Income Taxes

12 Months Ended

Dec. 30, 2017

Income Taxes

Income Taxes

The provision for income tax consists of following:

	2017		2016		2015
Current
Federal	$	-	$	-	$	-
State		-		-		4,527
Deferred (net of valuation allowance)
Federal		-		-		-
State		-		-		-
Income tax provision	$	-	$	-	$	4,527

At December 30, 2017 and December 31, 2016, the Company maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rates of 0%, 0% and 0.2% for years 2017, 2016 and 2015, respectively. At December 30, 2017 and December 31, 2016, we recorded a valuation allowance of $12.9 million and $15.5 million, respectively. The valuation allowance decreased by $2.6 million during 2017.

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:

	2017			2016			2015
Federal income tax expense at statutory rate		(34.0	)%		(34.0	)%		(34.0	)%
State income tax, net of federal benefit		(5.3	)%		(5.3	)%		(5.1	)%
Permanent differences		7.6	%		8.4	%		5.7	%
Change in tax rates		0	%		(0.3	)%		0.7	%
Changes of state net operating losses		1.3	%		1.8	%		17.4	%
Change in stock options and restricted stock		(1.3	)%		11.8	%		0.0	%
Change in valuation allowance		(23.1	)%		16.4	%		13.7	%
Remeasurement of deferred taxes asset / liability		53.4	%		-			-
Other		1.4	%		1.2	%		1.8	%
Effective tax rate		0.0	%		0.0	%		0.2	%

On December 22, 2017, new legislation was signed into law, informally titled the Tax Cuts and Jobs Act, which included, among other things, a provision to reduce the federal corporate income tax rate to 21%. Under ASC 740, Accounting for Income Taxes, the enactment of the Tax Act also requires companies, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. There is no further change to its assertion on maintaining a full valuation allowance against its U.S. deferred tax assets. The Company’s gross deferred tax assets have been revalued from 34% to 21% with a corresponding offset to the valuation allowance and any potential other taxes arising due to the Tax Act will result in reductions to its net operating loss carryforward and valuation allowance. Deferred tax assets of approximately $19.1 million have been revalued to approximately $13.0 million with a corresponding decrease to the Company’s valuation allowance. Upon completion of our 2017 U.S. income tax return in 2018 we may identify additional remeasurement adjustments to our recorded deferred tax liabilities and the one-time transition tax. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.

The deferred income tax assets and liabilities consisted of the following components as of December 30, 2017 and December 31, 2016:

	2017			2016
Deferred tax assets:
Net operating loss carryforward	$	9,963,000		$	11,023,000
Capital loss carryforward		-			811,000
Stock options and restricted stock		1,873,000			2,694,000
Inventory reserve		143,000			195,000
Allowance for doubtful accounts		183,000			425,000
Accrued expenses		674,000			487,000
Deferred revenue		19,000			13,000
Intangibles		27,000			29,000
Deferred rent		166,000			252,000
		13,048,000			15,929,000
Less valuation allowance		(12,904,000	)		(15,530,000	)
		144,000			399,000
Deferred tax liabilities:
Leasehold improvements and equipment		(9,000	)		(282,000	)
Prepaid expenses		(135,000	)		(117,000	)
		(144,000	)		(399,000	)
	$	-		$	-

The Company has tax net operating loss carryforwards for federal and state income tax purposes of approximately $40.0 million and $29.6 million, respectively which begin to expire in the year ending December 31, 2023 and 2022, respectively.

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 has determined that the stock issued in the year of 2017 did not create a change in control under the Internal Revenue Code Section 382. 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 is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years. The Company has not identified any uncertain tax positions requiring a reserve as of December 30, 2017 and December 31, 2016.