Business Combinations

3 Months Ended

Mar. 31, 2018

Note 4: Business Combinations

On June 19, 2017, Longfin acquired 100% of the outstanding shares of capital stock of Longfin Tradex in exchange for shares of Longfin’s Common Stock. The acquisition of Longfin Tradex was determined to be an acquisition of a business and the results of Longfin Tradex’s operations have been included in the consolidated financial statements since that date. Prior to the acquisition, Longfin Tradex was 55% owned by SCL, a public company in India, and 45% owned by Mr. Meenavalli.

The acquisition-date fair value of the consideration transferred totaled $134.4 million, which consisted of the following:

Fair value of consideration transferred (in thousands):

Longfin Class A common stock (27,500,000 shares)	$	73,920
Longfin Class B common stock (22,500,000 shares)		60,480
Total	$	134,400

The fair value of the consideration of $134,400 as on June 19, 2017 was based on a third party valuation report from Scalar in accordance with ASC 805.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

As of June 19, 2017:

Assets:	(in thousands)
Cash and cash equivalents	$	14
Accounts receivable		11,934
Due from related parties		1,209
Property, plant and equipment		3,454
Intangible assets		38,600
Goodwill		90,474
Other assets		231
Total Assets		145,916
Liabilities:
Accounts payable		675
Accrued expenses		37
Due to related parties		3,431
Other current liabilities		16
Accrued income taxes		208
Deferred tax liability		7,149
Total Liabilities		11,516
Net assets acquired	$	134,400

Acquired intangible assets of $38.6 million are finite-lived assets, which include $32.0 million of the Company’s developed technology to be amortized over an 8-year useful life and $6.6 million related to customer relationships to be amortized over a 3-year useful life. Due to the complexity and proprietary nature of the underlying technology, a useful life of 8 years was ascribed by the Company.

Goodwill of $90 million is primarily attributable to the valuation of the Longfin Tradex acquisition and includes a deferred tax liability of $7.1 million related to the acquired intangible assets of $38.6 million. Goodwill is not deductible for income tax purposes.

The following represents the unaudited pro forma condensed consolidated statement of operations as if Longfin Tradex had been included in the condensed consolidated results of the Company for the period from February 1, 2017 through March 31, 2017:

Unaudited pro forma condensed consolidated statement of operations (in thousands, except for share and per share amounts):

	March 31, 2017
Revenue	$	2,779
Net loss	$	(54	)

Net loss per common share, basic	$	(0.0009	)
Net loss per common share, diluted	$	(0.0009	)

Weighted average common shares outstanding, basic		57,500,000
Weighted average common shares outstanding, diluted		57,500,000

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Longfin Tradex to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on February 1, 2017.

Prior to the acquisition, the Company had no prior relationship with Longfin Tradex, except for the ownership interest of Mr. Meenavalli.

On January 9, 2018, the Company has acquired a shell company, Longfin Ltd in West Indies at a nominal price of $2,500.

Longfin Corp 10-Q