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INCOME TAXES

9 Months Ended

Sep. 30, 2014

NOTE 10 - INCOME TAXES

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates are recognized in operations in the period that includes the enactment date.

Undistributed earnings of Helpson, the Company’s foreign subsidiary, since its acquisition, amounted to approximately $76.9 million at September 30, 2014. Those earnings, as well as the investment in Helpson of approximately $23.3 million, are considered to be indefinitely reinvested and, accordingly, no U.S. federal or state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. federal and state income taxes (net of an adjustment for foreign tax credits) and withholding taxes payable to the PRC. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits may be available to reduce a portion of the U.S. tax liability.

Under current tax law in the PRC, the Company is and will be subject to the following enterprise income tax rates:

		Enterprise Income
Year		Tax Rate
2014		15%
2015		15%
2016		15%
Thereafter		25%

The provision for income taxes consisted of the following:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014		2013
Current	$	-	$	-		$	-	$	-
Deferred		19,215		(472,512	)		57,758		(1,129,506	)
Total income tax expense (benefit)	$	19,215	$	(472,512	)	$	57,758	$	(1,129,506	)

The Company has net operating loss carryforwards for PRC tax purposes of approximately $10.16 million at September 30, 2014, of which approximately $6.83 million and $3.33 is available to offset future taxable income through 2018 and 2019, respectively.

In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible or tax loss carry forwards are utilized. Management considers projected future taxable income and tax planning strategies in making this assessment. Based upon an assessment of the level of historical taxable income and projections for future taxable income over the periods on which the deferred tax assets are deductible or can be utilized, Management believes it is not likely the Company will realize all of the benefits of the deferred tax assets as of September 30, 2014 and December 31, 2013. Therefore, the Company has provided for a valuation allowance against its deferred tax assets of $6,450,846 and $4,915,960 as of September 30, 2014 and December 31, 2013, respectively.

The Company has also incurred various other taxes, comprised primarily of business taxes, value-added taxes, urban construction taxes, education surcharges and others. Any unpaid amounts are reflected on the balance sheets as accrued taxes payable.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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