JanOne Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Jan. 02, 2016

For fiscal year 2015, we recorded an income tax benefit of $1,714. For fiscal year 2014, we recorded an income tax expense of $714. As of January 2, 2016, we maintained a valuation allowance of $597 against our state net operating loss carryforwards, foreign tax credits and capital loss carryforwards and all deferred tax assets in Canada, principally net operating losses. . During the first quarter of 2015, we concluded, based upon the assessment of all available evidence that it was more-likely-than-not that we would not be able to realize the majority of our Canadian deferred tax assets in the future and as a result did not record any tax benefit related to the Canadian loss for the current period.

The provision for (benefit of) income taxes for fiscal years 2015 and 2014 consisted of the following:



	For the fiscal years ended
	January 2, 2016			January 3, 2015
Current tax expense (benefit):
Federal	$	(855	)	$	852
State	(18		)	146
Foreign	(229		)	29
Current tax expense (benefit)	$	(1,102	)	$	1,027
Deferred tax expense — domestic	(831		)	(318		)
Deferred tax expense — foreign	219			5
Provision for (benefit of) income taxes	$	(1,714	)	$	714

A reconciliation of our provision for (benefit of) income taxes with the federal statutory tax rate for fiscal years 2015 and 2014 is shown below:



	For the fiscal years ended
	January 2, 2016			January 3, 2015
Income tax expense at statutory rate	$	(1,920	)	$	512
Portion attributable to noncontrolling interest at statutory rate	413			(8		)
State tax expense, net of federal tax effect	(288		)	69
Permanent differences	83			175
Change in valuation allowance	(7		)	(11		)
Recognition of tax effect for the cumulative undistributed earnings from Canada	(16		)	(44		)
Adjustment of deferred tax assets	—			7
Other	21			14
	$	(1,714	)	$	714

Income before provision for (benefit of) income taxes and noncontrolling interest was derived from the following sources for fiscal years 2015 and 2014 as shown below:



	For the fiscal years ended
	January 2, 2016			January 3, 2015

United States	$	(5,452	)	$	1,411
Canada	(194		)	98
	$	(5,646	)	$	1,509

The components of net deferred tax assets (liabilities) as of January 2, 2016, and January 3, 2015, are as follows:



	January 2, 2016			January 3, 2015
Deferred tax assets:
Net operating loss carryforwards	$	520		$	309
Federal and state tax credits	442			242
Reserves	218			246
Accrued expenses	1,964			1,963
Share-based compensation	352			348
Accumulated other comprehensive loss	361			—
Property and equipment	191			14
Other	166			25
Total deferred tax assets	4,214			3,147
Deferred tax liabilities:
Prepaid expenses	(89		)	(142		)
Property and equipment	(138		)	(38		)
Investments	(1,269		)	(1,315		)
Other	(137		)	—
Total deferred tax liabilities	(1,633		)	(1,495		)
Valuation allowance	(597		)	(604		)
Net deferred tax assets	$	1,984		$	1,048

The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:



	January 2, 2016		January 3, 2015
Current assets	$	1,657	$	2,082
Non-current assets	327		14
Non-current liabilities	—		(1,048		)
	$	1,984	$	1,048

Future utilization of net operating loss (“NOL”) and tax credit carryforwards is subject to certain limitations under provisions of Section 382 of the Internal Revenue Code. This section relates to a 50 percent change in control over a three-year period. We believe that the issuance of common stock during 1999 resulted in an “ownership change” under Section 382. Accordingly, our ability to utilize NOL and tax credit carryforwards generated prior to February 1999 is limited to approximately $56 per year.

As of January 2, 2016, we had no federal NOL carryforwards not subject to IRC section 382 and a foreign tax credit carryforward of $256. We also had state NOL carryforwards of $8,398. The state NOL carryforwards are available to offset future taxable income or reduce taxes payable through 2030. These state loss carryforwards began expiring in 2011. In Canada, we had federal and provincial NOL carryforwards of $93.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of January 2, 2016 and January 3, 2015, we did not have any material uncertain tax positions.

It is our practice to recognize interest related to income tax matters as a component of interest expense and penalties as a component of selling, general and administrative expense. As of January 2, 2016 and January 3, 2015, we had an immaterial amount of accrued interest and penalties.

We are subject to income taxes in the U.S. federal jurisdiction, foreign jurisdictions and various state jurisdictions. Tax regulations from each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. federal, foreign, state or local income tax examinations by tax authorities for the years before 2011. We are not currently under examination by any taxing jurisdiction.

We had no significant unrecognized tax benefits as of January 2, 2016, that would reasonably be expected to affect our effective tax rate during the next twelve months.