Federal and State Income Taxes

12 Months Ended

Dec. 30, 2017

Income Tax Disclosure [Abstract]

Federal and State Income Taxes

NOTE 11 - FEDERAL AND STATE INCOME TAXES

The components of our income tax expense (benefit) for the years ended December 30, 2017 and December 31, 2016 were as follows (amounts in thousands):

	2017			2016
Current:
Federal	$	(139	)	$	—
Foreign Tax		(15	)		81
State		33			(37	)
Total current		(121	)		44
Deferred:
Federal		10,070			(986	)
State		138			(85	)
Total deferred		10,208			(1,071	)
Total income tax expense (benefit)	$	10,087		$	(1,027	)

The following is a reconciliation of expected income tax expense (benefit) to actual income tax expense (benefit) for the years ended December 30, 2017 and December 31, 2016 (amounts in thousands):

	2017			2016
Federal income tax (benefit) at statutory rate of 35%	$	(2,160	)	$	(1,179	)
State income tax, net of federal income tax effect		(90	)		(12	)
Change of effective federal and state tax rate		3,927			4
Nondeductible expenses		14			80
Research and development credit		(68	)		(72	)
Stock Compensation		344			436
Prior year adjustments and true-ups		(141	)		(354	)
Change in valuation allowance		8,261			70
Total tax (benefit) expense	$	10,087		$	(1,027	)

The components of the deferred tax asset (liability) consisted of the following at December 30, 2017 and December 31, 2016 (amounts in thousands):

	2017			2016
Noncurrent Deferred tax assets
Federal and state net operating loss carry-forward	$	5,643		$	6,417
Tax credit carry-forwards		2,085			2,126
Allowance for uncollectible accounts		159			156
Accruals not yet deductible for tax purposes		368			755
Goodwill		475			948
Depreciation		297			339
Other		—			60
Total noncurrent deferred tax assets		9,027			10,801
Less: Valuation allowance		(8,854	)		(593	)
Total noncurrent deferred tax assets, net	$	173		$	10,208
Noncurrent deferred tax liabilities:
Other		(173	)		—
Total noncurrent deferred tax liabilities		(173	)		—
Net deferred tax assets/deferred tax Liabilities		—			10,208

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 carry-forwards 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. During 2017, after evaluating all available evidence, we recorded a valuation allowance on all net deferred tax assets.

For the year ended December 30, 2017, we recognized a total income tax benefit of $2.2 million on a pretax book loss of $6.2 million compared to an income tax benefit of $1.2 million on $3.4 million of pretax book income for the year ended December 31, 2016. As a result of permanent difference add-backs to taxable income related to meals & entertainment, fines and penalties, and stock compensation, there is a decrease to the tax benefit in the amount of $14,176 which caused a decrease in the effective tax rate of 0.23%. Return to accrual adjustments created additional tax benefit of ($81,202) increasing the effective tax rate by 1.32%, deferred tax true-ups partially related to returns filed during 2016 created additional tax expense of $926 and decreased the effective tax rate by 0.02%, the reversal of a deferred tax asset related to expired stock options in 2017 offset by a reversal of deferred tax liability related to forfeited restricted stock (from IRC §83(b) elections) created an additional tax expense of $344,228 and decreased the effective tax rate by 5.58%, state tax payable true-ups created a tax benefit of ($12,164) and increased the effective tax rate by 0.20%, foreign payable true-ups created an additional tax benefit of ($48,739) and increased the effective tax rate by .79%. An estimated research and development credit in the amount of ($67,804) increased the effective tax rate by 1.10%. An increase of $8,261,315 in the valuation allowance decreased the effective tax rate by -133.88%, state income tax (net of Federal) increased the tax benefit in the amount of ($90,365) increased the effective tax rate by 1.46% due to expected state losses, offset by the Texas Margins tax, and tax expense of $3,926,666 was generated by the decrease in the federal tax rate from 35% to 21% and created a decrease in the effective tax rate by 63.63%.

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 30, 2017 and December 31, 2016, we do not have any significant uncertain tax positions.

We had a federal net operating loss carry-forward at December 30, 2017 of approximately $23.1 million, which will begin to expire starting 2021. At December 30, 2017, we had Alternative Minimum Tax (AMT) and federal research and development tax credit carry-forwards of approximately $0.1 and $1.1 million respectively, available to reduce future tax liabilities. The AMT credit is available to use against regular tax liability and, in accordance with recent tax law reform, a portion of this credit will become refundable beginning in 2018. The research and development tax credit will begin to expire starting 2030. During 2017, the Company recorded approximately $33 thousand of foreign tax credit that may be able to be utilized in the future. These foreign tax credits will expire beginning in 2025. Under pre-Tax Cuts and Jobs Act law, net operating losses were generally carried back 2 years and then carried forward 20 years. Taxpayers could elect to forego the carryback. Under the new law, for NOLs generated in tax year 2018 and forward, the 2 year carryback is repealed and the carry-forward is indefinite. However, the utilization of these post 2017 NOLs are limited to 80% of taxable income. For NOLs incurred in tax year 2017 and prior, the limitation to 80% of taxable income does not apply, but the NOLs are subject to expiration. At this time, it is not determinable if there will be sufficient taxable income available in future years to utilize the NOLs generated prior to 2018.