Income Taxes

12 Months Ended

Jul. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

6. INCOME TAXES

Income tax provision/(benefit) consisted of the following (in thousands):

	Current			Deferred			Total
Fiscal Year Ended July 2, 2022
Federal	$	—		$	(96	)	$	(96	)
State and local		191			(22	)		169
Total	$	191		$	(118	)	$	73
Fiscal Year Ended June 30, 2021
Federal	$	—		$	20		$	20
State and local		267			4			271
Total	$	267		$	24		$	291
Fiscal Year Ended June 30, 2020
Federal	$	(286	)	$	306		$	20
State and local		196			5			201
Total	$	(90	)	$	311		$	221

A reconciliation between income taxes computed at the statutory federal income tax rate of 21% and taxes recognized in the Consolidated Statements of Operations was as follows (in thousands):

	Fiscal Years Ended
	July 2,			June 30,			June 30,
	2022			2021			2020
Federal income tax (benefit) expense computed at statutory rate	$	(12,375	)	$	687		$	(34,883	)
State income taxes, net of related federal tax benefit (excluding state valuation allowance)		(3,051	)		3,133			(6,874	)
Increase (decrease) in state valuation allowance		3,202			(2,919	)		7,033
Increase (decrease) in federal valuation allowance		11,816			(11,637	)		34,586
Federal tax credits		(244	)		(113	)		(91	)
Stock option expiration or deficiencies		556			250			620
Warrant issue expenses		—			4,324			—
Reorganization expenses		19			6,202			—
Other, net		150			364			(170	)
Provision for income taxes	$	73		$	291		$	221

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of July 2, 2022, and June 30, 2021, all of which are classified as non-current in our Consolidated Balance Sheets, were comprised of the following (in thousands):

	July 2,			June 30,
	2022			2021
Deferred tax assets:
Other payroll and benefits	$	384		$	1,182
Inventory reserves		604			931
Self-insurance reserves		2,083			2,318
Share-based compensation		1,981			1,800
Other current assets		1,007			1,160
Operating lease liabilities		41,503			52,008
Property and equipment		2,992			727
Disallowed interest expense		6,671			2,954
Net operating loss and tax credits		54,327			41,833
Other noncurrent assets		435			556
Total gross deferred tax assets	$	111,987		$	105,469
Deferred tax liabilities:
Inventory costs	$	3,855		$	2,924
Prepaid supplies		1,436			1,353
Operating lease - right of use		38,681			47,627
Total gross deferred tax liabilities		43,972			51,904
Valuation allowance		(68,015	)		(53,683	)
Net deferred tax liability	$	—		$	(118	)

During fiscal 2013, we established a valuation allowance related to deferred tax assets. In assessing whether a deferred tax asset would be realized, we considered whether it is more likely than not that some portion or all of the deferred tax assets would not be realized. We considered the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and loss carry back potential in making this assessment. In evaluating the likelihood that sufficient future earnings would be available in the near future to realize the deferred tax assets, we considered our cumulative losses over three years including the then-current year. Based on the foregoing, we concluded that a valuation allowance was necessary, and based on our results since fiscal 2013, we have continued to conclude that a full tax valuation allowance is necessary. In fiscal 2022, the deferred tax asset valuation allowance, increased $14.3 million, due to our operating income for fiscal 2022 and non-deductible reorganization costs.

We have federal net operating loss carryforwards of $200.5 million. These losses can only be carried forward and utilized to offset future taxable income. Of this carryforward amount, $73.7 million will expire in fiscal years 2033 through 2037 if not utilized before then.

The remaining $126.8 million can be carried forward indefinitely, due to provisions of the TCJA. The Company also has federal tax credit carryforwards of $3.8 million. These carryforwards will expire in fiscal years 2032 through 2042 if not utilized before then. Additionally, we have tax effected state net operating loss carryforwards of $8.4 million, which will expire throughout fiscal years 2022 through 2042 filings, if not utilized before then.

Following the completion of the private placement, a change of control of the Company occurred, which is a triggering event for Section 382 of the Internal Revenue Code, its impact on the realization of positive tax attributes will be evaluated. The change in control is expected likely to result in restrictions on the Company's use of its net operating losses and certain other tax attributes in future periods.

Accounting for Uncertainty in Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before fiscal 2015. The Internal Revenue Service has concluded an examination of the Company for years ending on or before June 30, 2010.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at June 30, 2019	$	147
Additions for tax positions of prior years		—
Reductions for lapse of statute of limitations		—
Balance at June 30, 2020	$	147
Additions for tax positions of prior years		—
Reductions for lapse of statute of limitations		—
Balance at June 30, 2021	$	147
Additions for tax positions of prior years		—
Reductions for lapse of statute of limitations		—
Balance at July 2, 2022	$	147

The balance of taxes, interest, and penalties at July 2, 2022, that if recognized, would affect the effective tax rate is $0.4 million. We classify and recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. No interest or penalties were paid in the tax years ended July 2, 2022, June 30, 2021, and 2020.

We do not anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease the effective tax rate within 12 months as of July 2, 2022.