Crystal Rock Holdings, Inc.

We have acquired a significant number of companies. The excess of the purchase price over the fair value of the assets and liabilities acquired has been recorded as goodwill. Goodwill is not amortized but is subject to impairment assessment. In accordance with ASC 350, "Intangibles-Goodwill and Other," we assess goodwill for impairment on an annual basis, or more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Such assessment can be done on a qualitative or quantitative basis. When conducting a qualitative assessment, we consider relevant events and circumstances that affect the fair value or carrying amount of the reporting unit. A quantitative test is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or we elect not to perform a qualitative assessment of a reporting unit. We consider the extent to which each of the events and circumstances identified affect the comparison of the reporting unit's fair value or the carrying amount. Such events and circumstances could include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, product brand level specific events and cost factors. We place more weight on the events and circumstances that may affect its determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform a quantitative goodwill impairment test.

We perform a quantitative annual goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds the fair value, we recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill in that reporting unit.

Income Taxes – When calculating its tax expense and the value of tax related assets and liabilities the Company considers the tax impact of future events when determining the value of assets and liabilities in its financial statements and tax returns. Accordingly, a deferred tax asset or liability is calculated and reported based upon the tax effect of the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted rates that will be in effect when these differences reverse. A valuation allowance is recorded if realization of the deferred tax assets is not likely. Effective for the fiscal year ended October 31, 2016, the Company adopted on a prospective basis the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position.

Effective August 1, 2017, we elected to early adopt Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-04, Intangibles – Goodwill and Other (Topic 350), to simplify the process used to test for goodwill. Under the new standard, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.”  Because the Company determined there was no impairment, the adoption of ASU 2017-04 had no impact on our results of operations or balance sheet for the year ended October 31, 2017.

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (H.R. 1) (the “Act”).  The Act includes a number of changes in existing tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%. The rate reduction would take effect on January 1, 2018.

As of October 31, 2017, the Company had net deferred tax liabilities totaling $4,028,000. Under U.S. generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company’s net deferred tax liability as of October 31, 2017 was determined based on the current enacted federal tax rate of 34% prior to the passage of the Act.  As a result of the reduction in the corporate income tax rate to 21% and other changes under the Act that impact timing differences, the Company will need to revalue its net deferred tax liability as of December 22, 2017.  The estimated impact of the change for fiscal 2018 will be a reduction in deferred tax liability of approximately $1,400,000, which would be recorded as an income tax benefit in the Company’s statement of operations in fiscal 2018.

The Company’s revaluation of its deferred tax liability is subject to further clarification as all aspects of the new law are determined. As such, the Company is unable to make a final determination of the effect on quarterly and annual earnings for the period ending October 31, 2018, at this time. Additionally, the Company is evaluating the other provisions of the Act and to assess the impact on the Company.