Income Taxes

12 Months Ended

May 26, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

All of the Company’s pre-tax income (loss) from continuing operations for fiscal years 2024, 2023 and 2022 is derived from its domestic operations. The (benefit) provision for income taxes from continuing operations consisted of the following:

(in thousands)	Year Ended
	May 26, 2024		May 28, 2023		May 29, 2022
Current:
Federal	$	(10)	$	(1)	$	—
State	37		55		23
Foreign	—		—		356
Total	27		54		379
Deferred:
Federal	173		234		(4,936)
State	(17)		20		(654)
Total	156		254		(5,590)
Income tax provision (benefit)	$	183	$	308	$	(5,211)

The actual (benefit) provision for income taxes from continuing operations differs from the statutory U.S. federal income tax rate as follows:

(in thousands)	Year Ended
	May 26, 2024		May 28, 2023		May 29, 2022
Tax at U.S. statutory rate (1)	$	1,999	$	(13,932)	$	(4,344)
State income taxes, net of federal benefit	52		(1,805)		(638)
Change in valuation allowance	(5,773)		19,461		(1,065)
Tax credit carryforwards	(518)		(611)		(436)
Other compensation-related activity	418		283		234
Impairment of goodwill	—		—		2,347
Foreign rate differential	—		(2,749)		(496)
Net operating loss write-off from final state return filings	711		—		—
Provision to return	3,136		—		—
Other	158		(339)		(813)
Income tax provision (benefit)	$	183	$	308	$	(5,211)

(1) Statutory rate was 21.0% for all fiscal years presented.

The effective tax rate for fiscal year 2024 changed from a tax provision of 0.48% to a tax provision expense of 1.93% in comparison to fiscal year 2023. The decrease in the income tax expense for fiscal year 2024 was primarily due to a valuation allowance decrease resulting from net operating loss utilization and increase of deferred tax liabilities such as debt discount.

The effective tax rate for fiscal year 2024 differs from the statutory federal income tax rate of 21.0% as a result of several factors, including a significant increase in the Company's profit before tax, the change in valuation allowance related to federal and state deferred balances, changes in the blended state tax rate, and the benefit of federal and state research and development credits.

The effective tax rate for fiscal year 2023 changed from a tax benefit of 25.19% to a tax provision of 0.48% in comparison to fiscal year 2022. The decrease in the effective tax rate for fiscal year 2023 was primarily due to a significant valuation allowance increase and the impairment of Yucatan goodwill.

The income tax (provision) benefit from discontinued operations for fiscal years 2024, 2023, and 2022 of (18.0) thousand, 0.0 thousand, and 690.0 thousand, respectively, are not included in the above income tax benefit from continuing operations.

Significant components of deferred tax assets and liabilities reported in the accompanying Consolidated Balance Sheets consisted of the following:

(in thousands)	Year Ended
	May 26, 2024		May 28, 2023
Deferred tax assets:
Net operating loss carryforwards	$	40,806	$	44,618
Limitations on business interest expense	11,783		8,614
Research credit carryforwards	6,700		6,269
Amortization of research development expenses	2,916		1,805
Lease liability	1,218		1,843
Other	2,492		3,216
Gross deferred tax assets	65,915		66,365
Valuation allowance	(46,173)		(52,510)
Net deferred tax assets	19,742		13,855
Deferred tax liabilities:
Depreciation and amortization	(11,809)		(13,208)
Debt Derivative/Debt Discount	(7,911)		—
Right-of-use asset	(565)		(1,027)
Deferred tax liabilities	(20,285)		(14,235)
Net deferred tax liabilities	$	(543)	$	(380)

As of May 26, 2024, the Company had Federal, California, Indiana, and other state net operating loss carryforwards (pre-tax, post-apportionment) of approximately $171.0 million, $52.0 million, $11.1 million, and $15.8 million respectively. The Federal losses expire starting in 2028, if not utilized; and the state losses expire starting in 2025, if not utilized. The Company acquired additional net operating losses through the acquisition of Greenline Logistics, Inc. Utilization of these acquired net operating losses in a specific year is limited due to the “change in ownership” provision of the Internal Revenue Code of 1986 and similar state provisions. The net operating losses presented above for federal and state purposes is net of any such limitation.

As of May 26, 2024, the Company has federal, California, and Minnesota research and development tax credits carryforwards, net of any uncertain tax position and before federal tax benefit of state tax attributes of approximately $3.6 million, $2.1 million, and $1.9 million respectively. The research and development tax credit carryforwards have an unlimited carryforward period for California purposes, 20 year carryforward for federal purposes (begin to expire in fiscal year 2033), and 15 year carryforward for Minnesota purposes (begin to expire in fiscal year 2029).

Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. Based on this analysis and considering all positive and negative evidence, we determined that as of May 26, 2024, a valuation allowance of federal $38.2 million, and state $8.0 million should be recorded as a result of uncertainty around the utilization of federal and state net operating losses, federal capital loss carryforwards, and Section 163(j) interest limitation carryfowards.

The accounting for uncertainty in income taxes recognized in an enterprise’s financial statements prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and the derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition.

During the year ended May 26, 2024 the Company recorded an adjustment to reduce the net operating loss carryforwards deferred tax asset, valuation allowance, and other deferred tax assets by $2.4 million, $2.9 million and $0.1 million respectively and increased deferred tax liabilities by $0.4 million. The Company has recorded the adjustments noted above in 2024 as an out-of-period adjustment and concluded that the adjustments were not material to the 2023 consolidated financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(in thousands)	Year Ended
	May 26, 2024		May 28, 2023		May 29, 2022
Unrecognized tax benefits – beginning of the period	$	1,173	$	1,041	$	958
Gross increases – prior-period tax positions	—		16		—
Gross increases – current-period tax positions	98		116		83
Unrecognized tax benefits – end of the period	$	1,271	$	1,173	$	1,041

As of May 26, 2024, the total amount of net unrecognized tax benefits is $1.3 million, of which, $1.1 million, if recognized, would affect the effective tax rate. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. No interest and penalties have been accrued as of May 26, 2024. The Company does not expect its unrecognized tax benefits to increase or decrease within the next twelve months.

Due to tax attribute carryforwards, the Company is subject to examination for tax years 2012 forward for U.S. tax purposes. The Company was also subject to examination in various state jurisdictions for tax years 2012 forward.