Note 10. Income Taxes

Income tax expense consists of the following:

	Fiscal Year
	2019		2018
(amounts in thousands)
Federal - current	$	-	$	-
State - current		316		80
Income tax expense	$	316	$	80

A reconciliation of the Company’s effective income tax rate with the federal statutory rate is as follows:

	Fiscal Year
	2019			2018
Federal statutory rate		21.0	%		21.0	%
State income taxes, net of federal tax effect		(0.5	%)		(0.3	%)
Change in Valuation Allowance		(21.0	%)		(12.5	%)
Cash surrender value - insurance / benefit program		0.1	%		---	%
Goodwill Impairment		---	%		(8.5	%)
Contingent consideration		---	%		0.1	%
Other		(0.1	%)		0.1	%
Effective tax rate		(0.5	%)		(0.1	%)

The Other category is comprised of various items, including the impacts of non-deductible entertainment, penalties and parking benefits and the refundable portion of the federal alternative minimum tax carryover credit.

Significant components of the Company’s deferred tax assets are as follows:

	February 1, 2020			February 2, 2019
(amounts in thousands)
DEFERRED TAX ASSETS
Accrued Expenses	$	1,783		$	559
Inventory	$	32		$	-
Retirement and compensation related accruals		5,888			6,001
Fixed assets		6,470			6,463
Federal and state net operating loss and credit carry forwards		83,562			75,117
Real estate leases, included deferred rent		5,712			1,973
Losses on investment		896			584
Others		549			556
Gross deferred tax assets before valuation allowance		104,892			91,253
Less: valuation allowance		(104,556	)		(90,161	)
Total deferred tax assets	$	336		$	1,092

DEFERRED TAX LIABILITIES
Intangibles	$	(336	)	$	(922	)
Inventory		-			(170	)
Total deferred tax liabilities	$	(336	)	$	(1,092	)

NET DEFERRED TAX ASSET	$	-		$	-

The Company, at the end of fiscal 2019, has a net operating loss carryforward of $288.1 million for federal income tax purposes which will expire at various times throughout 2039 with a portion being available indefinitely. The Company has approximately $280.2 million of net operating loss carryforward for state income tax purposes as of the end of fiscal 2019 that expire at various times through 2039 and are subject to certain limitations and statutory expiration periods. The state net operating loss carryforwards are subject to various business apportionment factors and multiple jurisdictional requirements when utilized. The Company has federal tax credit carryforwards of $0.5 million which will expire in 2026. The Company has state tax credit carryforwards of $1.1 million, of which $0.2 million will expire in 2027.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. Based on the available objective evidence, management concluded that a full valuation allowance should be recorded against its deferred tax assets. As of February 1, 2020, the valuation allowance increased to $104.6 million from $90.2 million at February 2, 2019. Management will continue to assess the valuation allowance against the gross deferred assets.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the respective years is provided below. Amounts presented excluded interest and penalties, where applicable, on unrecognized tax benefits:

	Fiscal Year
	2019		2018
(amounts in thousands)
Unrecognized tax benefits at beginning of year	$	1,930	$	1,930
Increases in tax positions from prior years		-		-
Decreases in tax positions from prior years		-		-
Increases in tax positions for current years		-		-
Settlements		-		-
Lapse of applicable statute of limitations		-		-
Unrecognized tax benefits at end of year	$	1,930	$	1,930

As of February 1, 2020, the Company had $1.9 million of gross unrecognized tax benefits, $1.5 million of which would affect the Company’s tax rate if recognized. While it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease within the next twelve months, the Company does not expect the change to have a significant impact on its results of operations or financial position. The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has substantially concluded all federal income tax matters and all material state and local income tax matters through fiscal 2013.

The Company’s practice is to recognize interest and penalties associated with its unrecognized tax benefits as a component of income tax expense in the Company’s Consolidated Statements of Operations. During fiscal 2019, the Company accrued a provision for interest expense of $0.2 million. As of February 1, 2020, the liability for uncertain tax positions reflected in the Company’s Consolidated Balance Sheets was $3.5 million, including accrued interest and penalties of $2.7 million.

The Tax Cuts and Jobs Act also repeals the Corporation Alternative Minimum Tax (“AMT”) for tax years beginning after December 31, 2017. Any AMT carryover credits will be refundable starting in the 2018 tax year, remaining credit will be fully refundable in 2021.