11.

Income Taxes

Tax Reform act of

2017

December 22, 2017,

the Tax Cuts and Jobs Act was enacted into law and introduced significant changes to U.S. tax law. On

December 22, 2017,

the SEC issued Staff Accounting Bulletin

No.

118

(SAB

118

) which addresses income tax accounting implications of the Tax Act. The purpose of SAB

118

was to address any uncertainty or diversity of view in applying ASC Topic

740,

Income Taxes in the reporting period in which the Tax Act was enacted. SAB

118

addresses situations where the accounting is incomplete for certain income tax effects of the Tax Act upon issuance of a company's financial statements for the reporting period which includes the enactment date. SAB

118

allows for a provisional amount to be recorded if it is a reasonable estimate of the impact of the Tax Act. Additionally, SAB

118

allows for a measurement period to finalize the impacts of the Tax Act,

not

to extend beyond

one

year form the date of enactment. The Company reflected the impacts of changes in tax law to the financial statements including the federal income tax rate reduction from

35%

21%;

the new limitations on the tax deductibility of interest expense; the acceleration of business asset expensing; the repeal of the alternative minimum tax ("AMT"); the limitation on the use of net operating losses generated in future years; and the Global Intangible Low Taxed Income regime.

ASU

2019

ASU

2019

intends to simplify various aspects related to accounting for income taxes. ASU

2019

removes certain exceptions to the general principles in Topic

740

and also clarifies and amends existing guidance to improve consistent application of Topic

740.

This guidance is effective for fiscal years beginning after

December 15, 2020,

including interim periods therein, and early adoption is permitted. The Company is reviewing the impacts of this to the financial statements but does

not

anticipate the adoption of ASU

2019

will have a material effect on the Company's financial statements.

CARES Act

March 27, 2020,

the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-

pandemic. The CARES Act permits NOLs incurred in

2018,

2019,

and

2020

to be carried back to each of the

five

preceding taxable years to generate a refund of previously paid income taxes; increases the limitation on allowable business interest expense; allows for the refund of AMT credits

not

previously refunded among other things. The Company anticipates a cash tax benefit from the carryback of federal NOLs.

Due to an ownership change in the

first

quarter of

2020,

the future utilization of certain post-change income tax attributes of Yunghong CTI Ltd , including net operating loss carryovers, are anticipated to be limited for U.S. income tax purposes.

The provision (benefit) for income taxes consists of the following:

	Year Ended December 31,
	2020			2019
Current:
Federal	$	(410,069	)	$	(845	)
State		-			-
Foreign		1,824			11,264
Total Current		(408,245	)		10,420

Deferred:
Federal		-		$	71,007
State		-			32,659
Foreign		-			31,517
Total Deferred		-			135,183
Provision (Benefit) for income taxes		(408,245	)		145,602

Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of

21%

to pretax loss as follows:

	Year Ended December 31,
	2020			2019
U.S. Federal provision (benefit)
At Statutory Rate	$	(598,492	)	$	(1,503,581	)
State Taxes		(285,914	)		(412,909	)
Change in Valuation Allowance		936,808			2,473,248
NOL Carryback Claim (CARES Act)		(201,654	)
Nondeductible Expenses		(367,848	)		216,790
Foreign Taxes		(69,969	)		(48,304	)
Deconsolidation & Impairment		134,115			(373,448	)
Other		44,710			(206,193	)
Rounding		(1	)		(1	)
Total	$	(408,245	)	$	145,602

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets for federal and state income taxes are as follows):

	Year Ended December 31,
	2020			2019
Deferred Tax Assets:
Federal & State NOL Carryforward		1,669,717			531,864
Foreign Tax Credit & Other Credits		581,479			463,451
Reserves and Accruals		216,591			320,961
Unicap 263A Adjustment		63,006			72,294
Other DTA		(36,776	)		65,215
Foreign NOL Carryforward		1,049,887			802,907
Deferred Interest Expense		1,383,772			1,030,634
Deconsolidation & Impairment		1,388,551			1,028,249
Total Gross DTA		6,316,227			4,319,575
Less: Val. Allowance		(6,397,605	)		(4,315,957	)
Total Deferred Tax Assets		(81,378	)		3,618

Deferred Tax Liabilities:
Fixed Assets & Intangibles		81,378			(3,618	)
Deferred State Income Tax		-			-
Total Gross DTL		81,378			(3,618	)
Net Deferred Tax Assets		-			-

Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Due to the lack of earnings history, a valuation allowance has been recorded to reduce the deferred tax assets to its net realizable value.

The valuation allowance increased by

$2,081,649

and increased by

$2,473,248

during the years ended

December 31, 2020

and

December 31, 2019,

respectively.

Net Operating Loss and Tax Credit Carryforwards

As of

December 31, 2020,

we had a net operating loss carryforward for federal income tax purposes of approximately

$4.2

million, which will begin to expire in

2024.

We had a total state net operating loss carryforward of approximately $

8.2

million, which will begin to expire in

2021.

Approximately

$0.8

million expired in

2020.

We have foreign net operating loss carryforwards of approximately

$3.5

million. Utilization of the federal net operating loss carryforwards

may

be subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of

1986.

The annual limitation is anticipated to affect the timing of utilization. We have federal credits of approximately $

600

thousand, which will begin to expire in

2021.

federal credits expired during

2020.