Note 4 - Income Taxes

12 Months Ended

Feb. 26, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

4. INCOME TAXES

The income tax provision (benefit) for continuing operations includes the following:

	Fiscal Year
	2023			2022		2021
Current:
Federal	$	(875	)	$	1,912	$	1,662
State and local		822			484		447
Foreign		30			4		10
		(23	)		2,400		2,119
Deferred:
Federal		435			565		132
State and local		(111	)		88		109
Foreign		-			267		(267	)
		324			920		(26	)
	$	301		$	3,320	$	2,093

The income tax provision (benefit) for discontinued operations includes the following:

	Fiscal Year
	2023		2022		2021
Current:
Federal	$	-	$	-	$	(84	)
State and local		-		-		(23	)
Foreign		-		-		-
		-		-		(107	)
Deferred:
Federal		-		-		-
State and local		-		-		-
Foreign		-		-		-
		-		-		-
	$	-	$	-	$	(107	)

State income tax benefits from loss carryforwards to future years were recognized as deferred tax assets in the 2023, 2022 and 2021 fiscal years.

Notwithstanding the U.S. taxation of the deemed repatriated foreign earnings as a result of the transition tax, the Company intends to indefinitely invest approximately $25 million of undistributed earnings outside of the U.S. If these future earnings are repatriated to the U.S., or if the Company determines that such earnings will be remitted in the foreseeable future, the Company may be required to accrue U.S. deferred taxes.

The Company’s pre-tax earnings (loss) from continuing operations in the United States and foreign locations are as follows:

	Fiscal Year
	2023		2022			2021
United States	$	10,669	$	11,987		$	8,732
Foreign		363		(203	)		(1,447	)
Earnings before income taxes	$	11,032	$	11,784		$	7,285

The Company’s pre-tax earnings (loss) from discontinued operations in the United States and foreign locations are as follows:

	Fiscal Year
	2023		2022		2021
United States	$	-	$	-	$	(435	)
Foreign		-		-		-
(Loss) earnings before income taxes	$	-	$	-	$	(435	)

The Company’s effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following:

	Fiscal Year
	2023			2022			2021
Statutory U.S. Federal tax rate		21.0	%		21.0	%		21.0	%
State and local taxes, net of Federal benefit		3.8	%		4.3	%		5.9	%
Foreign tax rate differentials		(0.4	%)		2.7	%		0.7	%
NQSO Expirations and Cancellations		2.1	%		0.0	%		0.0	%
Adjustment on tax accruals		0.9	%		(0.3	%)		0.0	%
ASC 740-10 change		(24.8	%)		0.5	%		0.9	%
Foreign tax credits		0.0	%		0.0	%		(0.1	%)
Subpart F		0.5	%		(1.0	%)		1.1	%
Permanent differences and other		(0.4	%)		1.0	%		(0.8	%)
		2.7	%		28.2	%		28.7	%

The Company had state net operating loss carryforwards of approximately $1,725 and $2,030 in the 2023 and 2022 fiscal years, respectively, and total net foreign operating loss carryforwards of approximately $7,791 and $7,790 in the 2023 and 2022 fiscal years, respectively. The Company has a valuation allowance against the remaining carryforwards. The state net operating loss carryforwards will expire in 2024 through 2040.

The Company had Arizona tax credits of $991 in both the 2023 and 2022 fiscal years, for which no benefit has been provided.

The deferred tax asset valuation allowance of $2,938 as of February 26, 2023 relates to foreign net operating losses and state tax credit carryforwards from continuing operations for which the Company does not expect to realize any tax benefit. During the 2023 fiscal year, the valuation allowance increased by $649, primarily related to the recognition of the Arizona tax credits. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.

Significant components of the Company's deferred tax assets and liabilities from continuing operations as of February 26, 2023 and February 27, 2022 were as follows:

	February 26,			February 27,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	1,949		$	2,598
Tax credits carryforward		991			991
Stock options		784			977
Other, net		590			174
		4,314			4,740
Valuation allowance on deferred tax assets		(2,938	)		(3,587	)
Total deferred tax assets, net of valuation allowance		1,376			1,153
Deferred tax liabilities:
Depreciation		(2,841	)		(2,492	)
Undistributed earnings		(2	)		(2	)
Other		(528	)		(556	)
Total deferred tax liabilities		(3,371	)		(3,050	)
Net deferred tax liability	$	(1,995	)	$	(1,897	)

At February 26, 2023 and February 27, 2022, the Company had gross unrecognized tax benefits and related interest of $1,751and $4,537, respectively, included in other liabilities. If any portion of the unrecognized tax benefits at February 26, 2023 were recognized, the Company’s effective tax rate would decrease. The change as of February 26, 2023 was due to $214,000 of additional tax due to tax deductions becoming unavailable related to stock options expiring unexercised in the 2023 fiscal year, offset by a reduction in uncertain tax positions of $2.8 million from the reduction of uncertain tax positions related to expiring statute of limitations of tax positions taken in prior years regarding the taxability of funds repatriated from the Company’s subsidiary in Singapore.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for continuing operations is as follows:

	Unrecognized Tax Benefits
	February 26,			February 27,			February 28,
	2023			2022			2021
Balance, beginning of year	$	4,078		$	4,117		$	4,164
Tax positions - Discontinued Ops in prior period		-			-			(47	)
Gross decreases - tax positions in prior period		(2,980	)		(39	)		-
Gross increases - current period tax positions		326			-			-
Audit settlements		-			-			-
Balance, end of year	$	1,424		$	4,078		$	4,117

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding or subtracting amounts for current year tax positions, expiration of statutes of limitations on open income tax years, changes in the Company’s judgment about the level of uncertainty, status of tax examinations, and legislative changes. Changes in prior period tax positions are the result of a re-evaluation of the probability of realizing the benefit of a particular tax position based on new information. It is reasonably possible that none of the unrecognized tax benefits will be recognized within the next 12 months.

A list of open tax years by major jurisdiction follows:

U.S. Federal	2021	-	2023
California	2020	-	2023
New York	2021	-	2023
Kansas	2021	-	2023
France	2021	-	2023
Singapore	2020	-	2023

The Company had approximately $327 and $460 of accrued interest and penalties as of February 26, 2023 and February 27, 2022, respectively. The Company’s policy is to include applicable interest and penalties related to unrecognized tax benefits as a component of current income tax expense.

On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. The Company incurs research and development expenses in the U.S., as such, the research and development expense addback is in the U.S. tax return. The Company will continue to monitor the possible future impact of changes in tax legislation.

The Company has no ongoing examinations of its Federal returns. The audit of the New York state tax returns for the 2018 and 2019 fiscal years has been completed.