INCOME TAXES

For fiscal years 2017 and 2016, income (loss) before income taxes consisted of the following (amounts in thousands):



	Fiscal Year 2017			Fiscal Year 2016
United States	$	(5,643	)	$	(7,358	)
Foreign	(797		)	(6,773		)
Total loss before income taxes	$	(6,440	)	$	(14,131	)

For fiscal years 2017 and 2016, the income tax benefit (provision) consists of the following (amounts in thousands):



	Fiscal Year 2017		Fiscal Year 2016
Federal deferred tax benefit, net	$	—	$	655
State deferred tax benefit, net	—		125
Foreign current tax benefit (expense)	197		(48		)
Foreign deferred tax expense, net	—		(484		)
Total income tax benefit	$	197	$	248

During fiscal years 2017 and 2016, the Company recorded income tax benefits of $197,000 and $248,000, respectively. The income tax benefit for fiscal 2017 was primarily related to refinements of the projected 2016 U.K. tax liabilities. The income tax benefit for fiscal 2016 was primarily related to a $0.8 million domestic benefit recognized in connection with adjustments to domestic deferred taxes related to the impairment of goodwill amortized for income tax purposes but not for financial reporting purposes netted with a $0.6 million international expense recognized in connection with the international valuation allowance in fiscal 2016.

The Company has reserved all of its domestic and international net deferred tax assets as of December 30, 2017 and December 31, 2016 with a valuation allowance in accordance with the provisions of FASB ASC 740, “Income Taxes,” which requires an estimation of the recoverability of the recorded income tax asset balances. Related to the going concern assertion in fiscal years 2017 and 2016, the Company reserved all of its international net deferred tax assets as of December 30, 2017 and December 31, 2016 with a valuation allowance. As of December 30, 2017 and December 31, 2016, the Company had recorded $25.0 million and $36.6 million, respectively, of valuation allowances attributable to its domestic and international net deferred tax assets. The determination of recording and releasing valuation allowances against deferred tax assets is made, in part, pursuant to the Company’s assessment as to whether it is more likely than not that the Company will generate sufficient future taxable income against which benefits of the deferred tax assets may or may not be realized. Significant judgment is required in making estimates regarding the Company’s ability to generate income in future periods.

Realization of deferred tax assets is dependent on generating sufficient income in future periods. In evaluating the ability to use its deferred tax assets, the Company considers all positive and negative evidence including the Company's past operating results, the existence of cumulative losses in the most recent three fiscal years and the Company's forecast of future income. In determining future income, the Company is responsible for assumptions utilized including the amount of state, federal and international operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future income and are consistent with the plans and estimates the Company is using to manage the underlying business.

The following is a reconciliation between the benefit (provision) for income taxes and the amounts computed based on loss before income taxes at the statutory federal income tax rate (amounts in thousands):



	Fiscal Year 2017					Fiscal Year 2016
	Amount			%		Amount			%
Computed expected federal income tax benefit	$	2,189		34.0		$	4,805		34.0
State income tax benefit, net of federal benefit	—			—		68			0.5
Rate differential on foreign operations	(137		)	(2.1	)	(1,002		)	(7.1	)
Forfeited vested stock options	(66		)	(1.0	)	(281		)	(2.0	)
Tax benefits associated with share-based awards	(240		)	(3.7	)	179			1.3
Adjustment to estimated tax loss carryforward	(107		)	(1.7	)	(418		)	(3.0	)
Change in statutory and applicable tax rates	(13,129		)	(203.9	)	505			3.6
Non-deductible expenses	(56		)	(0.9	)	(25		)	(0.2	)
Goodwill impairment	—			—		(1,257		)	(8.9	)
Other	154			2.4		113			0.8
Change in valuation allowance	11,589			180.0		(2,439		)	(17.3	)
Total income tax benefit (expense)	$	197		3.1		$	248		1.7

The significant components of deferred income tax assets and the related balance sheet classifications, as of December 30, 2017 and December 31, 2016, are as follows (amounts in thousands):



	December 30, 2017			December 31, 2016
Non-current deferred tax assets:
Accounts receivable	$	35		$	119
Accrued expenses	262			845
Goodwill and intangible assets	632			1,492
Share-based compensation expense	153			664
Net operating loss carryforward	21,990			31,031
Inventories	719			1,068
Foreign tax credit carryforward	1,006			1,006
Deferred revenue	199			357
Other	20			(24		)
Total non-current deferred tax assets	25,016			36,558
Valuation allowance	(25,016		)	(36,558		)
Net non-current deferred tax asset	$	—		$	—

As of December 30, 2017, the Company has U.S. Federal net operating loss carryforwards of $89.7 million which begin expiring in 2020. As of December 30, 2017, the Company has state net operating loss carryforwards of $50.7 million. These net operating losses expire at various times between 2018 and 2036. In addition, as of December 30, 2017, the Company has foreign net operating loss carryforwards of $3.4 million all of which primarily have no expiration date. As of December 30, 2017, the Company has net foreign tax credits of $1.0 million. If unutilized, the expiration of these foreign tax credits is $317,000 and $689,000 in fiscal years 2018 and 2019, respectively.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

On December 22, 2017 the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, a move from a worldwide tax system to a territorial system, as well as other changes. As a result of enactment of the legislation, the Company incurred a $13.1 million reduction to the gross deferred tax assets of the Company, primarily related to the remeasurement of deferred tax assets and liabilities at the lower corporate tax rates. There was not an impact to the tax provision related to the transition tax on accumulated foreign earnings. Due to the going concern assertion and full valuation allowance on the deferred tax assets and liabilities of the Company, the tax reform legislation has zero net effect on the Company’s deferred tax assets as a whole. There are no income tax effects of the tax reform legislation that for which the accounting is incomplete or that are reported as provisional amounts in the Consolidated Financial Statements.

The Company analyzes its uncertain tax positions pursuant to the provisions of FASB ASC 740 "Income Taxes" that prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained based on its technical merit. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the taxing authority. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

As of December 30, 2017 and December 31, 2016, the Company had no recorded liability for uncertain tax positions.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2000. As of December 30, 2017, the Company has no income tax examinations in process.