| 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”). FASB ASC Topic 205-40, P resentation 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 April 5, 2024, and believes there are 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 $10.0 million at April 5, 2025. 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 share-based compensation, provision for operating losses, valuation of deferred tax assets, valuation of the private warrants, internally developed software, and goodwill and other 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, 2023 and December 31, 2022, Customers Bank accounted for 16% and 17% of our total Accounts receivable, net , respectively. At December 31, 2023 and December 31, 2022, a BaaS partner accounted for 48% and 60% of our total Accounts receivable, net, respectively. At December 31, 2023 and December 31, 2022, MasterCard accounted for 21% and 10% of our total Accounts receivable, net , respectively. For the twelve months ended December 31, 2023 and 2022, Customers Bank, through a Deposit Processing Services Agreement and Amendment thereof, accounted for 87% and 89% of our Total operating revenues , respectively. See Note 13 – 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, 2023 and 2022, there is one vendor that accounted for 11% and 12% of our Total operating expenses , respectively. 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 Topic 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, 2023 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 our Partner Banks 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. The respective expenses are recorded in Technology, communication, and processing and Occupancy on the Consolidated Statements of Loss for the twelve months ended December 31, 2023 and 2022, respectively. 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 our fintech digital banking platform. 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 ranges from three Technology, communication, and processing on the Consolidated Statements of Loss. 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. Amortization expense is recorded in Technology, communication, and processing on the Consolidated Statements of Loss. At each reporting period, the Company performs an assessment to determine if any indicators of impairment are present. If indicators are present, the Company performs a recoverability test 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. Developed software impairment expense for the twelve months ended December 31, 2023 and 2022 totaled $0.6 million and zero, respectively. Impairment expense is recorded in Technology, communication, and processing on the Consolidated Statements of Loss. 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. A 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 twenty years. Other intangibles subject to amortization are reviewed for impairment under FASB ASC Topic 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. 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. As part of its quantitative and qualitative assessment, BMTX reviews regional and national trends in current and expected economic conditions. BMTX also considers its own historical performance, expectations of future performance, indicative deal values, and other trends specific to its industry. Based on its quantitative and qualitative assessment, BMTX determined that there was no evidence of impairment of the balance of goodwill or other intangible assets. As of December 31, 2023 and 2022, Goodwill was $5.3 million and Other intangibles, net was $4.1 million and $4.4 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. For the twelve months ended December 31, 2023, the Company had one month to month short term office lease that qualified for the short-term lease exemption under FASB ASC Topic 842, Leases . and as such, did not require capitalization as a right of use asset or lease liability. Insurance Premium Finance Obligations The Company includes the obligation for its insurance premium financing in Accounts Payable and accrued liabilities on the Consolidated Balance Sheets . There were zero premium finance obligations outstanding at both December 31, 2023 and 2022. Deferred Revenue Deferred revenue consists of payments received from customers, most significantly from its Partner Banks, 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-current. Public & Private Warrants The Company has public and private warrants outstanding as a result of the merger transaction with Megalith that 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 are 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 Loss – the opposite when the stock price declines. Accordingly, the periodic revaluation of the private warrants could result in significant volatility in reported earnings. For the twelve months ended December 31, 2023 and 2022, respectively, the Company recognized non-cash gains of $2.7 million and $8.1 million related to the mark-to-market accounting on its private warrants. 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 Topic 606, Revenue from Contracts with Customers . The Company recognizes revenue in accordance with FASB ASC Topic 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 FASB ASC Topic 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 its Partner Banks, and in exchange, is paid servicing fees. Servicing fees and terms are established by individually negotiated contractual agreements. A 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 completed. 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 fees (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 BaaS 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 partner, which are recognized at the time the BaaS partner becomes obligated to pay. For the twelve months ended December 31, 2023 and 2022, BMTX recognized fee sharing from its BaaS partners of $3.9 million and $7.5 million, respectively, from collaborative arrangements. These net proceeds include $(1.0) million and $1.4 million, respectively, in revenues (contra-revenues), recorded in Other revenue, Interchange and card revenue, and Servicing fees on the Consolidated Statements of Loss and $4.9 million and $6.1 million, respectively, in expense reimbursements, recorded in Technology, communication and processing, Salaries and employee benefits, and Professional services on the Consolidated Statements of 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 the grant-date fair value for service-based awards. Compensation related to performance-based awards is recognized over the period the performance obligation is expected to be satisfied. For compensation related to performance-based awards with milestones, upon the grant date, and at each subsequent reporting period, we reassess whether it is probable that we will achieve each operational milestone, and if so, the period when we expect to achieve that operational milestone. For compensation related to performance-based awards with a market condition, we use a Monte Carlo simulation to determine the fair value of the award on the grant date, and recognize the share-based compensation expense over the derived service period. Forfeitures are recognized as they occur. Share-based compensation expense is included in Salaries and employee benefits . In addition, holders of shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligations. 401(k) Plan On January 3, 2023, the Company implemented the BM Technologies, Inc. 401(k) Plan (the “401(k) Plan”) for the benefit of BMTX’s eligible employees. The 401(k) Plan permits eligible employees to make voluntary contributions combined with employer contributions, up to a maximum of $63.5 thousand per year, subject to certain limitations. The Company offers a matching contribution equal to 50% of an eligible employee’s deferral election up to 3% of their annual salary. The Company records its contributions to the 401(k) Plan in Salaries and employee benefits on the Consolidated Statements of Loss . The Company’s employer contribution to the 401(k) Plan for the twelve months ended December 31, 2023 totaled $0.6 million. Provision for Operating Losses The provision for operating losses represents BMTX’s obligation for losses resulting from fraud transactions that have generally been disputed by our serviced deposit account holders, Regulation E card claim losses incurred by us, an estimated liability for fraud and Regulation E losses where such disputes have not been resolved as of the end of the reporting period, a provision for overdrawn serviced deposit accounts for which we are responsible, net of any related recoveries. Fraud losses are recognized when realized or incurred. The main source of Regulation E losses is card holder claims of unauthorized use of their debit card. BMTX’s loss includes closed disputes where the customer is entitled to keep the funds advanced, an expected loss on actual disputes that are pending investigation, which is based on historical experience, as well as an estimate of disputes incurred, but not yet disputed. The estimated liability for disputes incurred, but not yet disputed is determined by analyzing historical rates of transactions disputed and applying that experience rate to actual debit card volume in the period. This estimate of future disputes is then adjusted for our estimate of the amount disputed that we expect to result in a loss, which is estimated based on our historical experience. The estimated liability totaled $1.3 million and $0.4 million as of December 31, 2023 and 2022, respectively; the changes period over period are presented within Provision for Operating Losses on the Consolidated Statements of Loss . Restructuring, Merger and Acquisition Related Expenses In connection with the Company’s Profit Enhancement Plan (the “PEP”), and previous unconsummated merger, BMTX incurred $0.9 million and $0.3 million in merger and acquisition expenses for the twelve months ended December 31, 2023 and 2022, respectively, which are recorded within Restructuring, merger and acquisition related expenses on the Consolidated Statements of Loss . Recently Adopted Accounting Standards As of December 31, 2023, there were no recently adopted accounting standards that had 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. 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 FASB ASC Topic 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 FASB ASC Topic 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 FASB ASC Topic 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 reporting company, ASU 2020-06 is effective for BMTX for fiscal years beginning after December 15, 2023. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company has determined that ASU 2020-06 will not have a material impact on its consolidated financial statements and related disclosure. In December 2023, the FASB issued ASU 2023-09, Income taxes (Topic 740): Improvements to Income Tax Disclosures |
