The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company had no U.S. taxable income for the years ended December 31, 2014 and 2013.

The Company’s Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning the privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

Based on management's present assessment, the Company has determined that it is more likely than not a deferred tax asset attributable to the future utilization of the net operating loss carry-forward as of December 31, 2014 will not be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at December 31, 2014. The Company will continue to review this valuation allowance and make adjustments as appropriate.

The Company has net operating loss carry-forwards in China and United States of approximately $11,000,000 and $7,300,000, respectively, which expire between 2015 and 2025.

The comparison of income tax expense at the U.S. statutory rate of 35% in 2014 and 2013, to the Company’s effective tax is as follows:

	Years ended December 31,
		2014			2013

U.S. Statutory rate of 35%		$	(1,413,044	)	$	(881,345	)
Tax rate difference between China and U.S.			382,012			245,150
Change in valuation allowance			456,714			399,056
Net operating loss expired			574,318			237,139
Effective tax		$	-		$	-

The tax effects of temporary differences that give rise to the Company’s net deferred tax asset as of December 31, 2014 and 2013 are as follows:

			December 31
	2014				2013

Deferred tax assets (liabilities)
Inventory markdown	$	225,254			$	225,254
Bad debt expense		171,295				167,347
Depreciation		18,043				81,059
Accrued taxes and other accruals		320,946				320,024
Loss on impairment		643,931				33,500
Net loss carryforward		5,064,782				5,117,460
Gain on investment in JV		(840,957		)		(840,957	)
Other		(31,422)				11,471
Gross deferred tax		5,571,872				5,115,158
Valuation allowance		(5,571,872		)		(5,115,158	)
Net deferred tax	$	-			$	-

Enterprises or individuals who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with the PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.