INCOME TAXES

The following table presents the U.S. and foreign components of consolidated income (loss) before income taxes and the provision for (benefit from) income taxes (in thousands):



	Fiscal Years
	2011			2010			2009
Income (loss) before income taxes:
U.S.	$	(7,569	)	$	(209	)	$	(9,999	)
Foreign	25			148			182
Income (loss) before income taxes	$	(7,544	)	$	(61	)	$	(9,817	)
Provision for (benefit from) income taxes:
Current:
Federal	$	—		$	(11	)	$	(84	)
State	2			2			3
Foreign	66			51			47
Subtotal	68			42			(34		)
Deferred:
Federal	—			(170		)	—
State	—			(40		)	—
Foreign	(18		)	(16		)	(29		)
Subtotal	(18		)	(226		)	(29		)
Provision for (benefit from) income taxes	$	50		$	(184	)	$	(63	)

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its U.S. federal and state deferred tax assets at January 1, 2012. The Company believes it is more likely than not it will be able to realize its foreign deferred tax assets. Deferred tax balances are comprised of the following (in thousands):



	January 1, 2012			January 2, 2011
Deferred tax assets:
Net operating losses and capital losses	$	34,733		$	35,881
Accruals and reserves	2,753			2,746
Credits carryforward	5,304			5,085
Unrealized loss on marketable securities	3,057			2,357
Depreciation and amortization	9,150			6,081
Stock-based compensation	971			562
Other	211			209
	56,179			52,921
Valuation allowances	(56,067		)	(52,827		)
Deferred tax asset	$	112		$	94
Deferred tax liability	—			—

A rate reconciliation between income tax provisions at the U.S. federal statutory rate and the effective rate reflected in the consolidated statement of operations is as follows:



	Fiscal Years
	2011			2010			2009
Income tax expense/(benefit) at statutory rate	$	(2,565	)	$	(21	)	$	(3,338	)
State taxes	2			2			2
Refundable R&D credit	—			(11		)	(85		)
Stock Compensation and other permanent differences	192			224			378
Foreign taxes	41			(15		)	(44		)
Benefit allocated from other comprehensive income	—			(209		)	—
Future benefit of deferred tax assets not recognized	2,380			(154		)	3,024
	$	50		$	(184	)	$	(63	)

As of January 1, 2012, the Company had net operating loss carryforwards of approximately $97.8 million for federal and $46.1 million for state income tax purposes. If not utilized, these carryforwards will begin to expire beginning in 2012 for federal and state purposes. Included in the net operating loss carryforwards amount is $7.8 million for federal and $4.9 million for state income tax purposes, which, when recognized, will result in a credit to stockholders' equity.

The Company has research credit carryforwards of approximately $2.8 million for federal and $3.6 million for state income tax purposes. If not utilized, the federal carryforwards will expire in various amounts beginning in 2012. The California credit can be carried forward indefinitely.

Under the Tax Reform Act of 1986, the amount of and the benefit from net operating loss carryforwards and credit carryforwards may be impaired or limited in certain circumstances. Events which may restrict utilization of a company's net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations as defined in Internal Revenue Code Section 382 and similar state provisions. In the event the Company has had a change of ownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards and credit carryforwards before utilization.

As of the end of 2011, cumulative unremitted foreign earnings of $900,000 are considered to be permanently invested outside the United States. Accordingly, no U.S. taxes have been provided.

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



	January 1, 2012		January 2, 2011		January 3, 2010
Beginning balance of unrecognized tax benefits	$	73	$	70	$	66
Gross increases for tax positions of current year	4		3		4
Ending balance of unrecognized tax benefits	$	77	$	73	$	70

The amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $77,000 as of January 1, 2012. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of January 1, 2012, January 2, 2011 and January 3, 2010, the Company had approximately $26,000, $20,000 and $9,000 of accrued interest and penalties related to uncertain tax positions.

The Company is not currently under exam and the Company's historical net operating loss and credit carryforwards may be adjusted by the IRS and other tax authorities until the statute closes on the year in which such attributes are utilized. The Company estimates that its unrecognized tax benefits will not change significantly within the next twelve months.