CHAMPIONS ONCOLOGY, INC. - FORM 10-K - XML - IDEA: XBRL DOCUMENT - July 18, 2012

Note 9. Provision for Income Taxes

The components of the provision for income taxes are as follows (in thousands):

A reconciliation between the Company’s effective tax rate and the United States statutory tax rate for the years ended April 30, 2012 and 2011 is as follows:

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 and liabilities as of April 30, 2012 and 2011 consist of the following (in thousands):

Management has evaluated the available evidence about future tax planning strategies, taxable income and other possible sources of realization of deferred tax assets and has established a full valuation allowance against its net deferred tax assets as of April, 30, 2012.  For the years ended April 30, 2012 and 2011, the Company recorded a valuation allowance of $6,373,000 and $3,611,000, respectively.  The increase in valuation allowance from fiscal year 2011 to 2012 is due to deferred tax assets generated relative to stock compensation and net operating loss carryforwards.  The Company has established a valuation allowance against its deferred tax assets as it is currently more-likely-than-not that all or a portion of a deferred tax asset will not be realized.  The valuation allowance reduces deferred tax assets to an amount that management believes will more likely than not be realized.  Changes in valuation allowances from period to period are included in the tax provision in the period of change.  In determining whether a valuation allowance is required, the Company takes into account all evidence with regard to the utilization of a deferred tax asset including past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of a deferred tax asset, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.

As of April 30, 2012 and 2011, the Company’s estimated U.S. net operating loss carry-forwards were approximately $6,825,000 and $928,000, respectively.  As of April 30, 2012 and 2011, the Company’s foreign net operating loss carry-forward was approximately $1,138,000 and $790,000, respectively.  The Company’s federal and state net operating losses begin expiring in 2029.

The Company files income tax returns in various jurisdictions with varying statues of limitations.  As of April 30, 2012, the earliest tax year still subject to examination for state purposes is fiscal 2009.  The Company’s tax years for periods ending April 30, 1995 and forward are subject to examination by the United States and certain states due to the carry-forward of unutilized net operating losses.

On August 8, 2011, the Company was notified that it was selected for a tax examination by the Internal Revenue Service (IRS) on the Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project program filed under the Patient Protection and Affordable Care Act of 2010 for the 2009 and 2010 tax years. The examination commenced on September 30, 2011 and was completed during the fourth quarter of the year ended April 30, 2012. The audit resulted in a disallowance to the net operating loss carry-forwards of $607,000. This disallowance was offset by a corresponding increase to amortizable intangible assets related to capitalized research and development expenditures of $542,000.