ACQUISITIONS

During the nine months ended June 30, 2018, the Company acquired the following intangible assets and businesses:

Residual Buyouts

From time to time, the Company acquires future commission streams from sales agents in exchange for an upfront cash payment. This results in an increase in overall gross processing volume to the Company. The residual buyouts are treated as asset acquisitions, resulting in recording a residual buyout intangible asset at cost on the date of acquisition. These assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are expected to be utilized over their estimated useful lives.

During the nine months ended June 30, 2018, the Company purchased $1,208 in residual buyouts using a combination of cash on hand and borrowings on our revolving line of credit. The acquired residual buyout intangible assets have an estimated amortization period of two years.

Referral Agreements

From time to time, the Company enters into referral agreements with agent banks or other organizations (“referral partner”). Under these agreements, the referral partner exclusively refers its customers to the Company for credit card processing services. Total consideration paid for these agreements was $815, all of which was settled with cash on hand. Because the Company pays an up-front fee to compensate the referral partner, the amount is treated as an asset acquisition in which the Company has acquired an intangible stream of referrals. This asset is amortized over a straight-line period. The weighted-average amortization period for all intangibles acquired is five years.

Purchase of San Diego Cash Register Company, Inc.

On October 31, 2017, the Company closed an agreement to purchase all of the outstanding stock of San Diego Cash Register Company, Inc. (“SDCR, Inc.”). The acquisition was completed to expand our revenue within the integrated POS market. Total purchase consideration was $20,834, which includes $104 of common units in i3 Verticals, LLC issued to the seller. The acquisition was funded using $20,000 in proceeds from the issuance of long-term debt from the Senior Secured Credit Facility (as defined in Note 5) and $730 of contingent cash consideration. The final purchase consideration of the acquired assets and assumed liabilities was allocated based on fair values as follows:



Cash and cash equivalents	$	1,338
Accounts receivable	1,008
Related party receivable	773
Inventories	1,318
Prepaid expenses and other current assets	1,176
Property and equipment	69
Acquired merchant relationships	5,500
Non-compete agreements	40
Trade name	1,340
Goodwill	16,523
Total assets acquired	29,085

Accounts payable	1,342
Accrued expenses and other current liabilities	3,123
Deferred revenue, current	2,029
Other long-term liabilities	1,757
Net assets acquired	$	20,834

The goodwill associated with the acquisition is not deductible for tax purposes. The acquired relationships contracts intangible asset has an estimated amortization period of twelve years. The non-compete agreement and trade name have an amortization period of two and five years, respectively. The weighted-average amortization period for all intangibles acquired is eleven years.

Acquisition-related costs for SDCR, Inc. were $293 and were expensed as incurred.

Certain provisions in the purchase agreement provide for additional consideration of up to $2,400, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreement, through October 2019. The Company determined the acquisition date fair value of the liability for the contingent consideration based on a discounted cash flow analysis. In each subsequent reporting period the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liability to its fair value through earnings. See additional disclosures in Note 7.

The following unaudited pro forma results of operations have been prepared as though the acquisitions of SDCR, Inc. had occurred on October 1, 2016 and of Fairway Payments, LLC (see Note 4 of the consolidated financial statements for the years ended September 30, 2017 and 2016 included in our Prospectus) had occurred on October 1, 2015. Pro forma adjustments were made to reflect the impact of depreciation and amortization, changes to executive compensation and the revised debt load, all in accordance with ASC 805. This pro forma information does not purport to be indicative of the results of operations that would have been attained had the acquisitions been made on these dates, or of results of operations that may occur in the future.



	Nine months ended June 30,
	2018			2017
Revenue	$	240,998		$	240,492
Net income (loss)	$	(7,545	)	$	5,859

Purchase of Court Solutions, LLC

On December 1, 2017, the Company acquired certain assets of Court Solutions, LLC (“CS, LLC”). The acquisition was completed to expand the Company’s merchant base and increase our processing base in the public sector. Total purchase consideration was $2,890 including $2,200 in cash and revolver proceeds and $690 of contingent cash consideration. The final purchase consideration of the acquired assets and assumed liabilities was allocated based on fair values as follows:



Property and equipment	$	5
Capitalized software	100
Other assets	4
Acquired merchant relationships	1,500
Goodwill	1,281
Total assets acquired	$	2,890

The goodwill associated with the acquisition is deductible for tax purposes. The acquired merchant relationships intangible asset has an estimated amortization period of fifteen years.

Acquisition-related costs for CS, LLC amounted to approximately $117 and were expensed as incurred.

Certain provisions in the purchase agreement provide for additional consideration of up to $2,800, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreement, through November 2019. The Company determined the acquisition date fair value of the liability for the contingent consideration based on a discounted cash flow analysis. In each subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liability to its fair value through earnings. See additional disclosures in Note 7.

The pre-acquisition operating results of CS, LLC are not considered material to the condensed consolidated results of operations of the Company. As such, the Company has not disclosed supplemental pro forma revenue and earnings, in accordance with ASC 805.

Purchase of Enterprise Merchant Solutions, Inc.

On January 31, 2018, the Company acquired certain assets and assumed certain liabilities of Enterprise Merchant Solutions, Inc. (“EMS, Inc.”). The acquisition was completed to expand our revenue within the integrated POS market. Total purchase consideration was $6,664, including $6,000 in cash and revolver proceeds and $664 of contingent cash consideration. The final purchase consideration of the acquired assets and assumed liabilities was allocated based on fair values as follows:



Inventories	$	130
Property and equipment	14
Acquired merchant relationships	1,500
Non-compete agreements	1,400
Trade name	200
Goodwill	3,845
Total assets acquired	7,089

Accrued expenses and other current liabilities	442
Deferred revenue, current	190
Net assets acquired	$	6,457

The goodwill associated with the acquisition is deductible for tax purposes. The acquired relationships contracts intangible asset has an estimated amortization period of fifteen years. The non-compete agreement and trade name have an amortization period of three and five years, respectively. The weighted-average amortization period for all intangibles acquired is nine years.

Acquisition-related costs for EMS, Inc. were $93 and were expensed as incurred.

Certain provisions in the purchase agreement provide for additional consideration of up to $9,000, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the purchase agreement, through January 2020. The Company determined the acquisition date fair value of the liability for the contingent consideration based on a discounted cash flow analysis. In each subsequent reporting period the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liability to its fair value through earnings. See additional disclosures in Note 7.

The pre-acquisition operating results of EMS, Inc. are not considered material to the condensed consolidated results of operations of the Company. As such, the Company has not disclosed supplemental pro forma revenue and earnings, in accordance with ASC 805.