Income Taxes

12 Months Ended

Jan. 01, 2022

Income Tax Disclosure [Abstract]

Income Taxes

15. Income Taxes

Loss from operations before provision for income taxes was comprised of the following:

	FY 2021			FY 2020
	Year Ended			Year Ended
	January 1, 2022			January 2, 2021
United States	$	(5,233	)	$	(6,486	)
Foreign		48			183
Total	$	(5,185	)	$	(6,303	)

The provision for income taxes includes:

	FY 2021		FY 2020
	Year Ended		Year Ended
	January 1, 2022		January 2, 2021
Current:
Federal	$	—	$	—
State		20		12
Foreign		18		11
		38		23
Deferred:
Federal		1		1
State		1		2
		2		3
Provision for income taxes	$	40	$	26

Our effective tax rate differs from the statutory federal income tax rate as shown in the following schedule:

	FY 2021			FY 2020
	Year Ended			Year Ended
	January 1, 2022			January 2, 2021
Income tax provision at statutory rate		21.0	%		21.0	%
State income taxes, net of federal benefit		7.6	%		0.9	%
Permanent differences		17.1	%		(2.8	)%
Research and development credits		2.3	%		0.4	%
Change in valuation allowance		(47.4	)%		(23.3	)%
Foreign rate differential		(0.2	)%		0.4	%
Other		(1.2	)%		3.0	%
Effective tax rate		(0.8	)%		(0.4	)%

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 2021			FY 2020
	Year Ended			Year Ended
	January 1, 2022			January 2, 2021
Net operating losses	$	13,751		$	11,769
Research and development credits		3,582			3,273
Accruals and reserves		2,637			2,382
Deferred revenue		82			81
Property and equipment		361			307
Intangible assets		268			328
Stock compensation		574			658
Net deferred tax asset		21,255			18,798
Valuation allowance		(21,280	)		(18,820	)
Net deferred tax liabilities	$	(25	)	$	(22	)

Our accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. Assessing the realizability of deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible. Our management forecasts taxable income by considering all available positive and negative evidence including our history of operating income or losses and our financial plans and estimates which are used to manage the business. These assumptions require significant judgment about future taxable income. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced.

As of January 1, 2022, based on the Company's recent history of losses and its forecasted losses, management believes on the more likely than not basis that a full valuation allowance is required. Accordingly, in the fourth quarter of fiscal year 2021, the Company provided a full valuation allowance on its federal and state deferred tax assets. As of January 1, 2022, the Company had federal and state net operating loss (“NOL”) carry forwards of $55.4 million and $26.2 million, respectively. The federal NOL will begin to expire in 2033 and the state NOL will begin to expire in 2022.

The Company has federal and state research credit carry forwards of approximately $2.2 million and $3.1 million, respectively. The federal research credit will begin to expire in 2027 and the state research credit can be carried forward indefinitely. In the event of a change in ownership as defined by IRC sections 382 and 383, the usage of the above mentioned NOLs 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. There is no accrued interest and penalty during the year ended January 1, 2022.

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

	FY 2021		FY 2020
	Year Ended		Year Ended
	January 1, 2022		January 2, 2021
Balance at the beginning of the year	$	1,220	$	1,192
Additions based upon tax positions related to the current year		88		28
Balance at the end of the year	$	1,308	$	1,220

If the ending balance of $1.3 million of unrecognized tax benefits at January 1, 2022 were recognized, $0 of the recognition would affect the income tax rate. The Company does not anticipate any material change in our unrecognized tax benefits 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 2012 to 2021 remain open in several jurisdictions, none of which have individual significance.