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Acquisition | 9 Months Ended
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Mar. 31, 2025
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract] |
Acquisition |
3. | Acquisition
On December 23, 2024 (the “Closing Date”), we finalized the acquisition of Netcomm Wireless Pty Ltd (“Netcomm”), a subsidiary of DZS Inc., for $6,458,000 in cash. Netcomm operates an enterprise IoT business. The acquisition complements our focus on Enterprise and Smart City vertical markets and adds products to enhance our connectivity solutions in areas such as critical infrastructure, asset monitoring and telecommunications. A summary of the purchase consideration for the acquisition is as follows (in thousands):
Schedule of purchase consideration |  |  |  |
Cash paid, including working capital adjustments |  | $ | 6,458 |
Total purchase consideration |  | $ | 6,458 |
We recorded the tangible and intangible assets and liabilities acquired based on their estimated fair values as of the Closing Date and allocated the remaining purchase consideration to goodwill. Our valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets. Updates to the valuation of certain assets acquired and liabilities assumed may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill in subsequent periods. We expect to complete the purchase price allocation within 12 months of the Closing Date. During the three months ended March 31, 2025, based on additional analysis and refinements to our estimates, we adjusted the preliminary purchase price allocation as of the Closing Date to (i) increase the estimated fair value of intangible assets acquired by $279,000, (ii) decrease the fair value of accounts receivable, net by $904,000, (iii) decrease the fair value of accounts payable and other accrued liabilities by $202,000 and (iv) decrease the fair value of inventory by $175,000. These adjustments resulted in an increase to goodwill of $598,000. In March 2025, DZSi, Inc. commenced a liquidation proceeding under Chapter 7 of the U.S. Bankruptcy Code. At that time, we had yet to settle the accounts receivable and accounts payable balances agreed to in the Netcomm acquisition agreement. As such, we updated our estimates of the acquisition date fair value of these balances as described above. The updated purchase price allocation is as follows (in thousands):
Schedule of purchase price allocation |  |  |  |
Inventories |  | $ | 797 |
Amortizable intangible assets |  |  | 2,437 |
Goodwill |  |  | 3,265 |
Accounts payable and other accrued liabilities |  |  | (41 | )
Total consideration |  | $ | 6,458 |
The factors that contributed to a purchase price resulting in the recognition of goodwill include our belief that this acquisition will create a more diverse IoT company with respect to product offerings and our belief that we are committed to improving cost structures in accordance with our operational and restructuring plans which should result in a realization of cost savings and an improvement of overall efficiencies. Depending on the structure of a particular acquisition, goodwill and identifiable intangible assets may not be deductible for tax purposes. We have preliminarily determined that goodwill and identifiable intangible assets related to this acquisition are deductible for tax purposes. Acquisition-related costs were expensed in the periods in which the costs were incurred. The valuation of identifiable intangible assets and their estimated useful lives are as follows:
Schedule of intangible assets of useful lives |  |  |  |  |  |  |  |
|  | Asset Fair Value |  |  | Weighted Average Useful Life |
|  | (In thousands) |  |  | (In years) |
Customer relationships |  | $ | 1,587 |  |  |  | 8.0 |
Developed technology |  |  | 462 |  |  |  | 5.0 |
Trademarks and trade names |  |  | 91 |  |  |  | 2.0 |
Customer backlog |  |  | 297 |  |  |  | 1.0 |
The intangible assets are amortized on a straight-line basis over the estimated weighted-average useful lives. Valuation Methodology The customer relationships were valued using the multi-period excess earnings method, which estimates revenues and cash flows derived from this asset and also considers portions of the cash flows that can be attributed to the use of other supporting assets so that these cash flows can be excluded. The useful lives of customer relationships are estimated based primarily upon the probability of loss associated with two major customers and customer turnover data for the other customers. Order backlog was estimated to be substantially fulfilled within a year of the Closing Date. Developed technology and trades names were valued using the relief-from-royalty method. This method is an income approach that estimates the portion of a company’s earnings attributable to an asset based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying a royalty rate to the prospective revenue attributable to the intangible asset. The resulting annual royalty payments are tax-affected and then discounted to present value. Assumptions used in forecasting cash flows for each of the identified intangible assets included consideration of the following:
| · | Historical performance including sales and profitability
| · | Business prospects and industry expectations
| · | Estimated economic life of the asset
| · | Development of new technologies
| · | Acquisition of new customers
| · | Attrition of existing customers
| · | Obsolescence of technology over time
Supplemental Pro Forma Information The following supplemental pro forma data summarizes our results of operations for the periods presented, as if we completed the acquisition as of the first day of our fiscal year ended June 30, 2024. The supplemental pro forma data reports actual operating results adjusted to include the pro forma effect and timing of the impact of amortization expense of identified intangible assets, the purchase accounting effect on inventories acquired, and transaction costs. In accordance with the pro forma acquisition date, we recorded in the nine months ended March 31, 2024 supplemental pro forma data acquisition-related costs of $337,000, with a corresponding reduction in the nine months ended March 31, 2025 supplemental pro forma data. Additionally, we recorded (i) additional amortization expense of $475,000 and (ii) cost of goods sold from manufacturing profit in acquired inventory of $106,000 in the nine months ended March 31, 2024 supplemental pro forma data, and (i) additional amortization expense of $94,000, and (ii) $44,000 reduction in cost of goods sold from manufacturing profit in acquired inventory in the nine months ended March 31, 2025 supplemental pro forma data to represent amortization for the full fiscal year-to-date period. Supplemental pro forma data is as follows:
Schedule of supplemental pro forma data |  |  |  |  |  |  |  |
|  | Nine Months Ended March 31, |
|  | 2025 |  |  | 2024 |
|  | (In thousands, except per share amounts) |
Pro forma net revenue |  | $ | 95,945 |  |  | $ | 118,103 |
Pro forma net loss |  | $ | (8,223 | ) |  | $ | (4,208 | )
Pro forma net loss per share: |  |  |  |  |  |  |  |
Basic and Diluted |  | $ | (0.21 | ) |  | $ | (0.11 | )
Net revenue related to products and services from the acquisition of Netcomm contributed approximately 2% of our total net revenue for the nine months ended March 31, 2025. As of the Closing Date, we began to immediately integrate the acquisition into existing operations, engineering groups, sales distribution networks and management structure, making it generally impracticable to determine the post-acquisition earnings on a standalone basis.

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