PRSS 2017 Annual Report

64 Year Ended December 31, 2017 2016 Deferred tax assets: Net operating loss and credit carryforwards $ 8,290 $ 9,369 Deferred loss on asset sale 1,298 2,008 Stock-based compensation 559 867 Reserves and accruals 518 809 Research and other credits — 92 Fixed assets and intangibles (272) (491) Total gross deferred tax assets 10,393 12,654 Less: Valuation allowance (10,393) (12,562) Total deferred tax assets $ — $ 92 We have weighed both positive and negative evidence and determined that there is a need for a valuation allowance due to the existence of three years of historical cumulative losses which we considered significant verifiable negative evidence. The valuation allowance decreased by $2.2 million and $1.2 million during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, we maintain a valuation allowance on all of our deferred tax assets. At December 31, 2017, we had approximately $34.4 million of Federal and $20.7 million of State operating loss carryforwards available to reduce future taxable income. The federal net operating loss carryforwards begin to expire in 2034 and the various state net operating loss carryforwards begin to expire in 2023. We follow the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance requires that the tax effects of a position be recognized only if it is “more likely than not” to be sustained based solely on its technical merits as of the reporting date. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. We currently have no liability recorded as of December 31, 2017 for unrecognized income tax benefits. Our policy is to recognize interest and penalties related to income taxes in income tax expense. We are subject to tax in the United States and certain other jurisdictions. We are subject to examination by tax authorities for the years including and after 2013 for the United States and for other jurisdictions. Although timing or resolution value of any examination is highly uncertain, we believe it is reasonably possible that the unrecognized tax benefits would not materially change in the next twelve months. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affects our 2017 deferred tax asset balances and establishes new tax laws that will affect 2018 and after, including a reduction in the U.S. federal corporate income tax rate from 35% to 21%. On December 22, 2017, the SEC issued staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes . In accordance with SAB 118, we completed our analysis and have reflected the income tax effects of those aspects of the Tax Act. As a result of the reduction of the federal corporate income tax rate, we have revalued our net deferred tax assets as of December 31, 2017. Based on this revaluation, the total amount of our deferred tax assets before valuation allowance decreased by $5.4 million as a result of the decrease in the federal tax rate. As discussed in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, we adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences. We adopted this ASU on January 1, 2017 and elected to recognize forfeitures as they occur, and recognized the cumulative impact on that change through retained earnings and adjusted the related deferred tax asset. Adoption of ASU 2016-09 did not have a material impact on our income tax expense or our deferred tax asset balance as of December 31, 2017.