9. INCOME TAXES

For fiscal years 2015 and 2014, income (loss) before income taxes consisted of the following (amounts in thousands):

	Fiscal		Fiscal
	Year		Year
	2015		2014
United States	$	(9,321)	$	(5,168)
Foreign		2,216		2,636
Total income (loss) before income taxes	$	(7,105)	$	(2,532)

For fiscal years 2015 and 2014, the income tax benefit (provision) consists of the following (amounts in thousands):

	Fiscal		Fiscal
	Year		Year
	2015		2014
Federal deferred tax expense, net	$	(99)	$	(99)
State deferred tax benefit (expense), net		42		(37)
Foreign current tax expense		(263)		-
Foreign deferred tax (expense) benefit, net		(266)		1,257
Total income tax (expense) benefit	$	(586)	$	1,121

During fiscal year 2015 the Company recorded an income tax provision of $0.6 million. The income tax provision is primarily related to the generation of pre-tax book income within the Company’s U.K. operations in addition to deferred taxes recognized on goodwill amortized for income tax purposes but not for financial reporting purposes. The Company recorded a current tax expense of $0.3 million during fiscal 2015 related to the generation of positive pre-tax book income within newly acquired U.K. entities which did not have net operating loss carryforwards to utilize. During fiscal 2014, there was no provision for current tax benefit (expense) recognized due to losses generated within the Company’s domestic operations and the utilization of U.K. net operating loss carryforwards.

The Company has reserved all of its domestic net deferred tax assets as of January 2, 2016 and January 3, 2015 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. As of January 2, 2016 and January 3, 2015, the Company had recorded $34.1 million and $32.1 million, respectively, of valuation allowances attributable to its domestic 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 Company had maintained a full valuation allowance against its U.K. deferred tax assets until the second quarter of 2014, when the Company reached the conclusion that it was appropriate to release the valuation allowance due to the sustained positive operating performance of its U.K. operations and the availability of expected future taxable income. The Company achieved a cumulative three-year positive pre-tax book income position within its U.K. operations. The Company also considered forecasts of future operating results and utilization of its U.K. net operating losses, which do not expire. As a result, the Company recorded a $1.8 million reversal of its deferred tax asset valuation allowance reserves in the second quarter of 2014.

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 2015				Fiscal Year 2014
	Amount		%		Amount		%
Computed expected federal income tax benefit	$	2,413		34.0	$	861		34.0
State income tax benefit, net of federal benefit		514		7.2		340		13.4
Rate differential on foreign operations		296		4.2		353		13.9
Forfeited vested stock options		(267)		(3.8)		(75)		(2.9)
Tax benefits associated with share-based awards		12		0.2		61		2.4
Adjustment to estimated tax loss carryforward		(226)		(3.2)		(434)		(17.1)
Change in statutory and applicable tax rates		(518)		(7.3)		681		26.9
Non-deductible expenses		(753)		(10.6)		(694)		(27.4)
Other		(26)		(0.4)		(3)		(0.1)
Change in valuation allowance		(2,031)		(28.6)		31		1.2
Total income tax (expense) benefit	$	(586)		(8.3)	$	1,121		44.3

The significant components of deferred income tax assets and the related balance sheet classifications, as of January 2, 2016 and January 3, 2015, are as follows (amounts in thousands):

	January 2,		January 3,
	2016		2015
Current deferred tax assets (liabilities):
Accounts receivable	$	67	$	46
Accrued expenses		1,040		125
Valuation allowance		(1,027)		(100)
Current deferred tax assets	$	80	$	71

Non-current deferred tax assets (liabilities):
Goodwill and intangible assets	$	1,143	$	3,057
Share-based compensation expense		551		873
Net operating loss carryforward		29,894		27,178
Other		224		274
Foreign tax credit carryforward		1,006		1,006
Valuation allowance		(33,089)		(32,025)
Non-current deferred tax assets (liabilities)	$	(271)	$	363

The federal net operating loss carryforward as of January 2, 2016 is scheduled to expire as follows (amounts in thousands):

	Amount		Year
	$	1,640		2020
		5,602		2023
		9,094		2024
		7,432		2025
		9,854		2026
		5,152		2027
		1,637		2028
		3,279		2030
		4,676		2031
		4,798		2032
		5,942		2033
		10,000		2034
		9,502		2035
Total	$	78,608

As of January 2, 2016, the Company has a deferred tax asset of $2.6 million related to various state net operating loss carryforwards. These net operating losses expire at various times between 2016 and 2035. In addition, the Company has a deferred tax asset of $0.6 million related to foreign net operating loss carryforwards as of January 2, 2016, $0.5 million of which have no expiration date. As of January 2, 2016, 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. The Company has not provided deferred taxes on undistributed earnings of foreign subsidiaries, because it is the Company's intention to reinvest these earnings indefinitely. The determination of the amount of deferred taxes related to investments in foreign subsidiaries that is essentially permanent in nature is not practicable.

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 January 2, 2016 and January 3, 2015, 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 January 2, 2016, the Company has no income tax examinations in process.