NOTE F - INCOME TAXES:

Provision for income taxes from continuing operations consists of the following (in thousands):

	Fiscal Year Ended
	June 28, 2020		June 30, 2019
Current - Federal	$	–	$	–
Current - Foreign		18		131
Current - State		–		15
Deferred - Federal		4,053		(189	)
Deferred - State		7		(8	)
Provision for income taxes	$	4,078	$	(51	)

The effective income tax rate varied from the statutory rate for the fiscal years ended June 28, 2020 and June 30, 2019 as reflected below (in thousands):

	June 28, 2020			June 30, 2019
Federal income taxes (benefit) based on a statutory rate of 21.0%	$	(33	)	$	(168	)
State income tax, net of federal effect		20			93
Foreign taxes		–			15
Permanent adjustments		4			8
Change in valuation allowance		4,081			–
Other		6			1
	$	4,078		$	(51	)

The tax effects of temporary differences that give rise to the net deferred tax assets consisted of the following (in thousands):

	June 28, 2020			June 30, 2019
Reserve for bad debt	$	61		$	48
Deferred fees		—			17
Other reserves and accruals		568			795
Operating lease liabilities		937			—
Credit carryforwards		171			156
Net operating loss carryforwards		5,371			5,206
Depreciable assets		306			263
Total gross deferred tax asset		7,414			6,485
Valuation allowance		(6,515	)		(2,425	)
Total deferred tax asset	$	899		$	4,060

Right-of-use asset		(815	)		—
Other deferred tax liabilities		(84	)		—
Total deferred tax liabilities	$	(899	)	$	—
Net deferred tax asset	$	—		$	4,060

For the year ended June 28, 2020, the Company recorded an income tax expense of $4.1 million including federal deferred tax expense of $4.1 million and current state tax expense of $20 thousand. As of June 28, 2020, the Company had net operating loss carryforwards totaling $23.6 million that are available to reduce future taxable income and will begin to expire in 2032. Under the Tax Cuts and Jobs Act, approximately $0.8 million of the loss carryforwards are limited to 80% and do not expire.

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. Future sources of taxable income are also considered in determining the amount of the recorded valuation allowance. During the quarter ending March 29, 2020, it was determined that the valuation allowance on deferred tax assets should be increased by $4.3 million resulting in a full valuation allowance. The Company has maintained the full valuation allowance for the year ended June 28, 2020.

On March 27, 2020, President Trump signed into law the CARES Act. The legislation enacts various measures to assist companies affected by the COVID-19 pandemic. Key income tax-related provisions of the bill include temporary modifications to net operating loss utilization and carryback limitations, allowance of refundable alternative minimum tax credits, reduced limitation of charitable contributions, reduced limitations of business interest expense, and technical corrections to depreciation of qualified improvement property.