12. INCOME TAXES

Income tax expense for the three months ended September 30, 2015 and 2014 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,
	2015		2014
	%		%
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		(0.6)		(0.1)
U.S. temporary difference		(45.3)		(45.7)
Differences related to other countries		(35.8)		24.5
PRC statutory income tax expense		(25.0)		-
Hong Kong statutory income tax rate		(16.5)		(16.5)
Hong Kong income tax benefit		16.5		11.6
Total tax (expense) benefit		(60.8)		19.7

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

The income tax (expense) benefit for the three months ended September 30, 2015 and 2014 are as follows:

	For the three months ended September 30,
	2015		2014

Current
USA	$	-	$	-
Hong Kong		-		(1,645)
China		(259,822)		-
		(259,822)		(1,645)

Deferred
USA		19,000		28,900
Other countries		-		-
		19,000		28,900

Total income tax (expense) benefit	$	(240,822)	$	27,255

The Company’s deferred tax assets are comprised of the following:

	September 30,		June 30,
	2015		2015

Allowance for doubtful accounts	$	220,000	$	248,000
Stock-based compensation		384,000		382,000
Net operating loss		2,392,000		2,176,000
Total deferred tax assets		2,996,000		2,806,000
Valuation allowance		(2,696,400)		(2,525,400)
Deferred tax assets, net - long-term	$	299,600	$	280,600

Our operations in the U.S. have generated net operating loss carry-forwards of approximately $6,003,000 and $5,591,000, respectively, as of September 30 and June 30, 2015, which may be available to reduce future U.S. federal taxable income. These carry-forwards will expire if not utilized by 2035. As of September 30 and June 30, 2015, our deferred tax assets were primarily the result of U.S. net operating losses, stock-based compensation and allowance for doubtful accounts. Deferred tax assets relating to the allowance for doubtful accounts, stock compensation expenses and net operating loss amounting to $220,000, $384,000 and $2,392,000 have been recorded respectively as of September 30, 2015.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Consistent with June 30, 2015, 90% of the deferred tax assets balance has been provided a valuation allowance as of September 30, 2015, on the basis of management’s assessment of the amount of its deferred tax assets that are more likely than not to be realized. Accordingly, a valuation allowance of $2,696,400 and $2,525,400 was recorded against our gross deferred tax asset balance of $2,996,000 and $2,806,000, respectively, at September 30, 2015 and June 30, 2015.

The Company’s taxes payable consists of the following:

	September 30,		June 30,
	2015		2015

VAT tax payable	$	360,074	$	296,935
Corporate income tax payable		911,840		664,132
Others		46,047		35,581
	$	1,317,961	$	996,648