| BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation These consolidated financial statements have been prepared in conformity with U.S. GAAP. Any reference to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). ASC 205-40, Presentation of Financial Statements - Going Concern , requires management to assess an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date. Management has performed this required assessment as of March 31, 2023, including consideration of the effect of the Second Amendment to the Deposit Processing Services Agreement (the “DPSA Second Amendment”) and the 2023 Deposit Servicing Agreement with Customers Bank, see Note 15 - Subsequent Events for additional information, and believes there is sufficient funds available to support its ongoing business operations and continue as a going concern for at least the next 12 months with projected liquidity of $21 million at March 31, 2024. Management’s assessment is subject to known and unknown risks, uncertainties, assumptions, and changes in circumstances, many of which are beyond our control including the impact of the macroeconomic environment, and that are difficult to predict as to timing, extent, likelihood, and degree of occurrence, and that could cause actual results to differ from estimates and forecasts, potentially materially. Based upon the results of Management’s assessment, these consolidated financial statements have been prepared on a going concern basis. The consolidated financial statements do not include any adjustments that could result from the outcome of the aforementioned risks and uncertainties. Consolidation Policy These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates These financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of BMTX for the periods presented. 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, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include valuation of deferred tax assets, valuation of the private warrants, goodwill, and intangible asset impairment analysis. Actual results could differ from those estimates. Segment Reporting The Company conducts its operations through a single operating segment and, therefore, one reportable segment. Operating segments are revenue-generating components of a company for which separate financial information is internally produced for regular use by the Chief Operating Decision Maker (“CODM”) to allocate resources and assess the performance of the business. Our CODM, Luvleen Sidhu, our Chief Executive Officer (“CEO”), uses a variety of measures to assess the performance of the business; however, detailed profitability information of the nature that could be used to allocate resources and assess the performance of the business are managed and reviewed for the Company as a whole. Customer and Vendor Concentrations At December 31, 2022 and December 31, 2021, Customers Bank accounted for 17% and 61% of our total Accounts receivable, net , respectively. At December 31, 2022 and December 31, 2021, a BaaS partner accounted for 60% and 13% of our total Accounts receivable, net, respectively. At December 31, 2022 and December 31, 2021, MasterCard accounted for 10% and 17% of our total Accounts receivable, net , respectively. For the twelve months ended December 31, 2022 and 2021, Customers Bank, through a Deposit Processing Services Agreement and Amendment thereof, accounted for 89% and 87% of our Total operating revenues , respectively. See Note 14 – Related Party Transactions for additional information. Certain of these revenues are paid directly by MasterCard or individual account holders to the Company. For the twelve months ended December 31, 2022 and 2021, there is one vendor that accounted for 12% and 12% of our Total operating expenses , respectively. Prior Period Adjustments Certain prior period amounts have been adjusted to conform to the current period presentation. Balance Sheet Adjustments In preparation of the Company’s consolidated financial statements as of and for the twelve months ended December 31, 2022, the Company identified that its reserve for losses resulting from fraud or theft-based transactions that have generally been disputed by BMTX serviced deposit account holders and a related receivable were previously presented on a net basis as a component of Other assets . The Company reviewed this presentation and concluded that these amounts are better presented on a gross basis including the reserve for losses as a component of Accounts payable and accrued liabilities and including the receivable for any billable reimbursements from Customers Bank as a component of Accounts receivable, net . In addition, the MasterCard quarterly fee assessment was reclassified from Accounts payable and accrued liabilities to Accounts receivable, net to better present the fee assessment balance. Finally, the Company identified certain prepaid taxes that were previously included as a component of Other asset s. The Company reviewed this presentation and concluded that these amounts are better presented as a component of Prepaid expenses and other current assets due to their short-term nature. The effect of these immaterial adjustments has increased Accounts receivable, net by $33 thousand, increased Prepaid expenses and other current assets by $320 thousand, decreased Other assets by $439 thousand, and decreased Accounts payable and accrued liabilities by $86 thousand at December 31, 2021. Statement of Income (Loss) Adjustments In preparation of the Company’s consolidated financial statements as of and for the twelve months ended December 31, 2022, the Company identified certain expenses that were previously included as a component of Customer related supplies and Occupancy that are better presented as a component of Technology, communication, and processing . In addition, the Company identified card replacement fees reimbursed from a BaaS partner were recognized as a component of Account fees and Other revenue when only the margin of those fees should have been recognized as revenue and the reimbursable expense should have been recognized as a component of Customer related supplies . The effect of these immaterial adjustments for the twelve months ended December 31, 2021: • Decreased revenue from Account fees by $125 thousand, • Decreased revenue from Other revenue by $157 thousand, • Increased expenses from Technology, communication, and processing by $365 thousand, • Decreased expenses from Occupancy by $248 thousand, and • Decreased expenses from Customer related supplies by $399 thousand. The impact of these adjustments had no effect on Net (loss) income . Significant Accounting Policies As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised ASUs applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act. Business Combinations Business combinations are accounted for by applying the acquisition method in accordance with FASB ASC 805, Business Combinations . Under the acquisition method, identifiable assets acquired and liabilities assumed are measured at their fair values as of the date of acquisition, and are recognized separately from goodwill. Results of operations of the acquired entity are included in the statement of income from the date of acquisition. BMTX recognizes goodwill when the acquisition price exceeds the estimated fair value of the net assets acquired. Cash and Cash Equivalents Our cash is maintained at Customers Bank, with a large majority of our cash balances at December 31, 2022 exceeding the FDIC’s $250,000 insured limit per account. We have not experienced losses on cash balances exceeding the federally insured limits, but there can be no assurance that we will not experience such losses in the future. Accounts Receivable Accounts receivable primarily relate to billings for deposit processing services provided to Customers Bank in addition to reimbursements to be received from a BaaS partner, as described in collaborative arrangements below, MasterCard incentive income, and uncollected university subscription and disbursement services fees. These amounts are recorded at face amounts less an allowance for doubtful accounts. Management evaluates accounts receivable and establishes the allowance for doubtful accounts based on historical experience, analysis of past due accounts, and other current available information. Accounts receivable deemed to be uncollectible are individually identified and are charged-off against the allowance for doubtful accounts. Premises and Equipment Premises and equipment are recorded at cost less accumulated depreciation. Depreciation is charged to operations on a straight-line basis over the estimated useful lives of the assets or, in the case of leasehold improvements, the lease period, if shorter. Upon disposal or retirement of property and equipment, cost and related accumulated depreciation are removed from the accounts. Gains and losses from dispositions are credited or charged to operations. Expenditures for ordinary maintenance and repairs are charged to expense. Additions or betterments to property and equipment are capitalized at cost. Developed Software Developed software includes internally developed software and developed software acquired in the Higher One Disbursement business acquisition. Internally developed software and related capitalized work-in-process costs relate to the development of digital banking platforms to connect BaaS banking customers to partner banks. BMTX capitalizes certain internal and external costs incurred to develop internal-use software during the application development stage. BMTX also capitalizes the cost of specified upgrades and enhancements to internal-use software that result in additional functionality. Once a development project is substantially complete and the software is ready for its intended use, BMTX begins amortizing these costs on a straight-line basis over the internal-use software’s estimated useful life, which range from three The Higher One Disbursement business developed software is related to the disbursement business services to colleges and universities and delivering services to students. The Higher One Disbursement business developed software was recorded at the amount determined by a third-party valuation expert at acquisition date and was estimated based on expected revenue attributable to the software utilizing a discounted cash flow methodology, giving consideration to potential obsolescence. The estimated useful life of the Higher One Disbursement business developed software is 10 years. The Company reviews the carrying value of developed software for impairment by measuring the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. If the Company determines that the carrying amount is impaired, the asset is written down to fair value. Fair value is determined based on discounted cash flows or management’s estimates, depending on the nature of the assets. There was no impairment recognized for the twelve months ended December 31, 2022. There was $0.2 million of impairment recognized for the twelve months ended December 31, 2021. Goodwill and Other Intangibles Goodwill represents the excess of the purchase price over the identifiable net assets of businesses acquired through business combinations accounted for under the acquisition method. Goodwill is reviewed for impairment annually as of October 31 and between annual tests when events and circumstances indicate that impairment may have occurred. The goodwill impairment charge represents the amount by which the reporting unit’s carrying amount exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. BMTX applies a qualitative assessment to determine if the Step 1 quantitative impairment test is necessary. Other intangible assets represent purchased assets that lack physical substance, but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as university relationships, are subject to impairment testing. Intangible assets are amortized on a straight-line basis over a period of twenty years. Other intangibles subject to amortization are reviewed for impairment under FASB ASC 360, Property, Plant and Equipment , which requires that a long-lived asset or asset group be tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. As part of its qualitative assessment, BMTX reviewed regional and national trends in current and expected economic conditions. BMTX also considered its own historical performance, expectations of future performance, indicative deal values, and other trends specific to its industry. Based on its qualitative assessment, BMTX determined that there was no evidence of impairment of the balance of goodwill or other intangible assets. As of December 31, 2022 and 2021, Goodwill was $5.3 million and Other intangibles, net was $4.4 million and $4.7 million, respectively. Leases BMTX enters into lease agreements primarily for the use of office space, all which are classified as operating leases. At lease commencement date, BMTX recognizes right-of-use (“ROU”) assets and lease liabilities measured at the present value of lease payments over the lease term. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease expense for rental payments are recognized on a straight-line basis over the lease term and are included in Occupancy. In addition to rent, BMTX pays taxes and maintenance expenses, including an annual increase in operating expenses over the initial year’s expenses under certain leases as variable lease payments. Deferred Revenue Deferred revenue consists of payments received from customers, most significantly from Customers Bank, prior to the performance of services. Deferred revenue is recognized over the service period on a straight-line basis or when the contractual performance obligation has been satisfied. The Company classifies deferred revenue on the Consolidated Balance Sheets in Deferred revenue, current and Deferred revenue, non-curren t. Public & Private Warrants The Company has public and private warrants outstanding as a result of the merger transaction which occurred on January 4, 2021. Each warrant entitles the registered holder to purchase one whole share of common stock at a price of $11.50 a share. The warrants expire January 4, 2026, or earlier upon redemption or liquidation and the Company has redemption rights if our common stock trades above $24.00 for 20 out of 30 days. The private warrants are identical to the public warrants except that the private warrants are non-redeemable and exercisable on a cashless basis so long as they are held by the sponsor and certain others. The private warrants and the public warrants are treated differently for accounting purposes. In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the private warrants are accounted for as liabilities and will be marked-to-market each reporting period with the change recognized in earnings. In general, under the mark-to-market accounting model, as the Company’s stock price increases, the warrant liability increases, and the Company recognizes additional expense in its Consolidated Statements of Income (Loss) – the opposite when the stock price declines. Accordingly, the periodic revaluation of the private warrants could result in significant volatility in our reported earnings. For the twelve months ended December 31, 2022 and 2021, respectively, the Company recognized gains of $8.1 million and $17.2 million. The amounts recognized are a mark-to-market accounting determination and are non-cash. In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the public warrants are treated as equity instruments. Accordingly, the public warrants are not marked-to-market each reporting period, thus there is no impact to earnings. Any future exercises of the public warrants will be recorded as cash received and recorded in Cash and cash equivalents , with a corresponding offset to Additional paid-in capital in equity. Income Taxes BMTX accounts for income taxes under the liability method of accounting for income taxes. The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. BMTX determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. In assessing the realizability of federal or state deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and prudent, feasible and permissible as well as available tax planning strategies in making this assessment. A tax position is recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the term upon examination includes resolution of the related appeals or litigation process. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Loss Contingencies In the ordinary course of business, the Company is regularly subject to various claims, suits, regulatory inquiries, and investigations. The Company records a liability for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable, and the loss can be reasonably estimated. Management has also identified certain other legal matters where they believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the Company’s business, financial position, results of operations, or cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. Revenue Recognition BMTX’s revenues from interchange and card revenue, servicing fees, account fees, and university fees are within the scope of FASB ASC 606, Revenue from Contracts with Customers . The Company recognizes revenue in accordance with ASC 606 when the performance obligations related to the transfer of services under the terms of a contract are satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time. Revenue is recognized as the amount of consideration to which the Company expects to be entitled to in exchange for transferring services to a customer. The Company’s customer contracts do not contain terms that require significant judgment to determine the variability impacting the transaction price. A performance obligation is deemed satisfied when the control over services is transferred to the customer. Control is transferred to a customer either at a point in time or over time. To determine when control is transferred at a point in time, the Company considers indicators, including but not limited to the right to payment, transfer of significant risk and rewards of ownership, and acceptance by the customer. When control is transferred over a period of time, the output method is used to measure progress for the transfer. The measure of progress used to assess completion of the performance obligation is based on time over the period of service. We assess our revenue arrangements against specific criteria in order to determine if we are acting as principal or agent. The Company determined that it is the agent in contracts for interchange and card revenue, and presents these revenues net of related expenses under ASC 606. Interchange and card revenue Interchange fees are earned whenever debit cards serviced by BMTX are processed through card payment networks. Interchange fees are recognized concurrent with the processing of the card transaction. Card revenue includes foreign ATM fees and MasterCard incentive income. ATM fees are recognized when the fee is deducted from the serviced account; MasterCard incentive income is primarily tied to debit spend volume and is recognized concurrent with spend. Servicing fees BMTX sources and services deposit accounts for Customers Bank and in exchange is paid servicing fees. Servicing fees and terms are established by individually negotiated contractual agreements. A fixed rate is applied to the daily average deposit balances. In all periods, servicing fees are recognized monthly based on average daily balances. Account fees BMTX earns account fees on BMTX serviced deposit accounts for transaction-based, account maintenance services. Account maintenance fees, which relate primarily to monthly maintenance fees for BMTX serviced accounts that do not meet minimum deposit balance requirements, are earned on a monthly basis representing the period over which BMTX satisfies its performance obligation. Transaction-based fees, which include services such as wire transfer fees, card replacement, and cash deposit via Green Dot network fees, are recognized at the time the transaction is executed. Service charges on deposit accounts are withdrawn from the depositor’s account balance. University fees BMTX earns university fees from Higher Education clients in exchange for financial aid and other student refund disbursement services provided. BMTX facilitates the distribution of financial aid and other refunds to students, while simultaneously enhancing the ability of the higher education institutions to comply with the federal regulations applicable to financial aid transactions. For these services, Higher Education institution clients are charged an annual subscription fee and/or per-transaction fee (e.g., check issuance, new card, card replacement fees) for certain transactions. The annual subscription fee is recognized ratably over the period of service using the output method and the transaction fees are recognized when the transaction is completed. BMTX typically enters into long-term (generally three or five-year initial term) contracts with Higher Education institutions to provide these refund management disbursement services. Advertising and Promotion Advertising and promotion costs are expensed as incurred. Collaborative Arrangements In the normal course of business, BMTX may enter into collaborative arrangements primarily to develop and commercialize banking products to its partners’ customers. Collaborative arrangements are contractual agreements with third-parties that involve a joint operating activity where both BMTX and the collaborating BaaS partner are active participants in the activity and are exposed to the significant risks and rewards of the activity. Collaborative activities typically include research and development, technology, product development, marketing, and day-to-day operations of the banking product. These agreements create contractual rights and do not represent an entity in which we have an equity interest. BMTX accounts for its rights and obligations under the specific requirements of the contracts. These arrangements often require the sharing of revenue and expense. BMTX’s expenses incurred pursuant to these arrangements are reported net of any payments due to or amounts due from BMTX’s BaaS partners, which are recognized at the time the BaaS partner becomes obligated to pay. For the twelve months ended December 31, 2022 and 2021, respectively, BMTX recognized proceeds of $7.5 million and $15.7 million, respectively, from collaborative arrangements. These proceeds include $1.4 million, and $5.3 million, respectively, in revenues, primarily recorded in Other revenue and Interchange and card revenue on the Consolidated Statements of Income (Loss) and $6.1 million and $10.4 million, respectively, in expense reimbursements, primarily recorded in Salaries and employee benefits and Professional services on the Consolidated Statements of Income (Loss) . Share-Based Compensation Expense The Company uses share-based compensation, including stock, restricted stock units and performance stock units, to provide long-term performance incentives for its employees and directors. Share-based compensation is recognized on a straight-line basis over the requisite service period of the award based on their grant-date fair value for time-based awards. Compensation related to performance-based awards are recognized over the period the performance obligation is expected to be satisfied. Forfeitures are recognized as they occur. Share-based compensation expense is included in Salaries and employee benefits . In addition, the holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligations. Provision for Operating Losses The provision for operating losses represents BMTX’s payments for losses resulting from fraud or theft-based transactions that have generally been disputed by BMTX serviced deposit account holders, as well as an estimated cost for disputes that have not been resolved as of the end of the reporting period. The estimate is based on historical rates of loss on such transactions. The estimated exposure was $0.4 million and $0.2 million at December 31, 2022 and 2021 respectively; the changes period over period are presented within Provision for Operating Losses on the Consolidated Statements of Income (Loss) . Merger and Acquisition Related Expenses In connection with previous unconsummated mergers, BMTX incurred $0.3 million and $0.1 million in merger and acquisition expenses for the twelve months ended December 31, 2022 and 2021 respectively. All merger related costs are included within Merger and acquisition related expenses on the Consolidated Statements of Income (Loss) . Recently Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12, “ Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. ” The ASU reduces cost and complexity related to the accounting for income taxes by eliminating the need for an organization to analyze whether certain exceptions apply in a given period and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted the standard on January 1, 2021. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures. Accounting Standards Issued but Not Yet Adopted From time to time, new accounting pronouncements are issued by the FASB that are adopted by BMTX as of the required effective dates. ASUs not listed below were assessed and determined to be either not applicable or to not have a material impact on BMTX’s financial statements taken as a whole. ASU 2020-04 - Reference Rate Reform (Topic 848) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting and 2022-06 – Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 . In March 2020, the FASB issued ASU 2020-04 which provided optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met contained in topic 848. In December 2022, the FASB issued ASU 2022-06 which deferred the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The Company has determined that ASU 2020-04 and ASU 2022-06 will not have a material impact on its consolidated financial statements and related disclosure. In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20 ) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options , that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share , to require entities to calculate diluted earnings per share for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted earnings per share when an instrument may be settled in cash or shares. As a smaller repor |
