| Overview of Business | 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 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. 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 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. 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. 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 Earnings per Share Basic (loss) earnings per share is computed by dividing income by the weighted average number of common shares outstanding during each year. Diluted earnings per share is computed by dividing (loss) 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 · 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. Our 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. |
