NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF THE BUSINESS AND MERGER TRANSACTION
Description of the Business
BM Technologies, Inc. (“BMT” or “the Company”) provides state-of-the-art high-tech digital banking and disbursement services to consumers and students nationwide through a full service fintech banking platform, accessible to customers anywhere and anytime through digital channels.
BMT facilitates deposits and banking services between a customer and an FDIC insured partner bank. BMT’s Banking-as-a-Service (“BaaS”) business model leverages partners’ existing customer bases to achieve high volume, low-cost customer acquisition in its Disbursement, White Label, and Workplace Banking businesses. BMT has four primary revenue sources: interchange and card revenue, servicing fees from the Bank, account fees, and university fees. The majority of revenues are driven by customer activity (deposits, spend, transactions, etc.) but may be paid or passed through by our partner bank, universities, or paid directly by customers.
BMT is a Pennsylvania corporation, incorporated in May 2016, and until January 4, 2021, was a wholly-owned subsidiary of Customers Bank (“Customers Bank”). Customers Bank is a Pennsylvania state-chartered bank and a wholly-owned subsidiary of Customers Bancorp, Inc. (the “Bancorp” or “Customers Bancorp”), a bank holding company. Customers Bank is our current partner bank.
Our partner bank holds the FDIC insured deposits that we source and service and is the issuing bank on our debit cards. Our
partner bank pays us a deposit servicing fee for the deposits generated and passes through interchange income earned from
debit transactions.
BMT is not a bank, does not hold a bank charter, and it does not provide banking services, and as a result we are not subject to direct banking regulation, except as a service provider to our partner bank. We are also subject to the regulations of the Department of Education, due to our student Disbursements business, and are periodically examined by them. Our contracts with most of our higher education institutional clients require us to comply with numerous laws and regulations, including, where applicable, regulations promulgated by the Department of Education (“ED”) regarding the handling of student financial aid funds received by institutions on behalf of their students under Title IV; FERPA; the Electronic Fund Transfer Act and Regulation E; the USA PATRIOT Act and related anti-money laundering requirements; and certain federal rules regarding safeguarding personal information, including rules implementing the privacy provisions of GLBA. Other products and services offered by us may also be subject to other federal and state laws and regulations.
Seasonality
BMT’s higher education serviced deposits fluctuate throughout the year due primarily to the relationship between the deposits level and the typical cycles of student enrollment in higher education institutions. Serviced deposit balances typically experience seasonal lows in December and July when student enrollment is lower and experience seasonal highs in September and January when student enrollment is high and individual account balances are generally at their peak. Debit spend follows a similar seasonal trend, but may slightly lag increases in balances.
Impact of COVID-19 & CARES Act
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization. The spread of COVID-19 created a global public health crisis that resulted in unprecedented uncertainty, economic volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that BMT serves. With the initial outbreak of COVID-19 in 2020, the Company experienced an initial decline in revenues as compared to the pre-COVID-19 period.
On March 27, 2020, the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” was signed into law and contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic and stimulate the economy, including one-time cash payments to taxpayers, increased unemployment benefits, and to support higher education through the Higher Education Emergency Relief Fund (HEERF). This stimulus resulted in increased serviced deposit balances, debit card spend, and revenues, a trend that has continued through the second quarter of 2021; however, we are unable to determine the
ultimate impact that the CARES Act, and/or COVID-19 pandemic will have on our future financial condition, results of operations, or liquidity; we will continue to monitor the impact closely.
Merger with Megalith Financial Acquisition Corporation
On January 4, 2021, BankMobile Technologies, Inc. (“BankMobile”), Megalith Financial Acquisition Corp. (“Megalith”), and MFAC Merger Sub Inc., consummated the transaction contemplated by the merger agreement entered into on August 6, 2020. In connection with the closing of the merger, Megalith changed its name to BM Technologies, Inc. Effective January 6, 2021, Megalith’s units ceased trading, and the Company’s common stock and warrants began trading on the NYSE American under the symbols “BMTX” and “BMTX-WT,” respectively.
The merger was accounted for as a reverse recapitalization in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Under this method of accounting, BankMobile was treated as the “acquirer” company for financial reporting purposes and as a result, the transaction was treated as the equivalent of BankMobile issuing stock for the net assets of Megalith, accompanied by a recapitalization. The excess of the fair value of the shares issued over the value of the net monetary assets of Megalith was recognized as an adjustment to shareholders’ equity. There was no goodwill or other intangible assets recorded in the merger.
BankMobile was determined to be the accounting acquirer based on the following predominant factors:
•Customers Bank stockholders had the largest portion of voting rights in the post-combination company;
•The board of directors and senior management of the post-combination company are primarily composed of individuals associated with BankMobile;
•BankMobile was the larger entity based on historical operating activity, assets, revenues and employees at the time of the closing of the merger;
•The ongoing operating activities of the post-combination company comprise those of BankMobile.
The following table provides a summary of the significant sources and uses of cash related to the closing of the merger transaction:
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(amounts in thousands)
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Cash at Megalith
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$
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27,669
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Cash from PIPE (private investment in public entity) investors
|
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20,003
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|
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Total sources of cash
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47,672
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Cash paid to underwriters and other transaction costs
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(3,987)
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Cash paid to Customers Bank as consideration
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(23,125)
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Cash from recapitalization transaction (A)
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20,560
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Cash used to pay down BMT debt
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(8,834)
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Cash received by BMT and used to pay down debt
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(6,738)
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Total cash used to pay down outstanding debt (B)
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(15,572)
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Net cash received by BMT from the reverse recapitalization transaction - as of March 31, 2021 (=A+B)
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4,988
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90 day merger true-up, cash paid by BMT in May 2021
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(3,672)
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Final cash amount received by BMT from the reverse recapitalization transaction - June 30, 2021
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$
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1,316
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The following table provides a reconciliation of the common shares related to the merger:
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Shares held by legacy BankMobile shareholders - December 31, 2020
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6,123,432
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Shares related to the recapitalization transaction - January 4, 2021
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6,076,946
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Total shares issued and outstanding, June 30, 2021
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12,200,378
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NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These interim unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). These interim unaudited 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 BMT for the interim periods presented. Material estimates that are particularly susceptible to significant change in the near-term relate to the valuation of deferred tax assets, the valuation of the private warrants, and the annual goodwill and intangible asset impairment analysis. Prior periods presented for comparative purposes represent the balances and activity of BankMobile Technologies, Inc. (other than shares which were retroactively restated in connection with the merger).
Significant Accounting Policies
These interim unaudited financial statements should be read in conjunction with the 2020 audited financial statements of BMT, which describe BMT’s significant accounting policies. There have been no material changes to BMT’s significant accounting policies during the six months ended June 30, 2021. Certain information and footnote disclosures normally included in the annual financial statements have been omitted from these interim unaudited financial statements as permitted by U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected not to use the extended transition period under the JOBS Act.
The Company has both Private and Public Warrants outstanding which are being treated differently for accounting purposes. Note 9 - Shareholders’ Equity and Private Warrant Liability provides additional information.
Recently Adopted Accounting Standards
On January 1, 2021, the Company adopted Financial Accounting Standards Board (“FASB”) ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves the application of and simplifies guidance for other areas of Topic 740. The adoption did not have a material impact on the Company’s unaudited consolidated financial statements and related disclosures.
Accounting Pronouncements Issued But Not Yet Adopted
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by BM Technologies as of the required effective dates. The following paragraphs related to new pronouncements should be read in conjunction with "Significant Accounting Policies" of the Notes to the Audited Financial Statements included in our 2020 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on its 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. This guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU is effective as of March 12, 2020 through December 31, 2022. Per the guidance, we are currently evaluating the impact of the transition from LIBOR to alternative reference rates on our financial statements, the transition and disclosure requirements of this guidance but do not expect a significant impact on our financial statements.
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 (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
As a smaller reporting company, ASU 2020-06 is effective for BMT 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 is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable primarily relate to MasterCard incentive income, uncollected university subscription and disbursement services fees, and reimbursements to be received from a white label partner, and 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. Charge-offs of uncollectible accounts have historically been immaterial. The allowance for doubtful accounts was zero at December 31, 2020 and $0.1 million at June 30, 2021.
NOTE 4 — PREMISES AND EQUIPMENT AND DEVELOPED SOFTWARE
Premises and Equipment
The components of premises and equipment were as follows:
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(amounts in thousands)
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Expected Useful Life
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June 30,
2021
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December 31,
2020
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Leasehold improvements
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5 years
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$
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28
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$
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28
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Furniture, fixtures and equipment
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10 years
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243
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243
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IT equipment
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3 to 5 years
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1,726
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1,675
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1,997
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1,946
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Accumulated depreciation
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(1,648)
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(1,545)
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Total
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$
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349
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$
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401
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Depreciation is recorded in “Occupancy” on the unaudited consolidated statements of income (loss). BMT recorded depreciation expense of less than $0.1 million and $0.1 million for the three and six months ended June 30, 2021 respectively. For the three and six months ended June 30, 2020, BMT recorded depreciation expense of $0.1 million and $0.2 million, respectively.
Developed Software
The components of developed software were as follows:
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(amounts in thousands)
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Expected Useful Life
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June 30,
2021
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December 31,
2020
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Higher One Disbursement business developed software
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10 years
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$
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27,400
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$
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27,400
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Internally developed software
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3 to 5 years
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40,104
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40,104
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Work-in-process
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1,763
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1,620
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69,267
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69,124
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Accumulated amortization
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(35,112)
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(29,467)
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Total
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$
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34,155
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$
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39,657
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Amortization expense is reported in Technology, communication and processing on the unaudited consolidated statement of income (loss). BMT recorded amortization expense of $2.8 million and $5.6 million for the three and six months ended
June 30, 2021, respectively. For the three and six months ended June 30, 2020, BMT recorded amortization expense of $2.7 million and $5.5 million, respectively.
NOTE 5 — GOODWILL AND 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. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. We currently have one intangible asset which is being amortized on a straight-line basis over twenty years.
Goodwill and other intangible assets are 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. The Company had $5.3 million of goodwill as of June 30, 2021 and December 31, 2020.
The components of other intangibles as of June 30, 2021 and December 31, 2020 were as follows:
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(amounts in thousands)
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Expected Useful Life
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June 30,
2021
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December 31,
2020
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Customer relationships – universities
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20 years
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$
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6,402
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$
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6,402
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Accumulated amortization
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(1,492)
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(1,332)
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Total
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$
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4,910
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$
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5,070
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Intangibles amortization expense is reported in Other expenses on the unaudited consolidated statement of income (loss). BMT recorded amortization expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2020, BMT recorded amortization expense of $0.2 million and $0.5 million, respectively.
The university customer relationships will be amortized in future periods as follows:
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Remainder of 2021
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$
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160
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2022
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320
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2023
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320
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2024
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320
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2025
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320
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After 2025
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3,470
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Total
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$
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4,910
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NOTE 6 — LEASES
At June 30, 2021, BMT leased two offices under operating leases. The leases consist of 5-year lease terms with options to renew the leases or extend the term annually or with mutual agreement. Leases include variable lease payments that are based on an index or rate, such as an annual increase in operating expenses over the initial lease year’s expenses. Variable lease payments are not included in the liability or right-of-use (“ROU”) asset and are recognized in the period in which the obligations for those payments are incurred. BMT’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As BMT’s operating leases do not provide an implicit rate, BMT utilized the incremental borrowing rate of our former parent when determining the present value of lease payments.
The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet classification:
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(amounts in thousands)
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Classification
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June 30,
2021
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December 31,
2020
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Assets:
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Operating lease ROU assets
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Other assets
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$
|
751
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$
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1,218
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Liabilities:
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|
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|
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Operating lease liabilities
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Operating lease liabilities
|
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$
|
774
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$
|
1,131
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|
The following table summarizes operating lease cost and its corresponding income statement location for the periods presented:
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Three Months Ended June 30,
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Six Months Ended June 30,
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(amounts in thousands)
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Classification
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2021
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2020
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2021
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2020
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Operating lease cost
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Occupancy
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$
|
242
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$
|
275
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$
|
517
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$
|
551
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|
The maturities of non-cancelable operating lease liabilities were as follows at June 30, 2021:
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(amounts in thousands)
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June 30,
2021
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2021
|
|
$
|
362
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2022
|
|
419
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Total minimum payments
|
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781
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Less: interest
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(7)
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Present value of lease liabilities
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$
|
774
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The following table summarizes the weighted average remaining lease term and discount rate for BMT’s operating leases at June 30, 2021 and December 31, 2020:
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June 30,
2021
|
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December 31,
2020
|
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Weighted average remaining lease term (years)
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Operating leases
|
|
1.1 years
|
|
1.6 years
|
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Weighted average discount rate
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Operating leases
|
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1.0
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%
|
|
1.4
|
%
|
NOTE 7 — DEBT
Borrowings from partner bank
BMT has a $10.0 million line of credit with its partner bank. The amount that may be borrowed is subject to a borrowing base limit that is based on a percentage of BMT’s accounts receivable balance. The borrowing base limit was $3.8 million as of June 30, 2021. The $10.0 million line of credit carries an interest rate equal to one-month LIBOR plus 375 bps and matures on January 4, 2022. LIBOR means the One Month London Inter-Bank Offered Rate as published in the Money Section of the Wall Street Journal on the last U.S. business day of the month, but in no event shall LIBOR be less than 50 basis points. Interest is paid monthly in arrears with the principal due in its entirety at the maturity date on January 4, 2022. Borrowed funds may be repaid at any time without penalty. There was zero balance outstanding under the line of credit as of June 30, 2021. As of December 31, 2020, there was $21.0 million outstanding under a previous $50.0 million line of credit from the Company’s former parent, which has since been terminated.
NOTE 8 — COMMITMENTS AND CONTINGENCIES
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements that are not currently accrued for. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution may have a material adverse effect on BMT’s results of operations for a particular period, and future changes in circumstances or additional
information could result in accruals or resolution in excess of established accruals, which could adversely affect BMT’s results of operations, potentially materially.
NOTE 9 — SHAREHOLDERS’ EQUITY AND PRIVATE WARRANT LIABILITY
The consolidated statements of changes in equity reflect the reverse recapitalization as of January 4, 2021, as discussed in Note 1. Since BankMobile was determined to be the accounting acquirer in the transaction, all periods prior to the consummation of the transaction reflect the balances and activity of BankMobile (other than shares which were retroactively restated in connection with the transaction).
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock, par value $0.0001 per share. At June 30, 2021, there were 12,200,378 shares of common stock issued and outstanding, which includes the 300,000 performance shares discussed below. At December 31, 2020 there were 6,123,432 shares of common stock issued and outstanding as retroactively restated in conjunction with the merger. Each holder of common stock is entitled to one vote for each share of common stock held of record by such holder on all matters on which stockholders generally are entitled to vote. The holders of common stock do not have cumulative voting rights in the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all stockholders present in person or represented by proxy, voting together as a single class.
Performance Shares
The Company has 300,000 common shares, par value $0.0001 per share, issued and outstanding that contain a restrictive legend, subject to release only if the vesting criteria occurs before the seventh anniversary of the closing date of the merger. If the vesting criteria has not occurred prior to the seventh anniversary of the closing date of the merger, the shares will be forfeited and cancelled. The vesting criteria means either (1) the volume weighted average price of the Company’s common stock on the principal exchange on which such securities are then listed or quoted shall have been at or above $15.00 for twenty (20) trading days (which need not be consecutive) over a thirty (30) trading day period; or (ii) the Company sells shares of its capital stock in a secondary offering for at least $15.00 per share, in each case subject to equitable adjustment for share splits, share dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the shares of the Company’s common stock after the merger, and possible reduction for certain dividends granted to the Company’s common stock, or (2) the Company undergoes certain change in control or sales transactions.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.
Warrants
At June 30, 2021, there were 23,874,667 warrants to purchase our common stock outstanding, consisting of 16,928,889 public warrants and 6,945,778 private warrants. Each whole warrant entitles the registered holder to purchase one whole share of common stock at a price of $11.50 per share. The warrants will expire five years after the completion of the merger (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. As of June 30, 2021, none of the Company’s outstanding Private or Public Warrants have been exercised.
The Private Warrants and the Public Warrants are treated differently for accounting purposes, as follows:
Private Warrants
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 our stock price increases, the warrant liability increases, and we recognize additional expense in our income statement – with the opposite when our stock price declines. Accordingly, the periodic revaluation of the
Private Warrants could result in significant volatility in our reported earnings. For the three months ended June 30, 2021, we recognized $3.1 million of loss in our income statement due to the revaluation, and for the six months ended June 30, 2021, we recognized a gain of $11.9 million. The amounts recognized are a mark-to-market accounting determination and are noncash. Additional information regarding the Private Warrants and their impact on our financial statements is provided below:
Opening Balance Sheet Impact: As of the date of our merger on January 4, 2021, the $30.8 million fair value of the private warrants was recorded as a warrant liability on our balance sheet in Liability for Private Warrants with a corresponding offset to Additional paid-in-capital within equity. The fair value of the Private Warrants was estimated using a modified version of the Black-Scholes option pricing formula. We assumed a term for the Private Warrants equal to the contractual term from the merger date and then discounted the resulting value to the valuation date. Among the key inputs and assumptions we used in the pricing formula at the time of our merger were: a term of 5 years; volatility of 20%; a dividend yield of zero; an underlying stock price of $14.76; a risk free interest rate of 0.38%; and a closing price of the Public Warrants of $2.50 per share.
Income Statement Impact: Subsequent to the close of the merger, any change in the fair value of the Private Warrants is recognized in our income statement below operating profit as “(Loss) gain on fair value of private warrant liability” with a corresponding amount recognized in the liability account on our balance sheet. The Private Warrant liability is presented in the account Liability for Private Warrants in the long-term liabilities section of our balance sheet. During the three and six months ended June 30, 2021, we recorded a loss of $3.1 million and net gain of $11.9 million, respectively, on the revaluation of the Private Warrants.
Balance Sheet Impact: As noted above, the change in the balance of the warrant liability on our balance sheet is due to the fair value change of the underlying warrants. When warrants are exercised, the fair value of the liability will be reclassified to Additional paid-in capital within equity. The cash received for the exercise of warrants is reflected in cash and cash equivalents, and the corresponding offset is also in Additional paid-in-capital in equity.
Cash Flow Impact: The impact of the change in fair value of the Private Warrants has no impact on our cash flows as it is a noncash adjustment. The cash received for any future exercise of warrants will be recorded in cash flows from financing activities.
Shareholders’ Equity Impact: The impact to Additional paid-in-capital as of the opening balance sheet is highlighted above. Any future exercises of the Private Warrant warrants will result in a reduction of the Private Warrant liability on the balance sheet with a corresponding increase to Additional paid-in-capital.
Public Warrants
In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, for accounting purposes 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 quarterly 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.
Dividend Policy
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends prior to the completion of its initial business combination. The payment of cash dividends by the Company in the future will be dependent upon the Company’s revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of the board of directors of the Company. Further, the Company’s line of credit agreement with our lender prohibits the Company from issuing any dividends or making any distributions to shareholders.
Equity Incentive Plan
Our 2020 Equity Incentive Plan (the “Equity Incentive Plan”) provides for the grant of incentive stock options, or ISOs, nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation, or collectively, stock awards, all of which may be granted to employees, including officers, non-employee directors and consultants of us and its affiliates. Additionally, the Equity Incentive Plan provides for the grant of performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants. Initially, the aggregate number of shares of Common Stock that may be issued pursuant to stock awards under the Equity Incentive Plan will not
exceed 10% of the issued and outstanding shares of our common stock. Grants made under the Equity Incentive Plan for the three and six month periods ended June 30, 2021 and the year ended December 31, 2020 were immaterial.
NOTE 10 — REVENUES
Revenues
The table below presents the Company’s revenues disaggregated by nature of the revenue stream and the pattern or timing of revenue recognition for the periods indicated. The Company has one reportable segment and all revenues are earned in the U.S.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(amounts in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
Revenue recognized at point in time:
|
|
|
|
|
|
|
|
|
|
Interchange and card revenue
|
|
$
|
7,186
|
|
|
$
|
6,069
|
|
|
$
|
15,537
|
|
|
$
|
12,676
|
|
|
Servicing fees from partner bank
|
|
10,579
|
|
|
5,024
|
|
|
19,951
|
|
|
9,789
|
|
|
Account fees
|
|
2,641
|
|
|
2,819
|
|
|
5,327
|
|
|
5,728
|
|
|
University fees - disbursement activity
|
|
268
|
|
|
390
|
|
|
539
|
|
|
685
|
|
|
Other
|
|
1,156
|
|
|
124
|
|
|
3,806
|
|
|
316
|
|
|
Total revenue recognized at point in time
|
|
21,830
|
|
|
14,426
|
|
|
45,160
|
|
|
29,194
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|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized over time:
|
|
|
|
|
|
|
|
|
|
University fees - subscriptions
|
|
1,063
|
|
|
1,005
|
|
|
2,116
|
|
|
1,995
|
|
|
Total revenue recognized over time
|
|
1,063
|
|
|
1,005
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|
|
2,116
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|
|
1,995
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|
|
|
|
|
|
|
|
|
|
|
|
Total revenue recognized from contracts with customers
|
|
$
|
22,893
|
|
|
$
|
15,431
|
|
|
$
|
47,276
|
|
|
$
|
31,189
|
|
Deferred revenues
Deferred revenue consists of amounts received from clients 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 balance sheet in Deferred revenue, current and Deferred revenue, non-current.
The deferred revenue balances were as follows:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
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(amounts in thousands)
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|
2021
|
|
2020
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|
Deferred revenue, beginning of period
|
|
$
|
4,689
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|
|
$
|
1,938
|
|
|
Deferred revenue, end of period
|
|
$
|
6,275
|
|
|
$
|
1,130
|
|
During the six months ended June 30, 2021 and 2020, the Company recognized revenue of approximately $2.5 million and $2.3 million, respectively, in the period from amounts included in deferred revenue at the beginning of the period.
Unbilled receivables
The Company had $1.1 million of unbilled receivables as of June 30, 2021, and zero as of December 31, 2020. Unbilled receivables are reported in Accounts receivable on the Consolidated Balance Sheets.
NOTE 11 — INCOME TAXES
The Company records tax expense during interim periods using an estimated annual effective tax rate approach. The Company’s effective tax rate was 14.0% for the six months ended June 30, 2021. The effective tax rate differs from the Company’s marginal tax rate of 27.0% due to the non-taxable fair value adjustments related to the non-compensatory private
warrant liability being recorded through earnings, as well as tax expense related to the estimated annual increase of the valuation allowance established against deferred tax assets.
Deferred tax assets as of June 30, 2021 was $26.4 million and consisted mainly of Section 197 intangibles. These Section 197 intangibles resulted from a step up in tax basis of the assets acquired from BankMobile Technologies, Inc., which for GAAP purposes were not recorded at fair value. The Company has no net operating loss or other carryforward deferred tax assets. A valuation allowance is recognized when it is more likely than not that all or a portion of the deferred tax asset will be realized based on the weight of the available positive and negative evidence. Management determined the verifiable negative evidence from the cumulative losses of the trade or business of BankMobile Technologies, Inc. outweighed any available positive evidence as of June 30, 2021, but will continue to evaluate this determination each quarterly period going forward.
NOTE 12 — EARNINGS (LOSS) PER SHARE
The following are the components and results of operations and earnings (loss) per common share calculations for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(amounts in thousands, except per share data)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net (loss) income available to common shareholders - used in calculating basic EPS
|
$
|
(1,836)
|
|
|
$
|
(4,119)
|
|
|
$
|
17,053
|
|
|
$
|
(8,653)
|
|
|
Adjustment for private warrant liability (1)
|
—
|
|
|
—
|
|
|
(11,947)
|
|
|
—
|
|
|
Net (loss) income - used in calculating diluted EPS
|
$
|
(1,836)
|
|
|
$
|
(4,119)
|
|
|
$
|
5,106
|
|
|
$
|
(8,653)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding – basic
|
11,900
|
|
6,123
|
|
11,900
|
|
6,123
|
|
Weighted-average common shares outstanding – diluted
|
11,900
|
|
6,123
|
|
13,314
|
|
6,123
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per common share
|
$
|
(0.15)
|
|
|
$
|
(0.67)
|
|
|
$
|
1.43
|
|
|
$
|
(1.41)
|
|
|
Diluted (loss) income per common share
|
$
|
(0.15)
|
|
|
$
|
(0.67)
|
|
|
$
|
0.38
|
|
|
$
|
(1.41)
|
|
(1) Diluted earnings per share for the six months ended June 30, 2021, is calculated based on adjusted net income of $5.1 million due to the elimination of the revaluation gain on the private warrant liability; for the three months ended June 30, 2021 the loss on the revaluation of the private warrant liability is not eliminated in the calculation of diluted earnings per share as the warrants are considered anti-dilutive.
Certain outstanding securities have been excluded from the computation of diluted weighted average shares outstanding for the periods noted below as their effect would be anti-dilutive.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
Private warrants outstanding
|
|
6,945,778
|
|
|
—
|
|
|
|
6,945,778
|
|
|
—
|
|
|
Public warrants outstanding
|
|
16,928,889
|
|
|
—
|
|
|
|
—
|
|
|
—
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|
|
Performance based shares outstanding
|
|
300,000
|
|
|
—
|
|
|
|
300,000
|
|
|
—
|
|
|
Total
|
|
24,174,667
|
|
|
—
|
|
|
|
7,245,778
|
|
|
—
|
|
NOTE 13 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
BMT uses fair value measurements to disclose the fair value of its financial instruments. FASB’s ASC 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For fair value disclosure purposes, BMT utilized certain fair value measurement criteria under ASC 820, Fair Value Measurements (“ASC 820”), as explained below.
In accordance with ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for BMT’s
financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, focusing on an exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
The fair value guidance also establishes a fair value hierarchy and describes the following three levels used to classify fair value measurements:
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|
|
|
|
|
|
|
Level 1:
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2:
|
Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
|
|
Level 3:
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used to estimate the fair values of BMT’s financial instruments as of June 30, 2021 and December 31, 2020:
Cash and cash equivalents:
The carrying amount reported on the balance sheet for cash and cash equivalents consists of a non-interest bearing deposit, which approximate its fair value. The deposit is classified as a Level 1 fair value, based upon the lowest level of input that is significant to its fair value measurement.
Accounts receivable:
The carrying amount of accounts receivable approximates fair value because of the short term nature of these items.
Payable to partner bank:
The payables to our partner bank represent the amount due resulting from normal operating activities between our partner bank and BMT. The carrying amount approximates its fair value due to the short term nature of the item.
Borrowings from partner bank:
BMT has a $10.0 million line of credit with our partner bank, with zero outstanding as of June 30, 2021. The carrying amount of the borrowings from our partner bank approximates its fair value due to its floating interest rate and short-term nature. The liability is classified as a Level 2 fair value based upon the lowest level of input that is significant to the fair value measurement. As of December 31, 2020, there was $21.0 million outstanding under a previous $50.0 million line of credit from the Company’s former parent, which has since been terminated.
Liability for Private Warrants:
The fair value of the Private Warrants was estimated using a modified version of the Black-Scholes option pricing formula for European calls. We assumed a term for the Private Warrants equal to the contractual term from the merger date and then
discounted the resulting value to the valuation date. Among the key inputs and assumptions we used in the pricing formula at June 30, 2021 were the following: a term of 5 years; volatility of 20%; a dividend yield of zero; an underlying stock price of $12.44; a risk free interest rate of 0.77%; and a closing price of the Public Warrants of $2.57 per share. The warrant liability is classified as a Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.
The estimated fair values of BMT’s financial instruments at June 30, 2021 and December 31, 2020 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2021
|
|
(amounts in thousands)
|
|
Carrying Amount
|
|
Estimated Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,589
|
|
|
$
|
19,589
|
|
|
$
|
19,589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Liability for private warrants (a)
|
|
$
|
18,893
|
|
|
$
|
18,893
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,893
|
|
(a) The initial fair value of the warrants was $30.8 million on January 4, 2021, the merger date. The $11.9 million change in fair value during the six months ended June 30, 2021 was reported in (Loss) gain on fair value of private warrant liability on the statements of income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2020
|
|
(amounts in thousands)
|
|
Carrying Amount
|
|
Estimated Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,989
|
|
|
$
|
2,989
|
|
|
$
|
2,989
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from partner bank
|
|
$
|
21,000
|
|
|
$
|
21,000
|
|
|
$
|
—
|
|
$
|
21,000
|
|
|
$
|
—
|
|
NOTE 14 — RELATIONSHIP WITH OUR PARTNER BANK
Our partner bank holds the FDIC insured deposits that we source and service and is the issuing bank on our debit cards. Our
partner bank pays us a deposit servicing fee for the deposits generated and passes through interchange income earned from
debit transactions. The CEO of our partner bank is an immediate family member of our CEO.
Servicing fees and interchange income from partner bank
On January 4, 2021, we entered into a Deposit Processing Services Agreement (the “Deposit Servicing Agreement”) with our partner bank, providing that it would establish and maintain deposit accounts and other banking services in connection with customized products and services offered by us, and we would provide certain other related services in connection with the accounts. The initial term continues until December 31, 2022, which shall automatically renew for additional three year terms unless either party gives written notice of non-renewal within 180 days prior to the expiration of the term. As compensation, our partner bank retains any and all revenue generated from the funds held in the deposit accounts, and pays us a monthly servicing fee largely based on deposits, and a monthly interchange fee equal to all debit card interchange revenues on demand deposit accounts generated by us for our partner bank plus the difference between Durbin Exempt and Durbin regulated interchange revenue.
Payable to partner bank
At the end of each month, BMT and its partner bank typically have a cash settlement payment related to on-going operating activities between the entities. At June 30, 2021, BMT had $7.1 million payable to its partner bank, primarily consisting of prepaid fees and for certain services received, compared to $5.1 million at December 31, 2020.
Bank Borrowings
BMT has a $10.0 million line of credit with our partner bank, with zero outstanding at June 30, 2021. We had $21.0 million of debt outstanding at December 31, 2020 under the prior credit arrangement.
Transition Services Agreement
On January 4, 2021, we entered into a Transition Services Agreement with our partner bank, pursuant to which each party agrees for a period of up to twelve months to provide certain transition services listed therein to the other party. In consideration for the services, we pay our partner bank a service fee of $12,500 per month, plus any expenses associated with the services. We may terminate the Transition Services Agreement without penalty with at least 30 days advance written notice if we determine there is no longer a business need for the services.