13. Acquisition

On February 13, 2019, the Company consummated the LuxeMark Acquisition. With the LuxeMark Acquisition, our LMCS subsidiary focuses on the MCA sector of the financial industry, which 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 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 income tax purposes, as the transaction was an asset acquisition for income tax purposes. Acquisition costs of $300,000 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 (amounts in thousands):



Cash consideration	$	1,212
Equity consideration - 20% membership interest in LMCS		893
Equity consideration - warrants to purchase CCUR common stock		200
Fair value of contingent consideration		2,160
Total purchase consideration	$	4,465

The fair value of the 20% membership interest in LMCS issued to Old LuxeMark as part of the Purchase Agreement was determined based on 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 of $200,000 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 Old LuxeMark four earnout payments of up to $1,000,000 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. This analysis resulted in $2,360,000 of contingent consideration as of the acquisition date. During the fourth quarter of our fiscal year 2019, we recorded a $730,000 increase in the contingent consideration liability through our statement of operations, based on updated estimates of projected DNI. As of June 30, 2019, $750,000 of the contingent consideration accrual was reported as a current liability, with the remaining $2,340,000 reported as a non-current liability.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition (amounts in thousands):


Accounts receivable	$	153
Intangible assets		3,090
Goodwill		1,260
Total assets acquired		4,503

Accrued commission		38
Total liabilities assumed		38
Net assets acquired	$	4,465

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 ($ amounts in thousands):


			Weighted-Average
			Amortization
	Fair Value		Period (Years)
Trade name	$	180	10.0
Non-competition agreements		790	5.0
Investor/funder relationships		2,120	7.0
Total	$	3,090	6.7

The amounts of LMCS’s revenue and earnings included in the Company's consolidated statement of operations for the fiscal year ended June 30, 2019, and the revenue and earnings of the combined entity had the acquisition date been July 1, 2017, are as follows.


			Income (loss)
			from continuing
	Revenue		operations
	(Amounts in thousands)

Actual from February 13, 2019 to June 30, 2019	$	2,004	$	(656)

Supplemental pro forma information for the period from:


July 1, 2018 to June 30, 2019	$	4,605	$	1,229

July 1, 2017 to June 30, 2018	$	715	$	(7,158)

Supplemental pro-forma loss from continuing operations for the fiscal year ended June 30, 2019 was adjusted to exclude approximately $300,000 of acquisition-related costs incurred in the fiscal year ended June 30, 2019. Supplemental pro-forma loss from continuing operations for the fiscal year ended June 30, 2018 was adjusted to include these charges. We finalized the purchase accounting as of June 30, 2019, increasing goodwill by $265,000, increasing definite-lived intangibles by $360,000, and increasing contingent consideration by $500,000 over the provisional amounts recorded during the third quarter of our fiscal year 2019. Additionally, based upon new facts and circumstances that arose subsequent to the acquisition date, we recorded an additional $730,000 of contingent consideration through our statement of operations during the fourth quarter of our fiscal year 2019.