13. Income Taxes

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

	FY 2013 Year Ended December 28, 2013		FY 2012 Year Ended December 29, 2012			FY 2011 Year Ended December 31, 2011
United States	$	2,262	$	(270	)	$	2,438
Foreign		—		—			—
Total	$	2,262	$	(270	)	$	2,438

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

	FY 2013 Year Ended December 28, 2013		FY 2012 Year Ended December 29, 2012			FY 2011 Year Ended December 31, 2011
Current:
Federal	$	11	$	(114	)	$	267
State		20		14			30
Foreign		—		—			—
		31		(100	)		297
Deferred:
Federal		—		—			—
State		—		—			—
Provision for (benefit from) income taxes	$	31	$	(100	)	$	297

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

	FY 2013 Year Ended December 28, 2013			FY 2012 Year Ended December 29, 2012			FY 2011 Year Ended December 31, 2011
Income tax provision at statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		(13.3	%)		(88.1	%)		(2.0	%)
Permanent differences		(17.0	%)		(89.1	%)		0.0	%
Research and development credits		0.0	%		0.0	%		(3.8	%)
Change in valuation allowance		(2.3	%)		180.3	%		(15.8	%)
Effective tax rate		1.4	%		37.1	%		12.4	%

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

	FY 2013 December 28, 2013			FY 2012 December 29, 2012
Accruals and reserves	$	1,792		$	2,295
Deferred revenue		91			38
Fixed assets		423			429
Intangibles		441			180
Stock compensation		696			753
Net operating loss		5,224			5,310
Research and development credits		1,260			1,008
Other tax credits		47			47
Other		—			1
Net deferred tax asset	$	9,974		$	10,061
Valuation allowance		(9,974	)		(10,061	)
Net deferred tax assets	$	—		$	—

The Company has recorded a full valuation allowance for its deferred tax assets based on its past losses and the uncertainty regarding the ability to project future taxable income. The valuation allowance decreased by $87 thousand in 2013, $1.6 million in 2012, and $414 thousand in 2011.

As of December 28, 2013, the Company had federal and state net operating loss (“NOL”) carryforwards of $13.9 million and $14.1 million, respectively. Of the total NOL carryforwards, $0.6 million for federal and $0.4 million for states, relate to windfall stock option deductions which, when realized, will be credited to equity. The federal NOL will begin to expire in 2032 and the state NOL will begin to expire in 2020, in each case if not used.

The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013. The Act extended the research and development credit through 2013. As of December 28, 2013, the Company had federal and state R&D credit carryforwards of approximately $1.2 million and $1.7 million, respectively, available to offset future tax liabilities. The federal R&D credits will begin expiring in 2026 if not used. The State R&D credits do not expire.

The above NOLs and research and development credits are subject to Sections 382 and 383 of the Internal Revenue Code . In the event of a change in ownership as defined by these code sections, the usage of the above mentioned NOL and R&D credits may be limited.

On September 13, 2013, the IRS and Treasury Department released final regulations under Sections 162(a) and 263(a) of the IRC on the deduction and capitalization of expenditures related to tangible personal property (the final repair regulations). The entirety of the final repair regulations apply to the Company’s taxable year beginning on or after January 1, 2014. Application of these regulations is not expected to have a material impact on the Company’s consolidated financial statements.

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 28, 2013, the Company had accrued $67 thousand for payments 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 2013 Year Ended December 28, 2013		FY 2012 Year Ended December 29, 2012			FY 2011 Year Ended December 31, 2011
Balance at the beginning of the year	$	954	$	1,191		$	865
Additions based upon tax positions related to the current year		48		36			58
Additions based upon tax positions related to the prior year		25		—			268
Reductions based upon tax positions related to the prior year		—		(273	)		—
Balance at the end of the year	$	1,027	$	954		$	1,191

If the ending balance of $1.0 million of unrecognized tax benefits as of December 28, 2013 were recognized, none of the recognition would affect the income tax rate. The Company does not anticipate any material change in its unrecognized tax benefits of $1.0 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. The tax years 2008 to 2013 remain open in several jurisdictions, none of which have individual significance.