14. INCOME TAXES
The components of the income tax (expense) benefit are as follows (in thousands):
|
|
|
January 3, 2017 |
|
|
December 29, 2015 |
|
|
December 30, 2014 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
(438 |
) |
|
$ |
— |
|
|
State |
|
|
(14 |
) |
|
|
(149 |
) |
|
|
(37 |
) |
|
Foreign |
|
|
(65 |
) |
|
|
(114 |
) |
|
|
(131 |
) |
|
|
|
$ |
(79 |
) |
|
$ |
(701 |
) |
|
$ |
(168 |
) |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Income tax benefit (expense) |
|
$ |
(79 |
) |
|
$ |
(701 |
) |
|
$ |
(168 |
) |
The difference between the effective income tax rate and the United States federal income tax rate is summarized as follows:
|
|
|
January 3, 2017 |
|
|
December 29, 2015 |
|
|
December 30, 2014 |
|
|||
|
Statutory federal rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
State income taxes less federal benefit |
|
|
(1.4 |
) |
|
|
(9.2 |
) |
|
|
5.9 |
|
|
Foreign income taxes |
|
|
(0.3 |
) |
|
|
1.1 |
|
|
|
(2.5 |
) |
|
Change in valuation allowance |
|
|
(24.6 |
) |
|
|
(38.1 |
) |
|
|
(31.5 |
) |
|
Meals |
|
|
(0.1 |
) |
|
|
0.3 |
|
|
|
(1.2 |
) |
|
Business Gain on Acquisition |
|
|
— |
|
|
|
— |
|
|
|
8.5 |
|
|
Alternative minimum taxes |
|
|
— |
|
|
|
0.1 |
|
|
|
(1.0 |
) |
|
Expired tax attribute carryforwards |
|
|
(6.4 |
) |
|
|
11.1 |
|
|
|
(17.0 |
) |
|
Tax credits generated |
|
|
— |
|
|
|
(0.1 |
) |
|
|
0.3 |
|
|
Other |
|
|
(1.6 |
) |
|
|
7.7 |
|
|
|
(0.3 |
) |
|
|
|
|
(0.4 |
)% |
|
|
6.9 |
% |
|
|
(4.8 |
)% |
Deferred income taxes are provided for the temporary differences between the carrying values of the Company’s assets and liabilities for financial reporting purposes and their corresponding income tax bases. The temporary differences give rise to either a deferred tax asset or liability in the financial statements that is computed by applying current statutory tax rates to taxable and deductible temporary differences. The deferred tax assets (liabilities) consisted of the following temporary differences as of January 3, 2017 and December 29, 2015 (in thousands):
|
|
|
January 3, 2017 |
|
|
December 29, 2015 |
|
||
|
Net operating losses |
|
$ |
62,875 |
|
|
$ |
50,837 |
|
|
Reserves and accruals |
|
|
5,073 |
|
|
|
10,754 |
|
|
Deferred rent |
|
|
967 |
|
|
|
1,518 |
|
|
Tax credit attributes |
|
|
1,957 |
|
|
|
1,999 |
|
|
Basis difference in intangibles |
|
|
1,152 |
|
|
|
1,510 |
|
|
Share-based compensation |
|
|
1,915 |
|
|
|
2,979 |
|
|
Basis difference in fixed assets |
|
|
5,670 |
|
|
|
3,245 |
|
|
Basis difference in intangibles |
|
|
(95 |
) |
|
|
(289 |
) |
|
Basis difference in investments |
|
|
144 |
|
|
|
4 |
|
|
Reserves and accruals |
|
|
(29 |
) |
|
|
(64 |
) |
|
Total gross deferred tax asset |
|
|
79,629 |
|
|
|
72,493 |
|
|
Valuation allowance |
|
|
(79,629 |
) |
|
|
(72,493 |
) |
|
Total net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. A valuation allowance is provided for deferred tax assets when it is “more likely than not” that some portion of the deferred tax asset will not be realized. Because of the Company’s recent history of operating losses, management believes the recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. A valuation allowance has been recorded for the net deferred tax assets at January 3, 2017, which increases the valuation allowance by $7.1 million for the fiscal year ended January 3, 2017.
At January 3, 2017, the Company has federal and state net operating loss carryovers (“NOL”) of $148.4 million and $144.5 million, respectively, which, if not used earlier, will expire between 2017 and 2036. In addition, the Company also has tax credit carryforwards for federal and state purposes of $1.1 million and $0.9 million, respectively. Approximately $0.3 million of the federal tax credit carryforwards will start to expire in 2031 if unused before that year. Of the state tax credit carryforwards, approximately $0.7 million will start to expire in 2023 if unused before that year. The remaining federal tax credits and the state tax credits do not expire.
The Company underwent an “ownership change” as defined in section 382 of the Internal Revenue Code during the second quarter of the Company’s 2009 fiscal year, as a result of the Company’s issuance of Series B-1 Convertible Preferred Stock and Series B-2 Convertible Preferred Stock and other prior trading in the Company’s stock. The amount of NOL and tax credits from pre-change years that may be used to offset the Company’s taxable income for tax years ending after the ownership change is subject to an annual limitation, known as a section 382 limitation. The section 382 limitation may cause NOL’s to expire unutilized. The Company reduced its NOL carryovers stated above for the anticipated expirations caused by the Company’s 2009 change. Since the section 382 ownership change in 2009, the Company has performed quarterly analyses to monitor its ownership for 382 purposes. The Company has not had any other ownership changes for section 382 purposes since 2009.
Changes in the Company’s unrecognized tax benefits are as follows (in thousands):
|
|
|
Fiscal Year Ended January 3, 2017 |
|
|
Fiscal Year Ended December 29, 2015 |
|
||
|
Beginning balance |
|
$ |
185 |
|
|
$ |
185 |
|
|
Increases attributable to tax positions taken during prior periods |
|
|
— |
|
|
|
— |
|
|
Decreases resulting from lapse of applicable statutes of limitations |
|
|
— |
|
|
|
— |
|
|
Ending balance |
|
$ |
185 |
|
|
$ |
185 |
|
As of January 3, 2017, the entire unrecognized tax benefits reduce the deferred tax asset for the net operating loss carryforwards. If recognized, none of the unrecognized tax benefits would impact the Company’s effective tax rate. As of January 3, 2017, it is reasonably possible that the unrecognized tax benefits will not significantly increase or decrease in the next twelve months.
The Company is subject to taxation in the United States and various state and local jurisdictions. As of January 3, 2017, the Company is not subject to any income tax examinations. Due to tax attribute carryforwards, as of January 3, 2017, the Company remains effectively subject to U.S. federal, state and local income tax examinations by tax authorities for the tax years since 2006.