Summer Infant, Inc.

5. INCOME TAXES

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") that significantly revised the U.S. tax code effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%, limiting deductibility of interest expense and performance based incentive compensation and implementing a territorial tax system. As a result of the Tax Act in the fiscal quarter ending December 30, 2017 we recorded a tax or "toll charge" of $734 on previously unremitted earnings of foreign subsidiaries, a writedown of $882 related to foreign tax credits and a writedown of the value of our deferred tax assets of $115.

Under the guidance set forth in the SEC's Staff Accounting Bulletin No. 118, the Company may record provisional amounts for the impact of the Tax Act. At December 30, 2017, the Company made a reasonable estimate of the effects of the Tax Act on its existing deferred tax balances. The final impact of the Tax Act may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions the Company has made and guidance that may be issued.

The provision (benefit) for income taxes is summarized as follows:

	Fiscal 2017		Fiscal 2016
Current:
Federal	$	—	$	—
Foreign		256		185
State and local		5		6

Total current		261		191
Deferred:
Federal	$	1,631	$	(406	)
Foreign		175		(910	)
State and local		105		(49	)

Total deferred		1,911		(1,365	)

Total provision (benefit)	$	2,172	$	(1,174	)

The tax effects of temporary differences that comprise the deferred tax liabilities and assets are as follows:

	December 30, 2017			December 31, 2016
Deferred tax assets:
Accounts receivable	$	7		$	17
Inventory and Unicap reserve		477			676
Research and development credit, foreign tax credit and net operating loss carry-forward		6,338			7,658
Other		0			102

Total deferred tax assets		6,822			8,453

Deferred tax liabilities:
Intangible assets and other		(1,905	)		(2,595	)
Property, plant and equipment		(193	)		(653	)

Total deferred tax liabilities		(2,098	)		(3.248	)
Valuation allowance		(2,789	)		(1,357	)

Deferred tax liabilities and valuation allowance		(4,887	)		(4,605	)

Net deferred income tax asset	$	1,935		$	3,848

The following reconciles the benefit for income taxes at the U.S. federal income tax statutory rate to the benefit in the consolidated financial statements:

	Fiscal 2017			Fiscal 2016
Tax benefit at statutory rate	$	(26	)	$	(1,869	)
State income taxes, net of U.S. federal income tax benefit		87			(28	)
Adjustment to uncertain tax position		(16	)		14
Stock options		52			70
Foreign tax rate differential		(14	)		133
Tax credits		(172	)		(123	)
Non-deductible expenses		315			498
Foreign repatriation/toll tax		734			—
Foreign tax credit valuation allowance		882			—
Foreign dividends/section 956		86			—
Tax rate changes		115			—
Other		129			131

Total benefit	$	2,172		$	(1,174	)

As of December 30, 2017, the Company had approximately $5,996 of federal and state net operating loss carry forwards (or "NOLs") to offset future federal taxable income. The federal NOL will begin to expire in 2031 and the state NOL began to expire in 2018. The Company also has approximately $1,470, $328, $2,655, and $564 of NOLs in Canada, Australia, Israel, and the United Kingdom, which can be carried forward indefinitely.

Authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported, if based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all evidence, including the Company's past earnings history and future earnings forecast, management has determined that a valuation allowance in the amount of $1,907 relating to certain state tax credits and foreign NOL's is necessary at December 30, 2017 and $1,357 at December 31, 2016. Due to the Tax Act, the Company determined an additional provisional valuation allowance in the amount of $882 relating to foreign tax credits was necessary at December 30, 2017.

A summary of the Company's adjustment to its uncertain tax positions in fiscal years ended December 30, 2017 and December 31, 2016 are as follows:

	December 30, 2017			December 31, 2016
Balance, at beginning of the year	$	341		$	327
Increase for tax positions related to the current year		—			—
Increase for tax positions related to prior years		—			—
Increase for interest and penalties		13			14
Decrease for lapses of statute of limitations		(29	)		—

Balance, at end of year	$	325		$	341

The unrecognized tax benefits mentioned above include an aggregate of $52 of accrued interest and penalty balances related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. An increase in accrued interest and penalty charges of approximately $13, net of federal tax expense, was recorded as a tax expense during the current fiscal year. The Company anticipates the remaining liability of $325 may reverse as of March 31, 2018 due to lapse of statute of limitations at that time.

The Company is subject to U.S. federal income tax, as well as to income tax of multiple state and foreign tax jurisdictions. On a global basis, the open tax years subject to examination by major taxing jurisdictions in which the Company operates is between two to six years.