Note 10 - Income Taxes

3 Months Ended

Jun. 30, 2012

Note 10 - Income Taxes:

Note 10 - Income Taxes

NOTE 10 – INCOME TAXES

The Company’s subsidiaries are governed by the Income Tax Law of the People’s Republic of China. Chunfei Chemical is a foreign invested entity located in western China, which enjoyed a tax holiday from 2007 to 2011, during which its tax rate was reduced by 10 basis points. Nanchong Chunfei was taxed at 12.5% from 2009 to 2011, which was approved by the local tax authority. Hedi Medicines was taxed at the 25% statutory rate.

The following table reconciles the U.S. statutory rates to the Company's effective tax rate for the nine months ended June 30, 2012 and 2011:

	For the nine months ended June 30
	2012			2011
US statutory income tax rate		35.00	%		35.00	%
Income not taxed in US		-35.00	%		-35.00	%
China Income tax statutory rate		25.00	%		25.00	%
Income tax exemption		-17.70	%		-7.6	%
Non-taxable item in China		0	%		0	%
Other Item		-7.3	%		-8.2	%
Effective rate		0	%		9.2	%

Other item represents the net income that could not be offset by loss incurred by other subsidiaries.

The Company incurred a net operating loss for the three and nine months ended June 30, 2012. As of June 30, 2012 and September 30, 2011, net operating loss carry forwards, for United States income tax purposes amounted to $2,388,940 and $1,881,776, respectively, which may be available to reduce future years' taxable income. These carry forwards will expire, if not utilized, beginning in 2028 through 2030 for U.S tax purpose and 2017 for China income tax purpose . Management believes that the realization of the benefits arising from these losses appear to be uncertain due to the Company's business operations being primarily conducted in China and foreign income not recognized in the United States for United States income tax purposes. It is also uncertain that the China business operation will have taxable income. Accordingly, the Company has provided a 100% valuation allowance as of June 30, 2012 and 2011, respectively for the temporary difference related to the loss carry-forwards.

The following table reconciles the changes of deferred tax asset for the nine months ended June 30, 2012 and 2011: 

	June 30, 2012			June 30,  2011
United States:
Deferred tax asset-Beginning	$	658,622		$	417,503
Addition: loss carry-forward		177,507			63,578
Valuation allowance-Beginning		(658,622	)		(417,503	)
Addition: Valuation allowance		(177,507	)		(63,578	)
Deferred tax asset-net	$	-		$	-

China:
Deferred tax asset-Beginning	$	-		$	-
Addition: loss carry-forward		205,296			-
Valuation allowance-Beginning		-			-
Addition: Valuation allowance		(205,296	)		-
Deferred tax asset-net	$	-		$	-

The Company’s open tax years for its federal and state income tax returns are for the tax years after 2008. These tax returns are subject to examination by the tax authorities.