Acquisition

9 Months Ended

Mar. 31, 2019

Business Combination Disclosure [Text Block]

12.

Acquisition

On February 13, 2019,

the Company acquired certain assets and assumed certain liabilities of LuxeMark through its LMCS subsidiary. With the acquisition of LuxeMark, our LMCS subsidiary focuses on the MCA sector of the financial industry, which is a unique segment of the market that provides financing to small- and medium-sized businesses. LMCS operates through its syndication network to facilitate MCA funding by connecting a network of MCA originators with syndicate participants who provide those originators with additional capital by purchasing participation interests in funded MCAs. LMCS utilizes its expertise in the MCA industry to provide reporting and other administrative services to its syndication network.

The acquisition was accounted for as a business combination. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at their estimated fair value as of the date of acquisition, with the residual purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to establishing market presence in the MCA sector. The goodwill is deductible for the income tax purposes as the acquisition was an asset acquisition. Acquisition costs

of $289

were expensed in the period incurred and are included in acquisition-related costs as general and administrative operating expenses in the Company’s consolidated statement of operations.

The acquisition-date fair value of the consideration transferred is as follows:

Cash consideration	$	1,212
Equity consideration - 20% membership interest in LMCS		768
Equity consideration - warrants to purchase CCUR common stock		150
Fair value of contingent consideration		1,710
Total purchase consideration	$	3,840

The fair value of the 20%

membership interest in LMCS issued to the sellers of LuxeMark as part of the Purchase Agreement was determined on the basis of the transaction price attributable to the rollover equity participants.

The fair value of common stock purchase warrants issued as part of the Purchase Agreement entitles the holders to purchase from the Company an aggregate amount of

444,361

common shares once vested. Vesting is dependent upon LMCS achieving certain performance levels. The warrants expire in ten years and are exercisable at $6.50 per share. The warrants were valued utilizing the Black-Scholes model. In addition, the Company used a Monte-Carlo simulation model to determine the number of performance-based warrants that are expected to vest. This technique is a probabilistic model which relies on repeated random sampling to obtain numerical results. The concluded value represents the mean of those results. Warrants are included within contingent consideration on the consolidated balance sheet due to the associated contingencies.

The Purchase Agreement requires the Company to pay to the sellers of LuxeMark four earnout payments equal to $1,000 each if fully earned through the achievement of agreed upon distributable net income (“DNI”) thresholds. The earnout payments are calculated based on DNI for each of the calendar years ending on

December 31, 2019, 2020, 2021, and 2022.

The Company utilized a Monte Carlo simulation technique to value performance-based contingent consideration, the same methodology used to determine the number of performance-based warrants that are expected to vest, the vesting of which is tied to the same performance-based DNI benchmarks as the contingent consideration.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

Accounts receivable	$	153
Intangible assets		2,730
Goodwill		995
Total assets acquired		3,878

Accrued commission		38
Total liabilities assumed		38
Net assets acquired	$	3,840

The fair values of intangible assets, including the trade name, non-competition agreements, and investor/funder relationships, were determined using variations of the income approach. We employed the relief from royalty methodology to value the trade name, the with or without methodology to value the non-competition agreements, and the multi-period excess earnings method to value the investor/ funder relationships. Varying discount rates were also applied to the projected net cash flows and EBITDA as applicable to valuation methodology. We believe the assumptions are representative of those a market participant would use in estimating fair value. The acquisition date fair value and weighted-average amortization periods of intangible assets was as follows:

			Weighted Average
	Fair Value		Amortization Period
			(years)
Trade name	$	150		10.0
Non-competition agreements		730		5.0
Investor/funder relationships		1,850		7.0
Total	$	2,730		6.6

The amounts of LMCS’s revenue and earnings included in the Company's consolidated statement of operations for the nine months ended

March 31, 2019,

and the revenue and earnings of the combined entity had the acquisition date been

July 1, 2017, are as follows.

	Revenue		Income (loss) from continuing operations

Actual from February 13, 2019 to March 31, 2019	$	250	$	(7	)

Supplemental pro forma for the period from:

January 1, 2019 to March 31, 2019	$	1,317	$	1,776

January 1, 2018 to March 31, 2018	$	162	$	(1,123	)

July 1, 2018 to March 31, 2019	$	2,759	$	570

July 1, 2017 to March 31, 2018	$	299	$	(5,511	)

Supplemental pro forma loss from continuing operations for the nine-month period ended March 31, 2019 was adjusted to exclude $289 of acquisition-related costs incurred in the nine-month period ended March 31, 2019. Supplemental pro forma loss from continuing operations for the nine-month period ended March 31, 2018 was adjusted to include these charges.

The purchase accounting is provisional as the Company continues to evaluate the fair value of the contingent consideration transferred, intangible assets acquired as of the acquisition date, and any related current and deferred taxes.