Acquisition

6 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

Acquisition

NOTE 4 - ACQUISITION

On January 26, 2018, CoinTracking, a wholly-owned subsidiary of the Company, acquired 50.1% of the equity interest in CoinTracking GmbH, for (i) $4,736,400 in cash and (ii) 473,640 shares of common stock of the Company at $10 per share for total purchase price valued at $9,472,800. On the acquisition date, the fair market value of $10 per share for the Company’s common stock was determined using a trading range from November 2017, discounted further due to lack of marketability. The Company used this approach due to the lack of trading volume since (i) the stock trading was suspended by the SEC in December 2017 and was moved to OTC Grey market by the OTC Markets Group, Inc. on January 3, 2018, (ii) stock sales to accredited investors on December 12, 2017, at $7 per share, and (iii) a valuation performed as of March 31, 2018. The equity purchase agreement between the Company and CoinTracking GmbH included a purchase price adjustment pursuant to which the consideration would increase if the share price of the Company’s common stock closed below $10 per share on July 2, 2018. No adjustment was required. CoinTracking GmbH provides its customers with the ability to view and monitor their own cryptocurrency portfolios as well as tax calculation and reporting services. Customers may not make trades through the CoinTracking GmbH platform. The purpose of the acquisition was to increase our presence in the digital asset industry and build strategic alliances.

The consolidated financial statements were prepared using the acquisition method of accounting in accordance with FASB ASC805, Business Combinations, and have been included in the Company’s consolidated results as of acquisition date with the Company considered as the accounting acquirer and CoinTracking GmbH as the accounting acquiree.

Accordingly, consideration paid by the Company to complete the acquisition was allocated to the identifiable assets and liabilities of CoinTracking GmbH based on estimated fair values as of the closing date. We made a preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on the information available and preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed. Acquisition-related costs were expensed as incurred and were not considered to be significant. We expect to complete the final purchase price allocation related to this acquisition prior to year-end. Therefore, the valuation of certain assets and liabilities in the CoinTracking GmbH acquisition is preliminary and subject to change.

The table below summarizes the fair values of the assets acquired and liabilities assumed, translated from euros to U.S. dollars, at the date of acquisition:

	CoinTracking GmbH
Cash and cash equivalents	$	1,547,097
Investment in cryptocurrency		1,115,345
Loan receivable – related party		194,380
Other current assets		284,677
Goodwill		10,014,881
Other assets		144,566
Total assets	$	13,300,946
Current liabilities	$	211,422
Contract liabilities, short term		2,686,858
Contract liabilities, long term		929,866
Total liabilities		3,828,146
Net assets acquired	$	9,472,800

During the six months ended June 30, 2018, the Company recorded an adjustment to current liabilities assumed of $250,000, resulting in a reduction of goodwill.

The purchase price was based on the expected financial performance of CoinTracking GmbH and not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill. As a result, the Company recognized $10,014,881 of goodwill on the date of acquisition. Once the purchase price allocation is completed, the Company expects a portion of goodwill to be allocated to non-controlling interests and intangible assets, primarily software and technology and a non-compete agreement with the former majority shareholder of CoinTracking GmbH, included as finite-lived intangible assets, which will increase amortization expense by a significant amount.

Unaudited pro forma financial information

The unaudited pro forma financial information in the table below presents the combined results of the Company and CoinTracking GmbH as if these acquisitions had occurred on January 1, 2018. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had the acquisitions actually occurred on January 1, 2018.

For the three and six months ended June 30, 2018:

	Three-months			Six Months
Revenue	$	586,747		$	2,232,007
Net loss	$	(7,145,543	)		(10,374,966	)
Basic and diluted loss per share:
Basic and diluted	$	(0.34	)	$	(0.49	)