Company Quick10K Filing
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CCUR
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-02-11 Enter Agreement, Officers, Other Events, Exhibits
8-K 2019-02-06 Earnings, Exhibits
8-K 2019-01-01 Officers, Exhibits
8-K 2018-11-09 Earnings, Exhibits
8-K 2018-11-08 Shareholder Rights, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-10-02 Other Events, Exhibits
8-K 2018-06-01
8-K 2018-04-25 Enter Agreement, Exhibits
8-K 2018-03-27 Exhibits
8-K 2018-03-23 Exhibits
8-K 2018-03-21 Other Events
8-K 2018-03-10 Enter Agreement, Exhibits
8-K 2018-03-05 Other Events, Exhibits
8-K 2018-02-15 Enter Agreement, Exhibits
8-K 2018-01-30 Officers, Exhibits
8-K 2018-01-04
8-K 2018-01-02 Amend Bylaw, Other Events, Exhibits
8-K 2017-12-31 M&A, Officers, Exhibits
BP BP 150,830
APAM Artisan Partners Asset Management 2,250
BHE Benchmark Electronics 1,200
CCC Calgon Carbon 1,190
CKH Seacor Holdings 802
SMGI SMG Industries 0
VTL Vital Therapies 0
AMPY Amplify Energy 0
WGL WGL Holdings 0
AITB AIT Therapeutics 0
CCUR 2018-12-31
Part I - Financial Information
Item 1. Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II - Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.Exhibits
EX-31.1 tv511470_ex31-1.htm
EX-31.2 tv511470_ex31-2.htm
EX-32.1 tv511470_ex32-1.htm
EX-32.2 tv511470_ex32-2.htm

CCUR Earnings 2018-12-31

CCUR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv511470_10q.htm 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2018

 

or

 

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to ______

 

Commission File Number: 001-37706

_____________

 

CCUR HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 04-2735766
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

4375 River Green Parkway, Suite 210, Duluth, Georgia 30096

(Address of principal executive offices) (Zip Code)

 

(770) 305-6435

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ      No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨ Accelerated filer  ¨
Non-accelerated filer  þ Smaller reporting company  þ
  Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    ¨        No    þ

 

Number of shares of the Company’s common stock, par value $0.01 per share, outstanding as of February 4, 2019 was 8,905,037.

  

 

 

 

 

 

CCUR Holdings, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended December 31, 2018

 

Table of Contents

 

  Page
  PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Consolidated Balance Sheets (Unaudited) 2
     
  Consolidated Statements of Operations (Unaudited) 3
     
  Consolidated Statements of Comprehensive (Loss) Income (Unaudited) 4
     
  Consolidated Statements of Cash Flows (Unaudited) 5
     
  Notes to Consolidated Financial Statements (Unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
     
Item 4. Controls and Procedures 28
     
  Part II – Other Information  
     
Item 1. Legal Proceedings 28
     
Item 1A. Risk Factors 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
     
Item 6. Exhibits 31

 

 1 

 

 

Part I - Financial Information

 

Item 1.     Financial Statements

 

CCUR Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

(Amounts in thousands, except share and per share data)

 

   December 31,
2018
   June 30,
2018
 
ASSETS          
Current assets:          
Cash and cash equivalents  $20,938   $32,992 
Equity securities, fair value   5,736    6,629 
Fixed maturity securities, available-for-sale, fair value   12,539    13,381 
Current maturities of mortgage loans receivable   2,110    700 
Current maturity of commercial loan receivable   721    - 
Receivable from sale of Content Delivery business held in escrow   1,450    1,450 
Advances receivable, net   6,485    - 
Prepaid expenses and other current assets   1,564    1,419 
Total current assets   51,543    56,571 
           
Property and equipment, net   6    1 
Deferred income taxes, net   487    975 
Deposit on mortgage loan receivable held in escrow   -    1,400 
Mortgage loans receivable, net of current maturities   4,083    2,305 
Other long-term assets, net   99    54 
Total assets  $56,218   $61,306 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $853   $1,289 
Total current liabilities   853    1,289 
           
Long-term liabilities:          
Pension liability   3,718    3,766 
Other long-term liabilities   236    185 
Total liabilities   4,807    5,240 
           
Commitments and contingencies (Note 12)          
           
Stockholders' equity:          
Shares of series preferred stock, par value $0.01;  1,250,000 authorized; none issued   -    - 
Shares of class A preferred stock, par value $100; 20,000 authorized; none issued   -    - 
Shares of common stock, par value $0.01; 14,000,000 authorized; 8,968,154 and 9,117,077 issued and outstanding at December 31 and June 30, 2018, respectively   90    91 
Capital in excess of par value   209,544    210,083 
Accumulated deficit   (153,010)   (151,795)
Accumulated other comprehensive loss   (5,213)   (2,313)
Total stockholders' equity   51,411    56,066 
Total liabilities and stockholders' equity  $56,218   $61,306 

  

The accompanying notes are an integral part of the consolidated financial statements.

 

 2 

 

 

CCUR Holdings, Inc.

Consolidated STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in thousands, except share and per share data)

 

   Three Months Ended
December 31,
   Six Months Ended
December 31,
 
   2018   2017   2018   2017 
Revenues:                
Interest income on loans  $185   $-   $316   $- 
Merchant cash advance income   185    -    220    - 
Total revenues   370    -    536    - 
Operating expenses:                    
General and administrative   792    3,859    1,627    5,324 
Provision for credit losses   495    -    495    - 
Total operating expenses   1,287    3,859    2,122    5,324 
Operating loss   (917)   (3,859)   (1,586)   (5,324)
                     
Other interest income   890    76    1,735    146 
Dividend income   46    -    110    - 
Net realized gain on investments   -    -    201    - 
Unrealized loss on equity securities, net   (1,529)   -    (1,986)   - 
Other (expense) income, net   (20)   19    (5)   42 
Loss from continuing operations before income taxes   (1,530)   (3,764)   (1,531)   (5,136)
                     
(Benefit) provision for income taxes   -    (924)   2    (918)
                     
Loss from continuing operations   (1,530)   (2,840)   (1,533)   (4,218)
                     
Income from discontinued operations, net of income taxes   -    22,728    -    23,096 
                     
Net (loss) income  $(1,530)  $19,888   $(1,533)  $18,878 
                     
Basic and diluted (loss) earnings per share:                    
Continuing operations  $(0.17)  $(0.30)  $(0.17)  $(0.45)
Discontinued operations   -    2.41    -    2.45 
Net (loss) income  $(0.17)  $2.11   $(0.17)  $2.00 
                     
Weighted average shares outstanding - basic and diluted   9,034,368    9,436,845    9,069,947    9,414,521 
                     
Cash dividends declared per common share  $-   $0.12   $-   $0.24 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 3 

 

 

ccur holdings, inc.

Consolidated STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

(Amounts in thousands)

 

    Three Months Ended
December 31,
    Six Months Ended
December 31,
 
    2018     2017     2018     2017  
                         
Net (loss) income   $ (1,530 )   $ 19,888     $ (1,533 )   $ 18,878  
                                 
Other comprehensive loss:                                
Net unrealized loss on available for sale investments     (1,813 )     -       (2,690 )     -  
Foreign currency translation adjustment     53       (3 )     76       21  
Pension and post-retirement benefits, net of tax     16       (38 )     32       (98 )
Other comprehensive loss:     (1,744 )     (41 )     (2,582 )     (77 )
                                 
Comprehensive (loss) income   $ (3,274 )   $ 19,847     $ (4,115 )   $ 18,801  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 4 

 

 

ccur holdings, inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in thousands)

 

   Six Months Ended
December 31,
 
   2018   2017 
         
Cash flows used in operating activities:          
Net (loss) income  $(1,533)  $18,878 
Adjustments to reconcile net (loss) income to net cash used in operating activities:          
Depreciation   1    606 
Share-based compensation   75    2,217 
Recovery of provision for excess and obsolete inventories   -    (23)
Provision for uncollectible merchant cash advances   495    - 
Deferred taxes, net   -    (1,153)
Other, net   -    (45)
Non-cash accretion of income   (611)   - 
Payment-in-kind interest   (412)   - 
Realized gain on investments, net   (201)   - 
Unrealized loss on investments, net   1,986    - 
Foreign currency exchange losses   -    144 
Gain on sale of Content Delivery business, net   -    (22,609)
Decrease (increase) in assets:          
Accounts receivable   -    115 
Inventories   -    (146)
Prepaid expenses and other current assets   344    (254)
Other long-term assets   (45)   (230)
Increase (decrease) in liabilities:          
Accounts payable and accrued expenses   (311)   (2,688)
Deferred revenue   -    1,337 
Pension and other long-term liabilities   110    233 
Net cash used in operating activities   (102)   (3,618)
           
Cash flows (used in) provided by investing activities:          
Additions to property and equipment   (6)   (275)
Origination and fundings of real estate loans receivable   (2,492)   - 
Collections of real estate loans receivable   700    - 
Fundings of cash advances receivable   (7,882)   - 
Collections of cash advances receivable   876    - 
Fundings of commercial loan receivable   (1,970)   - 
Collections of commercial loan receivable   1,249    - 
Proceeds from sale or maturity of securities   6,159    8,933 
Purchases of securities   (7,970)   (9,986)
Proceeds from sale of Content Delivery business, net of cash transferred   -    28,914 
Net cash (used in) provided by investing activities   (11,336)   27,586 
           
Cash flows used in financing activities:          
Purchase of common stock for retirement   (615)   - 
Dividends paid   (1)   (2,307)
Net cash used in financing activities   (616)   (2,307)
           
Effect of exchange rates on cash and cash equivalents   -    (7)
           
(Decrease) Increase in cash and cash equivalents   (12,054)   21,654 
Cash and cash equivalents - beginning of year   32,992    35,893 
Cash and cash equivalents - end of period  $20,938   $57,547 
           
Cash paid during the period for:          
Interest  $-   $- 
Income taxes, net of refunds  $295   $616 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 5 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

  

1.Overview of Business and Basis of Presentation

 

References herein to “CCUR Holdings,” the “Company,” “we,” “us,” or “our” refer to CCUR Holdings, Inc. and its subsidiaries unless the context specifically indicates otherwise. CCUR Holdings was formerly known as Concurrent Computer Corporation and changed its name on January 2, 2018.

 

In May 2017, we sold our Real-Time business consisting of real-time Linux operating system versions, development and performance optimization tools, simulation software and other system software combined, in many cases, with computer platforms and services. These real-time products were sold to a wide variety of companies seeking high performance, real-time computer solutions in the defense, aerospace, financial and automotive markets around the world.

 

On December 31, 2017, we completed the sale of our content delivery and storage business (the “Content Delivery business”) and other related assets to Vecima Networks, Inc. (“Vecima”) pursuant to an Asset Purchase Agreement, dated as of October 13, 2017, between the Company and Vecima. Substantially all liabilities associated with the Content Delivery business were assigned to Vecima as part of the transaction. The Content Delivery business provided advanced applications focused on storing, protecting, transforming, and delivering high value media.

 

Results of the Content Delivery business are retrospectively reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. Prior year information has been adjusted to conform to the current year presentation. Unless otherwise stated, the information disclosed in the footnotes accompanying the consolidated financial statements refers to continuing operations. See Note 3 “Discontinued Operations” for more information regarding results from discontinued operations.

 

In fiscal year 2018, following the sale of the Content Delivery business, we began developing a real estate operation initially through, among other things, making a number of commercial loans secured by real property. Based on the success of these activities, including the yield characteristics of these loans, and management’s experience in the real estate area, we created Recur Holdings LLC, a Delaware limited liability company wholly owned by the Company, during the first quarter of our fiscal year 2019. Through Recur Holdings LLC, we conduct, hold and manage our existing and future real estate operations.

 

The accompanying unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been omitted pursuant to applicable rules and regulations. In the opinion of management, all adjustments of a normal recurring nature which were considered necessary for a fair presentation have been included. The year-end consolidated balance sheet data as of June 30, 2018 was derived from our audited consolidated financial statements and may not include all disclosures required by U.S. GAAP. Certain prior period income amounts have been reclassified to conform with current period presentation. The results of operations for the three months and six months ended December 31, 2018 are not necessarily indicative of the results to be expected for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 filed with the SEC on September 7, 2018.

 

Smaller Reporting Company

 

We meet the SEC’s definition of a “Smaller Reporting Company,” and therefore qualify for the SEC’s reduced disclosure requirements for smaller reporting companies.

 

 6 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Investments in Debt and Equity Securities

 

We determine the appropriate classification of investments in debt securities at the time of purchase and reevaluate such determinations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded as either short term or long term in the consolidated balance sheet based on contractual maturity date and are stated at amortized cost. Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings. Debt securities not classified as held-to-maturity or as trading are classified as available-for-sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in stockholders’ equity.

 

We adopted Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), as amended by ASU No. 2018-03, Financial Instruments-Overall: Technical Corrections and Improvements, on July 1, 2018 (see Note 2). Upon adoption of ASU 2016-01 on July 1, 2018, we are no longer required to determine the classification of our equity securities and there will no longer be a requirement to assess equity securities for impairment since such securities will be measured at fair value through net income.

 

Premiums and discounts on fixed maturity securities are amortized using the effective interest method. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations. Dividends on equity securities are recognized when declared. When the Company sells a security, the difference between the sale proceeds and amortized cost (determined based on specific identification) is reported as a realized investment gain or loss. When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses) on investments) and the cost basis of that investment is reduced. If the Company can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in accumulated other comprehensive income, or “AOCI”). The credit-related portion of an “other-than-temporary” impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of that security to fair value.

 

In some cases, our debt investments may provide for a portion of the interest payable to be payment-in-kind (“PIK”) interest. To the extent interest is PIK, it is payable through the increase of the principal amount of the loan by the amount of the interest due on the then-outstanding principal amount of the loan.

 

 7 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

Commercial and Mortgage Loans and Loan Losses

 

We have potential exposure to transaction losses as a result of uncollectibility of commercial mortgage and other loans. We base our reserve estimates on prior chargeback history and currently available information that is indicative of a transaction loss. We reflect additions to the reserve in current operating results, while we make charges to the reserve when we incur losses. We reflect recoveries in the reserve for transaction losses as collected. We have the intent and ability to hold our commercial loans to maturity and have not recorded provisions for loan losses as of December 31, 2018.

 

We have the intent and ability to hold these loans to maturity or payoff and as such, have classified these loans as held-for-investment. These loans are reported on the balance sheet at the outstanding principal balance adjusted for any charge-offs, allowance for loan losses, and deferred fees or costs. As of December 31, 2018, we have not recorded any charge-offs, and believe that an allowance for loan losses is not required.

 

Advances Receivable

 

Merchant Cash Advances, net

 

In December 2018, we began purchasing participation interests in Merchant Cash Advances (“MCAs”) from a third party whose principal activity is originating MCAs to small businesses. MCAs are contracts formed through a future receivables or receipts purchase and sale agreement, which stipulates the purchase price, or the amount advanced, and the specified amount, or the advance amount plus the factored receivable balance the Company will be repaid, on the face of the contract. Generally, a specified amount will be withdrawn from the merchant’s bank account via daily or weekly ACH in order to pay down the merchant’s advance. These are not consumer loan contracts, nor are they installment loan contracts to businesses for business use only. In addition, there is no monthly minimum payment, nor is there a specific repayment schedule.

 

Other Advances Receivable

 

During the six months ended December 31, 2018, we provided a $2,000 cash advance to an aviation business to fund the deposit required for the recipient’s aircraft purchases for up to six months, in exchange for paying us an upfront fee and a guaranty of the full repayment obligation from the principal of the third-party business. The fee is earned over the six-month advance period and is reported as part of merchant cash advance income within the statement of operations. Each quarter, we review the carrying value of this cash advance, and determine if an impairment reserve is necessary. As of December 31, 2018, our advance receivable was not impaired.

 

Allowance for MCA credit losses

 

The allowance for credit losses for MCAs is established at the time of funding through a provision for losses charged to our statement of operations based on historical performance experienced by an industry peer group. Losses are charged against the allowance when management believes that the future collection in full of purchased receivables is unlikely. Subsequent recoveries, if any, are credited to the allowance.

 

The establishment of appropriate reserves is an inherently uncertain process, and ultimate losses may vary from the current estimates. We regularly update our reserve estimates as new facts become known and events occur that may affect the settlement or recovery of losses. For the six months ended December 31, 2018, we have experienced no losses on advances; however, new facts and circumstances may adversely affect our MCA portfolio resulting in increased delinquencies and losses and could require additional provisions for credit losses, which could impact future periods. Based on industry peer group historical performance, we recorded a $495 loss reserve during the current period.

 

 8 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

Revenue Recognition

 

We generate revenue primarily from interest earned on commercial mortgage and other loans that yield interest, and also from fees earned on MCAs. Loan origination fees are deferred and recognized over the expected term of the loan. The revenue generated from MCAs is primarily factor income. The factor income represents the amount of the purchased receivables in excess of the funded contract amount advanced to the merchant in accordance with the merchant agreement net of amounts related to participations. Factor income on merchant advance receivables is earned and recognized ratably as receivables are collected, at factor rates stipulated in the client funding agreement from the date of purchase through the date the receivables are collected or ceases accruing factor revenue when the receivable is identified as uncollectible.

 

Basic and Diluted (Loss) Earnings per Share

 

Basic (loss) earnings per share is computed by dividing (loss) income by the weighted average number of common shares outstanding during each year. Diluted (loss) earnings per share is computed by dividing (loss) income by the weighted average number of common shares outstanding including dilutive common share equivalents. Under the treasury stock method, incremental shares representing the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued are included in the computation. Due to the loss from continuing operations for both periods presented, weighted average common share equivalents of 10,937 and 315,771 for the three months ended December 31, 2018 and 2017, respectively, and weighted average common share equivalents of 13,420 and 322,570 for the six months ended December 31, 2018 and 2017, respectively, were excluded from the calculation as their effect would have been anti-dilutive.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.

 

ASC Topic 820, Fair Value Measurements and Disclosures requires certain disclosures around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

 

·Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;
·Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
·Level 3 Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which include the use of management estimates.         

 

 9 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

Our investment portfolio consists of money market funds, repurchase agreements (“repos”), domestic and international commercial paper, equity securities and corporate debt. All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost less any unamortized premium or discount, which approximates fair value. All investments with original maturities of more than three months are classified as available-for-sale, trading or held-to-maturity investments. Our marketable securities, other than warrants and equity securities, are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of tax, reported in stockholders’ equity as a component of accumulated other comprehensive income or loss. Interest on securities is recorded in interest income. Dividends paid by securities are recorded in dividend income. Any realized gains or losses are reported in the accompanying consolidated statements of operations. Equity securities are reported at fair value with unrealized gains and losses resulting from adjustments to fair value reported within our consolidated statements of operations. We provide fair value measurement disclosures of our securities in accordance with one of the three levels of fair value measurement. We have no financial assets that are measured on a recurring basis that fall within Level 3 of the fair value hierarchy. Our financial assets that are measured at fair value on a recurring basis as of December 31, 2018 and June 30, 2018 are as follows:

 

   As of
December 31,
2018
Fair Value
   Quoted
Prices in
Active Markets
(Level 1)
   Observable
Inputs
(Level 2)
   Unobservable
Inputs
(Level 3)
 
                 
Cash  $1,379   $1,379   $-   $- 
Money market funds and repos   19,559    19,559    -    - 
Cash and cash equivalents  $20,938   $20,938   $-   $- 
                     
Common stock warrants  $14   $14   $-   $- 
Common stock   4,686    4,686    -    - 
Mutual funds   1,036    1,036    -    - 
Equity investments  $5,736   $5,736   $-   $- 
                     
Corporate debt  $12,539   $-   $12,539   $- 
Available-for-sale investments  $12,539   $-   $12,539   $- 

 

   As of
June 30, 2018
Fair Value
   Quoted
Prices in
Active Markets
(Level 1)
   Observable
Inputs
(Level 2)
   Unobservable
Inputs
(Level 3)
 
                 
Cash  $3,777   $3,777   $-   $- 
Money market funds   28,215    28,215    -    - 
Commercial paper   1,000    -    1,000    - 
Cash and cash equivalents  $32,992   $31,992   $1,000   $- 
                     
Common stock warrants  $283   $283   $-   $- 
Common stock   5,537    5,537    -    - 
Mutual funds   809    809    -    - 
Equity investments  $6,629   $6,629   $-   $- 
                     
Commercial paper  $3,294   $-   $3,294   $- 
Corporate debt   10,087    -    10,087    - 
Available-for-sale investments  $13,381   $-   $13,381   $- 

 

The carrying amounts of certain financial instruments, including cash equivalents and MCAs, approximate their fair values due to their short-term nature.

 

2.Recent Accounting Guidance

 

Recently Issued and Adopted Accounting Guidance

 

In January 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as amended by ASU No. 2018-03, Financial Instruments-Overall: Technical Corrections and Improvements, issued in February 2018 on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance changes the current accounting guidance related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Additionally, there is no longer a requirement to assess equity securities for impairment since such securities are now measured at fair value through net income. We utilized a modified retrospective approach to adopt the new guidance effective July 1, 2018. The impact related to the change in accounting for equity securities for the fiscal year ended June 30, 2018 was $318 of net unrealized investment gains, net of income tax, reclassified from AOCI to retained earnings.

 

 10 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

Recent Accounting Guidance Not Yet Adopted

 

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU No. 2018-13 is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact this change will have on our consolidated financial statements and disclosures.

 

3.Discontinued Operations

 

Content Delivery Business

 

On December 31, 2017, we completed the sale of the Content Delivery business and other related assets to Vecima pursuant to an Asset Purchase Agreement, dated as of October 13, 2017, between the Company and Vecima for a purchase price of $29,000 (subject to an adjustment for net working capital). The sale included our Content Delivery business assets and related liabilities in the United States, United Kingdom, and Germany, as well as the sale of all equity in our Japanese subsidiary.

 

Gross proceeds of $29,812 from the sale were paid to us as follows: (1) $28,362 net cash payment during our fiscal year ended June 30, 2018 (including an $812 adjustment for surplus net working capital transferred to Vecima as defined in the CDN APA) and (2) $1,450 placed in escrow as security for the Company’s indemnification obligations to Vecima under the CDN APA, which amount was to be released to the Company on or around December 31, 2018 (less any portion used to make indemnification payments to Vecima). In January 2019 we received the full $1,450 from escrow.

 

Results associated with the Content Delivery business are classified within income from discontinued operations, net of income taxes, in the accompanying consolidated statements of operations. Operating expenses recorded in discontinued operations include costs incurred directly in support of the Content Delivery business.

 

 11 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

For the three months and six months ended December 31, 2017, income from discontinued operations, net of income taxes, related to the Content Delivery business was comprised of the following:

 

   Three Months
Ended
December 31,
2017
   Six Months
Ended
December 31,
2017
 
Revenue  $8,148   $16,018 
Cost of sales   3,122    6,342 
Gross margin   5,026    9,676 
           
Operating expenses:          
Sales and marketing   2,091    4,235 
Research and development   1,612    3,290 
General and administrative   473    951 
Total operating expenses   4,176    8,476 
           
Operating income   850    1,200 
           
Gain on sale of Content Delivery business, net   22,609    22,609 
Other expense, net   (33)   (143)
           
Income from discontinued operations before income taxes   23,426    23,666 
           
Provision for income taxes   698    570 
           
Income from discontinued operations  $22,728   $23,096 

 

Cash flow information relating to the Content Delivery business for the six months ended December 31, 2017 was as follows:

 

   Six Months
Ended
December 31,
2017
 
Operating cash flow data:     
Depreciation and amortization  $605 
Share-based compensation   170 
Recovery of provision for excess and obsolete inventories   (23)
Foreign currency exchange losses   144 
      
Investing cash flow data:     
Capital expenditures   (275)

 

 12 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

4.Investments

 

Fixed Maturity and Equity Securities Investments

 

The following tables provide information relating to investments in fixed maturity and equity securities:

 

December 31, 2018  Cost   Unrealized
Gains
   Unrealized
Losses
   Fair Value 
                 
Equity securities                    
Common stock  $6,175   $230   $(1,719)  $4,686 
Common stock warrants   288    -    (274)   14 
Mutual funds   946    90    -    1,036 
Total equity securities  $7,409   $320   $(1,993)  $5,736 

 

   Amortized
Cost
   Unrealized
Gains
   Unrealized
Losses
   Fair Value 
Fixed maturity securities                    
Corporate debt  $16,920   $-   $(4,381)  $12,539 
Total fixed maturity securities  $16,920   $-   $(4,381)  $12,539 

 

Fixed maturity debt securities are classified as “available for sale,” and as such, adjustments to fair value are recorded within other comprehensive income on the consolidated balance sheet as unrealized gains and losses. Upon our adoption of ASU 2016-01, effective July 1, 2018, changes in fair value of equity securities are recorded within the consolidated statement of operations as a net realized gain (loss) on investments. During the three months ended December 31, 2018, we recorded a $1,529 unrealized loss on investments within our consolidated statement of operations as a fair value adjustment to our equity securities investments. During the six months ended December 31, 2018, we recorded a $1,986 unrealized loss on investments within our consolidated statement of operations as a fair value adjustment to our equity securities investments, and we recorded a $201 realized gain on the sale of debt and equity securities, as reported within our consolidated statement of operations.

 

June 30, 2018  Cost   Unrealized
Gains
   Unrealized
Losses
   Fair Value 
                 
Equity securities                    
Common stock  $5,239   $491   $(193)  $5,537 
Common stock warrants   288    -    (5)   283 
Mutual funds   789    20    -    809 
Total equity securities  $6,316   $511   $(198)  $6,629 

 

   Amortized
Cost
   Unrealized
Gains
   Unrealized
Losses
   Fair Value 
Fixed maturity securities                    
Commercial paper  $3,294   $-   $-   $3,294 
Corporate debt   11,778    11    (1,702)   10,087 
Total fixed maturity securities  $15,072   $11   $(1,702)  $13,381 

 

The amortized cost and fair value of fixed maturity securities available-for-sale as of December 31, 2018 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 13 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

   Amortized
Cost
   Fair Value 
Fixed maturity securities          
Due after one year through three years  $4,012   $1,214 
Due after three years through five years   5,122    4,069 
Due after five years through 10 years   7,786    7,256 
Total fixed maturity securities  $16,920   $12,539 

 

5.Commercial Mortgage and Other Loans Receivable

 

We have outstanding $6,193 of mortgage loans secured by real property in certain markets throughout the United States at December 31, 2018. Mortgage loan activity for the six months ended December 31, 2018 is as follows:

 

 

Mortgage Loans  Principal
Balance
   Deferred
Fees
   Provision
for Loan
 Loss
   Carrying
Value
 
Balance at July 1, 2018  $3,005    -    -    3,005 
Additions during the period:                    
New mortgage loans   3,910    (22)   -    3,888 
Deductions during the period:                    
Collections of principal   (700)   -    -    (700)
Balance at December 31, 2018  $6,215   $(22)  $-   $6,193 

 

We also had a $1,400 deposit held by an escrow agent as of June 30, 2018 for a mortgage loan that was consummated subsequent to our June 30, 2018 fiscal year end.

 

Additionally, during the second quarter of our fiscal year 2019, we originated a commercial line of credit (“credit facility”) to support the working capital needs of a business (the “borrower”) with eligible borrowings of up to $3,000, based upon the borrower’s eligible accounts receivable. All outstanding credit facility balances are due upon collection of the borrower’s accounts receivable and the credit facility expires on October 29, 2020. The credit facility yields prime plus 5% on the outstanding balance of the credit facility, and a 1.2% fee is charged on the unused portion of the credit facility. The borrower has $721 outstanding as of December 31, 2018 and the credit facility is secured by substantially all of the assets of the borrower. Credit facility activity for the period is as follows:

 

Commercial Loan  Principal
Balance
   Deferred
 Fees
   Provision
for Loan
Loss
   Carrying
Value
 
Balance at July 1, 2018  $-    -    -    - 
Additions during the period:                    
Borrowings   1,970    (7)   -    1,963 
Deductions during the period:                    
Collections of principal   (1,242)   -    -    (1,242)
Balance at December 31, 2018  $728   $(7)  $-   $721 

 

 14 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

6.Advances Receivable, net

 

In December 2018, we entered into an arrangement with an MCA originator to participate in its MCA activity. We made an initial advance of $5,000 to the originator, which in turn advanced these funds to merchants as part of a syndication. As receipts have been paid by the merchants, we have used the collected funds to fund additional MCAs with this originator. Total advances receivable, net consist of the following:

 

   Advance
Principal
   Deferred
Fees
   Provision  
for Credit
Losses
   Carrying
Value
 
Merchant cash advances  $5,006   $-   $(496)  $4,510 
Aviation advance   2,000    (25)   -    1,975 
Advances receivable, net  $7,006   $(25)  $(496)  $6,485 

 

7.Income Taxes

 

Components of Provision (Benefit) for Income Taxes

 

The domestic and foreign components of loss from continuing operations before the (benefit) provision for income taxes are as follows:

 

   Three Months Ended
December 31,
   Six Months Ended
December 31,
 
   2018   2017   2018   2017 
                 
United States  $(1,470)  $(3,764)  $(1,428)  $(5,136)
Foreign   (60)   -    (103)   - 
Loss from continuing operations  $(1,530)  $(3,764)  $(1,531)  $(5,136)

 

The components of the (benefit) provision for income taxes are as follows:

 

   Three Months Ended
December 31,
   Six Months Ended
December 31,
 
   2018   2017   2018   2017 
                 
United States  $-   $(924)  $2   $(918)
Foreign   -    -    -    - 
Benefit (Provision) for income taxes  $-   $(924)  $2   $(918)

 

On December 22, 2017, President Donald J. Trump signed the Tax Cuts and Jobs Act (“TCJA”) that instituted fundamental changes to the taxation of U.S. corporations. Among the many changes instituted by TCJA, the following have already impacted or are likely to impact our business in the future: permanent reduction in the U.S. federal statutory tax rate for corporations from 35% to 21%; new restrictions on the deductibility of net operating losses generated in years beginning after December 22, 2017; additional limitations on certain business deductions such as interest expense and entertainment expenses; the creation of new regimes designed to tax the income of controlled foreign corporations (global intangible low-taxed income, or “GILTI”, and a base-erosion anti-abuse tax, or “BEAT”); and a possible new deduction for U.S. corporations on their foreign earnings (foreign-derived intangible income, or “FDII”); and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (Transition Tax). In conjunction with TCJA, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provides guidance on accounting for the tax effects of TCJA. SAB 118 allows for recording certain effects of the TCJA as “provisional” during a one-year measurement period, which for the Company ended in the second quarter of fiscal 2019.

 

We are continuing to evaluate the impact of TCJA in light of the guidance that the U.S. Treasury and various state taxing authorities are releasing. At this time, we do not believe there will be any material changes to the amounts previously provided for the impact of the TCJA. We concluded our analysis during the second quarter of fiscal 2019.

 

 15 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

As a result of the TCJA, we are reassessing our intentions related to our indefinite reinvestment assertion as part of our provisional estimates. Should we decide to no longer indefinitely reinvest such foreign earnings outside the U.S., we would have to adjust the income tax provision in the period such determination is made. We currently have an immaterial amount of cash available for repatriation of less than $35. After the TCJA, there should be no federal income taxes that would be due upon repatriation. Any other impact, such as withholding tax, states taxes, or foreign exchange rate changes, should be immaterial based on the amount of cash held overseas.

 

Net Operating Losses

 

As of June 30, 2018, we had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $56,113 for income tax purposes, of which none expire in fiscal year 2019, and the remainder expire at various dates through fiscal year 2037. We recently completed an evaluation of the potential effect of Section 382 of the Internal Revenue Code (the “IRC”) on our ability to utilize these net operating losses. The study concluded that we have not had an ownership change for the period from July 22, 1993 to June 30, 2018; therefore, the NOLs will not be subject to limitation under Section 382. If we experience an ownership change as defined in Section 382 of the IRC, our ability to use these NOLs will be substantially limited, which could therefore significantly impair the value of that asset. We have taken steps to protect the value of our NOLs with a “Tax Asset Preservation Plan” which is described more fully in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

 

As of June 30, 2018, we had state NOLs of $33,240. The state NOLs expire according to the rules of each state and expiration will occur between fiscal year 2019 and fiscal year 2037.

 

Deferred Tax Assets and Related Valuation Allowances

 

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining whether or not a valuation allowance for tax assets is needed, we evaluate all available evidence, both positive and negative, including: trends in operating income or losses; currently available information about future years; future reversals of existing taxable temporary differences; future taxable income exclusive of reversing temporary differences and carryforwards; taxable income in prior carryback years if carryback is permitted under the tax law; and tax planning strategies that would accelerate taxable amounts to utilize expiring carryforwards, change the character of taxable and deductible amounts from ordinary income or loss to capital gain or loss, or switch from tax-exempt to taxable investments. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2018, we maintained a full valuation allowance on our net deferred tax assets in all jurisdictions, with the exception of the $487 alternative minimum tax credit carryforward that is now considered refundable in post-fiscal year 2019 after the enactment of the TCJA. We reclassified $487 of additional alternative minimum tax credit to an income tax receivable account at December 31, 2018 based on our ability to claim a refund of fifty percent of the alternative minimum tax credit with the filing of our fiscal year 2019 return within the next twelve months. We do not have sufficient evidence of future income to conclude that it is more likely than not the Company will realize its entire deferred tax inventory in any of its jurisdictions (United States, Germany, and Australia). Therefore, we have recognized a full valuation allowance on the Company’s deferred tax inventory, other than the alternative minimum tax credit. We reevaluate our conclusions quarterly regarding the valuation allowance and will make appropriate adjustments as necessary in the period in which significant changes occur.

 

Research and Development Tax Credits

 

During the year ended June 30, 2017, we applied for both a U.S. federal and state of Georgia research and development tax credit in the amounts of $719 and $675, respectively, for our fiscal year ending June 30, 2016. For U.S. federal tax purposes, the credit cannot be utilized immediately but will carryforward for a period of 20 years. As we do not expect to be able to realize the benefit of the U.S. federal tax credit carryforward before its expiration, we maintain a full valuation allowance on this item. For the state of Georgia tax credit, we have recorded the credit within both other current assets and other long-term assets with an offset in both accrued expenses and other long-term liabilities in our consolidated balance sheets as of December 31, 2018 and June 30, 2018, respectively. As future payroll tax withholdings of our Georgia-based employees become due, we are able to offset the withholding amount dollar-for-dollar against the credit. As a result, as the credit is claimed, we will (1) reduce other current assets and offset the payroll tax liability and (2) reduce accrued expenses and recognize a reduction of operating expenses.

 

 16 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

During the three months and six months ended December 31, 2018 we received $392 and $573, respectively, of proceeds from prior utilization of our State tax credits. As of December 31, 2018, we have $94 remaining R&D tax credits available for future use.

 

Unrecognized Tax Benefits

 

We have evaluated our unrecognized tax benefits and determined that there has not been a material change in the amount of such benefits for the three months and six months ended December 31, 2018.

 

8.Share-Based Compensation

 

As of December 31, 2018, we had share-based compensation plans which are described in Note 9, “Share-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018. We recognize stock compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. We recorded the following stock-based compensation expense:

 

   Three Months Ended
December 31,
   Six Months Ended
December 31,
 
   2018   2017   2018   2017 
                 
General and administrative  $15   $1,898   $75   $2,047 

 

 

As of December 31, 2018, we had 15,000 stock options outstanding and 40,000 restricted shares outstanding. During the three months ended December 31, 2018, the Company did not grant any equity compensation and there was no vesting or forfeiture of stock options. A summary of our restricted stock activity for the six months ended December 31, 2018 is as follows:

 

Restricted Stock Awards  Shares   Weighted-Average
Grant Date Fair Value
 
         
Non-vested at July 1, 2018   60,000   $5.71 
Granted   -    - 
Vested   (7,500)   6.18 
Forfeited   (12,500)   5.74 
Non-vested at December 31, 2018   40,000   $5.61 

 

 17 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

9.Pensions

 

Defined Benefit Plans

 

The following table provides the components of net periodic pension cost of our German defined benefit pension plans recognized in earnings for the three months and six months ended December 31, 2018 and 2017:

 

   Three Months Ended
December 31,
   Six Months Ended
December 31,
 
   2018   2017   2018   2017 
                 
Net Periodic Benefit Cost                    
Interest cost  $15   $18   $30   $36 
Expected return on plan assets   (1)   (2)   (2)   (8)
Recognized actuarial loss   16    16    32    41 
Net periodic benefit cost  $30   $32   $60   $69 

 

10.Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consist of the following:

 

   December 31,
2018
   June 30,
2018
 
         
Accounts payable, trade  $417   $582 
Accrued payroll, vacation and other employee expenses   93    31 
Unrecognized income from research and development tax credits   33    130 
Accrued income taxes   -    87 
Dividends payable   1    1 
Other accrued expenses   309    458 
   $853   $1,289 

 

11.Accumulated Other Comprehensive Loss

 

The following table summarizes the changes in accumulated other comprehensive loss by component, net of taxes, for the six months ended December 31, 2018:

 

    Pension and
Postretirement
Benefit Plans
    Currency
Translation
Adjustments
    Unrealized
Gain / (Loss)
on Investments
    Total  
Balance at June 30, 2018   $ (1,372 )   $ 432     $ (1,373 )   $ (2,313 )
Adoption of ASU No. 2016-01     -       -       (318 )     (318 )
Other comprehensive income (loss) before reclassifications     32       76       (2,690 )     (2,582 )
Amounts reclassified to accumulated  other comprehensive income (loss)     28       (28 )     -       -  
Net current period other comprehensive income (loss)     60       48       (3,008 )     (2,900 )
Balance at December 31, 2018   $ (1,312 )   $ 480     $ (4,381 )   $ (5,213 )

  

12.Commitments and Contingencies

 

Severance Arrangements

 

Pursuant to the terms of the employment agreements with the chief financial officer and legal counsel, employment may be terminated by either the respective employee or us at any time. In the event an agreement is terminated by us without cause, or in certain circumstances terminates constructively or expires, the terminated employee will receive severance compensation for a period from six to 12 months, depending on the employee, and bonus severance. Additionally, if terminated, our chief financial officer will be entitled to COBRA continuation coverage under the Company’s hospitalization and medical plan for the 12-month period following termination. At December 31, 2018, the maximum contingent liability under these agreements was $491.

  

 18 

 

 

CCUR HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

13.Subsequent Events

 

Release of Content Delivery Business Sale Proceeds from Escrow

 

As a condition of the sale of our Content Delivery business to Vecima on December 31, 2017, $1,450 of the purchase price proceeds were placed in escrow as security for our indemnification obligations to Vecima under the CDN APA, through December 31, 2018, with any portion used to reimburse Vecima for indemnification payments deducted from the escrow balance. On January 2, 2019, the full $1,450 was released from escrow and transferred to our bank account.

 

 19 

 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the related notes thereto which appear elsewhere herein. Except for the historical financial information, many of the matters discussed in this Item 2 may be considered “forward-looking” statements that reflect our plans, estimates and beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section below entitled “Cautionary Statements Regarding Forward-Looking Statements,” elsewhere herein and in other filings made with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended June 30, 2018.

 

References herein to “CCUR Holdings,” the “Company,” “we,” “us” or “our” refer to CCUR Holdings, Inc. and its subsidiaries unless the context specifically indicates otherwise. CCUR Holdings was formerly known as Concurrent Computer Corporation and changed its name on January 2, 2018.

 

References herein to the “current year period” and the “prior year period” refer to the three months ended December 31, 2018 and 2017, respectively.

 

Overview

 

On December 31, 2017, we completed the sale of our content delivery and storage business (the “Content Delivery business”) and other related assets to Vecima Networks, Inc. (“Vecima”) pursuant to an Asset Purchase Agreement (the “CDN APA”), dated as of October 13, 2017, between the Company and Vecima. Substantially all assets and liabilities associated with the Content Delivery business were assigned to Vecima as part of the transaction. Results of the Content Delivery business are retrospectively reflected as discontinued operations in the accompanying consolidated financial statements for all periods presented (see Note 3, “Discontinued Operations,” to the accompanying consolidated financial statements). Unless otherwise noted, discussion of our business and results of operations in this Form 10-Q refers to our continuing operations.

 

The Investment Committee, a special sub-committee of the Board, was established in December 2017 upon the signing of the CDN APA for the purpose of considering alternative means to deploy the proceeds of the sale of the Content Delivery business and other corporate assets to maximize long-term value for our stockholders. Such alternatives include, but are not limited to, evaluating opportunities to acquire all or a controlling interest in one or more operating businesses or assets intended to provide attractive returns for our stockholders and that are intended to result in appreciation in value, a more liquid trading market for our stock, and enhance our ability to utilize our existing U.S. federal net operating loss carryforwards (“NOLs”). Other than the restrictions set forth in the relevant non-competition and non-solicitation agreement executed by the Company in connection with the disposition of our prior operations, there are no restrictions on the transactions that we can pursue, including with respect to industry sector and geographic location. During fiscal year 2019, the Board dissolved the Investment Committee and established an Asset Management Committee as a standing committee of the Board. The Asset Management Committee, among other things, continues the work of the former Investment Committee by providing oversight of the Company’s acquisition process and also manages the Company’s ongoing operations and assets (including continued expansion and development of its real estate operations) and those of any subsequently acquired businesses.

 

We are actively pursuing business opportunities, including the acquisition of new businesses or assets, as well as developing and managing our current business and assets. We continually identify and evaluate a wide range of opportunities in an effort to reinvest the proceeds of our calendar year 2017 business dispositions and maximize use of other assets such as our NOLs. We believe that these activities will enable us to identify, acquire and grow businesses and assets that will maximize value for all of our stockholders.

 

As part of this effort, our senior management spends a significant portion of its time evaluating potential acquisition and strategic opportunities. We have received referrals with respect to and have performed due diligence assessments on multiple target companies and strategic opportunities in a variety of industries.  We work with several financial advisors and consultants on a non-exclusive basis and have been able to filter leads and referrals through diverse channels enabling us to review a wide range of opportunities in a variety of industries. We have not focused our acquisition and strategic efforts on any specific industry, focusing instead on identifying well-priced businesses and assets that we believe have significant growth potential.

 

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Our acquisition process is focused on identifying fairly- to under-valued businesses that have growth potential. Due to current market conditions, we have faced significant competition from strategic and, in particular, financial buyers which in many instances have raised seller valuation expectations above what we consider to be attractive levels for us and our stockholders. We continue to believe that fairly- and under-valued opportunities exist and are attainable and do not intend to pursue what we consider to be overvalued businesses and assets that we believe may not deliver the levels of returns that we target.

 

Recent Events

 

Merchant Cash Advance (MCA) Funding

 

In December 2018, we entered into an arrangement with a leading MCA originator to participate in funding MCAs. We made an initial advance of $5.0 million to the originator (the “Initial MCA Advance”), who in turn advanced these funds to merchants as part of a syndication. MCAs are contracts formed through a future receivables or receipts purchase and sale agreement, which stipulates the purchase price, or the amount advanced, and the specified amount, or the advance amount plus the factored receivable balance the Company will be repaid, on the face of the contract. Generally, a specified amount will be withdrawn from the merchant’s bank account via daily or weekly ACH in order to pay down the merchant’s advance. These are not consumer loan contracts, nor are they installment loan contracts to businesses for business use only. In addition, there is no monthly minimum payment, nor is there a specific repayment schedule. As of December 31, 2018, our revenue and receivables from MCAs were derived from a single MCA originator with which we funded, in syndication, more than 100 advances to merchants.

 

Non-Binding Letter of Intent to Acquire an 80% Membership interest in LuxeMark Capital, LLC

 

On October 2, 2018, we announced that the Company entered into a non-binding letter of intent (the “LOI”) to acquire an eighty percent (80%) interest in LuxeMark Capital, LLC (“LuxeMark”), a privately held firm focused on the rapidly growing MCA sector of the finance industry that provides financing to small and medium-sized businesses. LuxeMark facilitates the provision of syndication capital or leverage to select funding companies within the MCA sector and provides related administrative servicing functions.

 

Pursuant to the LOI, the Company will acquire the interest in LuxeMark for a combination of up to $6 million in cash and equity, each payable over four years and subject to the achievement of prescribed financial performance milestones by LuxeMark. Additionally, the Company intends to fund up to $10 million in MCA capital, including through the Initial MCA Advance, which LuxeMark facilitated and for which LuxeMark provides certain servicing. The acquisition and deployment of any remaining MCA capital are subject to a number of conditions including the negotiation of definitive documentation and completion of CCUR’s due diligence investigation to CCUR’s satisfaction.

 

We expect that the proposed transaction with LuxeMark will provide the Company with two revenue streams generated through (i) the Company’s 80% interest and thereby its pro-rated portion of the fee income earned by LuxeMark on its syndicators’ invested capital and (ii) returns received on funds the Company makes available as a LuxeMark syndicator or lender.

 

Continued Pursuit of Acquisition Opportunities

 

In addition to its pursuit of acquisition opportunities, the Asset Management Committee is tasked with creating operating activities and businesses that will enhance stockholder value. To that end, in fiscal year 2018, following the sale of the Content Delivery business, we began developing a real estate operation initially through, among other activities, making a number of commercial loans secured by real property. Based on the success of these activities, including the yield characteristics of these loans, and management’s experience in the real estate area, we created Recur Holdings LLC, a Delaware limited liability company wholly owned by the Company, during the first quarter of our fiscal year 2019. Through Recur Holdings LLC we conduct, hold and manage our existing and future real estate operations. At this time the Company does not expect a significant increase in expenses for its real estate operations as its management team has prior experience in this sector and believes it can manage the business without adding additional staffing resources. As these operations grow, we plan to leverage our contacts and potential strategic partnerships to help source continued opportunities for this business. As a part of its real estate operations, the Company plans to continue to assess opportunities to create value through real property ownership, financing and/or development, among other strategies. The Company intends to continue to build on its current operations through its newly formed subsidiary while it continues to evaluate acquisition and strategic opportunities, both inside and outside the real estate sector.

 

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Critical Accounting Policies and Estimates

 

The SEC defines “critical accounting estimates” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies and estimates are disclosed under the section “Application of Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, and as follows:

 

Allowance for MCA credit losses

 

The allowance for credit losses for MCAs is established at the time of purchase through a provision for losses charged to our statement of operations based on historical performance experienced by a peer group. Losses are charged against the allowance when management believes that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

 

The establishment of appropriate reserves is an inherently uncertain process, and ultimate losses may vary from the current estimates. We regularly update our reserve estimates as new facts become known and events occur that may affect the settlement or recovery of losses. For the six months ended December 31, 2018, we have experienced no losses on advances; however, new facts and circumstances may adversely affect our MCA portfolio resulting in increased delinquencies and losses and could require additional provisions for credit losses, which could impact future periods. Based on industry peer group historical performance, we recorded a $495 loss reserve during the current period.

 

Results of Operations for the Three Months Ended December 31, 2018 Compared to the Three Months Ended December 31, 2017

 

Interest Income on Commercial Loans. We created Recur Holdings LLC, a wholly owned subsidiary of the Company, during the first quarter of our fiscal year 2019. Through Recur Holdings LLC we conduct, hold and manage our existing and future real estate operations. During the three months ended December 31, 2018, we earned $0.2 million of interest income on seven mortgage and other commercial loans with a weighted average annualized yield of 11.0%.

 

MCA Income. In December 31, 2018, we began participating in the MCA industry by indirectly advancing funds to merchants through a third-party originator that is a leader in the MCA sector. We generated $0.2 million of income from MCAs during the period and expect to fund additional MCAs in the remaining quarters of our fiscal year 2019.

 

General and Administrative. General and administrative expenses were $0.8 million for the three months ended December 31, 2018, a $3.1 million, or 79.5%, decrease from the prior year period. This decrease was primarily due to:

 

·a $1.8 million decrease in stock-based compensation expense resulting from the acceleration of vesting of restricted stock awards in the prior year due to the change of control triggered by the sale of our Content Delivery business on December 31, 2017;
·a $0.7 million decrease in bonuses due primarily to the non-recurring bonuses paid in the prior year period for the completion of the sale of our Content Delivery business; and
·a $0.6 million decrease in severance related to our former CEO that was terminated in conjunction with the sale of our Content Delivery business on December 31, 2017.

 

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At this time, we do not expect a significant increase in expenses for our operations as our management team believes it can manage the business without adding significant staffing resources.

 

Provision for Credit Losses. We established a provision for credit losses specifically for the MCAs that we began participating in during the second quarter of our fiscal year 2019. The allowance for credit losses for MCAs is established at the time of purchase through a provision for losses charged to our statement of operations based on historical performance experienced by an industry peer group. Losses are charged against the allowance when management believes that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

 

Other Interest Income. Other interest income includes interest from investments that are not a part of our newly formed subsidiary Recur Holdings LLC, which houses our real estate operations, or any other non-commercial loans that we may originate or otherwise acquire. Other interest income specifically includes interest earned on cash and money market balances, repurchase agreements, investments in debt securities, and income generated by other advances. Other interest income increased by $0.8 million in the current year period compared to the prior year period. The components of our interest income for the three months ended December 31, 2018 and 2017 are as follows (amounts in thousands):

  

    Three Months Ended December 31, 
   2018   2017 
         
Interest from cash deposits, repos, commercial paper and debt securities  $416   $76 
Accretion of discounts on purchased debt securities   265    - 
Payment-in-kind interest   209    - 
Other interest income  $890   $76 

 

Interest income increased in the current year period relative to the prior year period due to:

 

·the increase in cash resulting from the sale of our Content Delivery business in December 2017;
·increasing interest rates on cash equivalent balances;
·investment in higher yielding debt securities in the current year period; and
·accretion of discounts on purchased debt securities.

 

Dividend income. In the latter half of our fiscal year 2018, we began investing a portion of our business sale proceeds in equity securities, some of which declared and paid dividends during the three months ended December 31, 2018.

 

Unrealized loss on equity securities, net. In the latter half of our fiscal year 2018, we began investing a portion of our business sale proceeds in equity securities. Upon our adoption of ASU No. 2016-01 on July 1, 2018, changes in fair value of equity securities are recorded within the consolidated statement of operations as a net unrealized gain (loss) on investments. During the three months ended December 31, 2018, we recorded a $1.5 million unrealized loss on investments within our consolidated statement of operations as a fair value adjustment to our equity securities investments.

 

Income from Discontinued Operations, Net of Income Taxes. We sold the Content Delivery business on December 31, 2017. Our income from discontinued operations, net of income taxes, for the three months ended December 31, 2017 includes the financial results of the Content Delivery business for that period, as further described in Note 3, “Discontinued Operations,” to the accompanying consolidated financial statements.

 

Results of Operations for the Six Months Ended December 31, 2018 Compared to the Six Months Ended December 31, 2017

 

Interest Income on Commercial Loans. We created Recur Holdings LLC, a wholly owned subsidiary of the Company, during the first quarter of our fiscal year 2019. Through Recur Holdings LLC we conduct, hold and manage our existing and future real estate operations. During the six months ended December 31, 2018, we earned $0.3 million of interest income on eight mortgage and other commercial loans with an average aggregate carrying value of $5.4 million during the period and a weighted average annualized yield of 10.9%.

 

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MCA Income. In December 2018, we began participating in the MCA industry by indirectly advancing funds to merchants through a third-party originator that is a leader in the MCA sector. We generated $0.2 million of income from MCAs during the period and expect to fund additional MCAs in the remaining quarters of our fiscal year 2019.

 

General and Administrative. General and administrative expenses were $1.6 million for the six months ended December 31, 2018, a $3.7 million, or 69.4%, decrease from the six months ended December 31, 2017. This decrease was primarily due to:

 

·a $1.9 million decrease in stock-based compensation expense, primarily resulting from the acceleration of vesting of restricted stock awards in the prior year due to the change of control triggered by the sale of our Content Delivery business on December 31, 2017;
·a $0.8 million decrease in bonuses due primarily to the non-recurring bonuses paid in the prior year period for the completion of the sale of our Content Delivery business, and secondarily for annual incentive plan bonuses for operating results for the first half of the prior fiscal year;
·a $0.6 million decrease in severance primarily related to our former CEO that was terminated in conjunction with the sale of our Content Delivery business on December 31, 2017;
·a $0.3 million decrease in personnel costs, as we have reduced the number of employees from continuing operations subsequent to the sale of the Content Delivery business; and
·a $0.2 million decrease in Board fees. In the first quarter of our prior fiscal year we incurred fees attributable to the resignation of three of our independent directors that did not recur in the current year period. Additionally, in the first quarter of the prior fiscal year we reduced certain recurring Board fees for our remaining Board members.

 

At this time, we do not expect a significant increase in expenses for our operations as our management team believes it can manage the business without adding significant staffing resources.

 

Provision for Credit Losses. We established a provision for credit losses specifically for the MCAs that we began participating in during the second quarter of our fiscal year 2019. The allowance for credit losses for MCAs is established at the time of purchase through a provision for losses charged to our statement of operations based on historical performance experienced by an industry peer group. Losses are charged against the allowance when management believes that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

 

Other Interest Income. Other interest income includes interest from investments that are not a part of our newly formed subsidiary Recur Holdings LLC, which houses our real estate operations, or any other non-commercial loans that we may originate our otherwise acquire. Other interest income specifically includes interest earned on cash and money market balances, repurchase agreements, investments in debt securities, and income generated by non-merchant cash advances. Other interest income increased by $1.6 million in the first six months of fiscal year 2019 compared to the same period in fiscal year 2018. The components of our interest income for the six months ended December 31, 2018 and 2017 are as follows (amounts in thousands):

 

   Six Months Ended December 31, 
   2018   2017 
         
Interest from cash deposits, repos, commercial paper and debt securities  $794   $146 
Accretion of discounts on purchased debt securities   517    - 
Payment-in-kind interest   412    - 
Other   12    - 
Other interest income  $1,735   $146 

 

Interest income increased in the six months ended December 31, 2018 relative to the six months ended December 31, 2017 due to:

 

·the increase in cash resulting from the sale of our Content Delivery business in December 2017;
·increasing interest rates on cash equivalents;
·investment in higher yielding debt securities in the current year period; and
·accretion of discounts on purchased debt securities.

 

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Dividend income. In the latter half of our fiscal year 2018 we began investing a portion of our business sale proceeds in equity securities, some of which declared and paid dividends during the six months ended December 31, 2018.

 

Net realized gain on investments. During the first quarter of our fiscal year 2019 we sold our investment position in certain debt and equity securities for which we recognized a $0.2 million realized gain for the six months ended December 31, 2018.

 

Unrealized loss on equity securities, net. In the latter half of our fiscal year 2018, we began investing a portion of our business sale proceeds in equity securities. Upon our adoption of ASU No. 2016-01 on July 1, 2018, changes in fair value of equity securities are recorded within the consolidated statement of operations as a net realized gain (loss) on investments. During the six months ended December 31, 2018, we recorded a $2.0 million unrealized loss on investments within our consolidated statement of operations as a fair value adjustment to our equity securities investments.

 

Income from Discontinued Operations, Net of Income Taxes. We sold the Content Delivery business on December 31, 2017. Our income from discontinued operations, net of income taxes, for the six months ended December 31, 2017 includes the financial results of the Content Delivery business for that period, which is further described in Note 3, “Discontinued Operations,” to the accompanying consolidated financial statements.

 

Liquidity and Capital Resources

 

Our future liquidity will be affected by, among other things:

 

·our future access to capital;

 

·our exploration and evaluation of strategic alternatives and development of new operating assets;

 

·our ability to collect on our commercial loans and advances receivable;

 

·the number of countries in which we operate, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, by requiring us to maintain levels of capital;

 

·our ongoing operating expenses; and

 

·potential liquidation of the Company pursuant to an organized plan of liquidation.

 

Uses and Sources of Cash

 

Cash Flows from Operating Activities

 

We used $0.1 million and $3.6 million of cash for operating activities during the six months ended December 31, 2018 and 2017, respectively. Operating cash usage during the six months ended December 31, 2018 was primarily attributable to operating costs during the period exceeding cash generating income, as approximately $0.9 million of our income for the period was from non-cash accretion and payment-in-kind interest. Operating cash flows during the six months ending December 31, 2017 were primarily attributable to the timing of payments made against our accounts payable to settle the previous period’s transaction costs related to the sale of our Real-Time business in fiscal year 2017, inventory purchases and accrued compensation.

 

Cash Flows from Investing Activities

 

During the six months ended December 31, 2018, we funded $4.5 million of commercial loans, most of which were mortgage loans through our real estate operating subsidiary, Recur Holdings LLC. Our mortgage loans typically require interest only payments until maturity or payoff. We received $0.7 million of cash from principal payments during the six months ended December 31, 2018, as one mortgage loan was paid off during the period. We received approximately $1.2 million of cash for principal payment on a commercial revolving credit facility from the borrower who regularly draws from and pays principal on the revolving credit facility to support its working capital needs.

 

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In December 2018, we entered into an arrangement with a leading MCA originator to participate in funding its MCA originations. We made an initial advance of $5 million to the originator, who in turn advanced these funds to merchants as part of a syndication. As advances have been collected from the merchants, we have used the collected funds to fund additional MCAs. Through December 31, 2018, we have funded $5.9 million in MCAs and collected $0.9 million of merchant receivables as repayment for these advances. Additionally, we provided a $2 million cash advance to an aviation business to fund the deposit required for the recipient’s aircraft purchases for up to six months, in exchange for paying us an upfront fee.

 

Our remaining investing activities consisted of $8.0 million in purchases and $6.2 million in maturities or sales of debt and equity securities for the purpose of funding our operating expenses as we continue to evolve our real estate operating business and actively search for additional operating businesses to acquire.

 

In the prior six-month fiscal year period, we completed the sale of our Content Delivery business and other related assets for a purchase price of $29 million (subject to an adjustment for net working capital). The sale included our Content Delivery business assets and related liabilities in the United States, United Kingdom, and Germany, as well as the sale of all equity in our Japanese subsidiary. Gross proceeds from the sale were paid to us as follows: (1) a $29.02 million cash payment on December 31, 2017 (including a preliminary adjustment for estimated working capital of $1.47 million), less $0.1 million of cash that transferred to Vecima along with our Japanese subsidiary, and (2) $1.45 million placed in escrow as security for the Company’s indemnification obligations to Vecima that may have arisen through December 31, 2018 (less any portion used to make indemnification payments to Vecima). The full $1.45 million of funds placed in escrow were transferred to us in January 2019.

 

We invested $0.3 million in property and equipment during the six months ended December 31, 2017. These capital additions were primarily related to: (i) development and test equipment for the Content Delivery business development groups and (ii) demonstration systems used by our sales and marketing group. We also generated $8.9 million of cash from maturities of commercial paper investments and invested $10.0 million in additional commercial paper during the six months ended December 31, 2017.

 

Cash Flows from Financing Activities

 

On March 5, 2018, we announced that our Board of Directors authorized the repurchase of up to one million shares of the Company’s common stock. Purchases are made through private transactions or open market purchases, which may be made pursuant to trading plans subject to the restrictions and protections of Rule 10b5-1 and/or Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We repurchased 156,423 shares of the Company’s common stock totaling $0.6 million during the six months ended December 31, 2018. All repurchased stock was retired, and 103,117 shares may still be purchased under the announced plan as of December 31, 2018.

 

In the prior fiscal year six-month period, we paid two quarterly cash dividends, each for $0.12 per share, and $2.3 million in aggregate. On October 27, 2017, we announced the Board of Directors’ decision to suspend future dividends after the payment of the December 2017 quarterly dividend while the Board considers potential acquisition targets and alternative uses of our remaining assets.

 

Liquidity

 

We had working capital (current assets less current liabilities) of $50.7 million at December 31, 2018, compared to working capital of $55.3 million at June 30, 2018. At December 31, 2018, we had no material commitments for capital expenditures.

 

As of December 31, 2018, less than 1.0% of our cash was in foreign accounts and there is no expectation that any foreign cash would need to be transferred from these foreign accounts to cover U.S. operations in the next 12 months. Based upon our existing cash balances, equity securities and available-for-sale-term investments, historical cash usage, and anticipated operating cash flow in the current fiscal year, we believe that existing U.S. cash balances will be sufficient to meet our anticipated working capital requirements for at least the next 12 months from the issuance date of this report.

 

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Off-Balance Sheet Arrangements

 

We had no material off-balance sheet arrangements as of December 31, 2018.

 

Recent Accounting Guidance

 

See Note 2, “Recent Accounting Guidance,” to the accompanying consolidated financial statements for a full description of recent accounting standards including the respective expected dates of adoption and the expected effects on our consolidated results of operations and financial condition.

 

Cautionary Statement Regarding Forward-Looking Statements

 

Certain statements made or incorporated by reference in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the federal securities laws. When used or incorporated by reference in this report, the words “believes,” “expects,” “estimates,” “anticipates,” “intends”, and similar expressions, are intended to identify forward-looking statements. Statements regarding future events and developments, our future performance, payment of dividends, ability to utilize our net deferred tax assets and availability of earnings and profits with respect to dividend income, as well as our expectations, beliefs, plans, estimates or projections relating to the future and current assessments of business opportunities, are forward-looking statements within the meaning of these laws. Examples of our forward-looking statements in this report include, but are not limited to: the ability of the Board of Directors and Asset Management Committee to identify suitable business opportunities and acquisition targets and the Company’s ability to consummate a transaction with such acquisition targets; our ability to successfully develop our real estate operations; expectations to fund additional MCAs; the impact of any strategic initiatives we may undertake; the impact of the current reestablishment of and potential for future release of our tax valuation allowances on future income tax provisions and income taxes paid; expected level of capital additions; our expected cash position; the impact of interest rate changes and fluctuation in currency exchange rates; our sufficiency of cash; and the impact of litigation and the payment of any declared dividends. These statements are based on beliefs and assumptions of our management, which are based on currently available information. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. The risks and uncertainties which could affect our financial condition or results of operations include, without limitation: uncertainty caused by delisting of the Company’s stock on The Nasdaq Stock Market and transfer of our stock listing to the OTCQB Venture Market; the process of evaluating strategic alternatives; the Company’s ability to compete with experienced investors in the acquisition of one or more businesses; the Company’s ability to consummate proposed acquisition transactions; the Company’s ability to utilize its NOLs to offset cash taxes, in general, and in the event of an ownership change as defined by the Internal Revenue Code; changes in and related uncertainties caused by changes in applicable tax laws, the current macroeconomic environment generally and with respect to acquisitions and the financing thereof; continuing unevenness of the global economic recovery; the availability of debt or equity financing to support any liquidity needs; global terrorism; and earthquakes, tsunamis, floods and other natural disasters.

 

Our forward-looking statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise, except as may be required by federal securities laws.

 

Other important risk factors that could cause actual results to differ from any forward-looking statements made in this report are discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 and in “Item 1A. Risk Factors” in this report or elsewhere herein.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

Pursuant to Item 305(e) of Regulation S-K (Section 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company” as defined by Rule 229.10(f)(1).

 

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Item 4.Controls and Procedures

 

Evaluation of Controls and Procedures

 

We conducted an evaluation as of December 31, 2018, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management concluded that our disclosure controls and procedures were effective as of December 31, 2018.

 

Changes in Internal Control

 

There were no changes to our internal controls over financial reporting during the quarter ended December 31, 2018 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

Part II - Other Information

 

Item 1.Legal Proceedings

 

We are not presently involved in any material litigation. However, we are, from time to time, party to various routine legal proceedings arising out of our business.

 

Item 1A.Risk Factors

  

There have been no material changes in our risk factors from those included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, except as noted below.

 

There can be no assurance that we will complete the acquisition of an 80% interest in LuxeMark, which acquisition currently is under a non-binding letter of intent. If we do not complete this acquisition, we will have expended significant expenses and management resources without our shareholders realizing the potential benefits.

 

There can be no assurance that we will complete the acquisition of an 80% interest in LuxeMark as discussed under a non-binding letter of intent under the terms set forth in the letter of intent, or at all, because the letter of intent is not binding on us or on LuxeMark. Our acquisition of such interest is subject to us negotiating and executing with LuxeMark a mutually acceptable definitive and binding purchase agreement with respect to the business, which we expect will contain a number of conditions to closing the acquisition, including (i) our completion of satisfactory due diligence with respect to LuxeMark’s business, and (ii) satisfaction of customary closing conditions and, dependent on the results of due diligence and negotiation of the definitive documents between the parties, may require material modifications to the terms set forth in the letter of intent. There can be no assurance that LuxeMark will be willing to proceed with a transaction, that we will be able to negotiate and execute a satisfactory definitive purchase agreement with LuxeMark, that our due diligence will be satisfactory, or that the conditions to closing will be satisfied.

 

If we are unable to complete the acquisition of an 80% interest in LuxeMark, we will have expended significant expenses and management resources related to due diligence, legal and accounting work undertaken for the failed acquisition without our shareholders realizing any of the potential benefits of such acquisition.

 

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We participate in the MCA industry, which presents a number of unique risks.

 

In December 2018, we acquired certain advance assets from an MCA originator and funder that is a leader in the MCA sector. An MCA funder provides small businesses with cash advances in return for the purchase of an amount of the small business’s future receipts. This type of transaction is not characterized or structured as a loan. Small businesses typically seek these advances for working capital purposes to finance their purchase of inventory, equipment, or to otherwise address immediate business needs. This business presents a number of unique risks, including the illiquidity of the cash advances; our critical reliance on certain individuals to operate the business; collection and cash advance repayment issues and challenges given that the MCAs are typically unsecured; and sensitivity to general economic conditions.

 

Because real estate assets are relatively illiquid, we may not be able to diversify, liquidate, or monetize our real estate portfolio in response to changes in economic and other relevant conditions, which may result in losses. The illiquidity of our real estate portfolio may also result in us seeking financing in order to expand our operations while maintaining sufficient liquid assets to execute our business plan.

 

Real estate assets are relatively illiquid. A variety of factors could make it difficult for us to modify our real estate portfolio in response to changing economic or other relevant conditions, thus creating risk of loss associated with those changed conditions. In addition, we may seek to restrict the percentage of our assets that are contained in illiquid real estate assets by seeking financing to continue expansion of our real estate operations while maintaining sufficient liquid assets to execute our business plan and invest in other value producing assets, including acquisition of additional businesses and assets. In addition, reserving a certain percentage of our liquid assets may benefit our financial performance by increasing our ability to modify our operations to respond to adverse economic or other relevant conditions. Any financing that we obtain creates risks normally associated with financing, including the risk that our cash flow is insufficient to make timely payments of interest or principal.

 

We may engage in real estate transactions or other strategic opportunities that involve property types or structures with which we have less familiarity, thereby increasing our risk of loss.

 

We may decide to participate in real estate transactions and other strategic opportunities in which we have limited or no prior experience. When engaging in such transactions, we may not be successful in our diligence and underwriting efforts. We may also be unsuccessful in preserving value if conditions deteriorate and we may expose ourselves to unknown substantial risks. Furthermore, engaging in unfamiliar transactions may require additional management time and attention relative to transactions with which we are more familiar. All of these factors increase our risk of loss.

 

We may continue to grow our business through acquisitions, which entails substantial risk.

 

We may continue growing our operating business through one or more acquisitions. Such acquisitions entail substantial risk. During our due diligence of such acquisitions, we may not uncover all relevant liabilities and we may have limited, if any, recourse against the sellers. We may also incur significant transaction and integration costs in connection with such acquisitions. Further, we may not successfully integrate the acquired assets or businesses into our existing business and operations, which could have a material adverse effect on our financial performance. In addition, post-closing expansion of any acquired assets and businesses may subject us to additional costs or make us vulnerable to regulations or rules that were not assessed prior to acquisition.

 

We may be limited in the types of acquisitions that we can pursue in order to preserve use of our NOLs.

 

We currently have NOLs valued at $56.1 million as of June 30, 2018. We may be able to achieve greater realization of the value of our NOLs with certain business or asset acquisitions. There is no guarantee that we will be able to find or consummate an acquisition that allows for utilization of our NOLs and we may engage in acquisitions that do not facilitate use of the NOLs. In any acquisition we may be limited by our available cash and cash equivalents or ability to obtain financing in order to preserve use of our NOLs. Use of our NOLs can be impaired by certain shift in the ownership of our common stock and thus we are limited in our ability to use stock in an acquisition for NOL preservation purposes. Alternatively, while we have not identified or committed to any such transactions, we may identify acquisitions that we believe will provide value sufficient to forego preservation of the NOLs to participate in the acquisition opportunity.

 

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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

On March 5, 2018, we announced that our Board of Directors authorized the repurchase of up to one million shares of the Company’s common stock. Purchases are made through private transactions or open market purchases, which may be made pursuant to trading plans subject to the restrictions and protections of Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act. The following table sets forth information about the shares of the Company’s common stock we repurchased during the three months ended December 31, 2018, as well as remaining shares available for repurchase under the Board’s authorization:

 

            Total Number of   Maximum Number 
            Shares Purchased   of Shares that May 
    Total Number   Average Price   as Part of Publicly   Yet Be Purchased 
    of Shares   Paid   Announced Plans   Under the Plans 
Period   Purchased   per Share   or Programs (1)   or Programs (1) 
                  
October 2018    39,292   $4.19    39,292    197,240 
November 2018    46,426   $3.64    46,426    150,814 
December 2018    47,697   $3.43    47,697    103,117 
Total    133,415   $3.72    133,415    103,117 

 

(1)On March 5, 2018, the Company announced its Board of Directors authorized the repurchase of up to one million shares of the Company’s common stock. Repurchases may be made at the discretion of management through open market or privately negotiated transactions or any combination of the same. Open market purchases are made pursuant to trading plans subject to the restrictions and protections of Rule 10b5-1 and/or Rule 10b-18 of the Securities Act. The repurchase program does not have an expiration date.

 

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Item 6.Exhibits

 

Exhibit No.   Description of Document
2.1   Asset Purchase Agreement, dated as of May 15, 2017, by and between Concurrent Computer Corporation and Concurrent Computer Corporation (France), on the one hand, and Real Time, Inc. on the other hand (incorporated by reference to the Company’s Current Report on Form 8-K filed on May 15, 2017).  
     
2.2   Asset Purchase Agreement dated as of October 13, 2017, by and between Concurrent Computer Corporation and Vecima Networks Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed on October 16, 2017).  
     
2.3   Escrow Agreement, dated as of December 15, 2017, by and among Concurrent Computer Corporation, Vecima Networks Inc., and SunTrust Bank (incorporated by reference to the Company’s Current Report on Form 8-K filed on December 15, 2017).  
     
2.4   Non-Competition and Non-Solicitation Agreement, dated as of December 15, 2017, by and between Concurrent Computer Corporation and Vecima Networks Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed on December 15, 2017).  
     
3.1   Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-2 (File No. 33-62440)).  
     
3.2   Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed on June 2, 2008 (File No. 001-13150)).  
     
3.3   Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Company’s Current Report on Form 8-K filed on June 30, 2011 (File No. 000-13150)).  
     
3.4   Amended and Restated Bylaws of the Registrant (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 9, 2011 (File No. 000-13150)).  
     
3.5   Certificate of Correction to the Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (File No. 000-13150)).  
     
3.6   Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Company’s Registration Statement on Form 8-A/A, dated August 9, 2002 (File No. 000-13150)).
     
3.7   Amendment to the Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Company’s Registration Statement on Form 8-A/A, dated August 9, 2002 (File No. 000-13150)).  
     
3.8   Certificate of Designations of Series B Preferred Stock (incorporated by reference to the Company’s Current Report on Form 8-K filed on March 1, 2016).  
     
3.9   Certificate of Amendment to the Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Current Report on Form 8-K filed on November 7, 2016).  
     
3.10   Certificate of Elimination of Series B Participating Preferred Stock of the Company (incorporated by reference to the Company’s Current Report on Form 8-K filed on November 7, 2016).  
     
3.11   Certificate of Amendment to the Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Current Report on Form 8-K filed on October 31, 2017).  
     
3.12   Amended and Restated Bylaws of the Company., as adopted on January 2, 2018 (incorporated by reference to the Company’s Current Report on Form 8-K filed on January 5, 2018).  
     
3.13   Certificate of Amendment to Restated Certificate of Incorporation of the Company dated as of January 2, 2018 (incorporated by reference to the Company’s Current Report on Form 8-K filed on January 5, 2018).  
     
4.1   Form of Common Stock Certificate (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 000-13150)).  
     
4.2   Form of Series B Participating Preferred Stock Certificate (incorporated by reference to the Company’s Registration Statement on Form 8-A (File No. 001-37706)).  

 

31.1*   Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1**   Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  

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101.INS*   XBRL Instance Document.
     
101.SCH*   XBRL Taxonomy Extension Schema Document.
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document.

 

* Filed herewith

** Furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Date:  February 6, 2019 CCUR HOLDINGS, INC.
   
  By: /s/ Warren Sutherland
    Warren Sutherland
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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