NOTE

- TAXES

Corporate Income

Taxes

(“CIT”)

Prior to

January 1, 2018,

Han Feng, TT, MFD, Kirnsway, Chinesetg, NSF and BB had elected under the Internal Revenue Code to be S corporations. R&N Holdings, R&N Lexington and HG realty were formed as limited liability companies taxed as partnerships. An S corporation or partnership is considered a flow-through entity and is generally

not

subject to federal or state income tax at the entity level. In lieu of corporate income taxes, the stockholders and members of these entities are taxed on their proportionate share of the entities’ taxable income. Kirnland did

not

elect to be treated as an S corporation and was the only entity that is subject to corporate income taxes under this report.

Effective

January 1, 2018,

all of the above-listed S corporation and partnership entities were converted to C corporations and will be taxed at the entity level going forward. Accordingly, the Company shall account for income taxes of all these entities under ASC

740.

The Company has recognized the impact on deferred income tax assets and liabilities from the conversion of the above-mentioned S corporations and partnership entities to C corporations in the consolidated financial statements as of

December 31, 2018.

December 22, 2017,

the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from

35%

21%

effective

January 1, 2018,

while also imposing a deemed repatriation tax on deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings. The Company expects the new federal income tax rate will significantly lower the Company’s income tax expenses going forward. The Company does

not

expect the repatriation tax and new minimum tax on certain future foreign earnings to have any impact on the Company’s operations since it currently has

foreign income and does

not

expect to generate any foreign income in the future.

(i)

The provision for income taxes of the Company for the years ended

December 31, 2019

and

2018

consists of

the following:

	For the Years Ended
	December 31, 2019			December 31, 2018
Current:
Federal	$	1,907,309		$	1,474,467
State		540,488			373,871
Current income taxes		2,447,797			1,848,338
Deferred:
Federal		(156,892	)		520,163
State		(93,813	)		121,754
Deferred income taxes		(250,705	)		641,917
Total provision for income taxes	$	2,197,092		$	2,490,255

(ii)

Temporary

differences and carryforwards of the Company that created significant deferred tax assets and liabilities

are

as follows:

	As of December 31, 2019			As of December 31, 2018
Deferred tax assets:
Allowance for doubtful accounts	$	373,438		$	165,083
Inventories		594,628			113,730
Federal NOL		228,637			-
State NOL		80,514			-
Section 481(a) adjustment		-			40,317
Accrued expenses		80,100			46,750
Total deferred tax assets		1,357,317			365,880
Deferred tax liabilities:
Property and equipment		(3,270,536	)		(1,444,008	)
Intangibles assets		(50,327,833	)		-
Total deferred tax liabilities		(53,598,369	)		(1,444,008	)
Net deferred tax liabilities	$	(52,241,052	)	$	(1,078,128	)

The net deferred tax liabilities presented in the Company's Consolidated Balance Sheets were as follows：

	As of December 31, 2019			As of December 31, 2018
Deferred tax assets	$	78,993		$	117,933
Deferred tax liabilities		(52,320,045	)		(1,196,061	)
Net deferred tax liabilities	$	(52,241,052	)	$	(1,078,128	)

(iii)

Reconciliations of the statutory income tax rate to the effective income tax rate

are

follows:

	For the Years Ended
	December 31, 2019			December 31, 2018
Federal statutory tax rate		21.0	%		21.0	%
State statutory tax rate		4.0	%		4.4	%
U.S. permanent difference		1.0	%		1.0	%
Other		1.2	%		1.7	%
Effective tax rate		27.2	%		28.1	%