17. INCOME TAXES

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

17. INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted.

The Company considers all available evidence to determine 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 generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available evidence, in particular our three-year historical cumulative losses, recent operating losses and U.S. pre-tax loss for the three and nine months ended September 30, 2015, we recorded a valuation allowance against our U.S. net deferred tax assets. In order to fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

The following represent components of the current tax expense for the three and nine months ended September 30, 2015 and 2014:

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2015			2014		2015		2014
Current:
US federal	$	-		$	-	$	-	$	-
US state		1,357			-		4,607		-
Foreign		(24,757	)		-		24,995		-
Total current tax expense	$	(23,400	)	$	-	$	29,602	$	-
Deferred:
Federal	$	-		$	-	$	-	$	-
State		-			-		-		-
Foreign		-			-		-		-
Total deferred tax expense	$	-		$	-	$	-	$	-
Total income tax expense	$	(23,400	)	$	-	$	29,602	$	-

Tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets at September 30, 2015 and December 31, 2014 are presented below:

	September 30,			December 31,
	2015			2014
Deferred tax assets:
Net operating loss carry forwards (offshore)	$	1,692,490		$	4,343,930
Net operating loss carry forwards (US)		2,728,389			1,823,432
Accruals (offshore)		99,709			-
Accrued compensation (US)		-			581,129
Stock-based compensation (US)		1,090,987			1,217,927
Investments (US)		1,680,855			599,332
Intangibles (US)		(136,187	)		-
Subtotal		7,156,243			8,565,750
Less: valuation allowance		(7,156,243	)		(8,565,750	)
Net deferred tax asset	$	-		$	-
Deferred tax liabilities:	$	-		$	-

In each period since inception, the Company has recorded a valuation allowance for the full amount of net deferred tax assets, as the realization of deferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit in the consolidated statements of operations and comprehensive income (loss).

As of September 30, 2015, the Company had net operating loss carryforwards of $14.2 million for U.S federal purposes, $11.6 million for U.S. state purposes, and $2.8 million for Chinese income tax purposes, such losses are set to expire in 2035, 2035, and 2020 for U.S. federal, U.S. state and Chinese income tax purposes, respectively. All deferred income tax expense is offset by changes in the valuation allowance pertaining to the Company's existing net operating loss carryforwards due to the unpredictability of future profit streams prior to the expiration of the tax losses.  The Company's effective tax rate differs from statutory rates of 35% for U.S. federal income tax purposes and 25% for Chinese income tax purposes and 16.5% for Hong Kong income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the value of client shares received for services.

Income tax expense for the nine months ended September 30, 2015 differed from the amounts computed by applying the statutory federal income tax rate of 35% to pretax income (loss) as a result of the following:

	For the Nine Months Ended
	September 30, 2015
Effective Tax Rate Reconciliation
Income tax provision at statutory rate	$	(5,049,185	)	35.0	%
State income taxes, net of federal benefit		2,962		0.0	%
Foreign rate differential		2,033,685		(14.1	)%
Other Permanent diference		1,256,794		(8.7	)%
Change in Valuation Allowance		1,785,346		(12.4	)%
Total tax expense	$	29,602		(0.2	)%