NOTE 6 - INCOME TAXES

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

Kingold is incorporated in the United States and has incurred net operating loss for income tax purposes for 2013 and 2012. The Company had loss carry forwards of approximately $8,215,867 for U.S. income tax purposes available for offsetting against future taxable U.S. income, expiring in 2033. Management believes that the realization of the benefits from these losses is uncertain due to its history of continuing losses in the United States. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded. The valuation allowance as of September 30, 2013 was $2,793,395. The net increase in the valuation allowance for the period ended September 30, 2013 was $619,172.

Dragon Lead was incorporated in the British Virgin Islands (the “BVI”), and under current laws of the BVI, income earned is not subject to income tax.

Wuhan Vogue-Show and Wuhan Kingold were incorporated in the PRC and are subject to PRC income tax, which is computed according to the relevant laws and regulations in the PRC. The applicable tax rate is 25% for the nine months and three months ended September 30, 2013 and 2012.

The Company has deferred income tax assets of $0.5 million as of September 30, 2013 from its foreign operations due to an inventory allowance reflecting the decline in gold prices.

Significant components of the income tax provision were as follows for the three and nine months ended September 30, 2013 and 2012:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2013		2012		2013		2012
Current tax provision
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		3,402,482		3,016,059		8,197,780		9,280,633
		3,402,482		3,016,059		8,197,780		9,280,633

Deferred tax provision (benefit)
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		830,419		-		(471,468)		-
		830,419		-		(471,468)		-
Income tax provision	$	4,232,901	$	3,016,059	$	7,726,312	$	9,280,633

Income from continuing operations before income taxes was allocated between the U.S. and foreign components for the three and nine months ended September 30, 2013 and 2012:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2013		2012		2013		2012

United States	$	(669,423)	$	(521,809)	$	(1,821,093)	$	(2,099,653)
Foreign		15,897,019		14,134,604		29,900,996		24,737,341
		15,227,596		11,382,676		28,079,903		34,542,173

The following table reconciles the U.S. statutory rates to the Company’s effective rate for the three and nine months ended September 30, 2013 and 2012:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
US Statutory rate		34	%		34	%		34	%		34	%
Foreign income not recognized in USA		(34)	%		(34)	%		(34)	%		(34)	%
China income tax		25	%		25	%		25	%		25	%
Non-deductible expenses		3	%		1	%		3	%		2	%

Effective tax rate		28	%		26	%		28	%		27	%