Note 9 - Income Taxes

9 Months Ended

Oct. 02, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 9 — Income Taxes

The Company recorded a net income tax expense of $3 thousand and $19 thousand for the three and nine months ended October 2, 2022, respectively, and a net income tax benefit of $21 thousand and a net income tax expense of $0.1 million for the three and nine months ended October 3, 2021, respectively. A majority of the income tax expense for the three months ended  October 2, 2022 was related to the Company's foreign subsidiaries, which are cost-plus entities, and state minimum income taxes. A majority of the income tax expense for the nine months ended October 2, 2022 was related to income tax expense of the Company's foreign subsidiaries and state minimum income taxes, partially offset by tax benefits from foreign income tax returns related to the Company's foreign subsidiaries. The difference between the estimated annual effective income tax benefit rate of 1.2% and the 21% U.S. federal statutory expense rate reflects state income taxes, foreign income taxes, the effect of certain permanent differences, and a full valuation allowance against net deferred tax assets.

The valuation allowance primarily resulted from not having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of certain deferred tax assets. Based on the estimated reversal patterns of the Company’s deferred tax assets and liabilities, it is more likely than not that the Company will not realize the federal, state, and certain foreign deferred tax assets generated as there is insufficient projected income from reversals of deferred tax liabilities. Accordingly, the Company continues to maintain a full valuation allowance against all of U.S. and certain foreign net deferred tax assets as of October 2, 2022.

The Company had no unrecognized tax benefits as of October 2, 2022 and January 2, 2022 which would affect the Company's effective tax rate. The Company does not anticipate any material changes to its unrecognized tax benefits during the next 12 months.

Accrued interest and penalties related to unrecognized tax benefits are recognized as part of the income tax provision in the condensed consolidated statements of operations.

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.