Note 10 - Income Taxes

12 Months Ended

Jan. 03, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 10-INCOME TAXES

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

	Fiscal Years
	2020			2019			2018
Loss before income taxes:
U.S.	$	(11,170	)	$	(15,813	)	$	(13,982	)
Foreign		70			289			355
Loss before income taxes	$	(11,100	)	$	(15,524	)	$	(13,627	)
Provision for (benefit from) income taxes:
Current:
Federal	$	—		$	—		$	(19	)
State		3			3			2
Foreign		39			108			169
Subtotal		42			111			152
Deferred:
Federal		—			(141	)		—
State		—			(44	)		—
Foreign		9			(6	)		—
Subtotal		9			(191	)		—
Provision for (benefit from) income taxes	$	51		$	(80	)	$	152

The following table presents the rate reconciliation between income tax provisions at the U.S. federal statutory rate and the effective rate reflected in the consolidated statements of operations:

	Fiscal Years
	2020			2019			2018
Income tax (benefit) at statutory rate	$	(2,331	)	$	(3,260	)	$	(2,862	)
State taxes		3			(42	)		2
Stock compensation and other permanent differences		99			187			252
Foreign taxes		34			42			95
Future benefit of deferred tax assets not recognized		2,246			3,133			2,684
Other		—			(140	)		(19	)
Provision for (benefit from) income taxes	$	51		$	(80	)	$	152

Based on the available objective evidence, management believes it is more likely than not that the U.S. 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 3, 2021. Any future release of the valuation allowance may be recorded as a tax benefit increasing net income. 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 3,			December 29,
	2021			2019
Deferred tax assets:
Net operating losses	$	43,703		$	40,717
Accruals and reserves		1,239			1,345
Credits carryforward		5,860			5,765
Depreciation and amortization		9,240			9,760
Stock-based compensation		485			637
Operating lease liability		469			529
Gross deferred tax assets		60,996			58,753
Deferred tax liabilities:
Right-of-use asset		(458	)		(552	)
Gross deferred tax assets		(458	)		(552	)
Net deferred tax assets		60,538			58,201
Valuation allowance		(60,486	)		(58,140	)
Total deferred tax asset	$	52		$	61

As of January 3, 2021, the Company had net operating loss carryforwards of approximately $181.1 million for federal and $81.0 million for state income tax purposes. If not utilized, the federal net operating loss for years beginning before January 1, 2018 of $141.6 million will expire beginning in 2021 through 2038, and federal net operating losses beginning after January 1, 2018 of $39.2 million will be carried forward indefinitely (subject to certain limitations). If not utilized, the state net operating losses will expire beginning in 2021 through 2040.

The Company has research credit carryforwards of approximately $4.1 million for federal and $4.6 million for state income tax purposes as of January 3, 2021. If not utilized, the federal carryforwards will expire in various amounts beginning in 2021. The California credit can be carried forward indefinitely.

The Tax Cuts and Jobs Act (the "TCJA") was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the income tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting relating to the TCJA under Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”). In accordance with SAB 118, the TCJA-related income tax effects that the Company initially reported as provisional estimates were refined as additional analysis was performed. There was no material impact to the balance sheet and income statement recorded when the analysis was completed in the 2018 fourth quarter. The TCJA also includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries. In accordance with U.S. GAAP, the Company has made an accounting policy election to treat taxes due under the GILTI provision as a current period expense.

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.

The Company has not undertaken a study to determine if its net operating losses are limited. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

Foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided for on the undistributed earnings of certain foreign subsidiaries as of the end of fiscal 2020. The Company intends to reinvest these earnings indefinitely in the Company’s foreign subsidiaries. The Company believes that future domestic cash generation will be sufficient to meet future domestic cash needs. The Company has not recorded a deferred tax liability on the undistributed earnings of non-U.S. subsidiaries. The foreign withholding taxes would not have a material impact on the Company’s financial position and results of operation.

Uncertain Tax Positions

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

	January 3,			December 29,			December 30,
	2021			2019			2018
Beginning balance of unrecognized tax benefits	$	2,117		$	2,161		$	2,107
Additions (subtractions) for tax positions related to the prior year		38			(46	)		(2	)
Additions for tax positions related to the current year		114			88			125
Lapse of statutes of limitations		(93	)		(86	)		(69	)
Ending balance of unrecognized tax benefits	$	2,176		$	2,117		$	2,161

Out of $2.2 million of unrecognized tax benefits, there are no unrecognized tax benefits that would result in a change in the Company's effective tax rate if recognized in future years. The accrued interest and penalties related to uncertain tax positions was not significant for January 3, 2021, December 29, 2019 and December 30, 2018.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The CARES Act has an immaterial impact on our income tax positions.

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

The Company is subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions in which the Company operates. The U.S. tax years from 1999 forward remain effectively open to examination due to the carryover of unused net operating losses and tax credits.