bmtx-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-38633

BM Technologies, Inc.

(Exact name of registrant as specified in its charter)


Delaware									82-3410369
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

201 King of Prussia Road, Suite 650
Wayne, Pennsylvania									19087
(Address of Principal Executive)									(Zip-Code)

(877) 327-9515

Registrant's telephone number, including area code

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BMTX	NYSE American LLC
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share	BMTX-WT	NYSE American LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, and emerging growth company in Rule 12b-2 of the Exchange Act.

Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had issued and outstanding 11,862,700 shares of common stock, par value $0.0001 per share, as of May 20, 2023.

Table of Contents


			Page
Part I - Financial Information			2
Item 1. Unaudited Consolidated Financial Statements			2
Consolidated Balance Sheets at March 31, 2023 and December 31, 2022			2
Consolidated Statements of (Loss) Income for the Three Months Ended March 31, 2023 and 2022			3
Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2023 and 2022			4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27

Part II - Other Information			28
Item 1A. Risk Factors			29
Item 5. Other Information			29
Item 6. Exhibits			29

Signatures			31

Part I - Financial Information

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

BM TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS — UNAUDITED

(amounts in thousands, except share and per share data)


	March 31, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	10,931	$	21,108
Accounts receivable, net allowance for doubtful accounts of $328 and $305	12,946		8,260
Prepaid expenses and other assets	10,465		9,076
Total current assets	34,342		38,444
Premises and equipment, net	530		508
Developed software, net	20,631		22,324
Goodwill	5,259		5,259
Other intangibles, net	4,349		4,429
Other assets	—		72
Total assets	$	65,111	$	71,036
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities	$	19,116	$	12,684
Deferred revenue	2,653		6,647
Total current liabilities	21,769		19,331
Non-current liabilities:

Liability for private warrants	1,406		2,847
Total liabilities	$	23,175	$	22,178
Commitments and contingencies (Note 7)
Shareholders’ equity:
Preferred stock: Par value $0.0001 per share; 10,000,000 shares authorized, none issued or outstanding at both March 31, 2023 and December 31, 2022	$	—	$	—
Common stock: Par value $0.0001 per share; 1 billion shares authorized; 11,861,510 shares issued and outstanding at March 31, 2023; 12,240,237 shares issued and outstanding at December 31, 2022	1		1
Additional paid-in capital	70,380		72,342
Accumulated deficit	(28,445)		(23,485)
Total shareholders’ equity	$	41,936	$	48,858
Total liabilities and shareholders’ equity	$	65,111	$	71,036

See accompanying notes to the unaudited consolidated financial statements.

BM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF (LOSS) INCOME — UNAUDITED

(amounts in thousands, except per share data)


	Three Months Ended March 31,
	2023		2022
Operating revenues:
Interchange and card revenue	$	3,079	$	6,643
Servicing fees	6,632		14,192
Account fees	2,140		2,555
University fees	1,506		1,603
Other revenue	127		54
Total operating revenues	13,484		25,047
Operating expenses:
Technology, communication, and processing	7,130		6,918
Salaries and employee benefits	6,425		9,482
Professional services	2,640		2,372
Provision for operating losses	1,677		1,602
Occupancy	102		307
Customer related supplies	228		230
Advertising and promotion	118		113
Restructuring, merger and acquisition related expenses	719		289
Other expense	820		771
Total operating expenses	19,859		22,084
(Loss) income from operations	(6,375)		2,963
Non-operating income and expense:
Gain on fair value of private warrant liability	1,421		2,644
(Loss) income before income tax expense	(4,954)		5,607
Income tax expense	6		1,643
Net (loss) income	$	(4,960)	$	3,964

Weighted average number of shares outstanding - basic	11,602		11,955
Weighted average number of shares outstanding - diluted	11,602		12,563

Basic (loss) earnings per common share	$	(0.43)	$	0.33
Diluted (loss) earnings per common share	$	(0.43)	$	0.32

See accompanying notes to the unaudited consolidated financial statements.

BM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

For the Three Months Ended March 31, 2023 and 2022

(amounts in thousands, except share data)


	Common Stock
	Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Accumulated Deficit		Total
Balance at December 31, 2022	12,240,237	$	1	$	72,342	$	(23,485)	$	48,858
Net loss	—	—		—		(4,960)		(4,960)
Conversion of private warrants to public warrants	—	—		20		—		20
Tax paid on behalf of employees related to net settlement of share-based awards	(473,874)	—		(2,429)		—		(2,429)
Share-based compensation expense	95,147	—		447		—		447
Balance at March 31, 2023	11,861,510	$	1	$	70,380	$	(28,445)	$	41,936


	Common Stock
	Shares of Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Total
Balance at December 31, 2021	12,193,378	$	1	$	60,686	$	(22,706)	$	37,981
Net income	—	—		—		3,964		3,964
Conversion of private warrants to public warrants	—	—		725		—		725
Tax paid on behalf of employees related to net settlement of share-based awards	(37,506)	—		(225)		—		(225)
Share-based compensation expense	90,075	—		2,919		—		2,919
Balance, March 31, 2022	12,245,947	$	1	$	64,105	$	(18,742)	$	45,364

See accompanying notes to the unaudited consolidated financial statements.

BM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


	Three Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities:
Net (loss) income	$	(4,960)	$	3,964
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation of premises and equipment	60		48
Amortization of developed software	2,990		2,944
Amortization of other intangible assets	80		80
Amortization of leased assets	—		178
Provision for bad debt	23		(46)
Share-based compensation expense	635		2,919
Gain on fair value of private warrant liability	(1,421)		(2,644)
Changes in operating assets and liabilities:
Accounts receivable	(4,709)		(959)
Prepaid expenses and other current assets	(1,389)		(490)
Other assets	72		(96)
Accounts payable and accrued liabilities	6,244		1,825
Taxes payable	—		1,330
Operating lease liabilities	—		(180)
Deferred revenue	(3,994)		317
Net Cash (used in) provided by Operating Activities	(6,369)		9,190
Cash Flows from Investing Activities:
Development of internal use software	(1,297)		(2,020)
Purchases of premises and equipment	(82)		(118)
Net Cash used in Investing Activities	(1,379)		(2,138)
Cash Flows from Financing Activities:
Repurchase of private warrants	—		(1,977)
Payments related to net settlement of share-based compensation awards	(2,429)		(225)
Net Cash used in Financing Activities	(2,429)		(2,202)
Net (Decrease) Increase in Cash and Cash Equivalents	(10,177)		4,850
Cash and Cash Equivalents – Beginning	21,108		25,704
Cash and Cash Equivalents – Ending	$	10,931	$	30,554

Supplementary Cash Flow Information:
Income taxes paid, net of refunds	$	7	$	—
Noncash Operating, Investing, and Financing Activities:
Conversion of private warrants to public warrants	$	20	$	725

See accompanying notes to the unaudited consolidated financial statements.

BM TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — 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.

BankMobile Technologies, Inc. (“BankMobile”) was incorporated in May 2016 as a wholly-owned subsidiary of Customers Bank. On August 6, 2020, the Company entered into an Agreement and Plan of Merger, by and among Megalith Financial Acquisition Corporation, a special purpose acquisition company (“Megalith”), incorporated in Delaware in November 2017, MFAC Merger Sub Inc., a wholly-owned subsidiary of Megalith, BankMobile Technologies, Inc., and Customers Bank, the sole stockholder of BankMobile. On January 4, 2021, BankMobile became an independent company after the completion of a divestiture transaction and was rebranded BM Technologies, Inc.

BMTX facilitates deposits and banking services between a customer and our partner bank, Customers Bank, a Pennsylvania state-chartered 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, Banking-as-a-Service (“BaaS”), and niche Direct to Consumer (“D2C”) banking businesses. BMTX has four primary revenue sources: interchange and card revenue, servicing fees, account fees, and university fees. The majority of revenues are driven by customer activity (deposits, spend, transactions, etc.) and may be paid or passed through by Customers Bank, universities, or paid directly by customers.

Customers Bank currently holds the FDIC insured deposits that BMTX sources and services and is the issuing bank on BMTX’s debit cards. Customers Bank pays the Company a servicing fee for the deposits generated and passes through interchange income earned from transactions on debit cards.

On November 7, 2022, the Company and Customers Bank amended the Deposit Processing Services Agreement (the “DPSA Amendment”). The DPSA Amendment, among other things, will facilitate the transfer of the Company’s serviced deposits to a new partner bank and extends the termination date of the Deposit Processing Services Agreement until the earlier of: (i) entry into a definitive agreement with a new partner bank to transfer the Company’s serviced deposits to such partner bank and the successful completion of such transfer; or (ii) June 30, 2023.

On March 22, 2023, the Company and Customers Bank entered into a second amendment to the Deposit Processing Services Agreement (the “DPSA Second Amendment”) for the Higher Education serviced deposit accounts. The DPSA Second Amendment, among other things, extends the termination date of the Deposit Processing Services Agreement until the earlier of (i) the transfer of the Company’s Higher Education serviced deposits to a Durbin-exempt sponsor bank; or (ii) June 30, 2024; and revises the fee structure of the Deposit Processing Services Agreement.

Also on March 22, 2023, the Company and Customers Bank entered a new agreement for the current BaaS serviced deposit accounts (the “2023 Deposit Servicing Agreement”), under which, effective March 31, 2023, the Company will perform, on behalf of Customers Bank, Customer Bank’s services, duties, and obligations by and between Customers Bank and T-Mobile USA, Inc. that are not required to be provided by an FDIC insured financial institution.

On March 16, 2023, the Company entered into a Deposit Servicing Agreement (the “FCB Deposit Servicing Agreement”) with a new partner bank, First Carolina Bank, a North Carolina chartered, non-member community bank (“FCB”), which provides that FCB will establish and maintain deposit accounts and other banking services in connection with customized products and services offered by the Company to its Higher Education institution clients, and the Company will provide certain other related services in connection with the accounts. The initial term of the FCB Deposit Servicing Agreement is for four years, is subject to regulatory approval, and will automatically renew for additional two-year terms unless either party gives written notice of non-renewal at least 120 days prior to the expiration of the then-current term. The FCB Deposit Servicing Agreement may be terminated early by either party upon material breach, by either party upon notice that the continuation of the Depositor Program violates Applicable Law or Network Rules (as defined in the FCB Deposit Servicing Agreement); by FCB if a regulatory authority determined that the performance of its obligations under the FCB Deposit Servicing Agreement was not consistent with safe and sound banking practices; by either party upon the other party commencing or being subject to certain bankruptcy proceedings; by the Company should it experience a change in control on or after March 16, 2026; and by either party should the required regulatory approvals not be obtained on or before July 15, 2023.

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 Department of Education (“ED”), due to its student disbursements business, and is periodically examined by it. BMTX’s contracts with most of its Higher Education institution 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 of the Higher Education Act of 1965; the Family Educational Rights and Privacy Act of 1995; 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. Other products and services offered by BMTX may also be subject to other federal and state laws and regulations.

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These interim unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Any reference to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted from these interim unaudited consolidated financial statements as permitted by U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). These interim unaudited consolidated 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 interim periods presented.

The preparation of interim unaudited consolidated 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 interim unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include valuation of deferred tax assets, valuation of private warrants, goodwill, and intangible asset impairment analysis. Actual results could differ from those estimates.

ASC 205-40, Presentation of Financial Statements - Going Concern, requires Management to assess an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. In each reporting period, including interim periods, an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date.

Management has performed this required assessment as of May 22, 2023 including consideration of the effect of the DPSA Second Amendment and the 2023 Deposit Servicing Agreement with Customers Bank, and believes there is sufficient funds available to support its ongoing business operations and continue as a going concern for at least the next 12 months with projected liquidity of $21.5 million at May 22, 2024.

Management’s assessment is subject to known and unknown risks, uncertainties, assumptions, and changes in circumstances, many of which are beyond our control including the impact of the macroeconomic environment, and that are difficult to predict as to timing, extent, likelihood, and degree of occurrence, and that could cause actual results to differ from estimates and forecasts, potentially materially.

Based upon the results of Management’s assessment, these interim unaudited consolidated financial statements have been prepared on a going concern basis. The interim unaudited consolidated financial statements do not include any adjustments that could result from the outcome of the aforementioned risks and uncertainties.

Significant Accounting Policies

These interim unaudited consolidated financial statements should be read in conjunction with the 2022 audited consolidated financial statements and related notes of BMTX, which describe BMTX’s significant accounting policies. There have been no material changes to BMTX’s significant accounting policies during the three months ended March 31, 2023 except as noted below.

Insurance Premium Finance Obligations

The Company includes the obligation for its insurance premium financing in Accounts payable and accrued liabilities on the interim unaudited Consolidated Balance Sheets. At March 31, 2023, the Company had two premium finance arrangements outstanding with balances totaling $1.1 million, average remaining installment payment terms of 8.5 months, and a weighted average annualized finance charge of 4.95%.

401(k) Plan

On January 3, 2023, the Company implemented the BM Technologies, Inc. 401(k) Plan (the “401(k) Plan”) for the benefit of BMTX’s eligible employees. The 401(k) Plan permits eligible employees to make voluntary contributions, up to a maximum of $63.5 thousand per year, subject to certain limitations. The Company offers a matching contribution equal to 50% of an eligible employee’s deferral election up to 3% of their annual salary. The Company records its contributions to the 401(k) Plan in Salaries and employee benefits on the unaudited Consolidated Statements of (Loss) Income. The Company’s employer contribution to the 401(k) Plan for the three months ended March 31, 2023 totaled $0.2 million.

Accounting Standards Update

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised ASUs applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act.

From time to time, new accounting pronouncements are issued by the FASB that are adopted by BMTX as of the required effective dates. During the quarter ended March 31, 2023 there were no ASUs adopted by the Company that were considered material and there were no ASUs issued prior to March 31, 2023, which were not yet effective, considered relevant or material to the Company’s financial statements taken as a whole.

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable, net primarily relate to billings for deposit processing services to Customers Bank, MasterCard incentive income, uncollected university subscription and disbursement services fees, and receivables from our BaaS partners, 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 $0.3 million at March 31, 2023 and $0.3 million at December 31, 2022.


(amounts in thousands)	Beginning Balance		Additions		Reductions		Ending Balance
Allowance for doubtful accounts
Three months ended March 31, 2023	$	305	$	115	$	(92)	$	328
Twelve months ended December 31, 2022	$	79	$	381	$	(155)	$	305

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	March 31, 2023		December 31, 2022

IT equipment	3 to 5 years	$	1,459	$	1,377

Accumulated depreciation		(929)		(869)
Total		$	530	$	508

Depreciation is recorded in Occupancy expense on the unaudited Consolidated Statements of (Loss) Income. For the three months ended March 31, 2023 and 2022, BMTX recorded depreciation expense of less than $0.1 million, respectively.

Impairment is recorded in Occupancy expense on the unaudited Consolidated Statements of (Loss) Income. For the three months ended March 31, 2023 and 2022, BMTX recorded no impairment expense.

Developed Software

The components of developed software were as follows:


(amounts in thousands)	Expected Useful Life	March 31, 2023		December 31, 2022
Higher One Disbursement business developed software	10 years	$	27,400	$	27,400
Internally developed software	3 to 7 years	43,872		42,504
Work-in-process		3,006		3,077
		74,278		72,981
Accumulated amortization		(53,647)		(50,657)
Total		$	20,631	$	22,324

Amortization is recorded in Technology, communication and processing expense on the unaudited Consolidated Statements of (Loss) Income. BMTX recorded amortization expense of $3.0 million and $2.9 million for the three months ended March 31, 2023 and 2022, respectively.

Impairment is recorded in Technology, communication and processing expense on the unaudited Consolidated Statements of (Loss) Income. For the three months ended March 31, 2023 and 2022, BMTX recorded no impairment expense.

NOTE 5 — 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 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 three months ended March 31, 2023 and 2022.

Other intangibles, net, includes assets subject to amortization that are reviewed for impairment under FASB ASC 360, Property, Plant and Equipment. There was no impairment for Other intangibles, net, for the three months ended March 31, 2023 and 2022.

The components of Other intangibles, net as of March 31, 2023 and December 31, 2022 were as follows:


(amounts in thousands)	Expected Useful Life	March 31, 2023		December 31, 2022
Customer relationships – universities	20 years	$	6,402	$	6,402
Accumulated amortization		(2,053)		(1,973)
Total		$	4,349	$	4,429

Amortization is recorded in Other expense on the unaudited Consolidated Statements of (Loss) Income. BMTX recorded amortization expense of $0.1 million for the three months ended March 31, 2023 and 2022, respectively.

The customer relationships - universities will be amortized in future periods as follows:


Remainder of 2023		$	240
2024		320
2025		320
2026		320
2027	320	320
After 2027		2,829
Total		$	4,349

NOTE 6 — LEASES

At January 1, 2022, BMTX leased two offices under operating leases. On March 31, 2022, one of the two office leases matured, and we exited our New Haven, CT office facility. On September 30, 2022, the second office lease matured at our Wayne, PA office. On October 1, 2022, the Company entered into a 3-month short-term lease extension for this office under substantially identical terms and conditions as the original lease. At December 31, 2022, the 3-month short-term lease extension expired and was not renewed. The Company’s corporate headquarters is currently operating under a month-to-month short-term lease arrangement.

At March 31, 2023 and December 31, 2022, the Company had no operating lease right-of-use assets and operating lease liabilities outstanding.

Operating lease expenses are recorded in Occupancy on the unaudited Consolidated Statements of (Loss) Income. BMTX recorded lease expense of less than $0.1 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.

Cash paid pursuant to operating lease liabilities totaled zero and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. These cash payments are reported as a component of cash flows (used in) provided by operating activities on the unaudited Consolidated Statements of Cash Flows.

NOTE 7 — 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 interim unaudited consolidated 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 8 — SHAREHOLDERS’ EQUITY AND PRIVATE WARRANT LIABILITY

Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock, par value $0.0001 per share. At March 31, 2023, there were 11,861,510 shares of common stock issued and outstanding, which includes the 300,000 performance shares discussed below. At December 31, 2022 there were 12,240,237 shares of common stock issued and outstanding which includes the 300,000 performance shares discussed below.

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.

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 March 31, 2023 and December 31, 2022, there were no shares of preferred stock issued or outstanding.

Performance Shares

The Company has 300,000 common shares, par value $0.0001 per share, issued and outstanding that contain a restrictive legend, subject to release only if the vesting criteria are met before the seventh anniversary of the closing date of the merger with Megalith. If the vesting criteria are not met prior to the seventh anniversary of the closing date of the merger, the shares will be forfeited and cancelled. The vesting criteria are met when 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 criteria for the performance shares have been met and no expense has been recognized.

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 was 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, was recorded as share-based compensation expense on the unaudited Consolidated Statements of (Loss) Income on a straight-line basis over the two-year post-grant vesting period, net of any actual forfeitures. The shares awarded were restricted until fully vested. The holders of restricted shares were provided an option to surrender a portion of their shares on the vesting date to cover their income tax obligations. On January 3, 2023, all restricted shares, net of prior forfeitures, vested.

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, 2022	1,168,146	$	14.87
Vested	(749,854)	$	14.87
Net settlement of share-based awards for taxes	(418,292)	$	14.87
Balance as of March 31, 2023	—	$	—

BMTX recorded share-based compensation expense related to these awards of $0.1 million and $2.3 million for the three months ended March 31, 2023 and 2022, respectively.

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.

The aggregate number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan will not, and currently does not, exceed 10% of the issued and outstanding shares of our common stock on January 4, 2021 (1,220,037 shares). Grants were made under the Equity Incentive Plan during the three months ended March 31, 2023 as described within Restricted Stock Units and Performance - Based Restricted Stock Units below.

Restricted Stock Units

Restricted Stock Units (“RSUs”) granted under the Equity Incentive Plan generally vest in three or four equal installments on each anniversary of the grant date. The RSUs that have been granted are all paid in stock upon vesting, and are thus classified as equity awards, which are measured using the grant date fair value of BMTX common stock and are not remeasured at the end of each reporting period. We recognize compensation cost starting from the grant date on a straight-line basis over the required vesting period in accordance with ASC 718. We account for forfeitures as they occur and reverse any previously recognized compensation expense related to forfeited awards.

Performance - Based Restricted Stock Units

Performance - Based Restricted Stock Units (“PBRSUs”) granted under the Equity Incentive Plan currently vest upon the later of: a) the third year of employment following the grant date or b) the achievement of the specified performance goals within the fifth year of the grant date. As defined by the Equity Incentive Plan, the Compensation Committee of the Board of Directors determines the number of PBRSUs a participant earns based on the extent to which the corresponding performance goals have been achieved over the five-year performance cycle. The PBRSUs that have been granted are paid in stock upon vesting, and are thus classified as equity awards, which are measured using the grant date fair value of BMTX common stock and are not remeasured at the end of each reporting period. We account for forfeitures as they occur and reverse any previously recognized compensation expense related to forfeited awards.

For PBRSUs with milestones, upon the grant date, and at each subsequent reporting period, we reassess whether it is probable that we will achieve each operational milestone, and if so, the period when we expect to achieve that operational milestone. If upon the grant date, we 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. If upon the grant date, achievement of the operational milestone is not probable, we do not recognize compensation expense. If after the grant date, we determine achievement of an operational milestone becomes probable, we will allocate the full share-based compensation expense over the period between the grant date and the expected vesting condition achievement date, and we will recognize a catch-up expense equal to the value of previously unrecognized expense from the grant date to the vesting condition achievement date.

For PBRSUs with a market condition, we used a Monte Carlo simulation to determine the fair value on the grant date and recognize the share-based compensation expense over the derived service period.

The change in unvested RSUs and PBRSUs awarded is shown below:


	Restricted Stock Units			Performance-Based Restricted Stock Units
	Number of RSUs	Weighted-Average Grant-Date Fair Value Per RSU		Number of RSUs	Weighted-Average Grant-Date Fair Value Per RSU
Balance as of December 31, 2022	324,790	$	8.84	335,000	$	7.09
Granted	206,000	$	3.52	205,000	$	2.94
Vested	(95,147)	$	8.93	—	$	—
Forfeited	(35,564)	$	8.61	(45,000)	$	7.09
Balance as of March 31, 2023	400,079	$	5.88	495,000	$	5.37

For the three months ended March 31, 2023 and 2022, the share-based compensation expense related to the RSU awards totaled $0.3 million and $0.3 million, respectively.

For the three months ended March 31, 2023 and 2022, the share-based compensation expense related to the PBRSU awards totaled $0.2 million and $0.3 million, respectively.

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 ESPP 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 March 31, 2023, there have been no shares purchased on behalf of employees under the ESPP, as the program has not yet been made available for employee participation.

Warrants

At March 31, 2023 and 2022, respectively, there were 22,703,004 warrants to purchase our common stock outstanding. The warrant totals for each period-end consist of 17,294,044 and 17,227,289 public warrants and 5,408,960 and 5,475,815 private warrants as of March 31, 2023 and 2022, respectively.

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 with Megalith (January 4, 2026) or earlier upon redemption or liquidation; 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 other original holders.

As of March 31, 2023, 1,600 of the Company’s outstanding public warrants have been exercised and 1,169,903 of the private warrants have been repurchased by the Company from related parties at $1.69 per warrant. During the three months ended March 31, 2023 and March 31, 2022, 66,855 and 300,000 of the private warrants have been reclassified to public warrants based upon a sale of the private warrants by the original holders which resulted in a modification of terms that effect classification as public warrants.

The private warrants and the public warrants are treated differently for accounting purposes, as follows:

Private Warrants

In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, the private warrants are accounted for as liabilities and are 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 private warrant liability increases, and we recognize additional expense on the unaudited Consolidated Statements of (Loss) Income – 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.

Income Statement Impact: Subsequent to the close of the merger, any change in fair value of the private warrants is recognized on the unaudited Consolidated Statements of (Loss) Income below operating profit as Gain on fair value of private warrant liability with a corresponding amount recognized in the Liability for private warrants on the unaudited Consolidated Balance Sheets. For the three months ended March 31, 2023 and 2022, we recorded a gain of $1.4 million and $2.6 million, respectively, resulting from the revaluation of the private warrants.

Balance Sheet Impact: The private warrant liability is presented in the account Liability for private warrants

SEC Form 10-Q filed by BM Technologies Inc.