11. INCOME TAXES

Income tax expense for the three months ended September 30, 2014 and 2013 varied from the amount computed by applying the statutory income tax rate to income before taxes. A reconciliation between the expected federal income tax rate using the federal statutory tax rate of 35% to the Company’s effective tax rate is as follows:

	For the three months ended September 30,
	2014		2013
	%		%
U.S. expected federal income tax benefit		(35.0)		(35.0)
U.S. state, local tax net of federal benefit		(10.9)		(10.9)
U.S. permanent difference		0.1		0.6
U.S. temporary difference		45.7		45.3
Permanent difference related to other countries		14.9		347.6
Hong Kong statutory income tax rate		16.5		16.5
Hong Kong income tax benefit		(11.6)		(16.5)
Total tax expense		19.7		347.6

The U.S. temporary difference consisted mainly of unearned compensation amortization and provision for allowance for doubtful accounts.

The income tax benefit for the three months ended September 30, 2014 and 2013 are as follows:

	For the three months ended September 30,
	2014		2013

Current
USA	$	-	$	-
Hong Kong		1,645		-
China		-		-
		1,645		-
Deferred
USA		(28,900)		(22,500)
China		-		-
		(28,900)		(22,500)
Total	$	(27,255)	$	(22,500)

Deferred tax assets are comprised of the following:

	September 30,		June 30,
	2014		2014

Allowance for doubtful accounts	$	224,000	$	224,000
Stock-based compensation		411,000		411,000
Net operating loss		1,293,000		1,004,000
Total deferred tax assets		1,928,000		1,639,000
Valuation allowance		(1,735,200)		(1,475,100)
Deferred tax assets, net - long-term	$	192,800	$	163,900

Operations in the USA have incurred a cumulative net operating loss of $4,159,442 as of September 30, 2014, which may be available to reduce future taxable income. This carry-forward will expire if not utilized by 2034. Deferred tax assets relating to the allowance for doubtful accounts, stock compensation expenses and net operating loss amounting to $224,000, $411,000 and $1,293,000 have been recorded respectively. 90% of the deferred tax assets balance has been provided as valuation allowance as of September 30, 2014 based on management’s estimate.