LFIN LongFin Corporation (CE)

See Notes to Condensed Consolidated Financial Statements.

See Notes to Condensed Consolidated Financial Statements.

See Notes to Condensed Consolidated Financial Statements.

Note 1: Nature of Business

Longfin Corp. (“Longfin” or the “Company”) specializes in structured trade finance solutions and physical commodities finance solutions for finance houses and trading platforms throughout the North America, South America and Africa regions. Longfin was incorporated in Delaware on February 1, 2017 and Mr. Meenavalli had a 100% ownership interest in Longfin upon formation of the Company. The Company is headquartered in New York, New York.

On June 19, 2017, Longfin acquired 100% of the outstanding shares of capital stock of Longfin Tradex Pte Ltd (“Longfin Tradex”) in exchange for shares of Longfin’s Common Stock. Prior to the acquisition, Longfin Tradex was 55% owned by Stampede Capital Limited (“SCL”), a public company in India, and 45% owned by Mr. Meenavalli. As consideration for the acquisition of Longfin Tradex, Longfin issued 27,500,000 shares of Class A Common Stock to SCL and 22,500,000 shares of Class B Common Stock to Mr. Meenavalli (the “Longfin Tradex Acquisition”). The Company’s plan is to utilize Longfin Tradex’s technology, strategy, infrastructure and its business model across the globe.

On March 20, 2018, the Company amended and restated its Certificate of Incorporation to increase the authorized shares of the Company’s capital stock from 200,000,000 shares to 300,000,000 shares, $0.00001 par value per share, comprised of 200,000,000 shares of Class A Common Stock, 75,000,000 shares of Class B Common Stock and 25,000,000 shares of Class C Common Stock. All shares of Common Stock shall have the same rights and powers, rank equally (including as to dividends and distributions, and any liquidation, dissolution or winding up of the corporation), share ratably and be identical in all respects as to all matters, except each share of Class B Common Stock shall be convertible into one share of Class A Common Stock. Holders of Class A and Class B Common Stock will be entitled to one vote for each share held. Holders of Class C Common Stock will have no voting rights.

As at June 30, 2018, Mr. Meenavalli controls the voting interests in Longfin through his ownership of 10,000,000 of Class A common shares and 30,000,000 of Class B common shares.

As of June 30, 2018, the Company had one subsidiary, Longfin Tradex, located in Singapore. During the first quarter of 2018, the Company added four new subsidiaries Longcom India Private Ltd. (formerly Longhash commmodities Private Ltd) in India, Longfin Trading FZC in UAE, Longfin Bullion FZC in UAE, and Longfin Ltd in West Indies. Further, the Company is in process of incorporating two more subsidiaries in Hong Kong and China.

Longcom India Private Ltd, (formerly Longhash Commmodities Private Ltd) a 100% subsidiary of Longfin commenced business operations during the first fiscal quarter of 2018 and focused primarily in structured trade finance and physical commodities finance solutions for finance and trading houses.

Longfin Trading FZC, is a subsidiary of Longfin Tradex of which Longfin Tradex holds 85% and Mr. Meenavalli holds remaining 15% of the equity. Longfin Trading FZC also commenced its business operations during the first fiscal quarter of 2018 and focused primarily in structured trade finance and offering technology and Platform services to clients.

Longfin Bullion FZC was incorporated during the first quarter of 2018 and is also a subsidiary of Longfin Tradex of which Longfin Tradex holds 99% and Mr. Meenavalli holds remaining 1% of the equity. Longfin Bullion FZC has not started its business operations during the current quarter.

Longfin Limited incorporated in West Indies had no business operations during the current quarter. The Company was involved in research and development for creation of smart contracts wherein few Ziddu Smart contracts were executed internally with in the business partners for testing purpose.

The Company operates and is managed as one business. The Company’s operating results are regularly reviewed on a consolidated basis by its Chief Executive Officer, who is also the chief operating decision maker.

Note 2: Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has limited operating history and experienced a net loss of $38 million since its inception. The Company has $0.49 million of cash at June 30, 2018. The Company operates primarily in structured trade finance and provides technology services. The Company’s operating costs are primarily related to the cost of providing those services, employee compensation and administrative expenses.

On January 22, 2018, pursuant to a Securities Purchase Agreement (“SPA”) entered into between the Company and an institutional investor (the “Investor”), the Company agreed to sell and issue (1) (i) Senior Convertible Notes to the Investor in the aggregate principal amount of $52,700,000 (each, a “Note” and collectively, the ‘‘Notes”), consisting of a Series A Note in the principal original issuance of discount amount of $10,095,941 and (ii) a Series B Note in the principal amount of $42,604,059, and (2) a warrant to purchase 751,894 shares of Longfin Class A Common Stock, exercisable for a period of five years at an exercise price of $38.55 per share (the “Warrant”), for consideration consisting of (i) a cash payment of $5,000,000, and (ii) a secured promissory note payable by the Investor to Longfin (the “Investor Note”) in the principal amount of $42,604,059 (collectively, the “Note Financing”). On February 13, 2018, the Company completed the Note Financing and related sale and issuance of the Notes, the Warrant and a placement agent warrant. The maturity date of the Notes is August 13, 2019 and the Investor Note is February 13, 2048. Till date the Company has received $3.7 million in net proceeds ($5.0 million net of costs of $1.3 million) related to the Note Financing and will not be able to obtain additional monies through the Note Financing until the Company files a Registration Statement to register the common shares underlying the Notes and Warrant and such Registration Statement is declared effective by the Securities and Exchange Commission or such shares are eligible for resale pursuant to Rule 144 under the Securities Act, or the investor elects to convert or exercise such securities notwithstanding the underlying shares have not been so registered or are then so eligible.

On April 6, 2018, the Nasdaq Stock Market LLC (“Nasdaq”) halted the trading of the Company’s Class A Common Stock, which such suspension from trading continued for a period of at least five (5) consecutive trading days, which constituted an event of default under the Note.

On May 2, 2018, the Company, notified to the NASDAQ Stock Market LLC, that it would voluntarily delist its shares of Class A Common Stock from NASDAQ. On May 14, 2018 the Company filed a Form 25 with the Securities and Exchange Commission with the delisting becoming effective 10 days after such filing. From May 25, 2018 the Company’s shares commenced trading on the OTC Pink operated by the OTC Market Group Inc.

The continuance of the trading halt for a period of five trading days constituted an Event of Default under the Notes. Following the occurrence of an Event of Default, among other things, at the Investor’s election, the outstanding principal amount of the Notes, plus accrued but unpaid interest at a default interest rate of 18%, liquidated damages and other amounts owed through the date of acceleration, shall become, immediately due and payable in either cash or stock pursuant to the terms of the Notes. On April 13, 2018, the Investor notified the Company that it had elected to exercise its remedies with respect to requiring the Company to redeem the Series A Notes (the “Default Notice”). Pursuant to the Default Notice, the Investor has demanded that the Company pay the Event of Default Redemption Price of the Series A Note not later than April 20, 2018, which the Investor has calculated as $33.6 million if paid by such date. The Investor has not exercised its remedies with respect to requiring the Company to redeem the Series B Note, but in the Default Notice has reserved its rights with regard to such remedy regarding the Event of Default under the Series B Note. In addition to other remedies available to the Investor, the Company’s obligation to repay amounts due under the Series B is secured by a first priority security interest in and lien on the Investor Note, and such remedies can be exercised by the Investor without additional notice to the Company.

Following receipt of the Default Notice, the Company has entered into discussions with the Investor regarding the renegotiation of the terms of the Note Financing in light of the trading halt. If the Company is unable to successfully renegotiate the terms of the Note Financing, including receiving one or more waivers with respect to the ongoing default under the Notes, it will negatively impact its business and operations and could also lead to the reduction or suspension of the Company’s operations and ultimately force the Company to cease operations.

The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain the monies from the Note Financing and the attainment of profitable operations. These factors, which are not within the Company’s control, raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3: Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Preparation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. They may not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

Principles of Consolidation

The significant accounting policies adopted by the Company, in respect of these consolidated financial statements, are set out in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and respective notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on April 2, 2018. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The consolidated financial statements include the accounts of the Company and all its subsidiaries that are more than 50% owned and controlled. The Company consolidates the subsidiaries into its consolidated financial statements. Transactions between the Company and its subsidiaries have been eliminated in the consolidated financial statements.

The condensed consolidated financial statements include the accounts of Longfin and its subsidiaries, Longfin Tradex, Longcom India Private Ltd, Longfin Trading FZC and Longfin Ltd. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.

The Company’s current quarterly period ends on June 30, 2018. Unless the context requires otherwise, all references in this report to “Longfin,” “we,” “our” and “us” refer to Longfin Corp., together with its subsidiaries, as listed and described in its Annual Report on Form 10-K filed with the SEC on April 2, 2018. We exclude our investments and minority non-controlling interests, and any information provided by them is not incorporated by reference in this report, and you should not consider it a part of this report. Our filings are available on www.sec.gov. The information contained on our website, www.longfincorp.com is not incorporated by reference in this report, and you should not consider it a part of this report.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results may differ materially from those estimates.

The Company’s most significant estimates and judgments include the estimation of the underlying deemed fair value of Common Stock, the valuation of acquired intangible assets and goodwill from business combinations, the recoverability and useful lives (indefinite or finite) of intangible assets, and the assessment of impairment of goodwill.

The Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

Functional Currency

The functional currency for Longfin is the United States Dollar (“USD”). Transaction gains or losses related to balances denominated in a currency other than the functional currency are recognized in the condensed consolidated statements of operations. Securities and other assets and liabilities denominated in foreign currencies are translated into USD amounts at the date of valuation. Purchases and sales of other assets and liabilities and the related income and expenses denominated in foreign currencies are translated into USD on the respective dates of the transactions.

In the quarter ended June 30, 2018, in addition to the US, the Company operated in India, Dubai and Singapore and a substantial portion of the Company’s sales are denominated in INR, AED and USD. As a result, changes in the relative values of the U.S. dollar and INR, or the AED affect revenues and profits as the results are translated into U.S. dollars in the consolidated and pro forma financial statements. The accompanying financial statements are reported in U.S. dollars. The INR and the AED are the other functional currencies for the Company. The translation of the functional currencies into U.S. dollars is performed for assets and liabilities using the exchange rates in effect at the balance sheet date and for revenues, costs and expenses using average exchange rates prevailing during the reporting periods. Adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income/(loss), a separate component of shareholders’ equity.

Foreign Currency Transactions

Gains and losses realized from foreign currency transactions (those transactions denominated in currencies other than the foreign subsidiaries’ functional currency) are included in other income (expense), net. Monetary assets and liabilities are re-measured using foreign currency exchange rates at the end of the period, and non-monetary assets are re-measured based on historical exchange rates.

Concentrations of Credit Risk

Financial instruments that potentially subject us to credit risk consist of cash and cash equivalents, accounts and notes receivable and derivative financial instruments. Certain of our cash and cash equivalents are invested in money market accounts with investment banks that are not FDIC insured. We place our cash and cash equivalents in what we believe to be creditworthy financial institutions. We actively monitor the credit risk of our counterparties and customers, including our receivables and payables for physical commodities. Our accounts receivable are concentrated within entities engaged in import/export industry, mainly outside the U.S. We generally have not collected collateral for accounts receivable.

Our counterparties and customers primarily consist of financial institutions and trading companies.

We have concentrations of credit risk with a few of our physical commodity counterparties. We have exposure to trends within the physical commodities import/export industry, including declines in the creditworthiness of our counterparties and customers for our physical commodity transactions. We manage counterparty and customer credit risk and monitor our net exposure with each counterparty or customer on a daily basis. The net exposure is compared against a credit risk threshold which is determined based on each counterparties’ and customer’s credit rating and evaluation of their financial statements. We utilize these thresholds to determine the need for collateral or restriction of activity with the counterparty or customer. We believe that our credit policies adequately monitor our credit risk. Currently, our wholesale counterparties and retail customers are performing and financially settling timely according to their respective agreements.

The Company’s three largest customers accounted for 67% of the total revenue for the six months ended June 30, 2018 and 89% for the six months ended June 30, 2017. For the six months ended June 30, 2018, these customers accounted for 36%, 17% and 15% of the revenue and 17% of this revenue was from related parties. For the six months ended June 30, 2017, customers accounted for 40%, 29% and 20% of the revenue and 40% of this revenue was from related parties.

Cash and Cash Equivalents

All highly liquid investments with maturities of three months or less at the time of purchase are considered to be cash equivalents. All of the Company’s cash equivalents have liquid markets and high credit ratings.

Fair Value Measurements

The Company follows accounting guidance on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following three level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments.

Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace.

Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires us to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts receivable, accounts payable and accrued expenses.

Accounts Receivable and Payable

Accounts receivable and payable represent amounts due from customers and owed to vendors, respectively. Accounts receivable are recorded at invoiced amounts, net of reserves and allowances, and do not bear interest. The Company assesses the need for an allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the customer’s ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company will write off accounts receivable when the Company determines that they are uncollectible. No allowance for doubtful accounts was required as of June 30, 2018 since the Company has not yet experienced any collection problems.

The Company’s three largest customers accounted for 13%, 17% and 14% of the June 30, 2018 accounts receivable balance.

The Company’s three largest vendors accounted for Nil, 0.4% and 24% of the June 30, 2018 accounts payable balance.

Physical Commodity Purchases

The Company purchases certain physical commodities in the normal course of business that result in physical delivery of the goods and, hence, are excluded from ASC 815, Derivatives and Hedging.

Property, Plant and Equipment, Net

Property plant and equipment are stated at cost and depreciated over the estimated useful life of the assets. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, generally three to seven years. Leasehold improvements are amortized over the shorter of the asset’s useful life or the life of the lease term. Expenditures for maintenance and repairs are charged to expense as incurred.

Software Development Costs

The Company generally capitalizes eligible costs to acquire or develop internal-use software that are incurred during the application development stage once the preliminary project stage is complete, management authorizes and commits to funding the project, and it is probable that the project will be completed, and that the software will be used to perform the function intended. Capitalization ceases at the point the software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided for on a straight-line basis over the expected useful life of three years of the internal-use software development costs and related upgrades and enhancements. When existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use. Costs related to preliminary project activities and post implementation activities are expensed as incurred. There were no capitalized internal use software costs for the period ended June 30, 2018.

Business Combinations

The Company uses estimates and assumptions to assign a fair value to the tangible and intangible assets acquired and liabilities assumed in business combinations as of the acquisition date. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations.

Goodwill and Indefinite Lived Intangible Assets

Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. The Company’s intangible assets with an indefinite life are related to the acquisition of Longfin Tradex. Intangible assets with indefinite useful lives are measured at their respective fair values as of the acquisition date. The Company does not amortize goodwill and intangible assets with indefinite useful lives.

The Company reviews goodwill and indefinite-lived intangible assets at least annually for possible impairment. Goodwill and indefinite-lived intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or the indefinite-lived intangible assets below their carrying values. The Company tests its goodwill and indefinite-lived intangible assets each year on December 31. The Company has six reporting units as of June 30, 2018. The company will review the carrying value of goodwill utilizing market capitalization approach which would be based upon the closing price of the company’s stock price. As of June 30, 2018 the fair value of the company’s reporting unit was in excess of carrying value and goodwill was not deemed to be impaired. The Company did not identify any impairment to goodwill during the period ended June 30, 2018.

Finite Lived Intangible Assets

Finite-lived intangible assets are amortized on a straight-line basis over the asset’s estimated economic life and are tested for impairment based on undiscounted cash flows and, if impaired, are written down to fair value based on discounted cash flows. The identified intangible assets are amortized over 8 years for developed technology and 3 years for customer relationships.

The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the estimated future cash flows expected to result from the use and eventual disposition of an asset is less than its net book value, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of an asset. No impairment was recorded during the period ended June 30, 2018.

Impairment of Non-Financials Assets

The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the Company of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value. There were no indicators of impairment of long-lived assets during the period ended June 30, 2018.

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. When the revenue recognition criteria are not met, the Company defers the recognition of revenue by recording deferred revenue on the balance sheet until such time that all criteria are met.

The Company’s revenue consists of the following:

Physical commodity revenue consist of revenue from the sale of physical commodities to our customers. Additionally, we determine whether the financial statement presentation of revenues should be on a gross or net basis. With respect to our physical commodity contracts, we act as a principal and take title of the physical commodities and assume the risks and rewards of ownership. We record settlement of our physical commodity contracts on a gross basis.

Technology services revenue consists of fees paid by third parties for using the Company’s proprietary risk management and trading infrastructure technology and provision of associated services.

Other revenue consists of incentive income received pursuant to agreements with exchanges that is recognized when earned.

Income Taxes

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.

The FASB Accounting Standards Codification (“ASC”), Topic 740, Income Taxes, or ASC 740, also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest as of June 30, 2018. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

Stock-Based Compensation.

The Company measures all stock-based compensation to using a fair value method.

Prior to the Company’s initial public offering, in determining the fair value of the Company’s common stock the Company considered, among other things, contemporaneous valuations of the Company’s common stock, the Company’s business, financial condition and results of operations, including related industry trends affecting its operations; the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale, given prevailing market conditions; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions.

Loss per Share

Basic and diluted net loss per share attributable to Common Stockholders are presented in conformity with the “two-class method” in accordance with ASC 260, Loss Per Share. Under the two-class method, basic net loss per share is computed using the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of Common Stock and, if dilutive, potential shares of Common Stock outstanding during the period. The dilutive effect of potential shares of Common Stock is reflected in diluted loss per share by application of the treasury stock method.

Recently Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations – Clarifying the Definition of a Business , which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business.

Recently Issued Accounting Pronouncements

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the Emerging Issues Task Force). This update attempts to reduce diversity in practice and provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect this new guidance to have a material impact on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This update attempts to reduce diversity in practice by providing guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect this new guidance to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new accounting model, referred to as the current expected credit losses (CECL) model, for estimating credit losses on certain financial instruments and expands the disclosure requirements for estimating such credit losses. Under the new model, an entity is required to estimate the credit losses expected over the life of an exposure (or pool of exposures). The guidance also amends the current impairment model for debt securities classified as available-for-sale securities. The new guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of this standard on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new provisions, all lessees will report on the balance sheet a right-of-use asset and a liability for the obligation to make payments with the exception of those leases with a term of 12 months or less. The new provisions will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company will evaluate the expected impact of this standard on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The new standard is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017.The Company does not expect this new guidance to have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash. The standard requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts in the statement of cash flows and also requires disclosures regarding the nature of restrictions on cash, cash equivalents and restricted cash. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods and requires retrospective adoption with early adoption permitted. The Company does not expect this new guidance to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, simplifying the Test for Goodwill Impairment. The standard eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company will evaluate the expected impact of this standard on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. The standard better aligns an entity’s hedging activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The standard will prospectively make hedge accounting easier to apply to hedging activities and also enhances disclosure requirements for how hedge transactions are reflected in the financial statements when hedge accounting is elected. The standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company will evaluate the future effect this standard may have on our financial condition, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09) as modified by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. The Company will adopt the new standard effective January 1, 2018, using the modified retrospective approach. The adoption of ASU 2014-09 will not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.

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:

The fair value of the consideration of $134,400,000 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):

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 June 30, 2017:

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

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 June 30, 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.

Other Current Liabilities consist of the following (in thousands):

For the six months ended June 30, 2018 and the period ending at December 31, 2017 the Company recorded $1.5 million and 1.3 million, respectively, in depreciation expense.

The following table represents the total estimated amortization of intangible assets for the five succeeding years (in thousands):

For the six months ended June 30, 2018, the Company recorded $3.1 million in amortization expense. For the period ended at December 31, 2017 the Company recorded $3.3 million in amortization expense.

Note 8: Convertible Notes Payable

On January 22, 2018, pursuant to a Securities Purchase Agreement (“SPA”) entered into between the Company and an institutional investor (the “Investor”), the Company agreed to sell and issue (1) (i) Senior Convertible Notes to the Investor in the aggregate principal amount of $52,700,000 (each, a “Note” and collectively, the ‘‘Notes”), consisting of a Series A Note in the principal original issuance of discount amount of $10,095,941 and (ii) a Series B Note in the principal amount of $42,604,059, and (2) a warrant to purchase 751,894 shares of Longfin Class A Common Stock, exercisable for a period of five years at an exercise price of $38.55 per share (the “Warrant”), for consideration consisting of (i) a cash payment of $5,000,000, and (ii) a secured promissory note payable by the Investor to Longfin (the “Investor Note”) in the principal amount of $42,604,059 (collectively, the “Note Financing”). On February 13, 2018, the Company completed the Note Financing and related sale and issuance of the Notes, the Warrant and a placement agent warrant. The maturity date of the Notes is August 13, 2019 and the Investor Note is February 13, 2048.

Till date, the Company has received $3.7 million in net proceeds ($5.0 million net of costs of $1.3 million) related to the Note Financing and will not be able to obtain additional monies through the Note Financing until the Company files a Registration Statement to register the common shares underlying the Notes and Warrant and such Registration Statement is declared effective by the Securities and Exchange Commission or such shares are eligible for resale pursuant to Rule 144 under the Securities Act, or the investor elects to convert or exercise such securities notwithstanding the underlying shares have not been so registered or are then so eligible.

On April 6, 2018, The Nasdaq Stock Market LLC (“Nasdaq”) halted the trading of the Company’s Class A Common Stock, which such suspension from trading continued for a period of at least five (5) consecutive trading days, which constituted an event of default under the Note.

On May 2, 2018, the Company, notified to the NASDAQ Stock Market LLC, that it would voluntarily delist its shares of Class A Common Stock from NASDAQ. On May 14, 2018 the Company filed a Form 25 with the Securities and Exchange Commission with the delisting becoming effective 10 days after such filing. From May 25, 2018 the Company’s shares commenced trading on the OTC Pink operated by the OTC Market Group Inc.

The continuance of the trading halt for a period of five trading days constituted an Event of Default under the Notes. Following the occurrence of an Event of Default, among other things, at the Investor’s election, the outstanding principal amount of the Notes, plus accrued but unpaid interest at a default interest rate of 18%, liquidated damages and other amounts owed through the date of acceleration, shall become, immediately due and payable in either cash or stock pursuant to the terms of the Notes. On April 13, 2018, the Investor notified the Company that it had elected to exercise its remedies with respect to requiring the Company to redeem the Series A Notes (the “Default Notice”). Pursuant to the Default Notice, the Investor has demanded that the Company pay the Event of Default Redemption Price of the Series A Note not later than April 20, 2018, which the Investor has calculated as $33.6 million if paid by such date. The Investor has not exercised its remedies with respect to requiring the Company to redeem the Series B Note, but in the Default Notice has reserved its rights with regard to such remedy regarding the Event of Default under the Series B Note. In addition to other remedies available to the Investor, the Company’s obligation to repay amounts due under the Series B is secured by a first priority security interest in and lien on the Investor Note, and such remedies can be exercised by the Investor without additional notice to the Company.

Following receipt of the Default Notice, the Company has entered into discussions with the Investor regarding the renegotiation of the terms of the Note Financing in light of the trading halt. If the Company is unable to successfully renegotiate the terms of the Note Financing, including receiving one or more waivers with respect to the ongoing default under the Notes, it will negatively impact its business and operations and could also lead to the reduction or suspension of the Company’s operations and ultimately force the Company to cease operations.

Note 9: Secured and Unsecured Loans

The company has a Secured Loan for the purchase of vehicle during the quarter ended June 30, 2018.

Note 11: Stockholders’ Equity

As of the date of incorporation, the Company’s authorized capital stock consisted of 200,000,000 shares, par value $0.00001 per share. On February 1, 2017 the Company issued 7,500,000 founder shares to Mr. Meenavalli, the Company’s Chief Executive Officer (“CEO”), valued at $75, which was paid for in cash by Mr. Meenavalli.

On June 15, 2017, the Company amended its Certificate of Incorporation such that the Company is authorized to issue 100,000,000 shares of Class A Common Stock, par value $0.00001 per share; 75,000,000 of Class B Common Stock, par value $0.00001 per share and 25,000,000 shares of Class C Common Stock, par value $0.00001 per share. The By-Laws were amended such that (i) the holders of Class A Common Stock and Class B Common Stock will at all times vote together as one class on all matters(including the election of directors) submitted to a vote for the consent of the stockholders of the Company, (ii) Each holder of Class A Common Stock is entitled to one (1) vote for each share of Class A Common Stock held, (iii) Each holder of Class B Common Stock is entitled to ten (10) votes for each share of Class B Common Stock held, and (iv) Each holder of Class C Common Stock is entitled to zero votes for each share of Class C Common Stock held. The Company has been advised that such provisions of its By-Laws are ineffective under Delaware law and accordingly the disparate voting rights have been disregarded for all periods.

On March 20, 2018, the Company amended and restated its Certificate of Incorporation to increase the authorized shares of the Company’s capital stock from 200,000,000 shares to 300,000,000 shares, $0.00001 par value per share, comprised of 200,000,000 shares of Class A Common Stock, 75,000,000 shares of Class B Common Stock and 25,000,000 shares of Class C Common Stock. Shares of Common Stock shall have the same rights and powers, rank equally (including as to dividends and distributions, and any liquidation, dissolution or winding up of the corporation), share ratably and be identical in all respects as to all matters, except each share of Class B Common Stock convertible into one share of Class A Common Stock. Holders of Class A and Class B Common Stock will be entitled to one vote for each share held. Holders of Class C Common Stock will have no voting rights.

The holders of ordinary shares are entitled to receive dividends as and when declared and are entitled to one vote per share at meetings of the Company. All shares rank equally with regards to residual assets of the Company.

On June 19, 2017, the Company issued shares of its Common Stock related to the acquisition of Longfin Tradex valued at $134.4 million, which is comprised of 27,500,000 shares of Class A Common Stock issued to SCL and 22,500,000 shares of Class B Common Stock issued to Mr. Meenavalli, Longfin’s CEO. The Company also issued 10,000,000 shares of Class A Common Stock to Mr. Meenavalli, valued at $19 million for services and recorded compensation expense in the Company’s condensed consolidated statement of operations in general and administrative expenses. The 10,000,000 shares of Class A Common Stock were valued under 409A of the Internal Revenue Code at a price of $1.90 per share based on a third party valuation report from Scalar.

On September 14, 2017, the Company issued 2,025,000 shares of its Class A Common Stock valued at $4.2 million to a third-party marketing platform owned by Adamson Brothers Corp., an entity of which Mr. Andy Altahawi has voting and dispositive control, in exchange for services in connection with the Financing. Such amounts were recorded as deferred offering costs-non cash as of December 31, 2017. Also, in addition to stock compensation paid to Adamson Brothers Corp., the Company also agreed to pay $65,000 in cash for the services obtained in connection with the Public Offering.

On December 11, 2017, the Company acquired the Ziddu.com website from a related party, Meridian Enterprises Pte. Ltd., a Singapore corporation (“Meridian”), in exchange for the issuance of 2.5 million restricted shares of Class A stock. Exemption from registration for the above transaction was claimed by the Company pursuant to Section 4(a)(2) of the Securities Act based on the facts and circumstances of the acquisition.

On December 12, 2017, the Company completed the initial public offering of 1,140,989 shares of its Class A Common Stock, par value $0.00001 at a price of $5.00 per share to investors pursuant to Regulation A promulgated under the Securities Act. Net proceeds from the offering totaled $4,948,998, net of cash offering expenses of $755,947. 46,540,989 shares are issued and outstanding as of December 31, 2017.

On September 14, 2017, the Company issued 3,375,000 shares of its Class A Common Stock valued at $7.0 million to Mr. Krishanu Singhal, the Company’s former Chief Financial Officer. On March 19, 2018, the Company executed an agreement to cancel 2,000,000 of the 3,375,000 shares of Class A Common Stock issued and agreed to pay Mr. Singhal $100,000 in cash compensation.