Income Taxes

9 Months Ended

Sep. 30, 2014

Income Taxes [Abstract]

INCOME TAXES

NOTE 9 – INCOME TAXES

The Company accounts for income taxes pursuant to the accounting standards that require the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. Additionally, the accounting standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S. net operating loss carry forwards and to the temporary differences related to the deduction of impairment losses in PRC for income tax purposes as compared to financial statement purposes, are dependent upon future taxable income during the periods in which those temporary differences become deductible or are utilized.

Net deferred tax asset related to the U.S. net operating loss carry forward has been fully offset by a valuation allowance. The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. Under the Income Tax Laws of PRC, Chinese companies are generally subject to an income tax at an effective rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. The Company’s VIEs (Dyeing and Electric) and the Company’s subsidiary, Fulland Wind Energy, are subject to these statutory rates. The Company’s wholly-owned subsidiary, Fulland Limited was incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, this entity is not subject to income taxes.

The tax effects of temporary differences under the Income Tax Law of the PRC that give rise to significant portions of deferred tax assets and liabilities as of September 30, 2014 and December 31, 2013 are as follows:

	September 30, 2014			December 31, 2013
Deferred tax assets:
Net U.S. operating loss carry forward	$	2,012,209		$	1,844,921
Loss on impairment of equipment		1,213,675			1,222,216
Allowance for doubtful accounts and inventories reserve		244,568			253,173
Total gross deferred tax assets		3,470,452			3,320,310
Less: valuation allowance		(2,012,209	)		(1,844,921	)
Net deferred tax assets	$	1,458,243		$	1,475,389

The valuation allowance at September 30, 2014 and December 31, 2013 were $2,012,209 and $1,844,921, respectively, related to the U.S. net operating loss carry forward. During the three months ended September 30, 2014 and 2013, the valuation allowance was increased by approximately $54,000 and $72,000, respectively. During the nine months ended September 30, 2014 and 2013, the valuation allowance was increased by approximately $167,000 and $172,000, respectively.

In assessing the ability to realize the deferred tax asset from the loss on impairment of equipment held for operating lease in PRC and allowance for doubtful accounts and inventory reserve, management considers whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The Company concluded that the temporary difference on the impairment loss of equipment held for operating lease in PRC and allowance for doubtful accounts and inventory reserve will be deductible or utilized on the future PRC taxable income and a deferred tax asset of $1,458,243 and $1,475,389 has been set up at September 30, 2014 and December 31, 2013, respectively.