Annual report pursuant to Section 13 and 15(d)

Note 13 - Income Taxes

v3.21.2
Note 13 - Income Taxes
 12 Months Ended
Mar. 27, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note
13.
Income Taxes
 
Following are the components of the provision for income taxes:
 
Provision for Income Taxes
  
 
 
 
  
 
 
 
(Dollars in thousands)
  
Fiscal Years ended
  
   
March 27, 2021
    
March 28, 2020
  
Current
  
 
 
 
  
 
 
 
Federal
   $
—
     $
—
  
State
    
2
      
2
  
     
2
      
2
  
Deferred
                
Federal
    
—
      
—
  
State
    
—
      
—
  
Total
    
—
      
—
  
                 
Provision for Income taxes
   $
2
     $
2
  
 
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:
 
(Dollars in thousands)
  
As of
  
   
March 27, 2021
    
March 28, 2020
  
Net operating loss carryforwards
   $
2,373
      
11,568
  
Income tax credits
    
106
     $
365
  
Inventory reserves and additional costs capitalized
    
850
      
865
  
Fixed asset depreciation
    
(30
 )    
23
  
Accrued expenses
    
100
      
100
  
ASC 842 right of use asset
    
156
      
—
  
ASC 842 lease liability
    
(105
 )    
—
  
Allowance for doubtful accounts
    
1
      
2
  
Non-qualified stock options    
—
      
91
  
Unrealized warrant gain    
—
      
(33
 )
State tax benefit
    
(8
 )    
(8
 )
Total deferred tax asset
    
3,443
      
12,973
  
Valuation allowance
    
(3,443
 )    
(12,973
 )
    $ —     $ —  
 
The following summarizes the difference between the income tax expense and the amount computed by applying the statutory federal income tax rates of
21%
 to income before income tax. The items comprising these differences consisted of the following:
 
   
Fiscal Years ended
  
(In thousands except percentages)
  
March 27, 2021
    
March 28, 2020
  
                                 
Statutory federal income tax (benefit)
   $
(85
 )    
21
%
   $
(164
 )    
21
 %
Valuation allowance
    
(9,530
 )    
2,345
 %    
154
      
(20
 )%
State income tax, net of federal benefit
    
(30
 )    
7
 %    
(54
 )    
7
 %
Section 382-383 limitation    
9,697
      
(2,386
 )%    
-
      
0
 %
Non tax-deductible expenses
    
(25
 )    
6
 %    
81
      
(10
 )%
Tax credits generated
    
(18
 )    
4
 %    
(18
 )    
2
 %
Other
    
(7
 )    
2
 %    
3
      
(1
 )%
Effective income tax
   $
2
      
(1
)%
   $
2
      
(1
)%
 
The decrease in valuation allowance from
March 28, 2020 
to
March 27, 2021
was
$9,530,000.
 
As of
March 27, 2021,
the Company had pre-tax federal net operating loss carryforwards of
$9,716,000
and state net operating loss carryforwards of
$4,721,000
available to reduce future taxable income. These amounts are net of a
382
limitation of
$38,345,000
on the federal net operating loss and
$19,612,000
on the state net operating loss.  The
382
limitation was triggered due to an ownership change in the
2020
year. The Company recently completed an Internal Revenue Code Section
382
analysis and has reflected in the current year the expected reduction of its federal and state net operating loss and general business tax credit carryforwards due to an ownership change in connection with past equity financings. The federal and state net operating loss carryforwards begin to expire from fiscal
2022
through
2038
and from
2029
through
2040,
respectively. The federal net operating loss amount of
$1,765,000
from fiscal year ended
2020
through
2021
will have an indefinite life. The net amount of net operating loss carryforwards
may
be subject to further annual limitations due to certain ownership change limitations as required by Internal Revenue Code Section
382.
 
 
The federal income tax credits begin to expire from
2032
through
2040
and state income tax credit carryforwards are carried forward indefinitely. The ownership change in
2020
triggered a section
383
limitation on the federal income tax credits.  The section
383
limitation reduced the federal carryforward by
$394,500
but did
not
reduce the state credit carryforward due to the indefinite carryforward.
 
The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets, which
may
not
be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Management considers both positive and negative evidence and tax planning strategies in making this assessment.
 
As of
March 27, 2021,
the Company recorded unrecognized tax benefits of
$52,000
related to uncertain tax positions. The unrecognized tax benefit is netted against the deferred tax asset with a full valuation allowance. The Company has
not
recorded a liability for any penalties or interest related to the unrecognized tax benefits.
 
The Company files U.S Federal, California and New Hampshire state tax returns. The Company is generally
no
longer subject to tax examinations for years prior to the fiscal year
2018
 for federal purposes and fiscal year
2017
 for California purposes, except in certain limited circumstances.
 
A reconciliation of the beginning and ending amount of the liability for uncertain tax positions, excluding potential interest and penalties, is as follows:
 
   
Fiscal Years ended
  
   
March 27, 2021
    
March 28, 2020
  
                 
Balance as of beginning of year
   $
132,000
     $
123,000
  
Increase (decrease) based on current year tax positions
    
(80,000
 )    
9,000
  
Balance as of end of year
   $
52,000
     $
132,000
  
 
The total amount of interest and penalties related to unrecognized tax benefits at
March 27, 2021,
is
not
material. The amount of tax benefits that would impact the effective rate, if recognized, is
not
expected to be material. The Company does
not
anticipate any significant changes with respect to unrecognized tax benefits within the next
twelve
(
12
) months.