14. Income Taxes

Pre-tax book income (loss) from continuing operations was comprised of the following:


	FY 2011 Year Ended December 31, 2011		FY 2010 Year Ended January 1, 2011		FY 2009 Year Ended January 2, 2010
United States	$	2,438	$	1,961	$	1,804
Foreign		0		0		0

Total	$	2,438	$	1,961	$	1,804

The provision for (benefit from) income taxes from continuing operations includes:


	FY 2011 Year Ended December 31, 2011		FY 2010 Year Ended January 1, 2011		FY 2009 Year Ended January 2, 2010
Current:
Federal	$	267	$	288	$	256
State		30		20		6
Foreign		0		0		0

		297		308		262

Deferred:
Federal		0		0		0
State		0		0		0

Income tax provision	$	297	$	308	$	262

The Company's effective tax rate differs from the statutory federal income tax rate as shown in the following schedule:


	FY 2011 Year Ended December 31, 2011			FY 2010 Year Ended January 1, 2011			FY 2009 Year Ended January 2, 2010
Income tax provision at statutory rate		34	%		34	%		34	%
State income taxes, net of federal benefit		(2	%)		(1	%)		3	%
Permanent differences		0	%		3	%		11	%
Research and development credits		(4	%)		(4	%)		(3	%)
Change in valuation allowance		(16	%)		(16	%)		(30	%)

Effective tax rate		12	%		16	%		15	%

The tax effect of temporary differences and carry-forwards that give rise to significant portions of the net deferred tax assets are presented below (in thousands):


	FY 2011 December 31, 2011			FY 2010 January 1, 2011
Accruals and reserves	$	2,775		$	2,891
Deferred revenue		70			104
Fixed assets		488			587
Intangibles		6,959			7,304
Stock compensation		789			612
Net operating loss		120			120
Research and development credits		508			459
Other tax credits		1			37
Other		(10	)		0

Net deferred tax asset	$	11,700		$	12,114
Valuation allowance		(11,700	)		(12,114	)

Net deferred tax assets	$	0		$	0

The Company has taxable income in 2011. While the Company has a recent history of income it is still in a position of a three year cumulative loss which is significant negative evidence against the realizability of its deferred tax assets. Management does not feel that it is more likely than not that the Company will be able to realize its deferred tax assets, and as such continues to record a full valuation allowance against deferred tax assets.

As of December 31, 2011, the Company had State net operating loss ("NOL") carry forwards of $3.3 million. Of the total state NOL's, $1.3 million relates to windfall stock option deductions which, when realized, will be credited to equity. The state losses will begin to expire in 2012. The state of California has suspended the ability of companies to utilize their net operating losses for tax years 2010 and 2011.

As of December 31, 2011, the Company had Federal and State research credit carry forwards of approximately $0.5 million and $1.3 million, respectively, available to offset future tax liabilities. The Federal credits will begin expiring in 2026 if not used. The state research credits do not expire.

The above net operating losses and research and development credits are subject to IRC sections 382 and 383. In the event of a change in ownership as defined by these code sections, the usage of the above mentioned NOL's and credits may be limited.

The Company accounts for uncertain tax positions in accordance with ASC 740, Income Taxes. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold. In accordance with our accounting policy, we recognize accrued interests and penalties related to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2011, the Company had accrued $67 thousand for payment of interest related to unrecognized tax benefits.

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


	FY 2011 Year Ended December 31, 2011		FY 2010 Year Ended January 1, 2011
Balance at the beginning of the year	$	865	$	637
Additions based upon tax positions related to the current year		58		67
Additions based upon tax positions related to the prior year		268		161

Balance at the end of the year	$	1,191	$	865

If the ending balance of $1.2 million of unrecognized tax benefits at December 31, 2011 were recognized, $0.3 million of the recognition would affect the income tax rate. The Company does not anticipate any material change in its unrecognized tax benefits of $0.9 million over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business.

The Company files U.S. federal and state returns as well as foreign return in France. The tax years 2006 to 2011 remain open in several jurisdictions, none of which have individual significance.