Income Taxes

12 Months Ended

Jan. 02, 2016

Income Taxes

Income Taxes

The provision for income tax consists of following:

	2015	2014	2013
Current
Federal	$         -	$          -	$          -
State	4,527	-	-
Deferred (net of valuation allowance)
Federal	-	-	-
State	-	-	-
Income tax provision	$  4,527	$          -	-

At January 2, 2016 and January 3, 2015, the Company maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rates of 0.2%, 0% and 0% for years 2015, 2014 and 2013, respectively. The valuation allowance increased by $381,000 as of January 2, 2016.

A reconciliation of income taxes computed at the statutory Federal income tax rate to income taxes as reflected in the financial statements is summarized as follows:

	2015	2014	2013
Federal income tax expense at statutory rate	(34.0)%	(34.0)%	(34.0)%
State income tax, net of federal benefit	(5.1)%	(5.3)%	(4.3)%
Permanent differences	5.7%	2.7%	2.6%
Change in tax rates	0.7%	(6.1)%	(3.7)%
Expirations of net operating losses	17.4%	0.0%	0.0%
Change in valuation allowance	13.7%	42.8%	39.2%
Other	1.8%	(0.1)%	0.2%
Effective tax rate	0.2%	0.0%	0.0%

The deferred income tax assets and liabilities consisted of the following components as of January 2, 2016 and January 3, 2015:

	2015	2014
Deferred tax assets:
Net operating loss carryforward	$    10,860,000	$    10,593,000
Capital loss carryforward	808,000	808,000
Stock options and restricted stock	3,048,000	2,934,000
Inventory reserve	249,000	226,000
Allowance for doubtful accounts	144,000	15,000
Accrued expenses	277,000	125,000
Deferred revenue	-	4,000
Intangibles	23,000	26,000
Deferred rent	54,000	81,000
	15,463,000	14,812,000
Less valuation allowance	(15,050,000)	(14,669,000)
	413,000	143,000
Deferred tax liabilities:
Leasehold improvements and equipment	(284,000)	(108,000)
Prepaid expenses	(129,000)	(35,000)
	(413,000)	(143,000)
	$                   -	$                   -

The Company has tax net operating loss carryforwards for federal and state income tax purposes of approximately $29,006,000 and $23,610,000, respectively which begin to expire in the year ending December 31, 2023 and 2016, respectively. In addition, the Company has tax capital loss carry forward available to offset future federal taxable capital income of approximately $2,065,000 which will expire in the year ending December 31, 2019.

Under the Internal Revenue Code, certain ownership changes may subject the Company to annual limitations on the utilization of its net operating loss carryforward. The Company will continue to analyze the potential impact of any additional transactions undertaken upon the utilization of the net operating losses on a go forward basis.

The Company has not identified any uncertain tax positions requiring a reserve as of January 2, 2016 and January 3, 2015.