EFT Source Acquisition

12 Months Ended

Dec. 31, 2015

EFT Source Acquisition

EFT Source Acquisition

3. EFT Source Acquisition

On September 2, 2014, CPI Card Group Inc., through its wholly-owned subsidiary, CPI Acquisition,Inc., purchased EFT Source, Inc. (“EFT Source”) headquartered in Nashville, Tennessee. EFT Source is a provider of Financial Payment Card services such as data personalization and fulfillment in the U.S. market. The primary reasons for the acquisition were to extend the Company’s existing product lines, expand its markets and increase revenue.

Purchase Price

Total consideration for the EFT Acquisition of $68,859 was paid in cash of $54,859, a note payable to the previous owners of EFT Source, payable on September 2, 2016 (“Sellers Note”) of $9,000 and the issuance of $5,000 of CPI Card Group Inc. preferred and common stock.

Allocation of Purchase Price

The EFT Acquisition was accounted for in accordance with ASC 805, Business Combinations. As such, the acquired assets and assumed liabilities have been recorded at their estimated acquisition date fair values.

The allocation of purchase price to the assets acquired and liabilities assumed at the EFT Acquisition date is presented below:

Cash and cash equivalents	$	381
Accounts receivable		5,837
Inventory		1,724
Prepaid expenses		1,426
Other current assets		645
Property, equipment and leasehold improvements		6,460
Goodwill		33,619
Intangible assets subject to amortization(a)		31,100
Trademarks (indefinite-lived)		4,400
Other assets		13
Deferred tax liability		(14,751)
Other current liabilities		(1,995)
Total purchase price	$	68,859

^(a) Amounts primarily include intangible assets related to customer relationships. At September 2, 2014, the weighted average useful life of EFT Source customer relationships was 15 years.

The fair value of the intangible assets acquired was primarily determined based upon the present value of expected future cash flows, utilizing a risk-adjusted discount rate. The customer relationships were valued based on a “multi-period excess earnings approach.” The “multi-period excess earnings approach” measures an asset’s value as the present value of cash flows generated by the asset adjusted for contributory charges for other assets which contribute to the cash flows. The non-compete agreements were valued based on a “with and without” approach. The “with and without” method measures an asset value by estimating the difference in cash flows generated by the business with the asset in-use versus without the asset. The difference in cash flows is attributable to incremental earnings or cost savings associated with the asset. The trademark and trade names were valued based on a “relief from royalty” approach. The “relief from royalty” method is based on the premise that a third party would be willing to pay a royalty to use the trade name or trademark asset owned by the subject company. The projected royalties are converted into their present value equivalents through the application of a risk adjusted discount rate.

The Company recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable assets acquired as goodwill, which is not deductible for tax purposes. The goodwill of $33,619 related to the EFT Acquisition, is attributable to current and future market share and assembled workforce,

The assets and liabilities assumed in the acquisition and the results of EFT Source operations were included in the Company’s Consolidated Financial Statements as of September 2, 2014.

Pro Forma Information

The following unaudited pro forma consolidated operating results give effect to the EFT Acquisition as if it had been completed on January 1, 2013. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date. The pro forma adjustments are based on certain assumptions that the Company considers to be reasonable.

	December 31,
	2014		2013
Revenue—Continuing Operations	$	291,302	$	233,360
Net Income—Continuing Operations		16,916		10,186
Basic andDiluted Loss Per Share from Continuing Operations	$	(0.67)	$	(0.60)

The Company’s Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2014 includes revenue and net income from operations of $21,999 and $4,446 respectively, attributable to EFT Source.