Note 8 - Income Taxes

9 Months Ended

Jun. 30, 2014

Notes

Note 8 - Income Taxes

Note 8 – Income Taxes

The Company’s subsidiaries are governed by the Income Tax Law of the People’s Republic of China.  Their income is taxed at the 25% statutory rate. Hedi Medicine has been taxed at a flat rate of 260 RMB per quarter since calendar 2012.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the nine months ended June 30, 2014 and 2013:

	Nine month Ended June 30
	2014			2013
US statutory income tax rate		35	%		35%
Non-taxable item in US		0	%		0%
Change in valuation allowance - US		-35	%		-35%
China income tax statutory statutory rate		25	%		25%
Change in valuation allowance - China		-25	%		-25%
Effective rate		-			-

As of June 30, 2014, net operating loss carry forwards for United States and China income tax purposes amounted to $5.1 million and $8 million, which may be available to reduce future years' taxable income. These carry forwards will expire, if not utilized, beginning in 2028 through 2033 for U.S tax purpose and 2017 to 2018 for China income tax purposes. Management believes that the realization of the benefits arising from the losses recognized in the US is uncertain due to the Company's business operations being primarily conducted in China and foreign income not being recognized in the United States for federal income tax purposes. It is also uncertain that the China business operations will generate taxable income in the future. Accordingly, the Company has provided a 100% valuation allowance as of the balance sheet dates, for the temporary differences related to the loss carry-forwards.

The following table reconciles the changes in deferred tax asset for the nine months ended June 30, 2014 and 2013:

	June 30, 2014			June 30, 2013
United States:
Deferred tax asset-beginning	$	855,293		$	658,622
Addition: loss carry-forward		13,052			195,315
Valuation allowance-beginning		(855,293	)		(658,622)
Addition: valuation allowance		(13,052	)		(195,315)
Deferred tax asset net	$	-		$	-

The Company’s open tax years for its federal and state income tax returns are for the tax years after 2010. These tax returns are subject to examination by the tax authorities.