Income Taxes

12 Months Ended

Jan. 03, 2015

Income Taxes

Income Taxes

At January 3, 2015 and December 28, 2013, the Company maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of zero for 2014 and 2013. The valuation allowance increased by $2,308,000 as of January 3, 2015.

A reconciliation of income taxes computed at the statutory Federal income tax rate to income taxes as reflected in the financial statements is summarized as follows:

	2014			2013
Federal income tax expense at statutory rate		(34.0	)%		(34.0	)%
State income tax, net of federal benefit		(5.3	)%		(4.3	)%
Permanent differences		2.7	%		2.6	%
Change in tax rates		(6.1	)%		(3.7	)%
Change in valuation allowance		42.8	%		39.2	%
Other		(0.1	)%		0.2	%
Effective tax rate		0.0	%		0.0	%

The deferred income tax assets and liabilities consisted of the following components as of January 3, 2015 and December 28, 2013:

	2014			2013
Deferred tax assets:
Net operating loss carryforward	$	11,401,000		$	8,953,000
Stock options and restricted stock		2,934,000			1,945,000
Investment in affiliate related to BluScience transaction		-			1,187,000
Inventory reserve		226,000			100,000
Allowance for doubtful accounts		15,000			3,000
Accrued expenses		125,000			100,000
Deferred revenue		4,000			64,000
Intangibles		26,000			36,000
Deferred rent		81,000			99,000
		14,812,000			12,487,000
Less valuation allowance		14,669,000			12,361,000
		143,000			126,000
Deferred tax liabilities:
Leasehold improvements and equipment		(108,000	)		(100,000	)
Prepaid expenses		(35,000	)		(26,000	)
		(143,000	)		(126,000	)
	$	-		$	-

The Company has tax net operating loss carryforwards and other tax attributes available to offset future federal taxable income and future state taxable income of approximately $28,956,000 and $29,092,000, respectively which begin to expire in the year ending December 31, 2023 and 2015, respectively.  The net operating loss can be carried forward up to 20 years for federal tax returns and from 5 to 20 years for various state tax returns.  Under the Internal Revenue Code, certain ownership changes may subject the Company to annual limitations on the utilization of its net operating loss carryforward.  The Company will continue to analyze the potential impact of any additional transactions undertaken upon the utilization of the net operating losses on a go forward basis.

The Company has not identified any uncertain tax positions requiring a reserve as of January 3, 2015 and December 28, 2013.