15.

INCOME TAXES

Generally, the Company’s relative income or loss generated in each of its jurisdictions can materially impact the consolidated effective income tax rate of the Company, particularly the ratio of Canadian and Serbian pretax income, versus United States pretax income. The consolidated effective income tax rate for fiscal

2018

was

30.5%

as compared to

920.4%

for the comparable prior year period. Because of several unusual and large components, especially relative to the Company’s small consolidated pretax loss in dollars, the Company does

not

consider its fiscal

2017

effective tax rate of

920.4%

to be meaningful in and of itself. The Company’s United States Federal statutory tax rate for the

fifty-two

weeks ended

December 29, 2018

and the comparable prior year period, before any adjustments, was

21.0%

and

34.0%,

respectively. The income tax provisions reconciled to the tax computed at the United States Federal statutory rate for both fiscal

2018

and

2017

are as follows:

	December 29, 2018			December 30, 2017
Federal statutory rate		21.0	%		34.0	%
Tax expense (benefit) on taxable (loss) income at federal statutory rate	$	821		$	(83	)
State and Puerto Rico income taxes, net of Federal income tax benefit		91			(248	)
United States 179D and Canadian R&D tax credits		(341	)		(603	)
Permanent differences		49			458
Worthless stock deduction		-			(2,861	)
Foreign income tax rates		(173	)		(92	)
Impact on net deferred tax assets from changes in federal tax rate in 2017		-			1,015
2018 adjustments to NOL and repatriation taxes		730			198
Other		16			(39	)
Total income tax (benefit) expense	$	1,193		$	(2,255	)

The Company experienced several adjustments for the

2018

fiscal year that impacted its net income tax expense of

$1.2

million, including

) United States

179D

deductions generated an income tax benefit of

$0.3

million;

) foreign income tax differences generated an income tax benefit of

$0.2

million; and

) changes to United States and Canadian net operating loss carryforward generated expense of

$0.7

million, primarily from changes in

2018

as a result of new information upon completing the

2017

United States Federal tax return. The Company experienced several adjustments for the

2017

fiscal year that impacted its net income tax benefit of

$2.3

million, including

) United States

179D

and Canadian research and development tax credits of

$0.6

million;

) several permanent differences generating income tax expense of

$0.5

million;

) a worthless stock deduction for a subsidiary purchased in fiscal

1996

that was closed in fiscal

2017

which generated an income tax benefit of

$2.9

million;

) foreign tax benefit, primarily from Canada, of

$0.4

million; and

) as a result of the federal tax rate change in fiscal

2018

21%,

an increase to income tax expense of

$1.0

million from a reduction in deferred tax assets, net of deferred tax liabilities and

$0.2

million related to transition repatriation taxes.

The components of income tax expense (benefit) are as follows:

	Fiscal Years Ended
	December 29, 2018			December 30, 2017
Current
Federal	$	(198	)	$	(471	)
State and local		51			118
Foreign		(90	)		237

		(237	)		(116	)
Deferred
Federal		1,399			(1,841	)
State		64			(495	)
Foreign		(33	)		197

		1,430			(2,139	)

Total	$	1,193		$	(2,255	)

The Company completed its analysis of the Tax Cut and Jobs Act (“TCJA”) in fiscal

2018

and recorded a charge of

$0.7

million due to the utilization of net operating loss carryforwards upon the filing of its

2017

federal income tax return. The Company recorded a tax benefit in fiscal

2017

in the amount of

$2.9

million from a worthless stock deduction of

one

of the Company’s subsidiaries. The Company recorded a charge of

$1.2

million in fiscal

2017

relating to the TCJA from the reduction in the value of its deferred tax assets due to the reduction in the federal tax rate and the Repatriation Tax.

The components of earnings before income taxes by United States and foreign jurisdictions were as follows:

	Fiscal Years Ended
	December 29, 2018		December 30, 2017
United States	$	3,671	$	(1,660	)
Foreign Jurisdictions		237		1,415

	$	3,908	$	(245	)

A reconciliation of the unrecognized tax benefits for the year

December 29, 2018:

Unrecognized Tax Benefits

Balance as of December 30, 2017	$	628
Charges for current year tax positions		-
Reserves for current year tax position		-

Balance as of December 29, 2018	$	628

The Company reached a verbal settlement with taxing authorities on its only uncertain tax position as of

December 29, 2018

and anticipates that it will recognize a tax benefit of approximately

$600

in the

first

quarter of fiscal

2019.

The Company accounts for penalties or interest related to uncertain tax positions as part of its provision for income taxes and records such amounts to interest expense. The Company recorded

expense for penalties or interest in the fiscal years ended

December 29, 2018

and

December 30, 2017.

December 29, 2018

and

December 30, 2017,

deferred tax assets and liabilities consist of the following:

	December 29, 2018			December 30, 2017
Deferred tax assets:
Allowance for doubtful accounts	$	388		$	235
Federal and state net operating loss carryforward		1,253			2,501
Reserves and accruals		343			435
Other		125			53
Total deferred tax assets		2,109			3,224

Deferred tax liabilities:
Acquisition amortization, net		(403	)		(206	)
Prepaid expense deferral		(600	)		(503	)
Bonus depreciation to be reversed		(381	)		(326	)
Canada deferred tax liability, net		(398	)		(431	)
Total deferred tax liabilities		(1,782	)		(1,466	)
Total deferred tax asset, net	$	327		$	1,758

The Company has gross net operating losses of

$3.6

million,

$7.9

million and

$0.3

million to be applied to the net income of future Federal, State, and Canadian tax returns, respectively. The Federal and Canadian net operating losses will expire in

2037.

The Company conducts business in many states. Net operating losses in these states expire at differing periods but the majority of these expire in

2037.

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Puerto Rico and Serbia. The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states. The Company’s federal income tax returns have been examined through

2010.

The Internal Revenue Service is currently examining fiscal tax years

2011,

2012,

2013,

2015,

2016

and

2017.

The State of New Jersey is currently examining fiscal tax years

2009

through

2012.

Except for New Jersey and other limited exceptions, the Company is

longer subject to audits by state and local tax authorities for tax years prior to

2014.

The Company is

longer subject to audit in Canada for the tax years prior to tax year

2014.

The Company is

longer subject to audit in Puerto Rico for the tax years prior to tax year

2008.