Income Taxes

12 Months Ended

Jan. 01, 2022

Income Taxes

Income Taxes

Note 7 – Income Taxes

The components of loss before income taxes consist of the following:

	Fiscal Year Ended
	January 1, 2022		January 2, 2021		December 28, 2019
Domestic operations	$	(10,460)	$	(1,738)	$	(10,618)
Foreign operations		472		532		507
Total loss before income taxes	$	(9,988)	$	(1,206)	$	(10,111)

The income tax provision consists of the following:

	Fiscal Year Ended
	January 1, 2022		January 2, 2021		December 28, 2019
Current:
Federal tax	$	—	$	50	$	—
State tax		68		80		6
Foreign tax		283		177		144
Total current taxes		351		307		150
Deferred:
Federal tax		(6,628)		(453)		(1,311)
State tax		(407)		(225)		(417)
Total deferred taxes		(7,035)		(678)		(1,728)
Valuation allowance		7,035		678		23,015
Income tax provision	$	351	$	307	$	21,437

Income tax provision differs from the amount that would result from applying the federal statutory rate as follows:

	January 1, 2022		January 2, 2021		December 28, 2019
Income tax at U.S. federal statutory rate	$	(2,098)	$	(253)	$	(2,123)
Tax attributes written off		—		50		—
Share-based compensation		(4,602)		(318)		729
State income tax, net of federal tax effect		(269)		(115)		(325)
Foreign tax		243		144		106
Other		42		121		35
Change in valuation allowance		7,035		678		23,015
Effective tax provision	$	351		307	$	21,437

For fiscal years 2021, 2020 and 2019, the effective tax rate for the Company was (3.5)%, (25.4)% and (212.0)%, respectively. The Company’s effective tax rate for fiscal years 2021, 2020 and 2019 differs from the U.S. federal rate primarily as a result of non-deductible share-based compensation, the write-off of expired state net operating loss carryforwards, and the change in the valuation allowance maintained against the Company’s deferred tax assets.

Deferred tax assets and deferred tax liabilities consisted of the following:

	January 1, 2022		January 2, 2021
Deferred tax assets:
Inventory and inventory related allowance	$	1,373	$	1,082
Lease liabilities		10,830		7,311
Share-based compensation		3,108		2,102
Book over tax depreciation		—		468
Intangibles		161		660
Sales and bad debt allowances		1,021		1,044
Accrued compensation		445		436
Net operating loss		32,102		24,131
Other		210		186
Total deferred tax assets		49,250		37,420
Valuation allowance		(37,637)		(30,516)
Net deferred tax assets		11,613		6,904
Deferred tax liabilities:
Right-of-use assets		10,203		6,879
Tax over book depreciation		1,410		—
Other		—		25
Total deferred tax liabilities		11,613		6,904
Net deferred tax assets	$	—	$	—

As of January 1, 2022, federal and state net operating loss (“NOL”) carryforwards were $116,705 and $85,964, respectively. Federal NOL carryforwards of $1,295 were acquired in the acquisition of WAG which are subject to Internal Revenue Code section 382 and limited to an annual usage limitation of $135. Federal NOL carryforwards begin to expire in 2029, while state NOL carryforwards begin to expire in 2022. The state NOL carryforwards expire in the respective tax years as follows:

2022	$	975
2023		3,013
2024		2,368
2025		3,326
2026		2,982
Thereafter		73,300
	$	85,964

Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversal of existing taxable temporary differences. ASC 740 provides that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years or losses expected in early future years. As of January 1, 2022, mainly due to cumulative losses in recent years, the Company maintained a valuation allowance in the amount of $37,637 against deferred tax assets that were not more likely than not of being realized.

We are subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2016-2021 remain open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the tax years 2017-2021 remain open. The Company does not anticipate a significant change to the amount of unrecognized tax benefits within the next twelve months.

Included in accrued expenses are income taxes payable of $145 and $119 as of January 1, 2022 and January 2, 2021, respectively, consisting primarily of current foreign taxes. Included in other non-current liabilities are income taxes payable of $803 and $702 as of January 1, 2022 and January 2, 2021, respectively, relating to accrued future foreign withholding taxes.