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Income Taxes
 12 Months Ended
Dec. 28, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

8. Income Taxes

 

The provision for income taxes from continuing operations consists of the following for the fiscal years indicated:

 

   2024   2023   2022 
   Fiscal Year 
   2024   2023   2022 
Current               
State  $—   $—   $— 
Foreign   170,000    156,000    144,000 
Total current provision   170,000    156,000    144,000 
Deferred               
Federal   (6,902,000)   (3,457,000)   1,073,000 
State   (506,000)   (1,063,000)   (1,561,000)
Foreign   (218,000)   (281,000)   74,000 
Change in valuation allowance   7,626,000    4,801,000    414,000 
Total deferred provision   —    —    — 
Total provision for income taxes  $170,000   $156,000   $144,000 

 

The following table sets forth the changes in the Company’s balance of unrecognized tax benefits for the year ended:

 

   Total 
Unrecognized tax benefits at December 31, 2022  $394,000 
Gross increases—prior year tax positions   — 
Unrecognized tax benefits at December 30, 2023   394,000 
Gross increases—current year tax positions   — 
Unrecognized tax benefits at December 28, 2024  $394,000 

 

U.S. GAAP requires applying a ‘more likely than not’ threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken by the Company’s income tax returns. The total amount of the Company’s gross tax liability for tax positions that may not be sustained under a ‘more likely than not’ threshold amounts to $0.4 million as of December 28, 2024 and December 30, 2023. The Company’s policy regarding the classification of interest and penalties is to include these amounts as a component of income tax expense. The total amount of accrued interest and penalties related to the Company’s unrecognized tax benefits was $1.2 million and $1.0 million as of December 28, 2024 and December 30, 2023, respectively, located in other long-term liabilities, net of current position.

 

Net operating losses were not utilized in 2024, 2023 and 2022 to offset federal and state taxes.

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

The actual income tax provisions reported from operations are different from those which would have been computed by applying the federal statutory tax rate to loss before income tax provision. A reconciliation of income tax provision from continuing operations as computed at the U.S. federal statutory income tax rate to the provision for income tax benefit is as follows:

 

 

   2024   2023   2022 
   Fiscal Year 
   2024   2023   2022 
Tax provision at federal statutory rates  $(9,201,000)  $(4,113,000)  $(4,029,000)
Foreign tax rate differential   30,000    13,000    (8,000)
Equity compensation awards   (136,000)    450,000    44,000 
Permanent items   176,000    (79,000)   — 
Expiration of net operating loss carryforwards   3,286,000    —    5,218,000 
Increase in net state operating loss carryforwards   (2,119,000)   (780,000)   (987,000)
Utilization of net operating losses for U.K. research and development refund   —    —    (24,000)
Provision to tax return adjustments and tax rate change   268,000    (270,000)   (36,000)
Tax credits   106,000    14,000    (441,000)
Equity compensation   —    —    (188,000)
Uncertain tax position for transfer pricing   169,000    156,000    143,000 
Other, net   (35,000)   (36,000)   38,000 
Change in valuation allowance   7,626,000    4,801,000    414,000 
Total provision  $170,000   $156,000   $144,000 

 

Pretax foreign (loss) income from continuing operations was approximately $(1.5) million for the fiscal year ended 2024, $(0.6) million for fiscal year ended 2023, and $0.4 million for fiscal year ended 2022. Deferred income taxes are provided to recognize the effect of temporary differences between tax and financial reporting. Deferred income tax assets and liabilities consist of the following:

 

   2024   2023 
   Fiscal Year 
   2024   2023 
Deferred tax assets:          
Federal net operating loss carryforwards   $47,844,000    $49,213,000 
State net operating loss carryforwards   8,376,000    7,881,000 
Foreign net operating loss carryforwards   1,357,000    1,183,000 
Litigation accrual   6,621,000    — 
Equity awards   321,000    37,000 
Tax credits   9,751,000    9,849,000 
R&D expense amortization   2,860,000    2,316,000 
Property, plant and equipment   630,000    598,000 
Unrealized losses on investments   2,376,000    2,292,000 
Inventory reserves   1,498,000    1,212,000 
Accrued legal   

1,571,000

    

56,000

 
Other   588,000    1,531,000 
Deferred tax assets   83,793,000    76,168,000 
Valuation allowance   (83,793,000)   (76,168,000)
Net deferred tax assets   —    — 
Deferred tax liability:          
Foreign withholding liability  (414,000)  (471,000)
Net deferred tax liability  $(414,000)  $(471,000)

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

The valuation allowance was approximately $83.8 million and $76.2 million at December 28, 2024 and December 30, 2023, respectively, primarily driven by U.S. net operating loss carryforwards (“NOLs”) and tax credits. Based on the available evidence it is more likely than not the deferred tax assets will not be realized.

 

As of December 28, 2024, the Company has available for tax purposes NOLs of $116.3 million expiring in 2025 through 2037 and $111.5 million that have an unlimited carryover period. The Company has recognized a full valuation allowance on its net deferred tax assets as the Company has concluded that such assets are not more likely than not to be realized.

 

The 2017 Tax Act imposes a mandatory transition tax on accumulated foreign earnings and eliminates U.S. taxes on foreign subsidiary distributions. As a result, earnings in foreign jurisdictions are available for distribution to the U.S. without incremental U.S. income taxes. The Company intends to permanently reinvest undistributed earnings. As of December 28, 2024, foreign earnings have been retained by the Company’s foreign subsidiaries for indefinite reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred income tax liability related to these outside basis differences is not practicable.

 

Under the provisions of Section 382, certain substantial changes in Kopin’s ownership may limit in the future the amount of net operating loss carryforwards that could be used annually to offset future taxable income and income tax liability.

 

The Company’s income tax returns have not been examined by the Internal Revenue Service and are subject to examination for all years since 2002. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is not currently under examination in these jurisdictions.

 

International jurisdictions have statutes of limitations generally ranging from three to twenty years after filing of the respective return. Years still open to examination by tax authorities in major jurisdictions include Korea (2011 onward), Japan (2011 onward), Hong Kong (2013 onward) and the United Kingdom (2016 onward). The Company is not currently under examination in these jurisdictions.