Federal and State Income Taxes

12 Months Ended

Dec. 28, 2019

Income Tax Disclosure [Abstract]

Federal and State Income Taxes

NOTE 12 - FEDERAL AND STATE INCOME TAXES

The components of our income tax expense for the years ended December 28, 2019 and December 29, 2018 were as follows (amounts in thousands):

	2019			2018
Current:
Federal	$	—		$	—
State		83			129
Foreign		—			(19	)
Total current		83			110
Deferred:
Federal		(55	)		(113	)
State		55			113
Total deferred		—			—
Total income tax expense	$	83		$	110

The following is a reconciliation of expected income tax benefit to actual income tax expense for the years ended December 28, 2019 and December 29, 2018 (amounts in thousands):

	2019			2018
Federal income tax (benefit) at statutory rate of 21%	$	(270	)	$	(1,167	)
State income tax, net of federal income tax effect		93			20
Nondeductible expenses		37			213
Stock Compensation		(1	)		—
Foreign Tax credit		—			19
Prior year adjustments and true-ups		23			169
Change in valuation allowance		201			856
Total tax expense	$	83		$	110

The components of the deferred tax asset (liability) consisted of the following at December 28, 2019 and December 29, 2018 (amounts in thousands):

	2019			2018
Noncurrent Deferred tax assets
Federal and state net operating loss carryforward	$	7,145		$	6,531
Tax credit carryforwards		1,971			1,971
Allowance for uncollectible accounts		53			46
Accruals not yet deductible for tax purposes		352			357
Goodwill		485			632
Depreciation		7			295
Lease payable		488			—
Total noncurrent deferred tax assets		10,501			9,832
Less: Valuation allowance		(9,912	)		(9,710	)
Total noncurrent deferred tax assets, net	$	589		$	122
Noncurrent deferred tax liabilities:
Other		(107	)		(122	)
Right to use asset		(482	)		—
Total noncurrent deferred tax liabilities		(589	)		(122	)
Net deferred tax assets/deferred tax Liabilities	$	—		$	—

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. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of December 28, 2019 and December 29, 2018, we do not have any significant uncertain tax positions.

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 28, 2019, we recognized a total income tax expense of $83 thousand on a pretax book loss of $1.3 million compared to an income tax expense of $110 thousand on a pretax book loss of $5.6 million for the year ended December 29, 2018. As a result of permanent difference add-backs to taxable income related to meals and entertainment, a decrease to the tax benefit in the amount of $37 thousand decreased the effective tax rate by 2.9%. An increase of $202 thousand in the valuation allowance decreased the effective tax rate by 15.68%. State income tax (net of Federal) expense in the amount of $59 thousand decreased the effective tax rate by 4.57% mainly due to Texas margins tax.

As of December 28, 2019, the Company has a gross federal net operating loss carry-forward of approximately $30.6 million, which will begin to expire in 2032. Under the Tax Cuts and Jobs Act of 2017 (“TCJA”), net operating losses (“NOLs”) generated in tax year 2018 and forward have an indefinite carryforward, but are limited to 80% of taxable income when utilized. 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.

As of December 28, 2019, the Company has federal research and development tax credit carryforwards of approximately $1.1 million available to reduce future tax liabilities. The research and development tax credit will begin to expire in 2030. The Company also has foreign tax credit carryforwards of approximately $900 thousand which will begin to expire in 2025. Additionally, under the TCJA, alternative minimum tax (“AMT”) was repealed for corporations and any unutilized AMT credits have become refundable. The Company has $69 thousand of remaining refundable AMT credits.