. Income Taxes

Significant components of deferred tax assets are as follows:

	Years Ended December 31,
	2019			2018

Loss carry forwards	$	36,093		$	33,733
Derivative valuations		-			259
NQSO		2,060			1,964
Tax credits and other		116			438
Total deferred tax asset		38,269			36,394

Valuation allowance		(38,269	)		(36,394	)
Total deferred tax asset, net	$	-		$	-

The valuation allowance increased

$1,875

2019.

December 22, 2017,

the Tax Cuts and Jobs Act (“Tax Reform”) was signed into law. This comprehensive reform of tax law reduces the federal corporate income tax rate from

34%

21%

and was generally effective beginning

January 1, 2018.

US GAAP requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. At the date of enactment, the Company’s deferred taxes were remeasured based upon the new tax rate, with a corresponding adjustment to the valuation allowance. Changes in the valuation allowance are also impacted by the expiration of net operating loss (“NOL”) carryforwards, current year net operating losses, and changes to future tax deductions resulting from derivative valuations, the terms of stock compensation plans, and accrued liabilities.

The following table accounts for the differences between the expected federal tax benefit (based on the statutory

2019

U.S. federal income tax rate of

21%

) and the actual tax provision:

	Years Ended December 31,
	2019			2018

Expected federal tax benefit		-21.0	%		-21.0	%
Permanent items		0.6	%		0.9	%
Net operating loss utilized or expired		0.0	%		0.0	%
Increase in valuation allowance and others		20.4	%		20.1	%

Effective tax rate		0	%		0	%

As of

December 31, 2019,

the Company had approximately

$139.5

million of NOL carryforwards for U.S. federal income tax purposes expiring in

2020

through

2039.

As a result of Tax Reform, the Company’s federal net operating losses continue to be-measured at

21%.

The reduction in the federal corporate income tax rate does

not

change the gross dollar value of taxable income that

may

be offset by NOLs, however that taxable income will only be taxable at

21%

in future periods, thus reducing the value of NOLs utilized after

2018.

As of

December 31, 2019,

the Company had approximately

$97.3

million of NOL carryforwards for California income tax purposes expiring in

2020

through

2039,

respectively. The Company and Liquidmetal Golf, Inc. file on a separate company basis for federal income tax purposes. Accordingly, the federal NOL carryforwards of

one

legal entity are

not

available to offset federal taxable income of the other. Liquidmetal Golf, Inc. had approximately

$29.4

million in federal NOL carryforwards, expiring in

2020

through

2039.

We recognize excess tax benefits associated with the exercise of stock options directly to shareholders’ equity only when realized. Accordingly, deferred tax assets are

not

recognized for NOL carryforwards resulting from excess tax benefits. As of

December 31, 2019,

deferred tax assets do

not

include approximately

$437

of these tax effected excess tax benefits from employee stock option exercise that are a component of our NOL carryforwards. Accordingly, additional paid-in capital will increase up to an additional

$437

if and when such excess tax benefits are realized.

As of

December 31, 2019,

the Company had approximately

$87

of Research & Development (“R&D”) credit carryforwards for U.S. federal income tax purposes expiring in

2020

through

2030.

In addition, the Company has California R&D credit carryforwards of approximately

$243,

which do

not

expire under current California law. Tax Reform did

not

impact the valuation of tax credit carryforwards, which directly offset taxes due.

Section

382

of the Internal Revenue Code (“IRC”) imposes limitations on the use of NOL’s and credits following changes in ownership as defined in the IRC. The limitation could reduce the amount of benefits that would be available to offset future taxable income each year, starting with the year of an ownership change. As a result of the completion of the complex analysis required by the IRC to determine if an ownership change has occurred, the Company has determined that its annual NOL carryforward limitation under Section

382

of the IRC is

$764

per year.

The ability to realize the tax benefits associated with deferred tax assets, which includes benefits related to NOL’s, is principally dependent upon the Company’s ability to generate future taxable income from operations. The Company has provided a full valuation allowance for its net deferred tax assets due to the Company’s net operating losses.

The Company adopted the provisions of FASB ASC Topic

470

– Income Taxes. At the adoption date and as of

December 31, 2019,

the Company had

material unrecognized tax benefits and

adjustments to liabilities or operations were required. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense which were

for the years ended

December 31, 2019

and

2018.

As of

December 31, 2019,

the tax years

2014

through

2019,

and

2013

through

2019

are subject to examination by the federal and California taxing authorities, respectively.