12. INCOME TAXES

Income tax expense for the nine months and three months ended March 31, 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 nine months ended March 31,				For the three months ended March 31,
	2015		2014		2015		2014
	%		%		%		%
U.S. expected federal income tax benefit		35.0		35.0		35.0		35.0
U.S state, local tax net of federal benefit		10.9		10.9		10.9		10.9
U.S. permanent difference		(0.2)		(0.8)		(0.2)		(1.2)
U.S. temporary difference		(45.7)		(45.1)		(45.7)		(44.7)
Permanent difference related to other countries		21.9		3.1		11.4		1.4
Hong Kong statutory income tax rate		(16.5)		(16.5)		(16.5)		(16.5)
Hong Kong income tax benefit		12.1		16.5		16.5		16.5
Total tax expense		17.5		3.1		11.4		1.4

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

The income tax (provision) benefit for the nine and three months ended March 31, 2015 and 2014 are as follows:

	For the nine months ended				For the three months ended
	March 31,				March 31,
	2015		2014		2015		2014


Current
USA	$	-	$	(34,659)	$	-	$	(34,659)
Hong Kong		(5,770)		-		-		-
China		-		(122)		-		(122)
		(5,770)		(34,781)		-		(34,781)
Deferred
USA		91,300		40,700		34,067		35,967
China		-		-		-		-
		91,300		40,700		34,067		35,967
Total	$	85,530	$	5,919	$	34,067	$	1,186

Deferred tax assets are comprised of the following:

	March 31,		June 30,
	2015		2014

Allowance for doubtful accounts	$	220,000	$	224,000
Stock-based compensation		377,000		411,000
Net operating loss		1,955,000		1,004,000
Total deferred tax assets		2,552,000		1,639,000
Valuation allowance		(2,296,800)		(1,475,100)
Deferred tax assets, net - long-term	$	255,200	$	163,900

Operations in the US have incurred a cumulative net operating loss of $5,241,863 as of March 31, 2015, 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 losses amounting to $220,000, $377,000 and $1,955,000 have been recorded respectively. 90% of the deferred tax assets balance has been provided as a valuation allowance as of March 31, 2015 based on management’s estimate.