Federal and State Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Federal and State Income Taxes

NOTE 12 - FEDERAL AND STATE INCOME TAXES

The components of our income tax benefit for the years ended December 31, 2016 and December 26, 2015 were as follows (amounts in thousands):

	2016			2015
Current:
Federal	$	—		$	(21	)
Foreign Tax		81			805
State		(37	)		139
Total current		44			923
Deferred:
Federal		(986	)		(8,631	)
State		(85	)		(506	)
Total deferred		(1,071	)		(9,137	)
Total income tax benefit	$	(1,027	)	$	(8,214	)

The following is a reconciliation of expected income tax expense (benefit) to actual income tax benefit for the years ended December 31, 2016 and December 26, 2015 (amounts in thousands):

	2016			2015
Federal income tax expense (benefit) at 35%	$	(1,179	)	$	813
State income tax, net of federal income tax effect		(12	)		(416	)
Change of effective state tax rate		4			—
Nondeductible expenses		80			222
Research and development credit		(72	)		(297	)
Current year expiration of stock options		436			163
Prior year adjustments and true-ups		(354	)		2,261
Change in valuation allowance		70			(10,960	)
Total tax benefit	$	(1,027	)	$	(8,214	)

The components of the deferred tax asset (liability) consisted of the following at December 31, 2016 and December 26, 2015 (amounts in thousands):

	2016			2015
Deferred tax asset (liabilities)
Federal net operating loss carry-forward	$	6,417		$	4,339
Tax credit carryforwards		2,126			1,873
Allowance for uncollectible accounts		156			616
Accruals not yet deductible for tax purposes		755			1,182
Goodwill		948			1,122
Depreciation		339			64
Other		60			464
Deferred tax assets		10,801			9,660
Less: Valuation allowance		(593	)		(523	)
Deferred tax assets, net	$	10,208		$	9,137

We account for deferred income taxes in accordance with ASC 740, which provides for recording deferred taxes using an asset and liability method. We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities including net operating loss and tax credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The provision for income taxes represents the current taxes payable or refundable for the period plus or minus the tax effect of the net change in the deferred tax assets and liabilities during the period. Tax law and rate changes are reflected in income in the period such changes are enacted.

We record a valuation allowance to reduce the carrying value of our deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will expire before realization of the benefit or future deductibility is not probable. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the related jurisdiction in the future. In evaluating our ability to recover our deferred tax assets, we consider the available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions, including the amount of pretax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment.

For the year ended December 31, 2016, we recognized an income tax benefit of $1.0 million on a pre-tax loss of $3.4 million as compared to an income tax benefit of $8.2 million on $2.3 million of pre-tax income for year ended December 26, 2015. During 2016, our tax benefit was (A) increased primarily by (i) $354,000 resulting from return to accrual adjustments and true-ups of deferred tax assets and liabilities and foreign taxes payable and (ii) $72,000 for an estimated research and development credit and (B) decreased by (i) $436,000 due to the current year expiration of stock options, (ii) a $70,000 increase in the valuation allowance and (iii) $80,000 associated with permanent differences. During 2015, a significant tax benefit was recognized primarily related to the reversal of $11.0 million of valuation allowance on certain of our deferred tax assets.

We account for uncertain tax positions in accordance with ASC 740. When uncertain tax positions exist, we recognize the tax benefit of the tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon technical merits of the tax positions as well as consideration of the available facts and circumstances. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2016 and December 26, 2015, we do not have any significant uncertain tax positions.

We had a federal net operating loss carry-forward at December 31, 2016 of approximately $17.0 million, which will begin to expire starting in 2032. At December 31, 2016, we had Alternative Minimum Tax (AMT) and federal research and development tax credit carryforwards of approximately $0.1 and $1.0 million, respectively, available to reduce future tax liabilities. The AMT credit is available for an indefinite carryforward period and the research and development tax credit will begin to expire starting in 2030. At December 31, 2016, we had foreign tax credits of approximately $0.9 million which will begin to expire starting in 2025. However, to the uncertainty of realization, the Company has recorded a valuation allowance of $0.6 million against this asset as of December 31, 2016.