Note 9. Provision for Income Taxes

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

	Year Ended April 30, 2013
	Federal		State		Foreign		Total

Current	$	-	$	2	$	8	$	10
Deferred		(2,258)		(196)		-		(2,454)
Change in valuation allowance		2,258		196		-		2,454

Total	$	-	$	2	$	8	$	10

	Year Ended April 30, 2012
	Federal		State		Foreign		Total

Current	$	-	$	1	$	(3)	$	(2)
Deferred		(2,523)		(172)		(68)		(2,763)
Change in valuation allowance		2,523		172		68		2,763

Total	$	-	$	1	$	(3)	$	(2)

A reconciliation between the Company’s effective tax rate and the United States statutory tax rate for the years ended April 30, 2013 and 2012 is as follows:

	Year Ended April 30,
	2013			2012

Federal income tax at statutory rate		34.0	%		34.0	%
State income tax, net of federal benefit		2.6			2.3
Permanent differences		(0.5)			1.5
Other		1.6			(3.0)
Change in valuation allowance		(39.6)			(31.9)
Changes in tax rates		1.7			(2.9)

Income tax expense		(0.2)	%		-	%

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, 2013 and 2012 consist of the following (in thousands):

	As of April 30,
	2013		2012

Accrued liabilities	$	89	$	62
Depreciation and amortization		51		80
State taxes		7		5
Stock-based compensation expense		3,582		2,685
Capitalized research and development costs		688		798
Foreign net operating loss carry-forward		365		265
Net operating loss carry-forward		4,144		2,478

Total deferred tax assets		8,926		6,373
Less: Valuation allowance		(8,926)		(6,373)

Net deferred tax asset	$	-	$	-

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, 2013 and 2012. For the years ended April 30, 2013 and 2012, the Company recorded a valuation allowance of $ 8,948,000 and $6,373,000, respectively. The increase in valuation allowance from fiscal year 2012 to 2013 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, 2013 and 2012, the Company’s estimated U.S. net operating loss carry-forwards were approximately $11,216,000 and $6,825,000, respectively. As of April 30, 2013 and 2012, the Company’s foreign net operating loss carry-forward was approximately $1,744,000 and $1,138,000, 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, 2013, the earliest tax year still subject to examination for state purposes is fiscal 2010. The Company’s tax years for periods ending April 30, 2000 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.