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Note 8 - Income Taxes

12 Months Ended

Dec. 28, 2013

(8)

Income Taxes

The components of the provision for income taxes are as follows (in thousands):

	2013			2012			2011
Current:
Federal	$	-		$	-		$	-
State		(68	)		165			(439	)
Foreign		6			790			906
Deferred:
Federal		-			-			11,592
State		56			(928	)		2,281
Foreign		-			839			70
Income tax expense (benefit)	$	(6	)	$	866		$	14,410

A reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows (in thousands):

	2013			2012			2011
Loss before income taxes	$	(2,118	)	$	(48,429	)	$	(2,652	)
Statutory federal income tax rate		34	%		34	%		34	%
Income tax expense (benefit) at statutory federal rate		(720	)		(16,466	)		(902	)
State income taxes, net of federal tax benefit		151			124			2
Permanent difference - Goodwill impairment		-			11,448			-
Valuation allowance		386			4,739			15,565
Effect of lower foreign taxes		497			296			(231	)
Release of state tax reserves		(70	)		(23	)		(47	)
Other items, net		(250	)		748			23
Income tax expense (benefit)	$	(6	)	$	866		$	14,410
Effective tax rate		0.3	%		(1.8	)%		(543.4	)%

Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):

	2013			2012
Deferred tax assets:
Deferred revenue	$	4,516		$	4,676
Accrued rents		1,682			1,884
Net operating loss carryforwards		6,462			4,336
Intangible assets		1,639			1,799
Deferred compensation		2,040			2,089
Carryforward of tax credits		5,453			4,585
Receivable and investment write-offs		624			641
Stock compensation		179			179
Depreciation		-			1,871
Other		2,555			2,054
		25,150			24,114
Less: Valuation allowance		20,987			20,865
Total deferred tax assets		4,163			3,249

Deferred tax liabilities:
Depreciation		(184	)		-
Other		(3,106	)		(2,321	)
Total deferred tax liabilities		(3,290	)		(2,321	)
Net deferred tax asset	$	873		$	928

We evaluate the realizability of our deferred tax assets on a quarterly basis. The Company performed an analysis of all available evidence, both positive and negative, consistent with the provisions under the Income Taxes topic of the ASC. Some of the evidence evaluated includes our historical operating performance, the macroeconomic factors contributing to the recent fiscal loss and our forecast of future taxable income, including the availability of prudent and feasible tax planning strategies. In fiscal 2013, the Company remained in a three-year cumulative loss position, which represents negative evidence. The three-year cumulative loss is a significant piece of negative evidence and while management believes that it is primarily a result of losses that were primarily attributable to the recent significant economic conditions and not an indication of continuing operations, ASC 740 requires that objective historical evidence be given more weight than subjective evidence, such as forecasts of future income. Accordingly, in fiscal 2013, the Company continues to maintain a valuation allowance on most of its deferred tax assets. The valuation allowance on deferred tax assets will continue to fluctuate as a result of temporary differences between the financial reporting and tax basis of the assets and liabilities as well as the generation of net operating loss and tax credit carryforwards.

Included in the deferred tax asset is $6.5 million related to federal, state and foreign net operating loss carryforwards for which a valuation allowance of $6.5 million has been recorded. US federal net operating loss carryforwards total $14.0 million as of December 28, 2013, and expire in 2032 and 2033. As of December 28, 2013, foreign net operating loss carry forwards total $2.0 million, of which $1.2 million expire in 2034 and $0.8 million do not expire. Also included in the deferred tax asset is $5.5 million related to tax credits for which a valuation allowance of $5.5 million has been recorded.

Income taxes and remittance taxes have not been recorded on approximately $8.0 million of undistributed earnings of foreign operations of the Company, because the Company intends to reinvest those earnings indefinitely. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the United States.

The Company had total unrecognized tax benefits of $0.2 million as of December 28, 2013 and December 29, 2012. The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly in income tax expense.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Tax Reserve
Balance as of December 31, 2011	$	213
Lapse of statute		(28	)
Addition to reserve		-
Balance as of December 29, 2012		185
Lapse of statute		(139	)
Audit settlement release		(4	)
Addition to reserve		7
Balance as of December 28, 2013	$	49

As of December 28, 2013, approximately $0.2 million of the unrecognized tax benefits would impact the Company’s provision for income taxes and effective tax rate if recognized. Management estimates that it is reasonably possible that the total amount of uncertain tax benefits could decrease by as much as $0.1 million within the next 12 months, primarily as a result of the resolution of audits currently in progress and the lapsing of the statute of limitations in certain jurisdictions.

The Company’s income before income taxes from domestic and foreign operations (which include the United Kingdom, Canada, France and Ireland), are as follows (in thousands):

	2013			2012			2011
Domestic	$	(1,134	)	$	(11,550	)	$	(6,200	)
Foreign		(984	)		(36,879	)		3,548
Total	$	(2,118	)	$	(48,429	)	$	(2,652	)

The following tax years remain open in the Company’s major taxing jurisdictions as of December 28, 2013:

United States (Federal)	2010 through 2013
United Kingdom	2007 through 2013
Canada	2010 through 2013
Ireland	2008 through 2013

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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