3. Acquisitions

Pacific Cup, Inc.

On March 1, 2021, Lollicup entered into an asset purchase agreement (the “Pacific Cup Agreement”) with Pacific Cup, Inc. (“Pacific Cup”), a manufacturer and distributor of disposable products operating in Kapolei, Hawaii. Pursuant to the Pacific Cup Agreement, Lollicup paid cash consideration of $1,000,000 to acquire certain assets of Pacific Cup. Acquisition-related costs were immaterial.

The acquisition of Pacific Cup has been accounted for as a business combination pursuant to ASC 805, Business Combinations, using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The initial estimated fair value of assets acquired has been recognized based on management’s estimates and assumptions using information about facts and circumstances that existed at the acquisition date. The excess of the purchase price over the tangible assets is preliminarily recorded as goodwill. The Company is in the process of finalizing the allocation of its purchase price related to this acquisition and expects amounts to be allocated to other intangible assets. Accordingly, as of March 31, 2021, the acquired assets are reported at its provisional amounts. The Company will utilize the measurement period as defined under ASC 805‑10‑25‑15 to finalize the accounting for this acquisition and recognize adjustments to the initial estimated fair values with a corresponding adjustment to goodwill in the reporting period the adjustments are identified.

The goodwill recognized in this transaction was derived from expected opportunities to leverage Pacific Cup’s customer base, manufacturing facility, and sales force to expand the Company’s footprint. Goodwill recognized as a result of this acquisition is deductible for income tax purposes, and subject to annual impairment testing, which may give rise to deferred taxes in future periods.

The following table summarizes the preliminary assets acquired as a result of this acquisition:


Inventories	$	153,000
Property and equipment		50,000
Customer relationships		400,000
Goodwill		397,000
Total purchase consideration	$	1,000,000

Lollicup Franchising, LLC

On September 1, 2020, Lollicup entered into a membership interest purchase agreement (the “Franchising Agreement”) with Lollicup Franchising, LLC (“Lollicup Franchising”), a provider of specialty tea and coffee to consumers through operating retail stores within the United States. Pursuant to the Franchising Agreement, Lollicup paid cash consideration of $900,000 for the 100% membership interest of Lollicup Franchising. Prior to closing of the Franchising Agreement, the majority shareholders of the Company were also the majority shareholders of Lollicup Franchising. Acquisition-related costs were insignificant.

The acquisition of Lollicup Franchising has been accounted for as a business combination pursuant to ASC 805 using the acquisition method of accounting. The estimated fair value of assets acquired and liabilities assumed has been recognized based on management’s estimates and assumptions using information about facts and circumstances that existed at the acquisition date. The excess of the purchase price over the tangible assets and assumed liabilities is preliminarily recorded as goodwill.

The goodwill recognized in this transaction was derived from expected benefits from new management strategy and cost synergies. Goodwill recognized as a result of this acquisition is deductible for income tax purposes, and subject to annual impairment testing, which may give rise to deferred taxes in future periods.

The following table summarizes the assets acquired and liabilities assumed as a result of this acquisition:


Cash	$	7,000
Accounts receivable		103,000
Inventories		21,000
Property and equipment		257,000
Accounts payable		(42,000)
Accrued expenses		(104,000)
Related party payable		(2,455,000)
Goodwill		3,113,000
Total purchase consideration	$	900,000
Less: cash acquired		(7,000)
Total purchase consideration, net of cash acquired	$	893,000

The results of operations of the Pacific Cup and Lollicup Franchising acquisitions have been included in the Company’s condensed consolidated financial statements beginning on their respective acquisition dates. All intercompany transactions were eliminated upon consolidation. The amounts of revenue and earnings of the acquirees since the acquisition date are included in the condensed consolidated statements of income for the reporting period, which is not significant from January 1, 2021 through March 31, 2021.