Income Taxes

12 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

Note 12. INCOME TAXES

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 35% to 21%. Since the Company has a June 30 fiscal year-end, a blended U.S. statutory federal rate of approximately 28% for the fiscal year ending June 30, 2018 is applied to the provision for income tax and a 21% rate for subsequent fiscal years.

As of June 30, 2018, the Company re-measured deferred tax assets based on current effective rate of 21% at which these deferred tax amounts are expected to reverse in the future.

In addition, the Company is subject to a one-time transition tax for all untaxed foreign earnings of its foreign subsidiaries. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate, and the remaining earnings are taxed at a rate of 8%, net of certain exemptions. This resulted in an approximate increase of $2,625,000 to the Company’s June 30, 2018 taxable income and the Company applied its available NOL towards the transition tax.

The Company’s income tax benefit (expense) for the years ended June 30, 2018 and 2017 are as follows:

	For the years ended June 30,
	2018			2017
Current
USA	$	(120,448	)	$	-
Hong Kong		(91,545	)		(70,958	)
PRC		(622,765	)		(206,358	)
		(834,758	)		(277,316	)
Deferred
U.S.		(114,901	)		749,400
Total income tax benefit (expense)	$	(949,659	)	$	472,084

Income tax expense for the years ended June 30, 2018 and 2017 varied from the amount computed by applying the statutory income tax rate to income before taxes. Reconciliations between the expected federal income tax rates using the federal statutory tax rate of 34% for the year ended June 30, 2017 and a blended rate of 28% for the year ended June 30, 2018 to the Company’s effective tax rate are as follows:

	For the years ended June 30,
	2018			2017
	%			%
U.S. statutory tax rate		28.0			34.0
Permanent difference*		70.4			3.9
Change in valuation allowance		(28.9	)		(39.9	)
Rate differential in foreign jurisdiction		(5.0	)		(13.1	)
		64.5			(15.1	)

* Permanent difference includes non-deductible stock compensation expenses and transition tax.

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

	For the years ended June 30,
	2018			2017
Allowance for doubtful accounts	$	540,000		$	106,000
Stock-based compensation		-			790,000
Net operating loss		355,000			1,464,000
Total deferred tax assets		895,000			2,360,000
Valuation allowance		(260,500	)		(1,610,600	)
Deferred tax assets, net - long-term	$	634,500		$	749,400

The Company’s operations in the U.S. have incurred a cumulative net operating loss (“NOL”) of approximately $6,100,000 as of June 30, 2017 which may reduce future federal taxable income. During the year ended June 30, 2018, a total of approximately $4,587,000 of NOL was utilized and the tax benefit derived from such NOL was approximately $1,280,000. Approximately $2,626,000 of NOL was applied to the transition tax discussed above and the rest was applied to current year taxable income. Federal NOL at June 30, 2018 was approximately $1,531,000 that are pre-2017 NOL expiring in 2036.

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes, and other relevant factors. Management has provided an allowance against the deferred tax assets balance as of June 30, 2018. The net decrease in valuation for June 30, 2018 amounted to $1,350,100, on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. Management considers new evidence, both positive and negative, that could affect its future realization of deferred tax assets. Due to the Company’s forecasted pretax income and continuing utilization of its NOL, management determined that there is sufficient positive evidence to conclude that it is more likely than not that all of its deferred taxes are realizable.

The Company’s taxes payable consists of the following:

	June 30,		June 30,
	2018		2017
VAT tax payable	$	531,337	$	520,436
Corporate income tax payable		2,104,232		1,290,832
Others		65,050		74,948
Total	$	2,700,619	$	1,886,216