3. Purchase Accounting

9 Months Ended

Sep. 30, 2017

Purchase Accounting

Purchase Accounting

The Merger was accounted for using the purchase method of accounting as a reverse acquisition.  In a reverse acquisition, the post-acquisition net assets of the surviving combined company includes the historical cost basis of the net assets of the accounting acquirer (Private Acer) plus the fair value of the net assets of the accounting acquiree (the Registrant). Further, under the purchase method, the purchase price is allocated to the assets acquired, liabilities assumed, and identifiable intangible assets based on their estimated fair values, with the remaining excess purchase price over net assets acquired allocated to goodwill.

 The fair value of the consideration transferred in the Merger was $6,978,916 and was calculated as the number of shares of common stock that Private Acer issued (adjusted for the exchange ratio) in order for the Registrant’s shareholders to hold an 11% equity interest in the combined company post-acquisition, multiplied by the estimated fair value of Private Acer’s common stock on the acquisition date.  The estimated fair value of Private Acer’s common stock was based on the offering price of the common stock sold in the private placement which was both completed concurrently with and conditioned upon the closing of the Merger.  This price was determined to be the best indication of fair value on that date since the price was based on an arm’s length negotiation with a group consisting of both new and existing investors of Private Acer that had been advised of the pending Merger and assumed similar liquidity risk as those investors holding the majority of shares being valued as purchase consideration.

 The following table summarizes the Company’s determination of fair values of the assets acquired and the liabilities assumed as of the date of acquisition.

Consideration - issuance of securities and cash paid for fractional shares	$	7,007,069
Assets acquired and liabilities assumed:
Cash	$	1,058,276
Other assets		5,000
Accrued liabilities		(1,431,158	)
Goodwill		7,374,951
Total purchase price	$	7,007,069

The Company determined that the acquired legacy technology of the Registrant had no value as of the date of the acquisition.

Goodwill represents the excess of the purchase price (consideration paid plus net liabilities assumed) of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill includes the value of the Registrant’s standing as a public entity. None of the goodwill associated with the Merger is deductible for income tax purposes. 

There were no changes in goodwill during the period ended September 30, 2017, after the initial purchase accounting. 

The Company is required to perform an annual impairment test related to goodwill which is performed in the fourth quarter of each year, or sooner if changes in circumstances suggest that the carrying value of an asset may not be recoverable.

Unaudited pro forma operating results, assuming the Merger occurred as of January 1, 2016, are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(3,478,025	)	$	(1,885,198	)	$	(9,980,370	)	$	(4,564,423	)
Net loss per share - basic and diluted	$	(1.09	)	$	(0.77	)	$	(3.69	)	$	(1.86	)