NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF THE BUSINESS AND MERGER TRANSACTION
Description of the Business
BM Technologies, Inc. (“BMTX” or “the Company”) (formerly known as BankMobile) 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.
BMTX facilitates deposits and banking services between a customer and our Partner Bank, Customers Bank, which is a related party and is a Federal Deposit Insurance Corporation (“FDIC”) insured bank. BMTX’s business model leverages partners’ existing customer bases to achieve high volume, low-cost customer acquisition in its Higher Education Disbursement, BaaS, and Workplace Banking businesses. BMTX has four primary revenue sources: interchange and card revenue, servicing fees from BMTX’s Partner 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 BMTX’s Partner Bank, universities, or paid directly by customers.
BMTX is a Delaware corporation, originally incorporated as Megalith Financial Acquisition Corp in November 2017 and renamed BM Technologies, Inc. in January 2021 at the time of the merger between Megalith Financial Acquisition Corp and BankMobile Technologies, Inc. Until January 4, 2021, BankMobile Technologies, Inc. was a wholly-owned subsidiary of Customers Bank (“Customers Bank”), a Pennsylvania state-chartered bank and a wholly-owned subsidiary of Customers Bancorp, Inc. (the “Bancorp” or “Customers Bancorp”). Customers Bank is BMTX’s Partner Bank.
BMTX’s Partner Bank holds the FDIC insured deposits that BMTX sources and services and is the issuing bank on BMTX’s debit cards. BMTX’s Partner Bank pays the Company a deposit servicing fee for the deposits generated and passes through interchange income earned from debit transactions.
BMTX is not a bank, does not hold a bank charter, and does not provide banking services, and as a result it is not subject to direct banking regulation, except as a service provider to our Partner Bank. BMTX is also subject to the regulations of the ED, due to its student Disbursements business, and is periodically examined by it. BMTX’s contracts with most of its higher education institutional clients require it to comply with numerous laws and regulations, including, where applicable, regulations promulgated by the 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 the Gramm-Leach-Bliley Act (“GLBA”). Other products and services offered by BMTX may also be subject to other federal and state laws and regulations.
Seasonality
BMTX’s higher education serviced deposits fluctuate throughout the year due primarily to the inflow of funds typically disbursed at the start of a semester. Serviced deposit balances typically experience seasonal lows in December and July and experience seasonal highs in September and January when 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 BMTX serves. In response to the pandemic, we enabled nearly all of our employees to work remotely and limited business travel. We are a “Remote First” company and most of our employees have no assigned work location or regular in-office work requirement.
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 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 continued into early 2021. However, we have seen the growth rate slow in recent periods compared to the accelerated growth rate we experienced during early 2021.
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, as amended. 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 U.S. GAAP, 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. Prior periods presented for comparative purposes represent the balances and activity of BM Technologies, Inc. (other than shares which were retroactively restated in connection with the merger).
The following table provides a summary of the significant sources and uses of cash related to the closing of the merger transaction:
| | | | | | | | |
| (amounts in thousands) | | |
| Cash at Megalith | | $ | 27,669 | |
| Cash from PIPE (private investment in public entity) investors | | 20,003 | |
| Total sources of cash | | 47,672 | |
| Cash paid to underwriters and other transaction costs | | (3,987) | |
| Cash paid to Customers Bank as consideration | | (23,125) | |
| Cash from recapitalization transaction (A) | | 20,560 | |
| Cash used to pay down BMTX debt | | (8,834) | |
| Cash received by BMTX and used to pay down debt | | (6,738) | |
| Total cash used to pay down outstanding debt (B) | | (15,572) | |
| Net cash received by BMTX from the reverse recapitalization transaction through March 31, 2021 (A+B) | | 4,988 | |
| 90 day merger true-up, cash paid by BMTX in May 2021 | | (3,672) | |
| Final cash received by BMTX from the reverse recapitalization transaction through December 31, 2021 | | $ | 1,316 | |
The following table provides a reconciliation of the common shares related to the merger:
| | | | | | | | |
| Shares held by legacy BankMobile shareholders - December 31, 2020 | | 6,123,432 | |
| Shares related to the recapitalization transaction - January 4, 2021 | | 6,076,946 | |
| Total shares issued and outstanding - January 4, 2021 | | 12,200,378 | |
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; and
•BankMobile paid a premium in the exchange of equity interests.
NOTE 2 — 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 in these notes 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".
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.
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 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, 2021 and December 31, 2020, our Partner Bank accounted for 61% and 31% (As Restated) of our total Accounts receivable, net, respectively. At December 31, 2021 and December 31, 2020, a BaaS partner accounted for 13% and 46% (As Restated) of our total Accounts receivable, net, respectively. MasterCard accounted for 17% (As Restated) of our total Accounts receivable, net at both December 31, 2021 and December 31, 2020.
For the twelve months ended December 31, 2021 and 2020, our Partner Bank, through a Deposit Processing Services Agreement, accounted for 87% and 86% of our Total operating revenues, respectively. See Note 14 – Relationship with our Partner Bank for additional information. Certain of these revenues are paid directly by MasterCard or individual account holders to the Company. On April 27, 2022, our Partner Bank indicated in a public filing that it will not renew the current Deposit Processing Services Agreement with the Company when it expires on December 31, 2022. See Note 15 - Subsequent Events for additional information.
For the twelve months ended December 31, 2021 and 2020, there is one vendor that accounted for 12% and 18% of our Total operating expenses, respectively.
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.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. $2.4 million of expense for mailing and shipping costs that was previously included in Other expense is now included in Customer related supplies. In addition, $0.5 million of share-based compensation was previously disclosed as a component of Capital contribution from Customers Bank on the Consolidated Statements of Shareholders’ Equity, but is now disclosed as a separate financial statement line item entitled Share-based compensation expense.
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 accounting pronouncements 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 our Partner Bank, with a large majority of our cash balances at December 31, 2021 exceeding the Federal Deposit Insurance Corporation (“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 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 to seven years.
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 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 $0.2 million and $3.7 million of impairment recognized for the twelve months ended December 31, 2021 and 2020, respectively.
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. 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.
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 one-step quantitative impairment test is necessary.
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, examining indicators such as GDP growth, interest rates and unemployment rates. BMTX also considered its own historical performance (through BankMobile), 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 and other intangible assets. As of December 31, 2021 and 2020, Goodwill was $5.3 million and Other intangibles, net was $4.7 million and $5.1 million, respectively.
Leases
BMTX enters into lease agreements primarily for the use of office space, all of 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 expense. 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 our Partner 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-current.
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, 2021, the Company recognized a gain of $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.
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.
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 of 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.
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 from Partner Bank, 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 from Partner Bank
BMTX sources and services deposit accounts for our Partner 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, 2021 and 2020, BMTX recognized proceeds of $15.7 million and $19.7 million (As Restated), respectively, from collaborative arrangements. These proceeds include $5.3 million and $3.5 million (As Restated), respectively, in revenues, primarily recorded in Other revenue and Interchange and card revenue on the Consolidated Statements of Income (Loss) and $10.4 million and $16.2 million (As Restated), 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 $0.1 million and $0.4 million at December 31, 2021 and 2020 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 2021, BMTX announced the signing of a definitive agreement to merge with First Sound Bank, a Seattle, Washington-based community business bank. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in 2022. In connection with the merger, BMTX incurred $0.1 million in merger and acquisition expenses. In 2020, BMTX and Customers Bank entered into an Agreement and Plan of Merger with Megalith Financial Acquisition Corp. BMTX incurred $0.7 million in merger and acquisition expenses in 2020 related to the merger agreement with Megalith Financial Acquisition Corp. 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 is expected to reduce 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 or other standard setting bodies that are adopted by BMTX as of the required effective dates. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet adopted, 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 U.S. 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. The Company is currently evaluating the impact that ASU 2020-04 may have on its consolidated financial statements and related disclosures.
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 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 is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
Correction of Errors in Previously Issued Consolidated Financial Statements
In connection with the preparation of its consolidated financial statements for the twelve months ended December 31, 2021, the Company determined that its previously issued consolidated financial statements for the periods ended December 31, 2020, and March 31, June 30, and September 30, 2021 contained errors in the application of U.S. generally accepted accounting principles as summarized below.
Application of FASB ASC 718 Stock Compensation
The non-cash share-based compensation expense related to grants of BMTX common stock by its former parent, Customers Bank, to employees of the Company in connection with the January 4, 2021 divestiture of the Company, with a grant date fair value of $19.6 million, was incorrectly excluded from the Company’s stand-alone financial statements and should be recorded straight-line over the two-year post-grant vesting period ending January 3, 2023, net of any forfeitures. In addition, and also in connection with the January 4, 2021 divestiture of the Company, Customers Bank accelerated the vesting for existing restricted stock units and stock options previously granted to certain employees of the Company. The share-based compensation expense, net of forfeitures, associated with the accelerated vesting totaling $0.8 million was also incorrectly excluded from the Company’s stand-alone financial statements and should be recorded on the divestiture date.
Application of FASB ASC 210-20-45 and FASB ASC 606-10-45 for Presentation of Contract Liabilities, Receivables, and Payables
The Company incorrectly presented certain contract liabilities, accounts receivable, and accounts payable positions with our Partner Bank, which is a related party, and for which gross presentation is required as net Payable to Partner Bank on the Company’s Consolidated Balance Sheets for the periods ended December 31, 2020, and March 31, June 30, and September 30, 2021. These related party balances should be separately presented as Accounts receivable, net, Deferred revenue, current, and Accounts payable and accrued liabilities on the Company’s Consolidated Balance Sheets.
Restatement
In accordance with Staff Accounting Bulletin ("SAB") No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated these misstatements, and based on an analysis of quantitative and qualitative factors, determined that the impact of these misstatements was material to its reporting periods ended December 31, 2020, and March 31, June 30, and September 30, 2021.
Accordingly, the Company has restated its consolidated financial statements for the twelve months ended December 31, 2020 and interim reporting periods for the three-months ended March 31, 2021, three- and six-months ended June 30, 2021, and three- and nine- months ended September 30, 2021, respectively, and has included that restated financial information within this annual report.
Out of Period Adjustments
In light of the above errors, and based upon a review of the corrected and uncorrected out of period adjustments for 2021, the Company determined that it would be appropriate to record certain out of period adjustments in the correct period of entry in the Company’s consolidated financial statements, one of which was originally recorded and disclosed in the quarter ended September 30, 2021, both between the annual periods ending December 31, 2021 and 2020, as well as between the 2021 interim periods.
These adjustments impacted Interchange and card revenues, Technology, processing, and communication expense, and the related impact to Income tax expense on the Company’s Consolidated Statements of Income (Loss) with a net adjustment to previously reported net income (loss) of $(0.4) million, $0.3 million, $(0.3) million, and $0.5 million for the twelve months ended December 31, 2020 and interim reporting periods for the three-months ended March 31, 2021, six-months ended June 30, 2021, and nine-months ended September 30, 2021, respectively.
See Note 16 - Restatement of Previously Reported Consolidated Financial Statements for restatement of the Company's previously reported consolidated financial statements that were impacted by these misstatements.
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable primarily relate to billings for deposit processing services to our Partner Bank, MasterCard incentive income, uncollected university subscription and disbursement services fees, and receivables from a BaaS 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. The allowance for doubtful accounts was $0.1 million at December 31, 2021 and zero at December 31, 2020.
| | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Beginning Balance | Additions | Reductions | Ending Balance |
| Allowance for doubtful accounts | | | | | |
| 2021 | | $ | — | | $ | 171 | | $ | (92) | | $ | 79 | |
| 2020 | | $ | — | | $ | 26 | | $ | (26) | | $ | — | |
NOTE 4 — PREMISES AND EQUIPMENT AND DEVELOPED SOFTWARE
Premises and equipment
The components of premises and equipment were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Expected Useful Life | | December 31,
2021 | | December 31,
2020 |
| Leasehold improvements | | 5 years | | $ | 28 | | | $ | 28 | |
| Furniture, fixtures and equipment | | 10 years | | 243 | | | 243 | |
| IT equipment | | 3 to 5 years | | 1,813 | | | 1,675 | |
| | | | 2,084 | | | 1,946 | |
| Accumulated depreciation | | | | (1,738) | | | (1,545) | |
| Total | | | | $ | 346 | | | $ | 401 | |
Depreciation is recorded in Occupancy on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded depreciation expense of $0.2 million and $0.3 million, respectively.
Developed software
The components of developed software were as follows: | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Expected Useful Life | | December 31,
2021 | | December 31,
2020 |
| Higher One Disbursement business developed software | | 10 years | | $ | 27,400 | | | $ | 27,400 | |
| Internally developed software | | 3 to 7 years | | 41,683 | | | 40,104 | |
| Work-in-process | | | | 421 | | | 1,620 | |
| | | | 69,504 | | | 69,124 | |
| Accumulated amortization | | | | (40,911) | | | (29,467) | |
| Total | | | | $ | 28,593 | | | $ | 39,657 | |
Amortization expense is reported in Technology, communication and processing on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded amortization expense of $11.4 million and $11.0 million, respectively. There was $0.2 million and $3.7 million of impairment recognized for the twelve months ended December 31, 2021 and 2020, respectively.
NOTE 5 — GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the purchase price over the identifiable net assets of the businesses acquired through business combinations accounted for under the acquisition method. Other intangibles, net represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. We have one intangible asset which is being amortized on a straight-line basis over twenty years.
Goodwill is reviewed for impairment annually as of October 31 and between annual tests when events and circumstances indicate that impairment may have occurred. There was no goodwill impairment for the twelve months ended December 31, 2021 and 2020.
Other intangibles, net includes assets subject to amortization are reviewed for impairment under FASB ASC 360, Property, Plant and Equipment. There was no impairment for Other intangibles, net for the twelve months ended December 31, 2021 and 2020.
The components of Other intangibles, net as of December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Expected Useful Life | | December 31,
2021 | | December 31,
2020 |
| Customer relationships – universities | | 20 years | | $ | 6,402 | | | $ | 6,402 | |
| Accumulated amortization | | | | (1,653) | | | (1,332) | |
| Total | | | | $ | 4,749 | | | $ | 5,070 | |
Other intangibles, net amortization expense is reported in Other expense on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded amortization expense of $0.3 million and $0.7 million, respectively.
The university customer relationships will be amortized in future periods as follows: | | | | | |
| 2022 | $ | 320 | |
| 2023 | 320 | |
| 2024 | 320 | |
| 2025 | 320 | |
| 2026 | 320 | |
| After 2026 | 3,149 | |
| Total | $ | 4,749 | |
NOTE 6 — LEASES
At December 31, 2021, BMTX 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. The 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 lease liability or right-of-use (“ROU”) asset and are recognized in the period in which the obligations for those payments are incurred. BMTX’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As BMTX’s operating leases do not provide an implicit rate, BMTX utilized the incremental borrowing rate of its former parent based on the information available at either the adoption of FASB ASC 842, Leases or the commencement date of the lease, whichever was later, when determining the present value of lease payments.
The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding classification on the Company’s Consolidated Balance Sheets: | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | | Classification | | December 31,
2021 | | December 31,
2020 |
| Assets: | | | | | | |
| Operating lease ROU assets | | Other assets | | $ | 398 | | | $ | 1,218 | |
| Liabilities: | | | | | | |
| Operating lease liabilities | | Operating lease liabilities | | $ | 416 | | | $ | 1,131 | |
Operating lease expenses are reported in Occupancy on the Consolidated Statements of Income (Loss). For the twelve months ended December 31, 2021 and 2020, BMTX recorded lease expenses related to operating leases of $1.0 million and $0.9 million, respectively.
The maturities of non-cancelable operating lease liabilities were as follows at December 31, 2021: | | | | | | | | |
| (amounts in thousands) | | December 31,
2021 |
| 2022 | | $ | 418 | |
| Total minimum payments | | 418 | |
| Less: interest | | (2) | |
| Present value of lease liabilities | | $ | 416 | |
For the twelve months ended December 31, 2021 and 2020, BMTX paid $0.7 million and $1.4 million (As Restated) in cash pursuant to its operating lease liabilities. These cash payments were reported as cash flows used in operating activities in the Consolidated Statements of Cash Flows.
The following table summarizes the weighted average remaining lease term and discount rate for BMTX’s operating leases at December 31, 2021 and 2020:
| | | | | | | | | | | | | | |
| | December 31,
2021 | | December 31,
2020 |
| Weighted average remaining lease term (years) | | | | |
| Operating leases | | 0.6 years | | 1.6 years |
| Weighted average discount rate | | | | |
| Operating leases | | 1.0 | % | | 1.4 | % |
NOTE 7 — BORROWINGS FROM PARTNER BANK
In 2021, BMTX had a $10.0 million line of credit with our Partner Bank, which is a related party of the Company. The amount that may be borrowed was subject to a borrowing base limit based on a percentage of BMTX’s accounts receivable balance. The $10.0 million line of credit carried an interest rate equal to one-month LIBOR plus 375 bps. 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 the LIBOR rate used for the line of credit be less than 50 basis points. Interest was paid monthly in arrears with the principal due in its entirety at the maturity date per the original arrangement. Borrowed funds could have been repaid at any time without penalty. The line of credit was originally scheduled to mature on January 4, 2022. On November 30, 2021, BMTX and our Partner Bank agreed to terminate the line of credit. There was zero balance outstanding under the line of credit as of December 31, 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 Partner Bank, which was terminated as part of the Company’s divestiture on January 4, 2021.
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 BMTX’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 BMTX’s results of operations, potentially materially.
NOTE 9 — SHAREHOLDERS’ EQUITY AND PRIVATE WARRANT LIABILITY
The Consolidated Statements of Changes in Shareholders’ Equity reflect the reverse recapitalization as of January 4, 2021, as discussed in Note 1 - Description of the Business and Merger Transaction. Since BMTX 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 BMTX (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 December 31, 2021, there were 12,193,378 shares of common stock issued and outstanding, which includes the 300,000 performance based 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.
During the twelve months ended December 31, 2021, the Company awarded 1,000 shares of common stock to each of its directors, for a total of 6,000 shares with a share-based compensation expense of $53 thousand.
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 December 31, 2021 and 2020, there were no shares of preferred stock issued or outstanding.
Performance Based 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. None of the vesting conditions for the performance shares were met during the twelve months ended December 31, 2021.
Dividend Policy
We have not paid any cash dividends on our common stock to date and have no present intention to pay cash dividends in the future. The payment of cash dividends by the Company in the future will be dependent upon the Company’s revenues and earnings, capital requirements and general financial condition. The payment of any dividends will be within the discretion of the board of directors of the Company.
January 4, 2021 Share-Based Compensation Award
In connection with its January 4, 2021 divestiture of the Company, Customers Bank, the Company’s former parent, granted 1,317,035 of the merger consideration shares of the Company it received to certain employees and executives of the Company. The share-based compensation award is subject to vesting conditions, including a required service condition from award recipients through January 3, 2023. The grant date fair value of the award, totaling $19.6 million, will be recorded as share-based compensation expense in the Company’s Consolidated Statements of Income (Loss) on a straight-line basis over the two year post-grant vesting period, net of any actual forfeitures. The shares awarded are restricted until fully vested, and none of the shares issued under this award are vested at December 31, 2021. 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.
For the twelve months ended December 31, 2021, the share-based compensation expense related to these awards totaled $9.5 million. In addition, and in connection with the January 4, 2021 divestiture of the Company, Customers Bank accelerated the vesting for existing restricted stock units and stock options previously granted to certain employees of the Company. The share-based compensation expense, net of forfeitures, associated with the accelerated vesting totaling $0.8 million was included in the Company’s stand-alone financial statements as a component of Salaries and employee benefits.
The change in unvested shares under the January 4, 2021 Share-Based Compensation Award is shown below:
| | | | | | | | | | | |
| Number of Awards | | Weighted-Average Grant-Date Fair Value Per Award |
Balance as of December 31, 2020 | — | | | $ | — | |
| Granted | 1,317,035 | | | $ | 14.87 | |
| Vested | — | | | $ | — | |
| Forfeited | (33,500) | | | $ | 14.87 | |
Balance as of December 31, 2021 | 1,283,535 | | | $ | 14.87 | |
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 both the Company 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 were made under the Equity Incentive Plan for the twelve months ended December 31, 2021 as described within Restricted Stock Units below. There were no grants made under the Equity Incentive Plan during the twelve months ended December 31, 2020.
Restricted Stock Units (“RSUs”)
On September 30, 2021, the Company granted 695,000 RSUs to certain executives. The RSUs granted to these executives will vest over three to five years upon achievement of certain service-based, performance-based, and market conditions. The vesting commencement date was January 4, 2021. We recognize the compensation cost starting from the grant date in accordance with ASC 718-10-55-108. In addition, the Company granted 12,600 RSUs to other non-executive employees during the twelve months ended December 31, 2021. Each of these RSUs have a three year vesting period. None of the RSUs were vested at December 31, 2021.
For service-based RSUs, we recognize the share-based compensation cost on a straight-line basis over the required vesting period. For performance-based RSUs with milestones, each quarter we determine whether it is probable that we will achieve each operational milestone and if so, the period when we expect to achieve that operational milestone. When we first determine that achievement of an operational milestone is probable, we allocate the full share-based compensation expense over the period between the grant date and the expected vesting condition achievement date and recognize a catch-up expense for the periods from the grant date through the period in which the operational milestone is deemed probable. This is re-assessed at the end of each reporting period. For performance-based RSUs with a market condition, we used a Monte Carlo simulation to determine the fair value of the RSUs on the grant date, and recognize the share-based compensation expense over the derived service period.
For the twelve months ended December 31, 2021, the share-based compensation expense related to these RSU awards totaled $1.0 million.
The change in unvested RSUs awarded is shown below:
| | | | | | | | | | | |
| Number of RSUs | | Weighted-Average Grant-Date Fair Value Per RSU |
Balance as of December 31, 2020 | — | | | $ | — | |
| Granted | 707,600 | | | $ | 8.96 | |
| Vested | — | | | $ | — | |
| Forfeited | (3,000) | | | $ | 9.44 | |
Balance as of December 31, 2021 | 704,600 | | | $ | 8.96 | |
Employee Stock Purchase Plan (“ESPP”)
The Company has an ESPP (the “BM Technologies Inc. 2021 Employee Stock Purchase Plan”) which has an effective date of May 1, 2021. The purpose of the plan is to provide eligible employees with an incentive to advance the interests of the Company and its Subsidiaries, by affording them an opportunity to purchase stock of the Company at a favorable price. As of December 31, 2021, there are no shares purchased on behalf of employees under the ESPP, as the program has not yet been made available for employee participation.
Warrants
At December 31, 2021, there were 23,873,167 warrants to purchase our common stock outstanding, consisting of 16,927,389 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 December 31, 2021, none of the Company’s outstanding Private Warrants have been exercised and 1,500 of the Company’s Public Warrants have been exercised.
The Private Warrants and the Public Warrants are accounted for differently under U.S. GAAP, 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 in fair value 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 Consolidated Statements of Income (Loss) – 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.
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 Consolidated Balance Sheets 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 used in the pricing formula at January 4, 2021: a term of 5.0 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 Consolidated Statements of Income (Loss) below operating profit as “Gain on fair value of private warrant liability” with a corresponding amount recognized in the liability account on our Consolidated Balance Sheets. The Private Warrant liability is presented in the account Liability for private warrants in the long-term liabilities section of our Consolidated Balance Sheets. During the twelve months ended December 31, 2021, we recorded a net non-cash gain of $17.2 million on the revaluation of the Private Warrants.
Balance Sheet Impact: As noted above, the change in the balance of the warrant liability on our Consolidated Balance Sheets is due to the change in fair value of the underlying Private 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 non-cash 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 date is described above. Any future exercises of the Private Warrants will result in a reduction of the Private Warrant liability on the Consolidated Balance Sheets with a corresponding increase to Additional paid-in capital.
Public Warrants
In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the Public Warrants are treated as equity instruments under U.S. GAAP. 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.
NOTE 10 — REVENUES
Revenues
As described in Note 2 - Basis of Presentation and Significant Accounting Policies, BMTX recognizes operating revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers.
The following tables present BMTX’s revenues disaggregated by nature of the revenue stream and the pattern or timing of revenue recognition for the twelve months ended December 31, 2021 and 2020. The Company has one reportable segment and all revenues are earned in the U.S.
| | | | | | | | | | | | | | |
| | Twelve Months Ended
December 31, |
| | 2021 | | 2020 |
| (amounts in thousands) | | | | (As Restated) |
| Revenues: | | | | |
| Revenue recognized at point in time: | | | | |
| Interchange and card revenue | | $ | 28,078 | | | $ | 25,864 | |
| Servicing fees from Partner Bank | | 45,105 | | | 22,465 | |
| Account fees | | 10,668 | | | 11,308 | |
| University fees - disbursement activity | | 1,401 | | | 1,240 | |
| Other revenue | | 5,443 | | | 1,480 | |
| Total revenue recognized at point in time | | 90,695 | | | 62,357 | |
| Revenue recognized over time: | | | | |
| University fees - subscriptions | | 4,292 | | | 4,080 | |
| Total revenue recognized over time | | 4,292 | | | 4,080 | |
| Total revenues | | $ | 94,987 | | | $ | 66,437 | |
Deferred Revenue
Deferred revenue consists of payments received from customers, most significantly from our Partner 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-current.
The deferred revenue balances were as follows: | | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| (amounts in thousands) | | | | (As Restated) |
| Deferred revenue, beginning of period | | $ | 12,689 | | | $ | 1,938 | |
| Deferred revenue, end of period | | $ | 15,577 | | | $ | 12,689 | |
During the twelve months ended December 31, 2021, the Company recognized revenue of approximately $12.5 million included in deferred revenue at the beginning of the period. During the twelve months ended December 31, 2020, the Company recognized revenue of approximately $0.8 million included in deferred revenue at the beginning of the period.
Unbilled Receivables
The Company had $2.1 million of unbilled receivables, or amounts recognized as revenue for which invoices have not yet been issued, as of December 31, 2021, and zero as of December 31, 2020. Unbilled receivables are reported in Accounts receivable, net on the Consolidated Balance Sheets.
NOTE 11 — INCOME TAXES
The components of income tax expense (benefit) were as follows:
| | | | | | | | | | | | | | |
| | Twelve Months Ended
December 31, |
| | 2021 | | 2020 |
| (amounts in thousands) | | | | (As Restated) |
| Current expense | | | | |
| Federal | | $ | 3,945 | | | $ | — | |
| State | | 1,807 | | | 23 | |
| Total current expense | | $ | 5,752 | | | $ | 23 | |
| | | | |
| Deferred expense (benefit) | | | | |
| Federal | | $ | (1,676) | | | $ | (3,047) | |
| State | | (1,130) | | | (835) | |
| Change in valuation allowance | | 2,806 | | | 3,882 | |
| Total deferred expense (benefit) | | $ | — | | | $ | — | |
| | | | |
| Total income tax expense | | $ | 5,752 | | | $ | 23 | |
Effective tax rates differ from the federal statutory rate of 21% due to the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve months ended December 31, |
| | 2021 | | 2020 |
| | | | | | (As Restated) |
| (amounts in thousands) | | Amount | | % of pretax income | | Amount | | % of pretax income |
| Federal income tax at statutory rate | | $ | 4,788 | | | 21.00 | % | | $ | (2,560) | | | 21.00 | % |
| State taxes, net of federal benefit | | 216 | | | 1.83 | % | | (580) | | | 4.75 | % |
| Change in fair value of warrant liabilities | | (3,617) | | | (15.87) | % | | — | | | — | % |
| Change in valuation allowance | | 2,806 | | | 11.43 | % | | 3,882 | | | (31.84) | % |
| Nondeductible compensation | | 1,532 | | | 5.97 | % | | — | | | — | % |
| Tax credits | | — | | | — | % | | (873) | | | 7.16 | % |
| Other | | 27 | | | 0.88 | % | | 154 | | | (1.26) | % |
| Total | | $ | 5,752 | | | 25.24 | % | | $ | 23 | | | (0.19) | % |
At December 31, 2021 and 2020, the Company had no ASC 740-10 unrecognized tax benefits. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Company recognizes interest and penalties on unrecognized tax benefits in Other expense.
Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carry back period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considered the scheduled reversal of the deferred tax liabilities, the level of historical income, and the projected future taxable income over the periods in which the temporary difference comprising the deferred tax assets will be deductible. Based on its assessment, management determined that a full valuation allowance is necessary at December 31, 2021 and 2020. The deferred tax asset for the basis difference in the acquired assets and corresponding valuation allowance was recorded through equity.
There are zero loss or credit carryforwards as of December 31, 2021. As of December 31, 2020, the Company had $55.6 million of federal net operating loss carryforwards, $28.1 million of state net operating loss carryforwards, and $2.7 million of research and development (R&D) credit carryforwards. The merger was treated as a taxable asset acquisition under applicable tax law; as such, the net operating losses and credit carryforwards, including the recorded deferred taxes associated with these tax attributes, were not available to the Company after the merger. The deferred tax attributes as of December 31, 2020 are presented on a separate company return basis, while the Company was a subsidiary of another consolidated group.
Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes.
The following represents the Company's deferred tax assets and liabilities as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (amounts in thousands) | | | | (As Restated) |
| Deferred tax assets: | | | | |
| Net operating losses and credit carryforwards | | $ | — | | | $ | 16,431 | |
| Deferred income | | 788 | | | 1,226 | |
| Section 197 Intangibles | | 27,581 | | | 1,226 | |
| Operating lease liability | | — | | | 296 | |
| Equity based compensation | | 1,521 | | | — | |
| Accrued bonuses | | 125 | | | — | |
| Other | | 24 | | | 143 | |
| Less: Valuation Allowance | | (29,662) | | | (13,689) | |
| Total deferred tax assets | | $ | 377 | | | $ | 5,633 | |
| Deferred tax liabilities | | | | |
| Depreciation | | (377) | | | (5,243) | |
| Operating lease ROU asset | | — | | | (318) | |
| Other | | — | | | (72) | |
| Total deferred tax liabilities | | $ | (377) | | | $ | (5,633) | |
| Net deferred tax asset (liability) | | $ | — | | | $ | — | |
The Company is subject to income tax examinations by federal, state, and local taxing authorities for tax periods ended after December 31, 2017.
NOTE 12 — EARNINGS (LOSS) PER SHARE
The following are the components and results of earnings (loss) per common share calculations for the periods presented:
| | | | | | | | | | | | | | |
| | Twelve Months Ended
December 31, |
| | 2021 | | 2020 |
| (amounts in thousands, except per share data) | | | | (As Restated) |
| Net income (loss) available to common shareholders - used in calculating basic EPS | | $ | 17,043 | | | $ | (12,214) | |
| Adjustment for private warrant liability | | — | | | — | |
| Net income (loss) - used in calculating diluted EPS | | $ | 17,043 | | | $ | (12,214) | |
| | | | |
| Weighted-average common shares outstanding – basic | | 11,851 | | 6,123 |
| Weighted-average common shares outstanding – diluted | | 11,939 | | 6,123 |
| | | | |
Net income (loss) per share - basic | | $ | 1.44 | | | $ | (1.99) | |
| Net income (loss) per share - diluted | | $ | 1.43 | | | $ | (1.99) | |
The following table represents the reconciliation from basic to diluted weighted-average shares outstanding used in the calculation of basic and diluted earnings per share:
| | | | | | | | | | | | | | |
| | Twelve Months Ended
December 31, |
| (amounts in thousands) | | 2021 | | 2020 |
| Weighted average shares used in computing net income per share of common stock, basic | | 11,851 | | | 6,123 | |
| Add: | | | | |
| Time-based RSUs | | 88 | | | — | |
| Weighted average shares used in computing net income per share of common stock, diluted | | 11,939 | | | 6,123 | |
For the twelve months ended December 31, 2021, our performance based shares, Public Warrants and Private Warrants were excluded from the computation of diluted weighted average shares outstanding as the necessary conditions had not been achieved for the performance based shares and the average stock price for the period was below the strike price for the warrants. For the twelve months ended December 31, 2021, our performance based and market condition RSUs were also excluded because the vesting is contingent upon the satisfaction of certain conditions which had not been achieved as of December 31, 2021. There were no warrants, performance based shares, or RSUs outstanding as of December 31, 2020.
The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income per share of common stock: | | | | | | | | | | | | | | |
| | Twelve Months Ended
December 31, |
| (amounts in thousands) | | 2021 | | 2020 |
| Performance based shares outstanding | | 300 | | | — | |
| Public Warrants | | 6,946 | | | — | |
| Private Warrants | | 16,927 | | | — | |
| Performance based and market-condition RSUs | | 348 | | | — | |
| Total | | 24,521 | | | — | |
NOTE 13 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
BMTX 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, BMTX utilized the fair value measurement criteria under FASB ASC 820, Fair Value Measurements (“ASC 820”).
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 BMTX’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 establishes a fair value hierarchy and describes the following three levels used to classify fair value measurements:
| | | | | |
| 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 BMTX’s financial instruments as of December 31, 2021 and 2020:
Cash and cash equivalents
Cash and cash equivalents reported on the Consolidated Balance Sheets consists of non-interest bearing demand deposits, for which carrying value approximates fair value.
Accounts receivable, net
The carrying amount of accounts receivable approximates fair value because of the short-term nature of these items.
Borrowings from Partner Bank
In 2019, BMTX entered into a non-negotiable demand promissory note and line of credit agreement with our Partner Bank to borrow up to $50.0 million with interest set at a floating annual rate equal to 12-month LIBOR plus 204 basis points. The balance outstanding as of December 31, 2021 and 2020 were zero and $21.0 million, respectively, with all lines of credit terminated with our Partner Bank as of December 31, 2021.
The carrying amount of the borrowings from Partner Bank approximates its fair value due to its floating interest rate and short-term nature. The borrowing from Partner Bank is classified as a Level 2 fair value based upon the lowest level of input that is significant to the fair value measurement.
Liability for Private Warrants
The fair value of the Private Warrants was estimated using a modified version of the Black-Scholes option pricing model 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 used in the pricing model at December 31, 2021 were the following: a term of 4 years; volatility of 35%; a dividend yield of zero; an underlying stock price of $9.21; a risk free interest rate of 1.11%; and a closing price of the Public Warrants of $1.87 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 BMTX’s financial instruments at December 31, 2021 and December 31, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at December 31, 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 | | $ | 25,704 | | | $ | 25,704 | | | $ | 25,704 | | | $ | — | | | $ | — | |
| Accounts receivable, net | | 9,161 | | | 9,161 | | | 9,161 | | | — | | | — | |
| Liabilities: | | | | | | | | | | |
Liability for private warrants(1) | | $ | 13,614 | | | $ | 13,614 | | | $ | — | | | $ | — | | | $ | 13,614 | |
(1) The initial fair value of the warrants was $30.8 million on January 4, 2021, the merger date. The $17.2 million change in fair value during the twelve months ended December 31, 2021 was reported in Gain on fair value of private warrant liability on the Consolidated Statements of Income (Loss).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at December 31, 2020 |
| (amounts in thousands) | | Carrying Amount
(As Restated) | | Estimated Fair Value
(As Restated) | | 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 | | | $ | — | | | $ | — | |
| Accounts receivable, net | | 10,033 | | | 10,033 | | | 10,033 | | | — | | | — | |
| Liabilities: | | | | | | | | | | |
| Borrowings from Partner Bank | | $ | 21,000 | | | $ | 21,000 | | | $ | — | | | $ | 21,000 | | | $ | — | |
NOTE 14 — RELATIONSHIP WITH OUR PARTNER BANK
The Company has several relationships with our Partner Bank, Customers Bank, which is a related party of the Company. These relationships are described below. See Note 2 – Basis of Presentation and Significant Accounting Policies – Customer and Vendor Concentrations for additional information.
Cash management
All of the Company’s cash and cash equivalents are on deposit with our Partner Bank.
Debt financing
As disclosed within Note 7- Borrowings from Partner Bank, our Partner Bank provided the Company with lines of credit, all of which have been terminated as of December 31, 2021.
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, which provided that our Partner Bank 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 Deposit Servicing Agreement term continues until December 31, 2022 and will automatically renew for an additional three year term unless either party gives written notice of non-renewal within 180 days prior to the expiration of the current term. On April 27, 2022, our Partner Bank indicated in a public filing that it will not renew the current Deposit Servicing Agreement with the Company when it expires on December 31, 2022. See Note 15 - Subsequent Events for additional information.
Our Partner Bank retains any and all revenue generated from the funds held in the deposit accounts, and in exchange, pays us a 3% servicing fee based on average monthly deposit balances, subject to certain contractual adjustments, and a monthly interchange fee equal to all debit card interchange revenues on the demand deposit accounts, plus the difference between Durbin Exempt and Durbin regulated interchange revenue.
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. A limited number of these transition services were subsequently extended through March 31, 2022. 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.
Included within the Transition Services Agreement is a provision for administering the Company’s 401(k) plan for the benefit of Company employees. Effective April 9, 2021, the Customers Bank 401(k) plan became a multi-employer plan, as defined by the U.S. Department of Labor in accordance with the Employee Retirement Income Security Act of 1974, covering both the full-time employees of Customers Bank and the Company. The Company provides a matching contribution equal to 50% of the first 6% of the contributions made by its eligible participating employees. The Company’s employer contributions to the 401(k) plan for the benefit of its employees for the twelve months ended December 31, 2021 and 2020 were $0.7 million, and $0.8 million, respectively. These contributions are reported within Salaries and employee benefits in the Consolidated Statements of Income (Loss).
Other
On January 4, 2021, the Company entered into a Software License Agreement with our Partner Bank which provides it with a non-exclusive, non-transferable, royalty-free license to utilize our mobile banking technology for a period up to 10 years. The Software License Agreement is cancellable by our Partner Bank at any time, without notice, and without penalty, and for any reason or no reason at all. To date, our Partner Bank has not utilized the Company’s mobile banking technology and zero consideration has been paid or recognized under the Software License Agreement.
On January 4, 2021, the Company entered into a Non-Competition and Non-Solicitation Agreement with our Partner Bank providing that our Partner Bank will not, for a period of 4 years after the closing of the divestiture, directly or indirectly engage in the Company’s business in the territory (both as defined in the Non-Competition Agreement), except for white label digital banking services with previously identified parties and passive investments of no more than 2% of a class of equity interests of a competitor that is publicly traded. Our Partner also agreed not to directly or indirectly hire or solicit any employees of the Company.
On November 29, 2021, the Company entered into an agreement with our Partner Bank which terminated the $10.0 million letter of credit. In addition, this agreement also gave the Company the right to any shares that were forfeited as part of the January 4, 2021 Share-Based Compensation Award. During the twelve months ended December 31, 2021, 14,500 forfeited shares were reacquired by the Company from our Partner Bank and 19,000 forfeited shares prior to the execution of the agreement were returned to our Partner Bank.
Both the President and Executive Chairman of the Board of our Partner Bank are immediate family members of the Company’s CEO and together with their spouses own less than 5.0% of the Company’s outstanding common stock at December 31, 2021.
Positions with our Partner Bank are presented on our Consolidated Balance Sheets within Accounts receivable, net, Deferred revenue, current, and Accounts payable and accrued liabilities. The accounts receivable balances related to our Partner Bank as of December 31, 2021 and 2020 were $5.5 million and $3.1 million, respectively. The deferred revenue balances related to our Partner Bank as of December 31, 2021 and 2020 were $12.7 million and $8.0 million, respectively. The Accounts payable and accrued liabilities balances related to our Partner Bank as of December 31, 2021 and 2020 were $0.4 million and $0.2 million, respectively.
The Company recognized $82.3 million and $57.8 million in revenues from our Partner Bank for the twelve months ended December 31, 2021 and 2020, respectively. Of these amounts, $22.9 million and $29.4 million are paid directly by MasterCard or individual account holders to the Company for the twelve months ended December 31, 2021 and 2020, respectively. The Company recognized $0.3 million and $1.4 million of expenses from our Partner Bank for the twelve months ended December 31, 2021 and 2020, respectively. These amounts are included within the Consolidated Statements of Income (Loss).
NOTE 15 — SUBSEQUENT EVENTS
On March 1, 2022, the Company reached an agreement, with settlement on March 11, 2022, to reacquire 1,169,963 Private Warrants at a price of $1.69 per warrant, or a total cost of $2.0 million, from Ms. Sherry Sidhu and Mr. Samvir Sidhu, who are immediate family members of our CEO. The transaction price was established based on the range of market prices during the repurchase conversations and was approved by the Company’s Audit Committee.
On April 27, 2022, our current Partner Bank, Customers Bank, which is a related party of the Company, indicated in a public filing that it will not renew the current Deposit Processing Services Agreement (the “Deposit Servicing Agreement”) with the Company when it expires on December 31, 2022. This creates a material uncertainty in regard to the Company’s financial condition, liquidity, and future results of operations. The Company is considering multiple strategic alternatives in the event the Deposit Servicing Agreement is not renewed, including internalizing services upon closing of the previously announced merger with First Sound Bank, partnering with other banks, utilizing a brokered deposit model, or entering into discussions with our current Partner Bank about a new Deposit Servicing Agreement after December 31, 2022 at then current market rates and conditions. Management believes its cash position as of May 10, 2022, and expected cash flow from operations through December 31, 2022, will allow the Company to meet its obligations as they come due through May 10, 2023, or twelve months from the date the consolidated financial statements included in this report are issued. Should additional liquidity be necessary, the Company could consider equity or debt financing, but there are no assurances that additional capital would be available or on terms that are acceptable to us. The Company’s inability to execute on any of the aforementioned alternatives could have a material adverse effect on the Company’s results of future operations, financial position, and liquidity.
NOTE 16 — RESTATEMENT OF PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to filing the Company’s audited consolidated financial statements for the twelve months ended December 31, 2020, included in the Company’s Current Report filed on Form 8-K/A on March 31, 2021, and the Company’s unaudited consolidated financial statements for the periods ended March 31, 2021, June 30, 2021, and September 30, 2021, as reported in the Company’s Quarterly Reports on Form 10-Q filed on May 24, 2021, August 16, 2021, and November 15, 2021, respectively, the Company determined that certain of the amounts in the Company's previously reported consolidated financial statements and accompanying footnote disclosures contained misstatements. See Note 2 - Correction of Errors in Previously Issued Consolidated Financial Statements for additional information.
In accordance with SAB No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated these misstatements, and based upon an analysis of quantitative and qualitative factors, determined that the impact of these misstatements was material to its reporting periods ended December 31, 2020, three-months ended March 31, 2021, three- and six- months ended June 30, 2021, and three- and nine- months ended September 30, 2021 consolidated financial statements, and a restatement of the previously reported consolidated financial statements was required.
The effects of the restatement of the previously reported Consolidated Balance Sheets are presented below:
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 |
| (amounts in thousands) | | As Previously Reported
(Audited) | | Restatement Adjustments | | As Restated |
| ASSETS | | | | | | |
| Cash and cash equivalents | | $ | 2,989 | | | $ | — | | | $ | 2,989 | |
Accounts receivable, net1,2 | | 7,384 | | | 2,649 | | | 10,033 | |
| Prepaid expenses and other current assets | | 2,348 | | | — | | | 2,348 | |
| Total current assets | | 12,721 | | | 2,649 | | | 15,370 | |
| Premises and equipment, net | | 401 | | | — | | | 401 | |
| Developed software, net | | 39,657 | | | — | | | 39,657 | |
| Goodwill | | 5,259 | | | — | | | 5,259 | |
| Other intangibles, net | | 5,070 | | | — | | | 5,070 | |
| Other assets | | 853 | | | — | | | 853 | |
| Total assets | | $ | 63,961 | | | $ | 2,649 | | | $ | 66,610 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| Liabilities: | | | | | | |
Accounts payable and accrued liabilities1 | | $ | 7,346 | | | $ | 175 | | | $ | 7,521 | |
| Taxes payable | | — | | | — | | | — | |
Payable to Partner Bank1 | | 5,105 | | | (5,105) | | | — | |
| Borrowings from Partner Bank | | 21,000 | | | — | | | 21,000 | |
| Current portion of operating lease liabilities | | 701 | | | — | | | 701 | |
Deferred revenue, current1 | | 2,588 | | | 8,000 | | | 10,588 | |
| Total current liabilities | | 36,740 | | | 3,070 | | | 39,810 | |
| Non-current liabilities: | | | | | | |
| Operating lease liabilities | | 430 | | | — | | | 430 | |
| Deferred revenue, non-current | | 2,101 | | | — | | | 2,101 | |
| Liability for private warrants | | — | | | — | | | — | |
| Total liabilities | | $ | 39,271 | | | $ | 3,070 | | | $ | 42,341 | |
| Commitments and contingencies (Note 8) | | | | | | |
| Shareholders’ equity: | | | | | | |
| Preferred stock | | $ | — | | | $ | — | | | $ | — | |
| Common stock | | 1 | | | — | | | 1 | |
| Additional paid-in capital | | 64,017 | | | — | | | 64,017 | |
Accumulated deficit2 | | (39,328) | | | (421) | | | (39,749) | |
| Total shareholders’ equity | | $ | 24,690 | | | $ | (421) | | | $ | 24,269 | |
| Total liabilities and shareholders’ equity | | $ | 63,961 | | | $ | 2,649 | | | $ | 66,610 | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2021 |
| (amounts in thousands) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| ASSETS | | | | | | |
| Cash and cash equivalents | | $ | 17,379 | | | $ | — | | | $ | 17,379 | |
Accounts receivable, net1,3 | | 5,616 | | | 5,658 | | | 11,274 | |
| Prepaid expenses and other current assets | | 5,032 | | | — | | | 5,032 | |
| Total current assets | | 28,027 | | | 5,658 | | | 33,685 | |
| Premises and equipment, net | | 345 | | | — | | | 345 | |
| Developed software, net | | 36,952 | | | — | | | 36,952 | |
| Goodwill | | 5,259 | | | — | | | 5,259 | |
| Other intangibles, net | | 4,990 | | | — | | | 4,990 | |
| Other assets | | 942 | | | — | | | 942 | |
| Total assets | | $ | 76,515 | | | $ | 5,658 | | | $ | 82,173 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| Liabilities: | | | | | | |
Accounts payable and accrued liabilities1,3 | | $ | 9,998 | | | $ | 3,989 | | | $ | 13,987 | |
Taxes payable3 | | 1,793 | | | (114) | | | 1,679 | |
Payable to Partner Bank1 | | 9,000 | | | (9,000) | | | — | |
| Borrowings from Partner Bank | | 5,427 | | | — | | | 5,427 | |
| Current portion of operating lease liabilities | | 714 | | | — | | | 714 | |
Deferred revenue, current1 | | 3,134 | | | 10,900 | | | 14,034 | |
| Total current liabilities | | 30,066 | | | 5,775 | | | 35,841 | |
| Non-current liabilities: | | | | | | |
| Operating lease liabilities | | 235 | | | — | | | 235 | |
| Deferred revenue, non-current | | 1,490 | | | — | | | 1,490 | |
| Liability for private warrants | | 15,836 | | | — | | | 15,836 | |
| Total liabilities | | $ | 47,627 | | | $ | 5,775 | | | $ | 53,402 | |
| Commitments and contingencies (Note 8) | | | | | | |
| Shareholders’ equity: | | | | | | |
| Preferred stock | | $ | — | | | $ | — | | | $ | — | |
| Common stock | | 1 | | | — | | | 1 | |
Additional paid-in capital2 | | 49,326 | | | 3,134 | | | 52,460 | |
Accumulated deficit2,3 | | (20,439) | | | (3,251) | | | (23,690) | |
| Total shareholders’ equity | | $ | 28,888 | | | $ | (117) | | | $ | 28,771 | |
| Total liabilities and shareholders’ equity | | $ | 76,515 | | | $ | 5,658 | | | $ | 82,173 | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate for the adjustments related to share-based compensation expense.
3In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2021 |
| (amounts in thousands) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| ASSETS | | | | | | |
| Cash and cash equivalents | | $ | 19,589 | | | $ | — | | | $ | 19,589 | |
Accounts receivable, net1,3 | | 8,257 | | | 3,301 | | | 11,558 | |
| Prepaid expenses and other current assets | | 1,786 | | | — | | | 1,786 | |
| Total current assets | | 29,632 | | | 3,301 | | | 32,933 | |
| Premises and equipment, net | | 349 | | | — | | | 349 | |
| Developed software, net | | 34,155 | | | — | | | 34,155 | |
| Goodwill | | 5,259 | | | — | | | 5,259 | |
| Other intangibles, net | | 4,910 | | | — | | | 4,910 | |
| Other assets | | 740 | | | — | | | 740 | |
| Total assets | | $ | 75,045 | | | $ | 3,301 | | | $ | 78,346 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| Liabilities: | | | | | | |
Accounts payable and accrued liabilities1,3 | | $ | 13,617 | | | $ | 31 | | | $ | 13,648 | |
Taxes payable3 | | 1,317 | | | 319 | | | 1,636 | |
Payable to Partner Bank1 | | 7,117 | | | (7,117) | | | — | |
| Borrowings from Partner Bank | | — | | | — | | | — | |
| Current portion of operating lease liabilities | | 719 | | | — | | | 719 | |
Deferred revenue, current1 | | 4,763 | | | 10,750 | | | 15,513 | |
| Total current liabilities | | 27,533 | | | 3,983 | | | 31,516 | |
| Non-current liabilities: | | | | | | |
| Operating lease liabilities | | 55 | | | — | | | 55 | |
| Deferred revenue, non-current | | 1,512 | | | — | | | 1,512 | |
| Liability for private warrants | | 18,893 | | | — | | | 18,893 | |
| Total liabilities | | $ | 47,993 | | | $ | 3,983 | | | $ | 51,976 | |
| Commitments and contingencies (Note 8) | | | | | | |
| Shareholders’ equity: | | | | | | |
| Preferred stock | | $ | — | | | $ | — | | | $ | — | |
| Common stock | | 1 | | | — | | | 1 | |
Additional paid-in capital2 | | 49,326 | | | 5,523 | | | 54,849 | |
Accumulated deficit2,3 | | (22,275) | | | (6,205) | | | (28,480) | |
| Total shareholders’ equity | | $ | 27,052 | | | $ | (682) | | | $ | 26,370 | |
| Total liabilities and shareholders’ equity | | $ | 75,045 | | | $ | 3,301 | | | $ | 78,346 | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate for the adjustments related to share-based compensation expense.
3In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2021 |
| (amounts in thousands) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| ASSETS | | | | | | |
| Cash and cash equivalents | | $ | 20,407 | | | $ | — | | | $ | 20,407 | |
Accounts receivable, net1,3 | | 4,498 | | | 5,338 | | | 9,836 | |
| Prepaid expenses and other current assets | | 2,046 | | | — | | | 2,046 | |
| Total current assets | | 26,951 | | | 5,338 | | | 32,289 | |
| Premises and equipment, net | | 305 | | | — | | | 305 | |
| Developed software, net | | 31,691 | | | — | | | 31,691 | |
| Goodwill | | 5,259 | | | — | | | 5,259 | |
| Other intangibles, net | | 4,830 | | | — | | | 4,830 | |
| Other assets | | 840 | | | — | | | 840 | |
| Total assets | | $ | 69,876 | | | $ | 5,338 | | | $ | 75,214 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| Liabilities: | | | | | | |
Accounts payable and accrued liabilities1,3 | | $ | 8,225 | | | $ | (45) | | | $ | 8,180 | |
Taxes payable3 | | 863 | | | 240 | | | 1,103 | |
Payable to Partner Bank1 | | 6,914 | | | (6,914) | | | — | |
| Borrowings from Partner Bank | | — | | | — | | | — | |
| Current portion of operating lease liabilities | | 596 | | | — | | | 596 | |
Deferred revenue, current1 | | 4,306 | | | 12,000 | | | 16,306 | |
| Total current liabilities | | 20,904 | | | 5,281 | | | 26,185 | |
| Non-current liabilities: | | | | | | |
| Operating lease liabilities | | — | | | — | | | — | |
| Deferred revenue, non-current | | 223 | | | — | | | 223 | |
| Liability for private warrants | | 12,850 | | | — | | | 12,850 | |
| Total liabilities | | $ | 33,977 | | | $ | 5,281 | | | $ | 39,258 | |
| Commitments and contingencies (Note 8) | | | | | | |
| Shareholders’ equity: | | | | | | |
| Preferred stock | | $ | — | | | $ | — | | | $ | — | |
| Common stock | | 1 | | | — | | | 1 | |
Additional paid-in capital2 | | 49,379 | | | 7,932 | | | 57,311 | |
Accumulated deficit2,3 | | (13,481) | | | (7,875) | | | (21,356) | |
| Total shareholders’ equity | | $ | 35,899 | | | $ | 57 | | | $ | 35,956 | |
| Total liabilities and shareholders’ equity | | $ | 69,876 | | | $ | 5,338 | | | $ | 75,214 | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate for the adjustments related to share-based compensation expense.
3In order to restate the previously reported out of period adjustments in the correct period.
The effect of the restatement of the previously reported Consolidated Statements of Income (Loss) is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | Twelve-months ended December 31, 2020 |
| (amounts in thousands) | | As Previously Reported
(Audited) | | Restatement Adjustments | | As Restated |
| Operating revenues: | | | | | | |
Interchange and card revenue1 | | $ | 26,285 | | | $ | (421) | | | $ | 25,864 | |
| Servicing fees from Partner Bank | | 22,465 | | | — | | | 22,465 | |
| Account fees | | 11,308 | | | — | | | 11,308 | |
| University fees | | 5,320 | | | — | | | 5,320 | |
| Other revenue | | 1,480 | | | — | | | 1,480 | |
| Total operating revenues | | 66,858 | | | (421) | | | 66,437 | |
| Operating expenses: | | | | | | |
| Technology, communication, and processing | | 27,404 | | | — | | | 27,404 | |
| Salaries and employee benefits | | 26,076 | | | — | | | 26,076 | |
| Professional services | | 9,304 | | | — | | | 9,304 | |
| Provision for operating losses | | 5,170 | | | — | | | 5,170 | |
| Occupancy | | 1,428 | | | — | | | 1,428 | |
Customer related supplies2 | | 3,236 | | | — | | | 3,236 | |
| Advertising and promotion | | 941 | | | — | | | 941 | |
| Merger and acquisition related expenses | | 739 | | | — | | | 739 | |
Other expense2 | | 2,935 | | | — | | | 2,935 | |
| Total operating expenses | | 77,233 | | | — | | | 77,233 | |
| Income (loss) from operations | | (10,375) | | | (421) | | | (10,796) | |
| Non-operating income and expense: | | | | | | |
| Gain (loss) on fair value of private warrant liability | | — | | | — | | | — | |
| Interest expense | | (1,395) | | | — | | | (1,395) | |
| Income (loss) before income tax expense | | (11,770) | | | (421) | | | (12,191) | |
| Income tax expense | | 23 | | | — | | | 23 | |
| Net Income (Loss) | | (11,793) | | | (421) | | | (12,214) | |
| | | | | | |
| Weighted average number of shares outstanding - basic | | 6,123 | | | — | | | 6,123 | |
| Weighted average number of shares outstanding - diluted | | 6,123 | | | — | | | 6,123 | |
| | | | | | |
| Net Income (loss) per share - basic | | $ | (1.93) | | | $ | (0.06) | | | $ | (1.99) | |
| Net Income (loss) per share - diluted | | $ | (1.93) | | | $ | (0.06) | | | $ | (1.99) | |
1In order to restate the previously reported out of period adjustments in the correct period.
2Adjusted to present the effect of the reclassification of Customer related supplies expenses as described in Note 2 - Basis of Presentation and Significant Accounting Policies, subsection Prior Period Reclassifications.
| | | | | | | | | | | | | | | | | | | | |
| | Three-months ended March 31, 2021 |
| (amounts in thousands, except per share data) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Operating revenues: | | | | | | |
Interchange and card revenue2 | | $ | 8,351 | | | $ | (107) | | | $ | 8,244 | |
| Servicing fees from Partner Bank | | 9,372 | | | — | | | 9,372 | |
| Account fees | | 2,686 | | | — | | | 2,686 | |
| University fees | | 1,324 | | | — | | | 1,324 | |
| Other revenue | | 2,650 | | | — | | | 2,650 | |
| Total operating revenues | | 24,383 | | | (107) | | | 24,276 | |
| Operating expenses: | | | | | | |
Technology, communication, and processing2 | | 8,652 | | | (297) | | | 8,355 | |
Salaries and employee benefits1 | | 5,423 | | | 3,134 | | | 8,557 | |
| Professional services | | 1,737 | | | — | | | 1,737 | |
| Provision for operating losses | | 1,329 | | | — | | | 1,329 | |
| Occupancy | | 352 | | | — | | | 352 | |
| Customer related supplies | | 475 | | | — | | | 475 | |
| Advertising and promotion | | 191 | | | — | | | 191 | |
| Merger and acquisition related expenses | | — | | | — | | | — | |
| Other expense | | 457 | | | — | | | 457 | |
| Total operating expenses | | 18,616 | | | 2,837 | | | 21,453 | |
| Income (loss) from operations | | 5,767 | | | (2,944) | | | 2,823 | |
| Non-operating income and expense: | | | | | | |
| Gain (loss) on fair value of private warrant liability | | 15,003 | | | — | | | 15,003 | |
| Interest expense | | (54) | | | — | | | (54) | |
| Income (loss) before income tax expense | | 20,716 | | | (2,944) | | | 17,772 | |
Income tax expense2 | | 1,827 | | | (114) | | | 1,713 | |
| Net Income (Loss) | | 18,889 | | | (2,830) | | | 16,059 | |
| | | | | | |
| Weighted average number of shares outstanding - basic | | 11,900 | | | (202) | | | 11,698 | |
| Weighted average number of shares outstanding - diluted | | 15,512 | | | (187) | | | 15,325 | |
| | | | | | |
| Net Income (loss) per share - basic | | $ | 1.59 | | | $ | (0.22) | | | $ | 1.37 | |
| Net Income (loss) per share - diluted | | $ | 0.25 | | | $ | (0.18) | | | $ | 0.07 | |
1In order to restate the previously reported expense related to share-based compensation.
2In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | Three-months ended June 30, 2021 |
| (amounts in thousands, except per share data) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Operating revenues: | | | | | | |
Interchange and card revenue2 | | $ | 7,186 | | | $ | (429) | | | $ | 6,757 | |
| Servicing fees from Partner Bank | | 10,579 | | | — | | | 10,579 | |
| Account fees | | 2,641 | | | — | | | 2,641 | |
| University fees | | 1,331 | | | — | | | 1,331 | |
| Other revenue | | 1,156 | | | — | | | 1,156 | |
| Total operating revenues | | 22,893 | | | (429) | | | 22,464 | |
| Operating expenses: | | | | | | |
Technology, communication, and processing2 | | 8,924 | | | (297) | | | 8,627 | |
Salaries and employee benefits1 | | 7,170 | | | 2,389 | | | 9,559 | |
| Professional services | | 2,126 | | | — | | | 2,126 | |
| Provision for operating losses | | 1,401 | | | — | | | 1,401 | |
| Occupancy | | 284 | | | — | | | 284 | |
| Customer related supplies | | 186 | | | — | | | 186 | |
| Advertising and promotion | | 125 | | | — | | | 125 | |
| Merger and acquisition related expenses | | — | | | — | | | — | |
| Other expense | | 466 | | | — | | | 466 | |
| Total operating expenses | | 20,682 | | | 2,092 | | | 22,774 | |
| Income (loss) from operations | | 2,211 | | | (2,521) | | | (310) | |
| Non-operating income and expense: | | | | | | |
| Gain (loss) on fair value of private warrant liability | | (3,056) | | | — | | | (3,056) | |
| Interest expense | | (42) | | | — | | | (42) | |
| Income (loss) before income tax expense | | (887) | | | (2,521) | | | (3,408) | |
Income tax expense2 | | 949 | | | 433 | | | 1,382 | |
| Net Income (Loss) | | (1,836) | | | (2,954) | | | (4,790) | |
| | | | | | |
| Weighted average number of shares outstanding - basic | | 11,900 | | | — | | | 11,900 | |
| Weighted average number of shares outstanding - diluted | | 11,900 | | | — | | | 11,900 | |
| | | | | | |
| Net Income (loss) per share - basic | | $ | (0.15) | | | $ | (0.25) | | | $ | (0.40) | |
| Net Income (loss) per share - diluted | | $ | (0.15) | | | $ | (0.25) | | | $ | (0.40) | |
1In order to restate the previously reported expense related to share-based compensation.
2In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | Six-months ended June 30, 2021 |
| (amounts in thousands, except per share data) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Operating revenues: | | | | | | |
Interchange and card revenue2 | | $ | 15,537 | | | $ | (536) | | | $ | 15,001 | |
| Servicing fees from Partner Bank | | 19,951 | | | — | | | 19,951 | |
| Account fees | | 5,327 | | | — | | | 5,327 | |
| University fees | | 2,655 | | | — | | | 2,655 | |
| Other revenue | | 3,806 | | | — | | | 3,806 | |
| Total operating revenues | | 47,276 | | | (536) | | | 46,740 | |
| Operating expenses: | | | | | | |
Technology, communication, and processing2 | | 17,576 | | | (594) | | | 16,982 | |
Salaries and employee benefits1 | | 12,593 | | | 5,523 | | | 18,116 | |
| Professional services | | 3,863 | | | — | | | 3,863 | |
| Provision for operating losses | | 2,730 | | | — | | | 2,730 | |
| Occupancy | | 636 | | | — | | | 636 | |
| Customer related supplies | | 661 | | | — | | | 661 | |
| Advertising and promotion | | 316 | | | — | | | 316 | |
| Merger and acquisition related expenses | | — | | | — | | | — | |
| Other expense | | 923 | | | — | | | 923 | |
| Total operating expenses | | 39,298 | | | 4,929 | | | 44,227 | |
| Income (loss) from operations | | 7,978 | | | (5,465) | | | 2,513 | |
| Non-operating income and expense: | | | | | | |
| Gain (loss) on fair value of private warrant liability | | 11,947 | | | — | | | 11,947 | |
| Interest expense | | (96) | | | — | | | (96) | |
| Income (loss) before income tax expense | | 19,829 | | | (5,465) | | | 14,364 | |
Income tax expense2 | | 2,776 | | | 319 | | | 3,095 | |
| Net Income (Loss) | | 17,053 | | | (5,784) | | | 11,269 | |
| | | | | | |
| Weighted average number of shares outstanding - basic | | 11,900 | | | (100) | | | 11,800 | |
| Weighted average number of shares outstanding - diluted | | 13,314 | | | 477 | | | 13,791 | |
| | | | | | |
| Net Income (loss) per share - basic | | $ | 1.43 | | | $ | (0.47) | | | $ | 0.96 | |
| Net Income (loss) per share - diluted | | $ | 0.38 | | | $ | (0.43) | | | $ | (0.05) | |
1In order to restate the previously reported expense related to share-based compensation.
2In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | Three-months ended September 30, 2021 |
| (amounts in thousands, except per share data) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Operating revenues: | | | | | | |
Interchange and card revenue2 | | $ | 5,572 | | | $ | 957 | | | $ | 6,529 | |
| Servicing fees from Partner Bank | | 11,823 | | | — | | | 11,823 | |
| Account fees | | 2,628 | | | — | | | 2,628 | |
| University fees | | 1,474 | | | — | | | 1,474 | |
| Other revenue | | 477 | | | — | | | 477 | |
| Total operating revenues | | 21,974 | | | 957 | | | 22,931 | |
| Operating expenses: | | | | | | |
Technology, communication, and processing2 | | 4,596 | | | 297 | | | 4,893 | |
Salaries and employee benefits1 | | 6,728 | | | 2,409 | | | 9,137 | |
| Professional services | | 3,496 | | | — | | | 3,496 | |
| Provision for operating losses | | 1,067 | | | — | | | 1,067 | |
| Occupancy | | 282 | | | — | | | 282 | |
| Customer related supplies | | 1,017 | | | — | | | 1,017 | |
| Advertising and promotion | | 176 | | | — | | | 176 | |
| Merger and acquisition related expenses | | — | | | — | | | — | |
| Other expense | | 614 | | | — | | | 614 | |
| Total operating expenses | | 17,976 | | | 2,706 | | | 20,682 | |
| Income (loss) from operations | | 3,998 | | | (1,749) | | | 2,249 | |
| Non-operating income and expense: | | | | | | |
| Gain (loss) on fair value of private warrant liability | | 6,042 | | | — | | | 6,042 | |
| Interest expense | | — | | | — | | | — | |
| Income (loss) before income tax expense | | 10,040 | | | (1,749) | | | 8,291 | |
Income tax expense2 | | 1,246 | | | (79) | | | 1,167 | |
| Net Income (Loss) | | 8,794 | | | (1,670) | | | 7,124 | |
| | | | | | |
| Weighted average number of shares outstanding - basic | | 11,900 | | | — | | | 11,900 | |
| Weighted average number of shares outstanding - diluted | | 11,904 | | | — | | | 11,904 | |
| | | | | | |
| Net Income (loss) per share - basic | | $ | 0.74 | | | $ | (0.14) | | | $ | 0.60 | |
| Net Income (loss) per share - diluted | | $ | 0.74 | | | $ | (0.14) | | | $ | 0.60 | |
1In order to restate the previously reported expense related to share-based compensation.
2In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | Nine-months ended September 30, 2021 |
| (amounts in thousands, except per share data) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Operating revenues: | | | | | | |
Interchange and card revenue2 | | $ | 21,109 | | | $ | 421 | | | $ | 21,530 | |
| Servicing fees from Partner Bank | | 31,774 | | | — | | | 31,774 | |
| Account fees | | 7,955 | | | — | | | 7,955 | |
| University fees | | 4,129 | | | — | | | 4,129 | |
| Other revenue | | 4,283 | | | — | | | 4,283 | |
| Total operating revenues | | 69,250 | | | 421 | | | 69,671 | |
| Operating expenses: | | | | | | |
Technology, communication, and processing2 | | 22,172 | | | (297) | | | 21,875 | |
Salaries and employee benefits1 | | 19,321 | | | 7,932 | | | 27,253 | |
| Professional services | | 7,359 | | | — | | | 7,359 | |
| Provision for operating losses | | 3,797 | | | — | | | 3,797 | |
| Occupancy | | 918 | | | — | | | 918 | |
| Customer related supplies | | 1,678 | | | — | | | 1,678 | |
| Advertising and promotion | | 492 | | | — | | | 492 | |
| Merger and acquisition related expenses | | — | | | — | | | — | |
| Other expense | | 1,537 | | | — | | | 1,537 | |
| Total operating expenses | | 57,274 | | | 7,635 | | | 64,909 | |
| Income (loss) from operations | | 11,976 | | | (7,214) | | | 4,762 | |
| Non-operating income and expense: | | | | | | |
| Gain (loss) on fair value of private warrant liability | | 17,989 | | | — | | | 17,989 | |
| Interest expense | | (96) | | | — | | | (96) | |
| Income (loss) before income tax expense | | 29,869 | | | (7,214) | | | 22,655 | |
Income tax expense2 | | 4,022 | | | 240 | | | 4,262 | |
| Net Income (Loss) | | 25,847 | | | (7,454) | | | 18,393 | |
| | | | | | |
| Weighted average number of shares outstanding - basic | | 11,534 | | | 300 | | | 11,834 | |
| Weighted average number of shares outstanding - diluted | | 12,059 | | | 300 | | | 12,359 | |
| | | | | | |
| Net Income (loss) per share - basic | | $ | 2.24 | | | $ | (0.69) | | | $ | 1.55 | |
| Net Income (loss) per share - diluted | | $ | 0.65 | | | $ | (0.62) | | | $ | 0.03 | |
1In order to restate the previously reported expense related to share-based compensation.
2In order to restate the previously reported out of period adjustments in the correct period.
The effect of the restatement of the previously reported Consolidated Statements of Changes in Shareholders’ Equity is presented in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Previously Reported |
| | Common Stock | | | | | | |
| (amounts in thousands, except share data) | | Shares of Common Stock Outstanding | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total |
| Balance at December 31, 2019 | | 6,123,432 | | | $ | 1 | | | $ | 62,164 | | | $ | (27,535) | | | $ | 34,630 | |
| Net loss | | — | | | — | | | — | | | (11,793) | | | (11,793) | |
| Capital contribution from Partner Bank | | — | | | — | | | 1,385 | | | — | | | 1,385 | |
Share-based compensation expense1 | | — | | | — | | | 468 | | | — | | | 468 | |
| Balance at December 31, 2020 | | 6,123,432 | | | $ | 1 | | | $ | 64,017 | | | $ | (39,328) | | | $ | 24,690 | |
| Net income | | — | | | — | | | — | | | 18,889 | | | 18,889 | |
| Valuation of private warrants | | — | | | — | | | (30,839) | | | — | | | (30,839) | |
| Recapitalization transaction | | 6,076,946 | | | — | | | 16,148 | | | — | | | 16,148 | |
| Balance at March 31, 2021 | | 12,200,378 | | | $ | 1 | | | $ | 49,326 | | | $ | (20,439) | | | $ | 28,888 | |
| Net loss | | — | | | — | | | — | | | (1,836) | | | (1,836) | |
| Balance at June 30, 2021 | | 12,200,378 | | | $ | 1 | | | $ | 49,326 | | | $ | (22,275) | | | $ | 27,052 | |
| Net income | | — | | | — | | | — | | | 8,794 | | | 8,794 | |
| Issuance of common stock as compensation | | 6,000 | | | — | | | 53 | | | — | | | 53 | |
| Balance at September 30, 2021 | | 12,206,378 | | | $ | 1 | | | $ | 49,379 | | | $ | (13,481) | | | $ | 35,899 | |
1Adjusted to present the effect of the reclassification of share-based compensation expenses as described in Note 2 - Basis of Presentation and Significant Accounting Policies, subsection Prior Period Reclassifications.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Restatement Adjustments |
| | Common Stock | | | | | | |
| (amounts in thousands, except share data) | | Shares of Common Stock Outstanding | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total |
| Balance at December 31, 2019 | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Net loss2 | | — | | | — | | | — | | | (421) | | | (421) | |
| Capital contribution from Partner Bank | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation expense | | — | | | — | | | — | | | — | | | — | |
| Balance at December 31, 2020 | | — | | | $ | — | | | $ | — | | | $ | (421) | | | $ | (421) | |
Net income1,2 | | — | | | — | | | — | | | (2,830) | | | (2,830) | |
| Valuation of private warrants | | — | | | — | | | — | | | — | | | — | |
Recapitalization transaction1 | | (1,317,035) | | | — | | | — | | | — | | | — | |
Issuance of common stock as compensation1 | | 1,317,035 | | | — | | | 2,323 | | | — | | | 2,323 | |
Share-based compensation expense1 | | — | | | — | | | 811 | | | — | | | 811 | |
| Balance at March 31, 2021 | | — | | | $ | — | | | $ | 3,134 | | | $ | (3,251) | | | $ | (117) | |
Net loss1,2 | | — | | | — | | | — | | | (2,954) | | | (2,954) | |
Issuance of common stock as compensation1 | | — | | | — | | | 2,389 | | | — | | | 2,389 | |
| Balance at June 30, 2021 | | — | | | $ | — | | | $ | 5,523 | | | $ | (6,205) | | | $ | (682) | |
Net income1,2 | | — | | | — | | | — | | | (1,670) | | | (1,670) | |
Issuance of common stock as compensation1 | | — | | | — | | | 2,409 | | | — | | | 2,409 | |
| Balance at September 30, 2021 | | — | | | $ | — | | | $ | 7,932 | | | $ | (7,875) | | | $ | 57 | |
1In order to restate the previously reported expense related to share-based compensation.
2In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| | Common Stock | | | | | | |
| (amounts in thousands, except share data) | | Shares of Common Stock Outstanding | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total |
| Balance at December 31, 2019 | | 6,123,432 | | | $ | 1 | | | $ | 62,164 | | | $ | (27,535) | | | $ | 34,630 | |
| Net loss | | — | | | — | | | — | | | (12,214) | | | (12,214) | |
| Capital contribution from Partner Bank | | — | | | — | | | 1,385 | | | — | | | 1,385 | |
| Share-based compensation expense | | — | | | — | | | 468 | | | — | | | 468 | |
| Balance at December 31, 2020 | | 6,123,432 | | | $ | 1 | | | $ | 64,017 | | | $ | (39,749) | | | $ | 24,269 | |
| Net income | | — | | | — | | | — | | | 16,059 | | | 16,059 | |
| Valuation of private warrants | | — | | | — | | | (30,839) | | | — | | | (30,839) | |
| Recapitalization transaction | | 4,759,911 | | | — | | | 16,148 | | | — | | | 16,148 | |
| Issuance of common stock as compensation | | 1,317,035 | | | — | | | 2,323 | | | — | | | 2,323 | |
| Share-based compensation expense | | — | | | — | | | 811 | | | — | | | 811 | |
| Balance at March 31, 2021 | | 12,200,378 | | | $ | 1 | | | $ | 52,460 | | | $ | (23,690) | | | $ | 28,771 | |
| Net loss | | — | | | — | | | — | | | (4,790) | | | (4,790) | |
| Issuance of common stock as compensation | | — | | | — | | | 2,389 | | | — | | | 2,389 | |
| Balance at June 30, 2021 | | 12,200,378 | | | $ | 1 | | | $ | 54,849 | | | $ | (28,480) | | | $ | 26,370 | |
| Net income | | — | | | — | | | — | | | 7,124 | | | 7,124 | |
| Issuance of common stock as compensation | | 6,000 | | | — | | | 2,462 | | | — | | | 2,462 | |
| Balance at September 30, 2021 | | 12,206,378 | | | $ | 1 | | | $ | 57,311 | | | $ | (21,356) | | | $ | 35,956 | |
The effect of the restatement of the previously reported Consolidated Statements of Cash Flows is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | Twelve-months ended December 31, 2020 |
| (amounts in thousands) | | As Previously Reported
(Audited) | | Restatement Adjustments | | As Restated |
| Cash Flows from Operating Activities: | | | | | | |
Net income (loss)2 | | $ | (11,793) | | | $ | (421) | | | $ | (12,214) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Depreciation of premises and equipment | | 310 | | | — | | | 310 | |
| Amortization of developed software | | 11,047 | | | — | | | 11,047 | |
| Amortization of other intangible assets | | 664 | | | — | | | 664 | |
| Amortization of leased assets | | 1,253 | | | — | | | 1,253 | |
| Impairment of software asset | | 3,721 | | | — | | | 3,721 | |
| Share-based compensation expense | | 468 | | | — | | | 468 | |
| Gain on fair value of private warrant liability | | — | | | — | | | — | |
| Changes in operating assets and liabilities: | | | | | | |
Accounts receivable, net1,2 | | 3,106 | | | (1,800) | | | 1,306 | |
| Prepaid expenses and other current assets | | 6,456 | | | — | | | 6,456 | |
Receivable from Partner Bank1 | | 849 | | | (849) | | | — | |
| Other assets | | 372 | | | — | | | 372 | |
Accounts payable and accrued liabilities1 | | (3,747) | | | 175 | | | (3,572) | |
Payable to Partner Bank1 | | 5,105 | | | (5,105) | | | — | |
| Taxes payable | | — | | | — | | | — | |
| Operating lease liabilities | | (1,406) | | | — | | | (1,406) | |
Deferred revenue1 | | 2,751 | | | 8,000 | | | 10,751 | |
| Other liabilities | | (3,118) | | | — | | | (3,118) | |
| Net Cash Provided by Operating Activities | | 16,038 | | | — | | | 16,038 | |
| Cash Flows from Investing Activities: | | | | | | |
| Purchase or development of internal use software | | (3,947) | | | — | | | (3,947) | |
| Purchases of premises and equipment | | (73) | | | — | | | (73) | |
| Net Cash Used in Investing Activities | | (4,020) | | | — | | | (4,020) | |
| Cash Flows from Financing Activities: | | | | | | |
| Repayments of borrowings from Partner Bank | | (19,000) | | | — | | | (19,000) | |
| Capital contribution from Partner Bank | | 1,385 | | | — | | | 1,385 | |
| Recapitalization transaction | | — | | | — | | | — | |
| Cash provided by exercise of warrants | | — | | | — | | | — | |
| Net Provided by (Cash Used) in Financing Activities | | (17,615) | | | — | | | (17,615) | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | (5,597) | | | — | | | (5,597) | |
| Cash and Cash Equivalents – Beginning | | 8,586 | | | — | | | 8,586 | |
| Cash and Cash Equivalents – Ending | | $ | 2,989 | | | $ | — | | | $ | 2,989 | |
| | | | | | |
| Supplementary Cash Flow Information: | | | | | | |
| Income taxes paid, net of refunds | | $ | — | | | $ | — | | | $ | — | |
| Interest paid | | $ | — | | | $ | — | | | $ | — | |
| Noncash Operating, Investing and Financing Activities: | | | | | | |
| Share-based compensation expense recorded as capital contribution from Partner Bank | | $ | 468 | | | $ | — | | | $ | 468 | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate the previously reported out of period adjustments in the correct period.
| | | | | | | | | | | | | | | | | | | | |
| | Three-months ended March 31, 2021 |
| (amounts in thousands) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Cash Flows from Operating Activities: | | | | | | |
Net income (loss)2,3 | | $ | 18,889 | | | $ | (2,830) | | | $ | 16,059 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Depreciation of premises and equipment | | 56 | | | — | | | 56 | |
| Amortization of developed software | | 2,823 | | | — | | | 2,823 | |
| Amortization of other intangible assets | | 80 | | | — | | | 80 | |
| Amortization of leased assets | | 282 | | | — | | | 282 | |
| Impairment of software asset | | — | | | — | | | — | |
Share-based compensation expense2 | | 5 | | | 3,134 | | | 3,139 | |
| Gain on fair value of private warrant liability | | (15,003) | | | — | | | (15,003) | |
| Changes in operating assets and liabilities: | | | | | | |
Accounts receivable, net1,3 | | 1,768 | | | (3,009) | | | (1,241) | |
| Prepaid expenses and other current assets | | (2,683) | | | — | | | (2,683) | |
| Receivable from Partner Bank | | — | | | — | | | — | |
| Other assets | | (372) | | | — | | | (372) | |
Accounts payable and accrued liabilities1,3 | | 3,923 | | | (1,876) | | | 2,047 | |
Payable to Partner Bank1 | | — | | | — | | | — | |
Taxes payable3 | | — | | | 1,679 | | | 1,679 | |
| Operating lease liabilities | | (182) | | | — | | | (182) | |
Deferred revenue1 | | (67) | | | 2,902 | | | 2,835 | |
| Other liabilities | | — | | | — | | | — | |
| Net Cash Provided by Operating Activities | | 9,519 | | | — | | | 9,519 | |
| Cash Flows from Investing Activities: | | | | | | |
| Purchase or development of internal use software | | (117) | | | — | | | (117) | |
| Purchases of premises and equipment | | — | | | — | | | — | |
| Net Cash Used in Investing Activities | | (117) | | | — | | | (117) | |
| Cash Flows from Financing Activities: | | | | | | |
| Repayments of borrowings from Partner Bank | | (15,572) | | | — | | | (15,572) | |
| Capital contribution from Partner Bank | | — | | | — | | | — | |
| Recapitalization transaction | | 20,560 | | | — | | | 20,560 | |
| Cash provided by exercise of warrants | | — | | | — | | | — | |
| Net Provided by (Cash Used) in Financing Activities | | 4,988 | | | — | | | 4,988 | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | 14,390 | | | — | | | 14,390 | |
| Cash and Cash Equivalents – Beginning | | 2,989 | | | — | | | 2,989 | |
| Cash and Cash Equivalents – Ending | | $ | 17,379 | | | $ | — | | | $ | 17,379 | |
| | | | | | |
| Supplementary Cash Flow Information: | | | | | | |
| Income taxes paid, net of refunds | | $ | — | | | $ | — | | | $ | — | |
| Interest paid | | $ | 119 | | | $ | — | | | $ | 119 | |
| Noncash Operating, Investing and Financing Activities: | | | | | | |
Shares issued to settle Megalith accounts payable in connection with Recapitalization transaction4 | | $ | — | | | $ | 740 | | | $ | 740 | |
| Share-based compensation expense recorded as capital contribution from Partner Bank | | $ | — | | | $ | — | | | $ | — | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate for the adjustments related to share-based compensation expense.
3In order to restate the previously reported out of period adjustments in the correct period.
4In order to present the non-cash impact related to shares issued to settle Megalith accounts payable in connection with Recapitalization transaction.
| | | | | | | | | | | | | | | | | | | | |
| | Six-months ended June 30, 2021 |
| (amounts in thousands) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Cash Flows from Operating Activities: | | | | | | |
Net income (loss)2,3 | | $ | 17,053 | | | $ | (5,784) | | | $ | 11,269 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Depreciation of premises and equipment | | 103 | | | — | | | 103 | |
| Amortization of developed software | | 5,645 | | | — | | | 5,645 | |
| Amortization of other intangible assets | | 160 | | | — | | | 160 | |
| Amortization of leased assets | | 368 | | | — | | | 368 | |
| Impairment of software asset | | — | | | — | | | — | |
Share-based compensation expense2 | | 13 | | | 5,523 | | | 5,536 | |
| Gain on fair value of private warrant liability | | (11,947) | | | — | | | (11,947) | |
| Changes in operating assets and liabilities: | | | | | | |
Accounts receivable, net1,3 | | (873) | | | (652) | | | (1,525) | |
| Prepaid expenses and other current assets | | 562 | | | — | | | 562 | |
| Receivable from Partner Bank | | — | | | — | | | — | |
| Other assets | | (354) | | | — | | | (354) | |
Accounts payable and accrued liabilities1,3 | | 5,618 | | | (144) | | | 5,474 | |
Payable to Partner Bank1 | | 2,012 | | | (2,012) | | | — | |
Taxes payable3 | | 1,317 | | | 319 | | | 1,636 | |
| Operating lease liabilities | | (357) | | | — | | | (357) | |
Deferred revenue1 | | 1,586 | | | 2,750 | | | 4,336 | |
| Other liabilities | | — | | | — | | | — | |
| Net Cash Provided by Operating Activities | | 20,906 | | | — | | | 20,906 | |
| Cash Flows from Investing Activities: | | | | | | |
| Purchase or development of internal use software | | (143) | | | — | | | (143) | |
| Purchases of premises and equipment | | (51) | | | — | | | (51) | |
| Net Cash Used in Investing Activities | | (194) | | | — | | | (194) | |
| Cash Flows from Financing Activities: | | | | | | |
| Repayments of borrowings from Partner Bank | | (21,000) | | | — | | | (21,000) | |
| Capital contribution from Partner Bank | | — | | | — | | | — | |
| Recapitalization transaction | | 16,888 | | | — | | | 16,888 | |
| Cash provided by exercise of warrants | | — | | | — | | | — | |
| Net Provided by (Cash Used) in Financing Activities | | (4,112) | | | — | | | (4,112) | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | 16,600 | | | — | | | 16,600 | |
| Cash and Cash Equivalents – Beginning | | 2,989 | | | — | | | 2,989 | |
| Cash and Cash Equivalents – Ending | | $ | 19,589 | | | $ | — | | | $ | 19,589 | |
| | | | | | |
| Supplementary Cash Flow Information: | | | | | | |
| Income taxes paid, net of refunds | | $ | 1,424 | | | $ | — | | | $ | 1,424 | |
| Interest paid | | $ | 178 | | | $ | — | | | $ | 178 | |
| Noncash Operating, Investing and Financing Activities: | | | | | | |
Shares issued to settle Megalith accounts payable in connection with Recapitalization transaction4 | | $ | — | | | $ | 740 | | | $ | 740 | |
| Share-based compensation expense recorded as capital contribution from Partner Bank | | $ | — | | | $ | — | | | $ | — | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate for the adjustments related to share-based compensation expense.
3In order to restate the previously reported out of period adjustments in the correct period.
4In order to present the non-cash impact related to shares issued to settle Megalith accounts payable in connection with Recapitalization transaction.
| | | | | | | | | | | | | | | | | | | | |
| | Nine-months ended September 30, 2021 |
| (amounts in thousands) | | As Previously Reported
(Unaudited) | | Restatement Adjustments | | As Restated |
| Cash Flows from Operating Activities: | | | | | | |
Net income (loss)2,3 | | $ | 25,847 | | | $ | (7,454) | | | $ | 18,393 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Depreciation of premises and equipment | | 147 | | | — | | | 147 | |
| Amortization of developed software | | 8,467 | | | — | | | 8,467 | |
| Amortization of other intangible assets | | 240 | | | — | | | 240 | |
| Amortization of leased assets | | 644 | | | — | | | 644 | |
| Impairment of software asset | | — | | | — | | | — | |
Share-based compensation expense2 | | 87 | | | 7,932 | | | 8,019 | |
| Gain on fair value of private warrant liability | | (17,989) | | | — | | | (17,989) | |
| Changes in operating assets and liabilities: | | | | | | |
Accounts receivable, net1,3 | | 2,886 | | | (2,689) | | | 197 | |
| Prepaid expenses and other current assets | | 302 | | | — | | | 302 | |
| Receivable from Partner Bank | | — | | | — | | | — | |
| Other assets | | (631) | | | — | | | (631) | |
Accounts payable and accrued liabilities1,3 | | 105 | | | (220) | | | (115) | |
Payable to Partner Bank1 | | 1,809 | | | (1,809) | | | — | |
Taxes payable3 | | 863 | | | 240 | | | 1,103 | |
| Operating lease liabilities | | (535) | | | — | | | (535) | |
Deferred revenue1 | | (160) | | | 4,000 | | | 3,840 | |
| Other liabilities | | — | | | — | | | — | |
| Net Cash Provided by Operating Activities | | 22,082 | | | — | | | 22,082 | |
| Cash Flows from Investing Activities: | | | | | | |
| Purchase or development of internal use software | | (501) | | | — | | | (501) | |
| Purchases of premises and equipment | | (51) | | | — | | | (51) | |
| Net Cash Used in Investing Activities | | (552) | | | — | | | (552) | |
| Cash Flows from Financing Activities: | | | | | | |
| Repayments of borrowings from Partner Bank | | (21,000) | | | — | | | (21,000) | |
| Capital contribution from Partner Bank | | — | | | — | | | — | |
| Recapitalization transaction | | 16,888 | | | — | | | 16,888 | |
| Cash provided by exercise of warrants | | — | | | — | | | — | |
| Net Provided by (Cash Used) in Financing Activities | | (4,112) | | | — | | | (4,112) | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | 17,418 | | | — | | | 17,418 | |
| Cash and Cash Equivalents – Beginning | | 2,989 | | | — | | | 2,989 | |
| Cash and Cash Equivalents – Ending | | $ | 20,407 | | | $ | — | | | $ | 20,407 | |
| | | | | | |
| Supplementary Cash Flow Information: | | | | | | |
| Income taxes paid, net of refunds | | $ | 3,124 | | | $ | — | | | $ | 3,124 | |
| Interest paid | | $ | 178 | | | $ | — | | | $ | 178 | |
| Noncash Operating, Investing and Financing Activities: | | | | | | |
Shares issued to settle Megalith accounts payable in connection with Recapitalization transaction4 | | $ | — | | | $ | 740 | | | $ | 740 | |
| Share-based compensation expense recorded as capital contribution from Partner Bank | | $ | — | | | $ | — | | | $ | — | |
1In order to restate the previously reported net Payable to Partner Bank balance on a gross basis.
2In order to restate for the adjustments related to share-based compensation expense.
3In order to restate the previously reported out of period adjustments in the correct period.
4In order to present the non-cash impact related to shares issued to settle Megalith accounts payable in connection with Recapitalization transaction.