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. 03, 2015

For fiscal year 2014, we recorded an income tax expense of $714. As of January 3, 2015, we maintained a valuation allowance of $604 against our state net operating loss carryforwards, foreign tax credits and capital loss carryforward deferred tax assets.

The amounts related to fiscal year 2013 within this note have been restated to address the effects of the restatement on income taxes and deferred income tax balances.

For fiscal year 2013, we recorded an income tax benefit of $1,408. As of December 29, 2012, we recorded a full valuation allowance against the majority of our U.S. deferred tax assets due to the uncertainty of their realization. During the fourth quarter of 2013, we concluded, based on the assessment of all available evidence, including previous three-year cumulative income and estimates of future profitability, that it was more-likely-than-not that we would be able to realize the majority of our deferred tax assets in the future and as a result recorded a $2,150 non-cash reversal of our deferred tax asset valuation allowance. As of December 28, 2013, we maintained a valuation allowance of $613 against our state net operating loss carryforwards, foreign tax credits and capital loss carryforward deferred tax assets. During fiscal year 2013, we also utilized $372 in net operating loss deferred tax assets that were reduced by a full valuation allowance due to the uncertainty of future realization as of December 29, 2012. In fiscal year 2013, we recorded a $1,114 tax provision related to taxable income primarily from our U.S. operations, which partially offset the $2,522 reduction in our deferred tax asset valuation allowance.

The provision for (benefit of) income taxes for fiscal years 2014 and 2013 consisted of the following:



	For the fiscal years ended
	January 3, 2015			December 28, 2013
				(as restated)
Current tax expense:
Federal	$	852		$	123
State	146			107
Foreign	29			(71		)
Current tax expense	$	1,027		$	159
Deferred tax expense — domestic	(318		)	(1,569		)
Deferred tax expense — foreign	5			2
Provision for (benefit of) income taxes	$	714		$	(1,408	)

A reconciliation of our provision for (benefit of) income taxes with the federal statutory tax rate for fiscal years 2014 and 2013 is shown below:



	For the fiscal years ended
	January 3, 2015			December 28, 2013
				(as restated)
Income tax expense at statutory rate	$	512		$	1,000
Portion attributable to noncontrolling interest at statutory rate	(8		)	(107		)
State tax expense, net of federal tax effect	69			188
Permanent differences	175			61
Change in valuation allowance	(11		)	(372		)
Recognition of tax effect for the cumulative undistributed earnings from Canada	(44		)	(54		)
Reversal of deferred tax asset valuation allowance	—			(2,150		)
Adjustment of deferred tax assets	7			(1		)
Foreign income tax payable true-up	—			(4		)
Other	14			31
	$	714		$	(1,408	)

Income before provision for (benefit of) income taxes and noncontrolling interest was derived from the following sources for fiscal years 2014 and 2013 as shown below:



	For the fiscal years ended
	January 3, 2015		December 28, 2013

United States	$	1,411	$	2,291
Canada	98		(237		)
	$	1,509	$	2,054

The components of net deferred tax assets (liabilities) as of January 3, 2015, and December 28, 2013, are as follows:



	January 3, 2015			December 28, 2013
	(as restated)			(as restated)
Deferred tax assets:
Net operating loss carryforwards	$	309		$	317
Federal and state tax credits	242			199
Reserves	246			210
Accrued expenses	1,963			1,541
Share-based compensation	348			307
Deferred gain	—			142
Property and equipment	14			21
Other	25			—
Total deferred tax assets	3,147			2,737
Deferred tax liabilities:
Prepaid expenses	(142		)	(148		)
Property and equipment	(38		)	(29		)
Investments	(1,315		)	(1,211		)
Total deferred tax liabilities	(1,495		)	(1,388		)
Valuation allowance	(604		)	(613		)
Net deferred tax assets	$	1,048		$	736

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



	January 3, 2015			December 28, 2013
	(as restated)			(as restated)
Current assets	$	2,082		$	1,807
Non-current assets	14			21
Non-current liabilities	(1,048		)	(1,092		)
	$	1,048		$	736

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 3, 2015, 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 $5,128. 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.

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 3, 2015 and December 28, 2013, 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 3, 2015, and December 28, 2013, 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 3, 2015, that would reasonably be expected to affect our effective tax rate during the next twelve months.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details