BUSINESS COMBINATIONS AND DISPOSITIONS

12 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Redeeem, LLC

Redeeem Asset Purchase

On May 21, 2021 (“Closing Date”), the Company through its wholly owned subsidiary Redeeem Acquisition Corp executed an asset purchase agreement for the acquisition of all the assets and specific liabilities of Redeeem, LLC, a California limited liability company (“Redeeem”). The asset purchase agreement identifies the seller parties as Redeeem,

LLC and Kyle Hill. The purchase price consisted of an aggregate cash payment of $1.2 million , 452,929 shares of the Company’s common stock valued at $1.2 million at $2.6715 per share, and a cash payment of $166 thousand relating to specific liabilities. The Company accounted for the transaction under the purchase method of accounting in accordance with the provisions of ASC Topic 805 Business Combinations (ASC 805).

In addition to the purchase price detailed above, the Company also agreed to provide 3,623,433 shares of the Company’s common stock valued at approximately $9.68 million at $2.6715 per share to Redeeem’s employees which will be vested over three (3) years. For the years ended June 30, 2022 and 2021, the Company recognized approximately $3.0 million and $0.4 million, respectively, in stock-based compensation relating to the vested portion of this deferred compensation. For further detail, please see Note 14 – Stockholders’ Equity.

Redeeem Disposition

During fourth quarter 2022, the Company wound down operations of Redeeem, LLC and on June 7, 2022, Mr. Kyle Hill, the seller of Redeeem, entered into a separation agreement with the Company (“Separation Agreement”). The terms of the Separation Agreement provided that the compensation for the Redeeem purchase would be modified and Hill would forfeit 1,231,967 of the 3,623,433 shares placed in escrow. The remaining escrow balance of 1,231,968 shares at June 7, 2022, would continue to be governed by the terms of the escrow agreement. As a result, the Company impaired the net value of the intangible assets and goodwill acquired with the purchase, totaling approximately $2.5 million as of June 30, 2022, as well as returned the 1.2 million shares forfeited by Mr. Hill to Treasury stock, valued at $3.0 million (based on share price of $2.6715 at June, 11, 2021).

Converge Acquisition

On March 22, 2022 (the “Closing Date”), the Company through its wholly owned subsidiary CD Acquisition Corp, executed a Membership Interest Purchase Agreement ("MIPA") for the acquisition of all the equity of Converge Direct, LLC and its affiliates ("Converge") and 40% of the equity of Converge Marketing Services, LLC an affiliated entity, for an aggregate purchase price of $125.0 million valued at $114.9 million. The MIPA identifies the seller parties as the Converge Sellers.

PURCHASE PRICE

The purchase price consisted of an aggregate cash payment of 95.0 million, $5.0 million cash withheld by the company for use in working capital to be repaid in twelve (12) months and approximately $4.3 million representing excess working capital as provided for in the MIPA. The remaining $25.0 million was paid in the form of 12.5 million shares of the Company’s restricted common stock at a price of $2.00 per share, which was valued at $1.19 per share for $14.9 million. All 12.5 million shares are subject to a nine (9) month lock-up period. Pursuant to the provisions of the MIPA dated as of November 22, 2021, as amended, an aggregate of $2.5 million (10%) or 1,250,000 shares of the common stock issued to the Sellers are held in escrow to secure against claims for indemnification. The escrowed shares shall be held until the later of (a) one year from the Closing Date, or (b) the resolution of indemnification claims. The Company is accounting for the transaction under the purchase method of accounting in accordance with the provisions of ASC Topic 805 Business Combinations (ASC 805).On the Closing Date, Converge became a wholly-owned subsidiary.

The Company recorded the $5.0 million payable due at March 21, 2023, at its net present value of $4.7 million at June 30, 2022. Further, pursuant to the MIPA, the Company recorded an additional liability totaling $4.3 million which represents the excess net working capital value received by the Company at the purchase date. Per the terms of the MIPA, this amount was to be repaid within 120 days of closing. The total $9.1 million is included within acquisition liabilities on the consolidated balance sheets.

On March 21, 2022, the Company entered into employment agreements with Sid Toama and Tom Marianacci, two (2) former owners of Converge. Mr. Toama was appointed President of TMG and Mr. Marianacci is serving as President of the Converge entities.

PURCHASE PRICE ALLOCATION

The Company negotiated the purchase price based on the expected cash flows to be derived from their operations after integration into the Company’s existing distribution, production and service networks. The acquisition purchase price is allocated based on the fair values of the assets acquired and liabilities assumed, which are based on management estimates and third-party appraisals. The Company engaged a valuation expert to provide guidance to management which was

considered and in part relied upon in completing its purchase price allocation. The excess of the purchase price over the aggregate estimated fair value of net assets acquired was allocated to goodwill.

The following table summarizes the allocation of the purchase price of the assets acquired related to the acquisition as of the closing date:


Current assets	$	33,856,000
Fixed assets	233,000
Other non-current assets	4,340,000
Intangible assets	71,100,000
Goodwill	45,519,000
Current liabilities	(34,904,000)
Other non-current liabilities	(5,506,000)
Consideration	$	114,638,000

INTANGIBLE ASSETS

The estimated fair values of the identifiable intangible assets acquired were calculated using an income valuation approach which requires a forecast of expected future cash flows either through the use of relief-from-royalty method or multi-period excess earnings methods ("MPEEM"). The estimated useful lives are based on the Company’s experience and expectations as to the duration of the time the Company expects to realize benefits of the assets.

The estimated fair values of the identifiable intangible assets acquired, estimated useful lives and related valuation methodology are as follows:


Intangible Assets:	Preliminary Fair Value		Life in Years	Discount Rate	Valuation Method
Customer relationships	$	53,600,000	10	17.8%	Income (MPEEM)
Technology	10,400,000		5	17.8%	Income (Relief-from-Royalty)
Tradename	7,100,000		10	18.8%	Income (Relief-from-Royalty)
	$	71,100,000

The Company will amortize the intangible assets above on a straight line basis over their estimated useful lives.

UNAUDITED PRO FORMA OPERATING RESULTS

The following unaudited pro forma information presents the combined results of operations as if the acquisition of Converge, LLC, had been completed on July 1, 2020.


	For the Year Ended June 30, 2022		For the Year Ended June 30, 2021
Project Revenues	$	302,835,652	$	270,137,501
Cost of revenues	(251,811,502)		(232,031,173)
Gross margin	51,024,150		38,106,327
Operating expenses	(62,086,247)		(44,786,105)
EBITDA	(11,062,097)		(6,679,777)
Other expenses	(18,531,800)		(4,145,355)
Net loss	$	(29,593,897)	$	(10,825,132)

Basic loss per share	$	(0.60)	$	(0.70)