Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

The provision (benefit) for income taxes attributable to income from operations includes the following (in thousands):

	For the Years Ended December 31,
	2016		2015			2014
Current provision (benefit)
Federal	$	114	$	(902	)	$	(1,759	)
State		28		54			(194	)
Total current		142		(848	)		(1,953	)

Deferred provision (benefit)
Federal		155		4,333			(3,820	)
State		37		780			(215	)
Total deferred		192		5,113			(4,035	)
Total provision (benefit)	$	334	$	4,265		$	(5,988	)

Reconciliation of Effective Tax Rate

The provision for income taxes related to operations varies from the amount determined by applying the federal income tax statutory rate to the income or loss before income taxes, exclusive of net income attributable to non-controlling interest. The reconciliation of these differences is as follows:

	For the Years Ended December 31,
	2016	2015	2014
Computed expected income tax provision	34.0%	34.0%	35.0%
State income taxes, net of federal income tax benefit	0.8	2.1	2.5
Change in valuation allowance for deferred tax assets	(21.5)	(61.3)	0.1
Cumulative deferred adjustments	(0.3)	(0.1)	(0.3)
Provision to return adjustments	(0.4)	1.3	1.1
Other permanent differences	(1.8)	(1.1)	(0.5)
Dividend and accretion on preferred stock	(19.3)	(11.3)	(7.5)
FIN 48 liability	0.7	(0.8)	(0.6)
R&D credit	3.3	1.6	3.0
Other	(0.4)	(0.9)	--
	(4.9)%	(36.5)%	32.8%

Deferred Tax Assets and Liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are as follows (in thousands):

	December 31,
	2016			2015
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts	$	161		$	176
Allowance for inventory obsolescence and amortization		778			623
Accrued liabilities not currently deductible		2,234			2,218
Accrued compensation		1,006			840
Deferred rent		7,682			8,008
Net operating loss carryforwards - federal		1,301			524
Net operating loss carryforwards - state		405			344
Federal tax credit		533			202
Total gross deferred tax assets		14,100			12,935
Less valuation allowance		(10,499	)		(9,027	)
Total deferred tax assets, net of valuation allowance		3,601			3,908
Deferred tax liabilities:
Amortization and depreciation		(2,696	)		(3,307	)
Unbilled accounts receivable, deferred for tax purposes		(787	)		(589	)
Goodwill basis adjustment and amortization		(3,451	)		(3,199	)
Telos ID basis difference		(58	)		(12	)
Total deferred tax liabilities		(6,992	)		(7,107	)

Net deferred tax liabilities	$	(3,391	)	$	(3,199	)

Components of Valuation Allowance

The components of the valuation allowance are as follows (in thousands):

	Balance Beginning of Period		Additions		Recoveries			Balance End of Period

December 31, 2016	$	9,027	$	1,472	$	--		$	10,499
December 31, 2015	$	1,868	$	7,159	$	--		$	9,027
December 31, 2014	$	1,901	$	--	$	(33	)	$	1,868

We are required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on available evidence, realization of deferred tax assets is dependent upon the generation of future taxable income. We considered projected future taxable income, tax planning strategies, and reversal of taxable temporary differences in making this assessment. As such, we have determined that a full valuation allowance is required as of December 31, 2016 and 2015. We are not able to use temporary taxable differences related to goodwill, as a source of future taxable income. As a result of a full valuation allowance against our deferred tax assets, a deferred tax liability (hanging credit) related to goodwill remains on our consolidated balance sheet at December 31, 2016 and 2015.

Unrecognized Tax Benefits Roll Forward

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

	2016			2015			2014
Unrecognized tax benefits, beginning of period	$	803		$	708		$	607
Gross (decreases) increases—tax positions in prior period		(66	)		92			105
Gross increases—tax positions in current period		46			38			47
Settlements		(21	)		(35	)		(51	)
Unrecognized tax benefits, end of period	$	762		$	803		$	708