NOTE 18 – INCOME TAXES
The components of loss before provision for income taxes for Fiscal 2017, the Transition Period and Fiscal 2016 are as follows:
|
|
|
Fiscal 2017 |
|
|
Transition Period |
|
|
Fiscal 2016 |
|
|||
|
Domestic |
|
$ |
(17,667 |
) |
|
$ |
(5,000 |
) |
|
$ |
(8,032 |
) |
|
Foreign |
|
|
108 |
|
|
|
1,155 |
|
|
|
(355 |
) |
|
Loss before provision for income taxes |
|
$ |
(17,559 |
) |
|
$ |
(3,845 |
) |
|
$ |
(8,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consisted of the following:
|
|
|
Fiscal 2017 |
|
|
Transition Period |
|
|
Fiscal 2016 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
152 |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
250 |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
62 |
|
|
|
16 |
|
|
|
17 |
|
|
Total current tax expense |
|
|
464 |
|
|
|
16 |
|
|
|
17 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
41 |
|
|
|
— |
|
|
|
— |
|
|
State |
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
419 |
|
|
|
— |
|
|
|
— |
|
|
Total deferred tax expense |
|
|
468 |
|
|
|
— |
|
|
|
— |
|
|
Total Tax Expense |
|
$ |
932 |
|
|
$ |
16 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the income tax provision on income (loss) and the amount computed at the U.S. federal statutory rate is due to:
|
|
|
Fiscal 2017 |
|
|
Transition Period |
|
|
Fiscal 2016 |
|
|||||||||||||||
|
Income benefit provision at Federal statutory rate |
|
$ |
(5,953 |
) |
|
|
34.0 |
% |
|
$ |
(1,222 |
) |
|
|
34.0 |
% |
|
$ |
(3,242 |
) |
|
|
34.0 |
% |
|
State income taxes, net of Federal Benefit |
|
|
(383 |
) |
|
|
2.2 |
% |
|
|
(188 |
) |
|
|
5.2 |
% |
|
|
(363 |
) |
|
|
3.8 |
% |
|
Foreign permanent differences |
|
|
— |
|
|
|
— |
% |
|
|
17 |
|
|
|
(0.5 |
%) |
|
|
84 |
|
|
|
(0.9 |
%) |
|
International tax rate differentials |
|
|
231 |
|
|
|
-1.3 |
% |
|
|
180 |
|
|
|
(5.0 |
%) |
|
|
64 |
|
|
|
(0.7 |
%) |
|
U.S. Permanent differences |
|
|
142 |
|
|
|
(0.8 |
%) |
|
|
488 |
|
|
|
(13.6 |
%) |
|
|
966 |
|
|
|
(10.1 |
%) |
|
Goodwill impairment |
|
|
1,628 |
|
|
|
(903.0 |
%) |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
Other True-Ups |
|
|
1,035 |
|
|
|
(5.9 |
%) |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
Impact of Federal Rate change |
|
|
3,665 |
|
|
|
(20.9 |
%) |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
Change in valuation allowance |
|
|
567 |
|
|
|
(3.3 |
%) |
|
|
741 |
|
|
|
(81.2 |
%) |
|
|
2,508 |
|
|
|
(26.3 |
%) |
|
Tax provision |
|
$ |
932 |
|
|
|
-5.3 |
% |
|
$ |
16 |
|
|
|
— |
% |
|
$ |
17 |
|
|
|
(0.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code which has impacted our year ended December 30, 2017 including, but not limited to reducing the U.S. federal corporate tax rate to 21%, requiring a one-time transition tax on certain unremitted earnings of foreign subsidiaries that may electively be paid over eight years, and accelerated first year expensing of certain capital expenditures.
Effective January 1, 2018 the Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, imposes a new minimum tax on global intangible low taxed income (“GILTI”), limits the amount of deductible interest expense, and imposes new limitations on the deductibility of certain executive compensation.
Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with SAB 118, the Company must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC Topic 740 is complete.
At December 30, 2017, the Company remeasured domestic deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally the 21% rate imposed by the Tax Act. The Company has recorded an expense of $3.7 million to reduce the net deferred tax assets, along with a corresponding benefit for the reduction of the valuation allowance recorded against these balances. Accordingly, the net impact to our effective tax rate is zero.
At December 30, 2017, in accordance with SAB 118 the Company has not completed its accounting for the tax effects of the one-time transition tax imposed by the Tax Act. In order to determine the amount of the liability with respect to the one-time transition tax, the Company must determine, in addition to other factors, the amount of post-1986 Earnings & Profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. In order to quantify the liability, we are awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information to more precisely compute the amount of the transition tax. Therefore, we have not recorded an estimate of the transition tax in our financial statements. In addition, the Company is continuing to evaluate whether Global Intangible Low Tax Income taxes (“GILTI”) are recorded as a current period expense when incurred or whether such amounts should be factored into a company's measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax impacts related to GILTI for Fiscal 2017.
The Company has not provided for additional income or withholding taxes for any undistributed foreign earnings, including those subject to the one-time transition tax nor have any taxes been provided for the outside basis difference inherent in these entities as the Company’s assertion is to indefinitely reinvest in foreign operations. Additionally, due to withholding tax, basis computations, and other related tax considerations, it is not practicable to estimate any taxes to be provided on outside basis differences at this time.
Our deferred tax assets (liabilities) are as follows:
|
|
|
Fiscal 2017 |
|
|
Transition Period |
|
||
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
Net operating loss carryforward |
|
$ |
7,103 |
|
|
$ |
7,439 |
|
|
Tax credit, deduction and capital loss carryforward |
|
|
764 |
|
|
|
1,038 |
|
|
Share-based compensation |
|
|
862 |
|
|
|
151 |
|
|
Depreciation and other amortization |
|
|
- |
|
|
|
1,422 |
|
|
Debt issuance costs |
|
|
1,234 |
|
|
|
— |
|
|
Accrued expenses and other liabilities |
|
|
812 |
|
|
|
761 |
|
|
Total deferred tax assets |
|
|
10,775 |
|
|
|
10,811 |
|
|
Less: valuation allowance |
|
|
(9,424 |
) |
|
|
(8,843 |
) |
|
Deferred tax assets, net of valuation allowance |
|
|
1,351 |
|
|
|
1,968 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,443 |
|
|
|
21 |
|
|
Basis differences in acquired intangibles |
|
|
1,807 |
|
|
|
1,947 |
|
|
Total deferred tax liabilities |
|
|
3,250 |
|
|
|
1,968 |
|
|
Deferred tax liability |
|
$ |
(1,899 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
The Company has federal net operating losses (“NOLs”) of $23,743 that begin to expire in 2029. The Company has state operating losses of $30,332 that begin to expire in 2030, and foreign NOLs totaling $2,958 with an indefinite life. The Company also has general business credit carryforwards of $227.
In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies, and projected future taxable income in determining whether a valuation allowance is warranted.
During Fiscal 2017, the Company maintained a valuation allowance against its U.S. deferred tax assets and certain foreign jurisdictions. The Company’s valuation allowance increased by $560 during Fiscal 2017. This increase was primarily attributable to the adjustment of certain deferred balances.
During 2017, we reduced our federal and state tax attributes for unrecognized tax benefits related primarily to the treatment of stock compensation and stock options. If recognized, $1,136 of the unrecognized tax benefits are likely to attract a full valuation allowance, thereby offsetting the favorable impact to the effective rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
It is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the result of, among other things, method changes. However, quantification of an estimated range cannot be made at this time. The Company has accrued zero interest and penalties as of December 30, 2017 and December 31, 2016.
|
|
|
Fiscal 2017 |
|
|
Transition Period |
|
|
Fiscal 2016 |
|
|||
|
Beginning balance |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Additions based on tax positions related to current year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Additions for tax positions of prior years |
|
|
1,136 |
|
|
|
— |
|
|
|
— |
|
|
Reductions for tax positions of prior years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Loss before provision for income taxes |
|
$ |
1,136 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company, or one of its subsidiaries, files its tax returns in the U.S., United Kingdom, Canada and certain state tax jurisdictions with varying statutes of limitations. The Company’s 2014 through 2017 tax years remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.