NOMAD POWER SOLUTIONS, INC. Income Taxes Disclosure
6. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets as of December 31, 2017 and 2016 are summarized below. The calculations presented below at December 31, 2017 reflect the new U.S. federal statutory corporate tax rate of 21% effective January 1, 2018 (see Note 2).
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Start-up and organization costs | $ | 19,000 | $ | 35,000 | ||||
| Research credits | 316,000 | 261,000 | ||||||
| Stock-based compensation | 407,000 | 860,000 | ||||||
| Net operating loss carryforwards | 4,020,000 | 5,138,000 | ||||||
| Total deferred tax assets | 4,762,000 | 6,294,000 | ||||||
| Valuation allowance | (4,762,000 | ) | (6,294,000 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2017 and 2016, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
No federal tax provision has been provided for the years ended December 31, 2017 and 2016 due to the losses incurred during such periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rate for the years ended December 31, 2017 and 2016.
| Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| U. S. federal statutory tax rate | (35.0 | )% | (35.0 | )% | ||||
| Expirations related to stock-based compensation | 13.4 | % | 7.6 | % | ||||
| Adjustment to deferred tax asset | (1.0 | )% | 3.3 | % | ||||
| Change in valuation allowance | 22.6 | % | 24.1 | % | ||||
| Effective tax rate | 0.0 | % | 0.0 | % | ||||
At December 31, 2017, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $14,060,000 and $14,223,000, respectively, which, if not utilized earlier, expire through 2037.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.