News Column


August 11, 2014

This Item 7 should be read in the context of the information included elsewhere in this Annual Report including our financial statements and accompanying notes in Item 8 of this Annual Report.

20 --------------------------------------------------------------------------------

Table of Contents OVERVIEW

Calpian, Inc. ("CLPI") is in the business of acquiring recurring monthly residual income streams derived from credit card processing fees paid by retail merchants in the United States ("residual portfolios"). We do not act as a credit card processor, but simply as a purchaser of revenue streams resulting from the relationships between processors and independent sales organizations ("ISOs"). In addition, we invest in payments-industry related opportunities.

Money-on-Mobile delivers a payment processing service in India. Money-on-Mobile allows consumers to use cellular phones to make certain routine payments for utilities or to transfer currency to other consumers using text-messaging technology.

In March 2013, the Company formed a wholly-owned subsidiary, Calpian Commerce, Inc. ("Calpian Commerce"), to own and operate the certain assets and liabilities of Pipeline Data, Inc. and its subsidiaries acquired in exchange for a cash payment of $9.75 million. Calpian Commerce provides the general merchant community access to an integrated suite of third-party merchant payment processing services and its own related proprietary software enabling products delivering credit and debit card-based internet payments processing solutions to merchants operating in physical "brick and mortar" business environments and in settings requiring wired as well as wireless mobile payment solutions. It also operates as an ISO generating individual merchant processing contracts in exchange for future residual payments.


For the year ended March 31, 2014 compared to the year ended March 31, 2013, the results for our three business segments were as follows:

Year Ended March 31, 2014 2013 Revenues: Calpian, Inc. $ 3,777,484$ 3,411,029 Calpian Commerce 21,400,459 953,240 Money-on-Mobile 29,710,288 - $ 54,888,231$ 4,364,269 Cost of sales: Calpian, Inc. $ 1,172,438$ 1,037,171 Calpian Commerce 16,954,723 720,005 Money-on-Mobile 29,202,360 - Total cost of sales 47,329,521 1,757,176 Gross profit $ 7,558,710$ 2,607,093 Net income (loss): Calpian, Inc. $ (5,142,054)$ (4,228,700) Calpian Commerce (917,909) 35,293 Money-on-Mobile (858,974) - Other (40,117) - $ (6,959,054)$ (4,193,407)

The significant increases in 2014 revenues and gross profit are mainly attributable to the consolidation of Money-on-Mobile into the Company's financials statements beginning January 2014 and the acquisition of Calpian Commerce on March 15, 2013.



Table of Contents

Revenues for Calpian, Inc. in 2014 were lower than in 2013 due to normal portfolio attrition. Gross profits were approximately 31% in 2014 compared to 30% in for 2014 and 2013, respectively. General and administrative costs increased by approximately $2.9 million compared to 2013 due to (1) a $250,000 lawsuit settlement (see Note 17 of the notes to our financial statements in Part I, Item 8 of this Report), (2) one-time costs of approximately $2.1 million of costs associated with equity fundraising, and (3) costs associated with the implementation of the company's global enterprise accounting solution of approximately $500,000.

Reported revenues, gross profits, and general and administrative costs related to Calpian Commerce increased in 2014 compared to 2013 mainly due to the inclusion of twelve months of operations for the period ended March 31, 2014, while the 2013 results include only the short period from March 15, 2013 through March 31, 2013.

Money-on-Mobile became majority owned on January 6, 2014, at which time the Company began to consolidate the results of its operations. Prior to the acquisition, the Company accounted for the results of operations for Money-on-Mobile using the equity method of accounting.

Additionally, the Company incurred interest and financing costs of $2,462,404 and $926,499 for 2014 and 2013, respectively. Net losses were approximately $7.0 million, or $0.25 per share in 2014 compared to $4.2 million, or $0.19 per share in 2013. Due to net losses, the Company had no current federal tax provision in either 2014 or 2013 and deferred tax benefits of cumulative net operating losses and other temporary tax differences have been offset by valuation allowances. State income tax reports are assessments not offset by operating losses.

For the three months ended March 31, 2014 compared to the three months ended March 31, 2013, the results for our three business segments were as follows:

Three Months Ended March 31, 2014 2013 Revenues: Calpian, Inc. $ 868,197$ 849,715 Calpian Commerce 4,521,225 875,413 Money-on-Mobile 29,710,288 - Other 485,440 50,686 $ 35,585,150$ 1,775,814 Gross profit: Calpian, Inc. 603,711 - 555,577 Calpian Commerce 750,126 - 184,988 Money-on-Mobile 507,928 - - Other 256,888 - 41,028 $ 2,118,653$ 781,593


Cash used by consolidated operating activities in the year ended March 31, 2014 and 2013 was $3,650,448 and $807,129, respectively.

The Company's general and administrative expenses accounted for most of the cash used in its operations. These expenses included $1.4 million spent on financing efforts, the majority of which was broker commissions.

As of March 31, 2014 the Company had a $14.5 million senior credit facility under which the Company has $13.1 million in principle outstanding. Of the $14.2 million available, $10.2 million was utilized to finance loan costs and the $9.75 million business acquisition of Calpian Commerce, and $2.9 million was utilized to finance residual acquisitions. The $10.2 million utilized to acquire Calpian Commerce included $250 thousand in unrestricted cash that was included in the assets transferred

22 --------------------------------------------------------------------------------

Table of Contents

to the Calpian Commerce subsidiary. The $1.4 million balance remaining at March 31, 2014, under the facility is restricted to the acquisition of additional credit card residuals in the U.S. Proceeds from sales of our common stock and warrants in private placements and subordinated debt borrowings were $11.5 million and $6.4 million in 2014 and 2013, respectively.

Our primary sources of liquidity are cash flows from operating activities, sales of our common stock in private placements, and subordinated debt borrowings not restricted to specific investing activities. We anticipate these funds and acquisition of additional residual portfolios funded by the senior credit facility and restricted subordinated debt borrowings will be sufficient to meet our operating needs for the foreseeable future. However, there are no assurances we can sell more common stock, issue additional subordinated debt, or acquire additional portfolios on acceptable terms.

The Company plans to raise additional debt to support residual acquisitions and additional equity to support further expansion of Money-On-Mobile operations in India.


We do not have any off-balance sheet arrangements.


We use estimates throughout our statements and changes in estimates could have a material impact on our operations and financial position. We consider an accounting estimate to be critical if: (1) the estimate requires us to make assumptions about matters that are highly uncertain at the time the estimate is made or (2) changes in the estimate are reasonably likely to occur from period to period, or use of different estimates we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

We believe the critical accounting policies described below involve the more significant judgments and estimates used in the preparation of our consolidated financial statements:

Valuation of warrants and options Amortization of residual portfolios Goodwill impairment Fair value measurements Valuation of deferred tax net assets

As our operations expand, we may identify additional critical accounting policies in the future.

Valuation of Warrants and Options

The Company's warrants and options are recorded at grant date at fair value using the Black-Scholes option pricing model. This model requires management to make certain estimates including the fair value of the Company's stock, its volatility, risk free interest rates, and expected term.

Amortization of Residual Portfolios Acquired

The Company amortizes its investment in merchant portfolios based upon the future expected cash flows derived from each individual portfolio acquired as each portfolio is underwritten separately and may reflect unique cash flow patterns. The future expected cash flow is evaluated periodically and the future amortization is adjusted prospectively. The Company recognized amortization expense related to its residual portfolios business segment of $1,172,438 and $1,057,093 in 2014 and 2013, respectively. The Company recognized amortization expense related to its processing business segment of $1,111,579 and $71,805 in 2014 and 2013, respectively.

Goodwill impairment

As a result of our acquisitions on March 15, 2013, which is described in Note 3 of the notes to our financial statements in Part II, Item 8 of this Report, a significant portion of our total assets consist of goodwill. The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.



Table of Contents

We assess the impairment of goodwill of our reporting units annually, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. As of March 31, 2014 and 2013, the carrying value of Goodwill was $21,619,870 and $2,341,928, respectively.

Fair value measurements used in business combinations

The fair value measurements of the assets of the business combinations are provisional, including the valuation of non-controlling interest and intangibles, pending receipt of the final valuations for those assets.

Valuation of deferred tax net asset

Deferred income taxes are recognized for the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and income tax return purposes, including undistributed foreign earnings and losses, using enacted tax laws and rates. A valuation allowance is recognized if it is more likely than not that some or all of a deferred tax asset may not be realized. Tax liabilities, together with interest and applicable penalties included in the income tax provision, are recognized for the benefits, if any, of uncertain tax positions in the financial statements which, more likely than not, may not be realized.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Edgar Glimpses

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters