 was attributable to discontinued operations.  At January 29, 2022, the Company had available net operating loss carryforwards for state tax purposes of approximately $14,900,000 that will begin to expire in 2023 if not utilized.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred, or that occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions.  These ownership changes may limit the amount of the net operating loss carryover that can be utilized annually to offset future taxable income.  In general, an “ownership change” as defined by Section 382 results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders.  The Company believes that ownership changes occurred in December 2016, March 2018, August 2018 and December 2019.  As a result, the deferred tax asset associated with the Company’s federal and state net operating loss carryforward has been reduced based on the estimated amount of the Section 382 limitation.  The Company estimates that approximately $17.3 million of its federal and state net operating loss carryforwards cannot be used in future years.

Following the Company’s adoption on January 1, 2007 of ASC 740-10 regarding accounting for uncertainty in income taxes, the Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with the guidance. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of that review, the Company concluded there were no uncertain tax positions and no cumulative effect on retained earnings at the time of adoption. Subsequent to that date of adoption through January 29, 2022, the Company has continued to evaluate its tax positions and concluded that it has not had any material uncertain tax positions.