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 September 30, 2018 OR

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

For the transition period from                     to __________

Commission File No. 001-37986

INTERNATIONAL MONEY EXPRESS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
47-4219082
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

9480 South Dixie Highway
Miami, Florida
 
 
33156
(Address of Principal Executive Offices)
 
(Zip Code)

(305) 671-8000
(Registrant’s telephone number, including area code)

FINTECH ACQUISITION CORP. II, 2929 Arch Street, Suite 1703, Philadelphia, PA 19104
(Former name, former address and former fiscal year, if changed since last report)

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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
☐     Large accelerated filer
☐     Accelerated filer
 
☒     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. ☐

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

As of November 9, 2018, there were 36,182,783 shares of the registrant’s common stock, $0.0001 par value per share, outstanding. The registrant has no other class of common stock outstanding.



INTERNATIONAL MONEY EXPRESS, INC.
INDEX TO FINANCIAL STATEMENTS

   
Page
     
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

   
PART 1 - FINANCIAL INFORMATION
 
     
Item 1.
1
     
  1
     
  2
     
  3
     
  4
     
  6
     
Item 2.
19
     
Item 3.
33
     
Item 4.
34
     
PART II - OTHER INFORMATION
 
     
Item 1.
35
     
Item 1A.
35
     
Item 2.
35
     
Item 3.
35
     
Item 4.
35
     
Item 5.
35
     
Item 6.
35
     
 37


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that reflect our current views with respect to future events and financial performance, business strategies, expectations for our business and the business of the Company and any other statements of a future or forward-looking nature, constitute “forward-looking statements” for the purposes of federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “will,” “approximately,” “shall” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, the future financial performance of the Company.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. We cannot assure you that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to:


·
the ability to maintain the listing of our common stock on Nasdaq;

·
the ability to recognize the anticipated benefits of the Merger, which may be affected by, among other things, competition, and the ability of the combined business to grow and manage growth profitably;

·
changes in applicable laws or regulations;

·
the possibility that we may be adversely affected by other economic, business and/or competitive factors;

·
factors relating to our business, operations and financial performance, including:

o
competition in the markets in which we operate;

o
our ability to maintain agent relationships on terms consistent with those currently in place;

o
our ability to maintain banking relationships necessary for us to conduct our business;

o
credit risks from our agents and the financial institutions with which we do business;

o
bank failures, sustained financial illiquidity, or illiquidity at our clearing, cash management or custodial financial institutions;

o
new technology or competitors that disrupt the current ecosystem;

o
cyber-attacks or disruptions to our information technology, computer network systems and data centers;

o
our success in developing and introducing new products, services and infrastructure;

o
customer confidence in our brand and in consumer money transfers generally;

o
our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;

o
international political factors or implementation of tariffs, border taxes or restrictions on remittances or transfers of money out of the United States;

o
changes in tax laws and unfavorable outcomes of tax positions we take;

o
political instability, currency restrictions and devaluation in countries in which we operate or plan to operate;

o
weakness in U.S. or international economic conditions;

o
change or disruption in international migration patterns;

o
our ability to protect our brand and intellectual property rights;

o
our ability to retain key personnel;

o
changes in foreign exchange rates could impact consumer remittance activity; and

·
other economic, business and/or competitive factors, risks and uncertainties, including those described in the section entitled “Risk Factors” in the prospectus, dated October 25, 2018, filed pursuant to Rule 424(b)(3), as may be updated by the other documents that we file with the Securities and Exchange Commission.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

PART 1 – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
Successor Company
 
     
September 30,
2018
     
December 31,
2017
  
ASSETS
           
Current assets:
           
Cash
 
$
82,490,398
   
$
59,155,618
 
Accounts receivable, net of allowance of $340,178 and $307,562, respectively
   
80,923,807
     
51,374,377
 
Prepaid wires
   
5,119,778
     
7,675,491
 
Other prepaid expenses and current assets
   
3,472,124
     
900,386
 
Total current assets
   
172,006,107
     
119,105,872
 
                 
Property and equipment, net
   
9,525,295
     
8,490,794
 
Goodwill
   
36,259,666
     
36,259,666
 
Intangible assets, net
   
39,389,769
     
48,741,032
 
Deferred tax asset, net
   
-
     
1,748,854
 
Other assets
   
639,119
     
1,706,693
 
Total assets
  $
 257,819,956
    $
 216,052,911
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Current portion of long-term debt, net
 
$
4,078,627
   
$
3,913,436
 
Accounts payable
   
14,060,179
     
8,919,796
 
Wire transfers and money orders payable
   
78,152,404
     
48,276,649
 
Accrued and other
   
14,018,061
     
11,514,449
 
Total current liabilities
   
110,309,271
     
72,624,330
 
                 
Long term liabilities:
               
Deferred tax liability, net
   
5,157,019
     
-
 
Debt, net
   
104,423,502
     
107,526,462
 
Total long term liabilities
   
109,580,521
     
107,526,462
 
                 
Commitments and contingencies, see Note 11
               
                 
Stockholders' equity:
               
Common stock $0.0001 par value; 200,000,000 shares authorized, 36,182,783 and 17,227,682 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
   
3,619
     
1,723
 
Additional paid-in capital
   
60,203,431
     
46,076,220
 
Accumulated deficit
   
(22,281,866
)
   
(10,173,453
)
Accumulated other comprehensive income (loss)
   
4,980
     
(2,371
)
Total stockholders' equity
   
37,930,164
     
35,902,119
 
Total liabilities and stockholders' equity
  $
257,819,956
    $
216,052,911
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

   
Successor Company
   
Predecessor
Company
 
 

Three Months Ended
September 30,


Nine
Months Ended
September 30,
2018


Period from
February 1, 2017
to September 30,
2017


Period from
January 1, 2017
to January 31,
2017

 
 
   
2018
   
2017
   
(Unaudited)
       
Revenues:
                             
Wire transfer and money order fees
  $
  61,331,837
    $
 47,642,153
    $
  168,554,175
   
$
119,226,787
    $
    11,876,919
 
Foreign exchange
   
10,697,168
     
8,413,051
     
29,013,221
     
21,690,233
     
2,449,709
 
Other income
   
479,461
     
338,090
     
1,276,494
     
854,102
     
98,715
 
Total revenues
   
72,508,466
     
56,393,294
     
198,843,890
     
141,771,122
     
14,425,343
 
                                         
Operating expenses:
                                       
Service charges from agents and banks
   
48,305,007
     
37,846,027
     
132,564,938
     
94,607,887
     
9,440,774
 
Salaries and benefits
   
10,959,507
     
5,983,784
     
24,632,910
     
16,395,185
     
4,530,308
 
Other selling, general and administrative expenses
   
5,206,932
     
4,163,419
     
13,390,449
     
10,400,190
     
1,063,379
 
Transaction costs
   
6,304,972
     
-
     
10,319,283
     
6,212,602
     
3,917,188
 
Depreciation and amortization
   
4,142,139
     
4,553,042
     
11,749,513
     
12,056,986
     
381,746
 
Total operating expenses
   
74,918,557
     
52,546,272
     
192,657,093
     
139,672,850
     
19,333,395
 
                                         
Operating (loss) income
   
(2,410,091
)
   
3,847,022
     
6,186,797
     
2,098,272
     
(4,908,052
)
                                         
Interest expense
   
3,433,731
     
4,612,430
     
10,109,664
     
8,107,258
     
613,742
 
                                         
Loss before income taxes
   
(5,843,822
)
   
(765,408
)
   
(3,922,867
)
   
(6,008,986
)
   
(5,521,794
)
                                         
Income tax provision (benefit)
   
7,569,174
     
(191,727
)
   
8,185,546
     
1,052,479
     
(2,203,373
)
                                         
Net loss
   
(13,412,996
)
   
(573,681
)
   
(12,108,413
)
   
(7,061,465
)
   
(3,318,421
)
                                         
Other comprehensive income (loss)
   
22,452
     
3,859
     
7,351
     
18,990
     
(2,453
)
                                         
Comprehensive loss
  $
 (13,390,544
)
 
$
(569,822
)
  $
   (12,101,062
)
 
$
(7,042,475
)
 
$
(3,320,874
)
                                         
Loss per common share:
                                       
Basic and diluted
 
$
(0.43
)
 
$
(0.03
)
 
$
(0.55
)
 
$
(0.41
)
       
                                         
Weighted-average common shares outstanding:
                                       
Basic and diluted
   
30,975,338
     
17,227,682
     
21,827,082
     
17,227,682
         

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

    
Common Stock
       
Additional
Paid-in Capital
         
Accumulated
Deficit
       
Accumulated Other
Comprehensive
Income (Loss)
       
Total
Stockholders'
Equity
   
 
   
Shares
   
Amount
   
Balance, December 31, 2017
   
17,227,682
   
$
1,723
   
$
46,076,220
   
$
(10,173,453
)
 
$
(2,371
)
 
$
35,902,119
 
Net equity infusion from reverse recapitalization
   
18,955,101
     
1,896
     
8,961,625
     
-
     
-
     
8,963,521
 
Share-based compensation
   
-
     
-
     
5,165,586
     
-
     
-
     
5,165,586
 
Adjustment from foreign currency translation, net
   
-
     
-
     
-
     
-
     
7,351
     
7,351
 
Net loss
   
-
     
-
     
-
     
(12,108,413
)
   
-
     
(12,108,413
)
Balance, September 30, 2018
   
36,182,783
   
$
3,619
   
$
60,203,431
   
$
(22,281,866
)
 
$
4,980
   
$
37,930,164
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

     
Successor Company
     
Predecessor
Company
  

    
Nine
Months Ended
September 30,
2018
         
Period from
February 1, 2017
to September 30,
2017
         
Period from
January 1, 2017
to January 31,
2017
 
 
 
 
   
(Unaudited)
       
Cash flows from operating activities:
                 
Net loss
 
$
(12,108,413
)
 
$
(7,061,465
)
 
$
(3,318,421
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                       
Depreciation and amortization
   
11,749,513
     
12,056,986
     
381,746
 
Share-based compensation
   
5,165,586
     
1,534,655
     
2,916,324
 
Provision for bad debts
   
743,285
     
813,641
     
83,695
 
Debt origination costs amortization
   
699,731
     
125,053
     
39,298
 
Deferred taxes
   
6,905,873
     
903,181
     
(2,214,351
)
Loss on disposal of property and equipment
   
151,724
     
86,351
     
13,472
 
Total adjustments
   
25,415,712
     
15,519,867
     
1,220,184
 
Changes in operating assets and liabilities:
                       
Accounts receivable
   
(30,285,672
)
   
(26,826,448
)
   
3,612,332
 
Prepaid wires
   
2,784,622
     
(2,402,576
)
   
7,848,641
 
Other prepaid expenses and assets
   
(1,427,760
)
   
(1,706,487
)
   
70,927
 
Wire transfers and money orders payables
   
29,639,809
     
13,100,915
     
(1,884,922
)
Accounts payable and accrued other
   
16,497,269
     
(1,458,882
)
   
1,103,326
 
Net cash provided by (used in) operating activities
   
30,515,567
     
(10,835,076
)
   
8,652,067
 
                         
Cash flows from investing activities:
                       
Purchases of property and equipment
   
(3,575,065
)
   
(3,095,230
)
   
(249,382
)
Net cash used in acquisition
   
-
     
(923,654
)
   
-
 
Net cash used in investing activities
   
(3,575,065
)
   
(4,018,884
)
   
(249,382
)
                         
Cash flows from financing activities:
                       
Borrowings under term loan
   
-
     
102,000,000
     
-
 
Proceeds from reverse recapitalization
   
101,663,573
     
-
     
-
 
Cash consideration to Intermex shareholders
   
(101,658,947
)
   
-
     
-
 
Borrowings (Repayments) under revolving loan, net
   
-
     
12,000,000
     
(2,000,000
)
Repayment of term loan
   
(3,637,500
)
   
(75,000,000
)
   
-
 
Debt origination costs
   
-
     
(4,682,830
)
   
-
 
Common dividend distributions
   
-
     
(20,000,000
)
   
-
 
Net cash (used in) provided by financing activities
   
(3,632,874
)
   
14,317,170
     
(2,000,000
)
                         
Effect of exchange rate changes on cash
   
27,152
     
405,922
     
(15,196
)
                         
Net increase (decrease) in cash and restricted cash
   
23,334,780
     
(130,868
)
   
6,387,489
 
                         
Cash and restricted cash, beginning of the period
   
59,795,280
     
44,628,247
     
38,240,758
 
                         
Cash and restricted cash, end of the period
 
$
83,130,060
   
$
44,497,379
   
$
44,628,247
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

INTERNATIONAL MONEY EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

     
Successor Company
     
Predecessor
Company
  
         
Nine
Months Ended
September 30,
2018
      
Period from
February 1, 2017
to September 30,
2017
         
Period from
January 1, 2017
to January 31,
2017
    
 
 
 
   
(Unaudited)
       
Supplemental disclosure of cash flow information:
                 
Cash paid for interest
 
$
9,409,516
   
$
8,556,649
   
$
658,888
 
Cash paid for income taxes
   
1,494,900
     
400,000
     
-
 
                         
Supplemental disclosure of non-cash financing activity:
                       
Agent business acquired in exchange for receivables
   
-
     
639,688
     
-
 
Intermex transaction accruals settled by acquisition proceeds
     9,062,769       -       -  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - BUSINESS AND ACCOUNTING POLICIES

On July 26, 2018 (the “Closing Date”), International Money Express, Inc. (formerly FinTech Acquisition Corp. II) consummated the previously announced transaction (the “Merger”) by and among FinTech Acquisition Corp. II, a Delaware corporation (“FinTech”), FinTech II Merger Sub Inc., a wholly-owned subsidiary of FinTech (“Merger Sub 1”), FinTech II Merger Sub 2 LLC, a wholly-owned subsidiary of FinTech (“Merger Sub 2”), Intermex Holdings II, Inc. (“Intermex”) and SPC Intermex Representative LLC (“SPC Intermex”)(See Note 2). As a result of the Merger, the separate corporate existence of Intermex ceased and Merger Sub 2 (which changed its name to International Money Express Sub 2, LLC in connection with the closing of the Merger) continued as the surviving entity. In connection with the closing of the Merger, FinTech changed its name to International Money Express, Inc. (the “Company”). Unless the context below otherwise provides, the “Company” refers to the combined company following the Merger and, together with their respective subsidiaries, “FinTech” refers to the registrant prior to the closing of the Merger and “Intermex” refers to Intermex Holdings II, Inc. prior to the closing of Merger.

The condensed consolidated financial statements of the Company include Intermex, its wholly-owned indirect subsidiary, Intermex Wire Transfer, LLC (“LLC”), Intermex Wire Transfers de Guatemala, S.A. (“Guatemala”) - 99.8% owned by LLC, Intermex Wire Transfer de Mexico, S.A. and Intermex Transfers de Mexico, S.A. (“Mexico”) - 98% owned by LLC, Intermex Wire Transfer Corp. - 100% owned by LLC and Intermex Wire Transfer II, LLC - 100% owned by LLC.

The Merger has been accounted for as a reverse recapitalization where FinTech was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the facts that following the Merger, the former stockholders of Intermex control the majority of the voting rights in respect of the board of directors of the Company, Intermex comprising the ongoing operations of the Company and Intermex’s senior management comprising the senior management of the Company. Accordingly, the Merger is treated as the equivalent of Intermex issuing stock for the net assets of FinTech, accompanied by a recapitalization. The net assets of FinTech are stated at historical cost, with no goodwill or other intangible assets resulting from the Merger. The consolidated assets, liabilities and results of operations prior to the Closing Date of the Merger are those of Intermex, and FinTech’s assets, liabilities and results of operations are consolidated with Intermex beginning on the Closing Date. The shares and corresponding capital amounts included in common stock and additional paid-in capital, pre-merger, have been retroactively restated as shares reflecting the exchange ratio in the Merger for all Successor periods. The historical financial information and operating results of FinTech prior to the Merger have not been separately presented in these consolidated financial statements as they were not significant or meaningful.

Stella Point Capital, LLC (“Stella Point”) acquired a majority interest in Intermex on February 1, 2017 as discussed in further detail in Note 2. In connection with the acquisition of Intermex by Stella Point, the Company applied “push-down” accounting and the assets and liabilities were adjusted to fair value on the closing date of the transaction, February 1, 2017. As a result, the Company's condensed consolidated financial statement presentation distinguishes between a predecessor period ("Predecessor") for periods prior to the transaction, and a successor period ("Successor"), for periods subsequent to the transaction.

The Company operates as a money transmitter, primarily between the United States of America (“U.S.”) and Mexico, Guatemala and other countries in Latin America through a network of authorized agents located in various unaffiliated retail establishments throughout the U.S.

6

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

All significant inter-company balances and transactions have been eliminated from the condensed consolidated financial statements. The condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain reclassifications have been made to prior-year amounts in the consolidated statements of operations and comprehensive loss to conform to current-year reporting classifications. Principally, certain employee benefits that were classified as other selling, general and administrative expenses are now presented within salaries and benefits. The reclassifications had no impact on operating (loss) income or net loss.

The Company’s interim condensed consolidated financial statements and related notes are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. Certain information and footnote disclosures required by GAAP have been condensed or omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and related notes of Intermex Holdings, Inc. (“Holdings”) for the fiscal year ended December 31, 2017 (“Audited Financial Statements”) disclosed in the prospectus, dated October 25, 2018, filed pursuant to Rule 424(b)(3), starting on page F-14. Holdings is an indirect wholly owned subsidiary of the Company and has no operations of its own, other than its ownership of its subsidiaries.

Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued amended guidance, Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents in the condensed consolidated statements of cash flows. The Company adopted this guidance in the first quarter of 2018 using a retrospective transition method for each period presented. Cash and restricted cash included $639,662 of restricted cash for all beginning and ending periods presented in the condensed consolidated statements of cash flows, which is included in other prepaid expenses and current assets, and other assets in the Company’s condensed consolidated balance sheets at September 30, 2018 and December 31, 2017, respectively. The restricted cash was deposited with a U.S. bank as cash collateral for an irrevocable stand-by letter of credit issued as collateral for the operating lease of the Company’s headquarters. This lease was renegotiated in April 2018, and accordingly, the letter of credit is no longer required; the Company expects to collect these funds in the fourth quarter of 2018.

The FASB issued guidance, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this guidance in the first quarter of 2018 and the impact of this adoption did not have a material impact on the Company’s condensed consolidated financial statements.

The FASB issued guidance, Revenue from Contracts with Customers, which amended the existing accounting standards for revenue recognition. The new guidance establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. This guidance is required to be adopted by the Company in the first quarter of 2019 and can be applied using either a retrospective or a modified retrospective approach. Based on our assessment of the new standard, we have determined the vast majority of our revenues include only one performance obligation, which is to collect the consumer's money and make funds available for payment, generally on the same day, to a designated recipient in the currency requested. Accordingly, management believes this standard will not have a material impact on the Company’s financial statements and expects to adopt this standard using the modified retrospective approach, with the cumulative effect of adoption, if any, included in accumulated deficit as of January 1, 2019. However, management is continuing to assess the requirements of the new revenue guidance, including enhanced disclosures and reporting requirements.

7

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The FASB issued amended guidance, Business Combinations - Clarifying the Definition of a Business, which assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is required to be adopted by the Company in the first quarter of 2019 on a prospective basis, and the Company does not believe it will have a material impact on the consolidated financial statements.

The FASB issued guidance, Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. The guidance requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. This guidance is required to be adopted by the Company in the first quarter of 2020 and must be applied using a modified retrospective approach. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements.

The FASB issued amended guidance, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the consolidated statements of cash flows. The amendments are aimed at reducing the existing diversity in practice. This guidance is required to be adopted by the Company in the first quarter of 2019 and must be applied using a retrospective approach for each period presented. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

The FASB issued amended guidance, Intangibles – Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment. The amended standard simplifies how an entity tests goodwill by eliminating Step 2 of the goodwill impairment test related to measuring an impairment charge. Instead, impairment will be recorded for the amount that the carrying amount of a reporting unit exceeds its fair value. This new guidance is effective for the Company beginning in in the first quarter of 2021. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

The FASB issued guidance, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, regarding the measurement of credit losses for certain financial instruments. The new standard replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company currently is required to adopt the new standard in the first quarter of 2021. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements.

NOTE 2 – FINTECH MERGER AND STELLA POINT ACQUISITION

FinTech Merger

As discussed in Note 1, on July 26, 2018, Intermex and FinTech consummated the Merger, which has been accounted for as a reverse recapitalization. Immediately prior to the Merger, FinTech’s shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 4,938,232 shares of FinTech for gross redemption payments of $49,808,935. Subsequent to this redemption, there were 18,955,101 outstanding shares. The aggregate consideration paid in the Merger by FinTech to the Intermex shareholders consisted of approximately (i) $102.0 million in cash and (ii) 17.2 million shares of FinTech common stock. In accounting for the reverse recapitalization, the net cash proceeds received from FinTech amounted to $4,626 as shown in the table below:

8

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Cash balance available to Intermex prior to the consummation of the Merger
 
$
110,726,342
 
Less:
       
Intermex Merger costs paid from acquisition proceeds at closing
   
(9,062,769
)
Cash consideration to Intermex shareholders
   
(101,658,947
)
Net cash proceeds from reverse recapitalization
 
$
4,626
 
         
Cash balance available to Intermex prior to the consummation of the Merger
 
$
110,726,342
 
Less:
       
Cash consideration to Intermex shareholders
   
(101,658,947
)
Other FinTech assets acquired and liabilities assumed in the Merger:
       
Prepaid expenses
   
76,478
 
Accrued liabilities
   
(180,352
)
Net equity infusion from FinTech
 
$
8,963,521
 


Cash consideration to Intermex shareholders includes the payout of all vested Incentive Units issued to employees of the Company as discussed in Note 8.

After the completion of the Merger on July 26, 2018, there were 36,182,783 shares of International Money Express, Inc. common stock outstanding, warrants to purchase 8,959,999 shares of common stock and 3,371,389 shares reserved for issuance under the International Money Express, Inc. 2018 Omnibus Equity Compensation Plan (See Note 8).

Acquisition by Stella Point

On February 1, 2016, Intermex and its majority owner at the time, Lindsay Goldberg LLC, entered into an agreement with Stella Point, acquirer, for the sale of Intermex. This acquisition was accounted for as a business combination and became effective on February 1, 2017 for a transaction price of $52,000,000 in cash, plus $12,410,000 of rollover equity from certain existing management holders, the assumption of approximately $78,000,000 of Intermex’s outstanding debt and an additional funding of $5,000,000 of Intermex debt. There was no contingent consideration in the transaction. As a result, Stella Point acquired 80.7% of the voting equity interest in Intermex and other minority stockholders acquired the remaining interest, none individually greater than 10%. The purchase price in excess of the fair value of acquired assets was accounted for as goodwill, as discussed further below.

9

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Net Assets Acquired

The acquisition method for a business combination requires that the assets acquired and liabilities assumed be recognized at their allocated fair values as of the February 1, 2017 acquisition date, which is summarized below:

    
Successor
Company
  
Cash
 
$
43,064,931
 
Accounts receivables
   
24,031,575
 
Prepaid and other current assets
   
3,712,848
 
Property and equipment
   
6,328,146
 
Other assets
   
1,345,562
 
Total tangible assets acquired
   
78,483,062
 
Intangible assets acquired
   
62,660,000
 
Deferred tax asset, net
   
2,118,801
 
Less: Liabilities assumed
   
(115,111,529
)
Net assets
   
28,150,334
 
         
Goodwill
   
36,259,666
 
Total purchase price
 
$
64,410,000
 

The intangible assets acquired consist primarily of a trade name, agent relationships and developed technology. The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is attributable to the workforce and reputation of Intermex. The accounting for this business combination has been completed, therefore the measurement period is closed. Goodwill was not deductible for income tax purposes.

Transaction Costs

Direct costs related to the Merger and Stella Point acquisition were expensed as incurred and included as “transaction costs” in the condensed consolidated statements of operations and comprehensive loss. Transaction costs in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2018 amounted to $6,304,972 and $10,319,283, respectively, and related specifically to the Merger, while expenses of $6,212,602 for the Successor period from February 1, 2017 through September 30, 2017 and $3,917,188 for the Predecessor period from January 1, 2017 through January 31, 2017 relate to the Stella Point acquisition. Transaction costs include all internal and external costs directly related to the Merger and Stella Point acquisition, consisting primarily of legal, consulting, accounting, advisory and financing fees and certain incentive bonuses directly related to the Merger and Stella Point acquisition.

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and the majority of the other intangible assets on the condensed consolidated balance sheets of the Company were recognized upon the acquisition by Stella Point (see Note 2). Agent relationships, trade name and developed technology are all amortized over 15 years using an accelerated method that correlates with the projected realization of the benefit. Other intangibles primarily relate to the acquisition of certain agent locations, which are amortized straight line over 10 years. The determination of our other intangible fair values includes several assumptions that are subject to various risks and uncertainties. Management believes it has made reasonable estimates and judgments concerning these risks and uncertainties. A change in the conditions, circumstances or strategy of the Company may result in a need to recognize an impairment charge.

10

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents the changes in goodwill and other intangible assets:

   
Successor Company
 
   
Goodwill
   
Other Intangibles
 
Balance at December 31, 2017
 
$
36,259,666
   
$
48,741,032
 
Amortization expense
   
-
     
(9,351,263
)
Balance at September 30, 2018
 
$
36,259,666
   
$
39,389,769
 

NOTE 4 – ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities consisted of the following:

   
Successor Company
 
     
September 30,
2018
     
December 31,
2017
  
Payables to agents
 
$
8,302,004
   
$
6,875,416
 
Accrued compensation
   
1,542,822
     
1,092,460
 
Accrued bank charges
   
884,069
     
897,404
 
Accrued loyalty program rebates
   
840,039
     
164,581
 
Accrued audit and accounting fees
   
603,322
     
233,592
 
Accrued legal fees
   
680,000
     
1,644,470
 
Accrued taxes
   
694,871
     
318,792
 
Other
   
470,934
     
287,734
 
   
$
14,018,061
   
$
11,514,449
 

NOTE 5 – DEBT

Debt consisted of the following:

   
Successor Company
 
     
September 30,
2018
     
December 31,
2017
  
             
Revolving credit facility
 
$
20,000,000
   
$
20,000,000
 
Term loan
   
92,150,000
     
95,787,500
 
     
112,150,000
     
115,787,500
 
Less: Current portion of long term debt (1)
   
(4,078,627
)
   
(3,913,436
)
Less: Debt origination costs
   
(3,647,871
)
   
(4,347,602
)
   
$
104,423,502
    $
 107,526,462
 

(1)
Current portion of long-term debt is net of debt origination costs of $771,373 at September 30, 2018 and $936,564 at December 31, 2017.

On August 23, 2017, Intermex entered into a Financing Agreement (the “Financing Agreement”) with MC Credit Partners to refinance its debt. The Financing Agreement includes a revolving credit facility that provides for funding of up to $20 million in the aggregate and a term loan in an aggregate principal amount of $97 million (together the “Senior Secured Credit Facility”). Interest on the term loan and revolving credit facility is determined by reference to either LIBOR or a “base rate”, in each case plus an applicable margin of 9% per annum for LIBOR loans or 8% per annum for base rate loans. The principal amount of the term loan must be repaid in consecutive quarterly installments on the last business day of each March, June, September and December commencing in December 2017. The Company must repay an amount equal to 1.25% of the original amount borrowed for each quarterly payment from December 31, 2017 through September 30, 2019 and 2.50% of the original amount borrowed for each quarterly payment from December 31, 2019 and thereafter.

11

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

On December 19, 2017, the Financing Agreement was amended to allow for the change of control of Intermex pursuant to the Merger. Upon closing of the Merger, the Company was required to pay $1.5 million in fees to MC Credit Partners, which were expensed as transaction costs in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2018 and funded by the proceeds received in the Merger.

On November 7, 2018, the Company entered into a new financing agreement (the “Credit Agreement”) with, among others, certain of its domestic subsidiaries as borrowers, certain other domestic subsidiaries and a group of banking institutions. The Credit Agreement provides for a $35 million revolving credit facility, a $90 million term loan facility and an up to $30 million incremental facility. The Credit Agreement also provides for the issuance of letters of credit, which would reduce availability under the revolving credit facility. The proceeds of the loans were used to repay existing indebtedness, for working capital purposes and to pay fees and expenses in connection with the transaction.  The maturity date of the Credit Agreement is November 7, 2023.

Interest on the term loan facility and revolving credit facility is determined by reference to either LIBOR or a “base rate”, in each case plus an applicable margin of 4.50% per annum for LIBOR loans or 3.50% per annum for base rate loans. The Company is also required to pay a fee on the unused portion of the revolving credit facility equal to 0.35% per annum.

The principal amount of the term loan facility must be repaid in consecutive quarterly installments of 5% in year 1, 7.5% in years 2 and 3, 10% in years 4 and 5, in each case on the last day of each quarter, commencing in March 2019 with a final payment at maturity. The loans under the Credit Agreement may be prepaid at any time without payment or penalty.

The obligations under the Credit Agreement are guaranteed by the Company and certain domestic subsidiaries of the Company and secured by liens substantially all of the assets of the loan parties, subject to certain exclusions and limitations.

Upon execution of the Credit Agreement, the Company incurred  a prepayment penalty of approximately $2.0 million, which will be recognized as interest expense in the fourth quarter 2018 in the condensed consolidated statements of operations and comprehensive loss. In addition, the Company wrote off approximately $3.7 million of debt origination costs related to the Senior Secured Credit Facility as interest expense during the fourth quarter of 2018.

NOTE 6 - FAIR VALUE MEASUREMENTS

Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three- level fair value hierarchy that prioritizes the inputs used to measure fair value was established. There are three levels of inputs used to measure fair value. Level 1 relates to quoted market prices for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s non-financial assets measured at fair value on a nonrecurring basis include the goodwill and other intangibles derived on February 1, 2017 as a result of the Stella Point acquisition as disclosed in Note 2 and more fully disclosed in detail in Note 4 of the Audited Financial Statements.

12

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company’s cash is representative of fair value as these balances are comprised of deposits available on demand. Accounts receivable, prepaid wires, accounts payable and wire transfers and money orders payable are representative of their fair values because of the short turnover of these items.

The Company’s financial instruments that are not measured at fair value on a recurring basis include its revolving credit facility and term loan. The estimated fair value of the term loan approximates book value as the debt bears a market interest rate that adjusts periodically. The estimated fair value of the revolving credit facility would approximate face value given the payment schedule and variable interest rate structure.

NOTE 7 - RELATED PARTY TRANSACTIONS

During the Successor periods prior to the Merger, Intermex paid a monthly management fee of $65,000, plus reimbursement of expenses, to a related party for management services, which is included in other selling, general and administrative expenses on the Company’s condensed consolidated statements of operations and comprehensive loss. During the Predecessor period from January 1, 2017 to January 31, 2017, all management fees were waived. There were no amounts payable to or receivable from related parties included in the condensed consolidated balance sheets at September 30, 2018 and December 30, 2017. Upon closing of the Merger on July 26, 2018 (See Note 2), the management fee agreement with the related party was terminated, and a one-time termination fee of $1.6 million was included as part of transaction costs in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2018.

NOTE 8 – STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

After the completion of the Merger on the Closing Date, there were 36,182,783 shares of International Money Express, Inc. common stock outstanding and outstanding warrants to purchase 8,959,999 shares of common stock. As of the Closing Date, the former stockholders of Intermex owned approximately 48.3% and the former stockholders of FinTech owned approximately 51.7% of the combined company’s outstanding common stock. At September 30, 2018, the Company was authorized to issue 200,000,000 shares of common stock and had 36,182,783 shares of common stock issued and outstanding at $0.0001 par value per common share.

Equity Warrants

Prior to the Merger, FinTech issued 8,749,999 public warrants (“Public Warrants”) and 210,000 private placement warrants (“Placement Warrants”)(combined are referred to as the “Warrants”). The Company assumed the FinTech equity warrants upon the change of control event. As a result of the Merger, the Warrants issued by FinTech are no longer exercisable for shares of FinTech common stock but instead are exercisable for common stock of the Company. All other features of the Warrants remain unchanged. There are no cash obligations for the Company pertaining to these Warrants, and they are recognized in equity upon any exercise.

Each whole Warrant entitles the holder to purchase one share of the Company's common stock at a price of $11.50 per share. The Warrants became exercisable 30 days after the completion of the Merger and expire five years after that date, or earlier upon redemption or liquidation.

The Company may call the Public Warrants for redemption, in whole and not in part, at a price of $0.01 per warrant upon not less than 30 days prior written notice of redemption to each warrant holder if the reported last sale price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ended three business days before the Company sends the notice of redemption to the warrant holders. The Company cannot call the Placement Warrants as long as they are held by the original holders or transferred to certain permitted transferees established in the Warrant Agreement.

13

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
International Money Express, Inc. 2018 Omnibus Equity Compensation Plan

In connection with the Merger, the stockholders of FinTech approved the International Money Express, Inc. 2018 Omnibus Equity Compensation Plan (the “2018 Plan”). There were 3,371,389 shares reserved for issuance under the 2018 Plan, of which stock options to purchase 2,771,719 shares of common stock and restricted stock units in respect of 21,189 shares of common stock were granted to employees and independent directors of the Company in connection with the completion of the transactions at the Closing Date.

The value of each option grant is estimated on the grant date using the Black-Scholes option pricing model. The option pricing model requires the input of highly subjective assumptions, including the grant date fair value of our common stock, expected volatility, expected forfeitures and risk-free interest rates. To determine the grant date fair value of the Company’s common stock, we use the closing market price of our common stock at the grant date. We also use an expected volatility based on the historical volatilities of a group of guideline companies and the "simplified" method for calculating the expected life of our stock options. We have elected to account for forfeitures as they occur. The risk-free interest rates are obtained from publicly available U.S. Treasury yield curve rates.

Share-based compensation is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. The stock options issued under the 2018 Plan vest in four equal installments over four years. The Company recognized compensation expense for stock options of $395,250 for the three and nine months ended September 30, 2018, which is included in salaries and benefits in the condensed consolidated statements of operations and comprehensive loss. No stock options vested during the third quarter of 2018. The weighted-average grant date fair value for the stock options to purchase 2,771,719 shares of common stock granted on the Closing Date was $3.43 per share. As of September 30, 2018, there were 2,764,219 non-vested stock options and unrecognized compensation expense of approximately $9.1 million is expected to be recognized over a weighted-average period of 3.8 years.

A summary of the stock option activity during the nine months ended  September 30, 2018 is presented below:

         
Number of
Options
         
Weighted Average
Exercise Price
       
Weighted
Average Remaining
Contractual Term
 
 
 
Outstanding at December 31, 2017
   
-
     
-
     
-
 
Granted
   
2,771,719
     
9.91
         
Exercised
   
-
     
-
         
Forfeited
   
(7,500
)
   
9.91
         
Expired
   
-
     
-
         
Outstanding at September 30, 2018
   
2,764,219
     
9.91
     
9.83
 

The restricted stock units issued under the 2018 Plan to the Company’s independent directors vest on the one-year anniversary from the grant date. The Company recognized compensation expense for restricted stock units of $35,000 for the three and nine months ended September 30, 2018, which is included in salaries and benefits in the condensed consolidated statements of operations and comprehensive loss. There were no forfeited or vested restricted stock units during the third quarter of 2018. As of September 30, 2018, there was $175,000 of unrecognized compensation expense for the restricted stock units. In addition to the grant of restricted stock units, each of the independent directors receives an annual cash retainer of $40,000 for services as a director.

14

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Incentive Units

Interwire LLC, the former parent company of Intermex, issued Class B, C and D incentive units to employees of the Company (collectively “incentive units”). As these units were issued as compensation to the Company’s employees, the expense was recorded by the Company. In connection with the Merger, on the closing date, all unvested incentive units for Class B, C and D became fully vested and were immediately recognized as share-based compensation expense in the third quarter of 2018. Share-based compensation expense recognized related to these incentive units and included in salaries and benefits in the condensed consolidated statements of operations and comprehensive loss, amounted to $4,022,738 and $287,440 for the three months ended September 30, 2018 and 2017, respectively, $4,735,336 for the nine months ended September 30, 2018, and $1,534,655 for the Successor period from February 1, 2017 through September 30, 2017. The performance conditions related to the Class C and D units were not considered probable of being achieved prior to the Merger, and therefore, no compensation was recognized for all prior periods. Subsequent to this settlement, all incentive units ceased to exist. Share-based compensation of $2,916,324 for the Predecessor period from January 1, 2017 through January 31, 2017 primarily included the expense associated with stock options and restricted awards that vested due to the Stella acquisition.

During the Successor period from January 1, 2018 through September 30, 2018, the number of units and the weighted-average grant date fair value for the incentive units are as follows:

   
Number of
Class B Units
   
Weighted-
Average
Grant Date
Fair Value
   
Number of
Class C Units
   
Weighted-
Average
Grant Date
Fair Value
   
Number of
Class D Units
   
Weighted-
Average
Grant Date
Fair Value
 
Outstanding at
                                   
December 31, 2017
   
7,472,000
   
$
0.4879
     
4,670,000
   
$
0.2080
     
4,670,000
   
$
0.1489
 
Granted
   
410,000
   
$
0.4948
     
205,000
   
$
0.2126
     
205,000
   
$
0.1535
 
Vested
   
(7,882,000
)
 
$
0.4883
     
(4,875,000
)
 
$
0.2082
     
(4,875,000
)
 
$
0.1491
 
September 30, 2018
   
-
             
-
             
-
         

NOTE 9 – LOSS PER SHARE

Basic (income) loss per share is calculated by dividing net income (loss) for period by the weighted average number of common shares outstanding for the period. In computing dilutive income (loss) per share, basic income (loss) per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including common stock options, restricted stock and warrants.

15

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Below are basic and diluted net loss per share for the periods indicated:

   
Successor Company
 
   
         
Nine
Months Ended
September 30,
2018
         
Period from
February 1, 2017
to September 30,
2017
    
 
Three Months Ended
September 30,
 
   
2018
   
2017
   
(Unaudited)
 
Net loss for basic and diluted loss per common shares
   
 (13,412,996
)
   
(573,681
)
   
(12,108,413
)
   
(7,061,465
)
                                 
Shares:
                               
Weighted-average common shares outstanding – basic and diluted
   
30,975,338
     
17,227,682
     
21,827,082
     
17,227,682
 
                                 
Net loss per common share - basic and diluted
 
$
(0.43
)
 
$
(0.03
)
 
$
(0.55
)
 
$
(0.41
)

The computation of diluted loss per share above excludes the effect of 1,587 and 531 restricted stock units for the three month and nine-month periods ending September 30, 2018, respectively, because the inclusion of these would be anti-dilutive.

NOTE 10 - INCOME TAXES

A reconciliation between the income tax provision (benefit) at the US statutory tax rate and the Company’s income tax provision (benefit) on the condensed consolidated statements of operations and comprehensive loss is below:

   
Successor Company
     
Predecessor
Company
  
   
 

Three Months Ended
September 30,
       
Nine
Months Ended
September 30,
2018
         
Period from
February 1, 2017
to September 30,
2017
         
Period from
January 1, 2017
to January 31,
2017
    
 
 
   
2018
   
2017
   
   
(Unaudited)
       
                               
Loss before income taxes
 
$
(5,843,822
)
 
$
(765,408
)
 
$
(3,922,867
)
 
$
(6,008,986
)
 
$
(5,521,794
)
US statutory tax rate
   
21
%
   
34
%
   
21
%
   
34
%
   
34
%
Income tax expense (benefit) at statutory rate
   
(1,227,203
)
   
(260,239
)
   
(823,802
)
   
(2,043,055
)
   
(1,877,410
)
                                         
State tax expense (benefit), net of federal
   
1,354,628
     
(19,203
)
   
1,470,870
     
(10,628
)
   
(278,657
)
Foreign tax rates different from US statutory rate
   
113,891
     
3,155
     
147,154
     
93,158
     
(45,631
)
Non-deductible expenses
   
7,411,475
     
153,319
     
7,483,530
     
3,081,763
     
409
 
Change in tax rate
   
-
     
(51,994
)
   
-
     
(51,994
)
   
-
 
Credits
   
(86,275
)
   
-
     
(94,864
)
   
-
     
-
 
Other
   
2,658
     
(16,765
)
   
2,658
     
(16,765
)
   
(2,084
)
Total tax provision (benefit)
 
$
7,569,174
   
$
(191,727
)
 
$
8,185,546
   
$
1,052,479
   
$
(2,203,373
)

16

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Effective income tax rates for interim periods are based upon our current estimated annual rate. The Company’s effective income tax rate varies based upon an estimate of taxable earnings as well as on the mix of taxable earnings in the various states and countries in which we operate. Changes in the annual allocation and apportionment of the Company’s activity among these jurisdictions results in changes to the effective rate utilized to measure the Company’s deferred tax assets and liabilities.

As presented in the income tax reconciliation above, the tax provision (benefit) recognized on the condensed consolidated statements of operations and comprehensive loss was impacted by state taxes, non-deductible expenses such as share-based compensation expense, transaction costs and foreign tax rates applicable to the Company’s foreign subsidiaries that are higher or lower than the U.S. statutory rate.

On December 22, 2017, the U.S. enacted tax reform legislation known as H.R. 1, commonly referred to as the “Tax Cuts and Jobs Act” (the “Act”), resulting in significant modifications to existing law. Due to the timing of the Act and the complexity involved in applying the provisions of the Act, the Company made a reasonable estimate of the effects and recorded provisional amounts in the fourth quarter of 2017, which primarily included the impact of the remeasurement of the Company’s deferred tax balances to reflect the change in the corporate tax rate. As a result of the changes to tax laws and tax rates under the Act, the Company reduced its deferred tax asset as of December 31, 2017 by $656,000.

As the Company collects and prepares necessary data and interprets the Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts recorded in December 2017. Those adjustments may materially impact the provision for income taxes and effective tax rate in the period in which the adjustments are made. During the nine months ended September 30, 2018, there were no such adjustments made to the provisional amounts recorded in December 2017.

As of September 30, 2018, the Company did not have any amounts accrued for interest and penalties or recorded for uncertain tax positions.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Leases

The Company is a party to leases for office space and branch locations, several of which are on a month-to-month basis. Rent expense under all operating leases, included in other selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss, amounted to $491,212 and $440,511 for the three months ended September 30, 2018 and 2017, respectively, $1,418,350 for the nine months ended September 30, 2018, $1,155,440 for the Successor period from February 1, 2017 through September 30, 2017, and $135,636 for the Predecessor period from January 1, 2017 through January 31, 2017.

In April 2018, the Company renegotiated its corporate lease to extend the term through November 2025. At September 30, 2018 future minimum rental payments required under operating leases for the remainder of 2018 and thereafter are as follows for the Company:

17

INTERNATIONAL MONEY EXPRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2018
 
$
378,224
 
2019
   
1,263,467
 
2020
   
981,139
 
2021
   
846,364
 
2022
   
738,385
 
2023
   
753,692
 
Thereafter
   
1,438,239
 
   
$
6,399,510
 

Litigation

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of the Company’s management, based upon the information available at this time, that the expected outcome of these matters, both individually or in the aggregate, will not have a material adverse effect on either the results of operations or financial condition of the Company.

Contingencies

The Company operates in 50 U.S. states and two territories. Money transmitters and their agents are under regulation by State and Federal laws. Violations may result in civil or criminal penalties or a prohibition from providing money transfer services in a particular jurisdiction. It is the opinion of the Company’s management, based on information available at this time, that the expected outcome of regulatory matters will not have a material adverse effect on either the results of operations or financial condition of the Company.

On August 28, 2018, the Company received a notice from the Staff of the Listing Qualifications Department (the "Staff") of The Nasdaq Stock Market LLC ("Nasdaq") indicating that, based upon the Company's non-compliance with the minimum number of round lot holders for the listing of its common stock and warrants on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rules 5550(a)(3) and 5515(a)(4), respectively, the Company's common stock and warrants may be subject to delisting from Nasdaq unless the Company timely requests a hearing before a Nasdaq Hearings Panel (the "Panel").

On October 29, 2018, the Company received a notice from Nasdaq (the “Nasdaq Notice”) informing the Company that it has met the listing requirements with respect to its common stock and that the Company’s common stock will continue to be listed and trade on The Nasdaq Capital Market under the symbol “IMXI.” Additionally, the Nasdaq Notice informed the Company that it had not demonstrated compliance with the warrant listing requirements. The Company has withdrawn its request for a hearing before the Panel with respect to the warrant listing requirements. Accordingly, the Nasdaq Notice informed the Company that the Panel had determined to delist the Company’s warrants and suspend the trading of the warrants from The Nasdaq Capital Market effective as of the open of business on October 31, 2018.

NOTE 12 – SUBSEQUENT EVENTS

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date the condensed consolidated financial statements were issued. Except for the matters discussed in Notes 5 and 11, there were no other subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.

18

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes included in this Quarterly Report on Form 10-Q and our Audited Financial Statements and related Notes and MD&A included in our prospectus, dated October 25, 2018, filed pursuant to Rule 424(b)(3). This MD&A contains forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements, and see “Risk Factors” in our documents we have filed or furnished with the SEC for a discussion of certain risk factors applicable to our business, financial condition and results of operations. Past operating results are not necessarily indicative of operating results in any future periods.
 
Overview
 
We are a rapidly growing and leading money remittance services company focused on the U.S. to Latin America and the Caribbean (“LAC”) corridor, which includes Mexico, Central and South America and the Caribbean. We utilize our proprietary technology to deliver convenient, reliable and value-added services to our customers through a broad network of sending and paying agents. Our remittance services, which include a comprehensive suite of ancillary financial processing solutions and payment services, are available in 50 states, Washington D.C., and Puerto Rico, where customers can send money to beneficiaries in Mexico, Guatemala and 15 additional Latin American countries. Our services are accessible in person through our approximately 100,000 sending and paying agents and company-owned stores, as well as online and via Internet-enabled mobile devices.
 
Money remittance services are the primary source of our revenue. These services involve the movement of funds on behalf of an originating customer for receipt by a designated beneficiary at a designated receiving location. Our remittances to Latin America are generated in the United States by customers with roots in Latin American and Caribbean countries, many of whom do not have an existing relationship with a traditional full-service financial institution capable of providing the services we offer. We provide these customers with flexibility and convenience to help them meet their financial needs. Other consumers who use our services may have access to traditional banking services, but prefer to use our services based on reliability, convenience and value. We generate money remittance revenue from fees paid by our customers (i.e. the senders of funds), which we share with our sending agents in the United States and our paying agents in the destination country. Remittances paid in local currencies that are not pegged to the U.S. dollar also earn revenue through our daily management of currency exchange spreads.
 
Our money remittance services enable our customers to send and receive funds through our extensive network of locations in the United States that are primarily operated by third-party businesses, which we refer to as agents, and a small number of company-owned stores in the LAC corridor. In addition, our services are offered digitally through Intermexonline.com and via Internet-enabled mobile devices. We currently operate in the United States, Mexico, Guatemala and 15 additional countries. Since January 2015 through December 31, 2017 we have grown our agent network by more than 73%, and increased our remittance transactions volume by approximately 71%.
 
As a non-bank financial institution, we are regulated by the Department of Treasury, the Internal Revenue Service, FinCEN, the Consumer Financial Protection Bureau, the Department of Banking and Finance of the State of Florida and additionally by the various regulatory institutions of those states where we hold an operating license. We are duly registered as a Money Service Business (“MSB”) with FinCEN, the financial intelligence unit of the U.S. Department of the Treasury. We are also subject to a wide range of regulations in the United States and other countries, including anti-money laundering laws and regulations; financial services regulations; currency control regulations; anti-bribery law; money transfer and payment instrument licensing laws; escheatment laws; privacy, data protection and information security laws; and consumer disclosure and consumer protection laws.
 
Key Factors and Trends Affecting our Business
 
Various trends and other factors have affected and may continue to affect our business, financial condition and operating results, including:
 

·
competition in the markets in which we operate;
 

·
our ability to maintain agent relationships on terms consistent with those currently in place;
 

·
our ability to maintain banking relationships necessary for us to conduct our business;
 

·
credit risks from our agents and the financial institutions with which we do business;
 

·
bank failures, sustained financial illiquidity, or illiquidity at our clearing, cash management or custodial financial institutions;
 

·
new technology or competitors that disrupt the current ecosystem;
 

·
cyber-attacks or disruptions to our information technology, computer network systems and data centers;
 

·
our success in developing and introducing new products, services and infrastructure;
 

·
customer confidence in our brand and in consumer money transfers generally;
 

·
our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;
 

·
international political factors or implementation of tariffs, border taxes or restrictions on remittances or transfers of money out of the United States;

19


·
changes in tax laws and unfavorable outcomes of tax positions we take;
 

·
political instability, currency restrictions and devaluation in countries in which we operate or plan to operate;
 

·
weakness in U.S. or international economic conditions;
 

·
change or disruption in international migration patterns;
 

·
our ability to protect our brand and intellectual property rights;
 

·
our ability to retain key personnel; and
 

·
changes in foreign exchange rates could impact consumer remittance activity

Latin American political and economic conditions remain unstable, as evidenced by high unemployment rates in key markets, currency reserves, currency controls, restricted lending activity, weak currencies and low consumer confidence, among other factors. Specifically, continued political and economic unrest in parts of Mexico and Guatemala contributed to volatility. Our business has generally been resilient during times of economic instability as money remittances are essential to many recipients, with the funds used by the receiving party for their daily needs. However, long-term sustained devaluation of the Mexican peso or Guatemalan quetzal as compared to the U.S. dollar could negatively affect our revenues and profitability.
 
Money remittance businesses such as ours have continued to be subject to strict legal and regulatory requirements, and we continue to focus on and regularly review our compliance programs. In connection with these reviews, and in light of regulatory complexity and heightened attention of governmental and regulatory authorities related to cybersecurity and compliance activities, we have made, and continue to make, enhancements to our processes and systems designed to detect and prevent cyber-attacks, or consumer fraud, money laundering, terrorist financing and other illicit activity, along with enhancements to improve consumer protection, including related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and similar regulations outside the United States. In coming periods, we expect these enhancements will continue to result in changes to certain of our business practices and may result in increased costs.
 
We maintain a regulatory compliance department, under the direction of our experienced Chief Administrative and Compliance Officer, whose foremost responsibility is to monitor transactions, detect suspicious activity, maintain financial records and train our employees and agents. An independent third-party consulting firm periodically reviews our policies and procedures to ensure the efficacy of our anti-money laundering and regulatory compliance program.
 
The market for money remittance services is very competitive. Our competitors include a small number of large money remittance providers, financial institutions, banks and a large number of small niche money remittance service providers that serve select regions. We compete with larger companies such as Western Union, MoneyGram and EuroNet and a number of other smaller MSB entities. We generally compete for money remittance agents on the basis of value, service, quality, technical and operational differences, commission, and marketing efforts. We sell credible solutions to our agents, not discounts or higher commissions, as is typical for the industry. We compete for money remittance customers on the basis of trust, convenience, service, efficiency of outlets, value, technology and brand recognition.
 
We expect to encounter increasing competition as new technologies emerge that allow customers to send and receive money through a variety of channels, but we do not expect adoption rates of such new technologies to be as significant in the near term for the customer segment we serve. We continue to differentiate our business through programs to foster loyalty among agents as well as customers and have expanded our channels through which our services are accessed to include online and mobile offerings in preparation for customer adoption.
 
We qualify as an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), enacted on April 5, 2012. An “emerging growth company” can take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include:
 

·
an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act in the assessment of the emerging growth company’s internal control over financial reporting;
 

·
an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; and
 

·
an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer.
 
We will remain an “emerging growth company” until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which we are deemed a “large accelerated filer,” which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30.

20

In December 2017, the United States enacted tax reform legislation known as the H.R.1, commonly referred to as the “Tax Cuts and Jobs Act” (the “Act”), resulting in significant modifications to existing law. Due to the timing of the Act and the complexity involved in applying the provisions of the Act, we made a reasonable estimate of the effects and recorded provisional amounts for the Successor period from February 1, 2017 through December 31, 2017, which include a reduction in the corporate tax rate from 34% to 21% as well as other changes. As a result of the changes to tax laws and tax rates under the Act, we have recorded a provisional one-time increase in income tax expense of $656,000 for the Successor period from February 1, 2017 through December 31, 2017, which consists primarily of the remeasurement of deferred tax assets and liabilities from 34% to 21%. We do not expect to incur a liability related to the one-time deemed repatriation transition tax on unrepatriated foreign earnings, as our foreign subsidiaries have a combined accumulated deficit.
 
As we collect and prepare necessary data, interpret the Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially impact the provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Act will be completed in 2018. Provisional amounts for the income tax effect of the Act have been recorded as of December 31, 2017 and are subject to change during 2018. During the nine months ended September 30, 2018, there were no adjustments made to the provisional amounts recorded in December 2017.
 
The Merger
 
On July 26, 2018 (the “Closing Date”), International Money Express, Inc. (formerly FinTech Acquisition Corp. II) consummated the previously announced transaction (the “Merger”) by and among FinTech Acquisition Corp. II, a Delaware corporation (“FinTech”), FinTech II Merger Sub Inc., a wholly-owned subsidiary of FinTech (“Merger Sub 1”), FinTech II Merger Sub 2 LLC, a wholly-owned subsidiary of FinTech (“Merger Sub 2”), Intermex Holdings II, Inc. (“Intermex”) and SPC Intermex Representative LLC (“SPC Intermex”). In connection with the closing of the Merger, FinTech changed its name to International Money Express, Inc. (the “Company”). Unless the context below otherwise provides, the “Company” refers to the combined company following the Merger and, together with their respective subsidiaries, “FinTech” refers to the registrant prior to the closing of the Merger and “Intermex” refers to Intermex Holdings II, Inc. prior to the closing of Merger.
 
The Merger has been accounted for as a reverse recapitalization where FinTech was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the facts that following the Merger, the former stockholders of Intermex control the majority of the voting rights in respect of the board of directors of the Company, Intermex comprising the ongoing operations of the Company and Intermex’s senior management comprising the senior management of the Company. Accordingly, the Merger is treated as the equivalent of Intermex issuing stock for the net assets of FinTech, accompanied by a recapitalization. The net assets of FinTech are stated at historical cost, with no goodwill or other intangible assets resulting from the Merger. The consolidated assets, liabilities and results of operations prior to the Closing Date of the Merger are those of Intermex, and FinTech’s assets, liabilities and results of operations are consolidated with Intermex beginning on the Closing Date. The shares and corresponding capital amounts included in common stock and additional paid-in capital, pre-merger, have been retroactively restated as shares reflecting the exchange ratio in the Merger for all Successor periods. The historical financial information and operating results of FinTech prior to the Merger have not been separately presented in these consolidated financial statements as they were not significant or meaningful.
 
The Merger was approved by FinTech’s stockholders at the Special Meeting of FinTech Stockholders held on July 20, 2018. In connection with the closing of the Merger, FinTech redeemed a total of 4,938,232 shares of its common stock at a redemption price of $10.086957 per share, resulting in a total payment to redeeming stockholders of approximately $49.8 million. The aggregate consideration paid in the Merger consisted of approximately (i) $102.0 million in cash and (ii) 17.2 million shares of FinTech common stock.
 
After the completion of the transactions on the Closing Date, there were 36,182,783 shares of International Money Express, Inc. outstanding common stock, warrants to purchase 8,959,999 shares of common stock and 3,371,389 shares reserved for issuance under the International Money Express, Inc. 2018 Equity Compensation Plan, of which stock options to purchase 2,771,719 shares of common stock and restricted stock units in respect of 21,189 shares of common stock were granted to employees and independent directors of the Company in connection with the completion of the transactions. As of the Closing Date, the former stockholders of Intermex owned approximately 48.3% and the former stockholders of FinTech owned approximately 51.7% of the combined Company’s outstanding common stock.
 
Stella Point Acquisition
 
On February 1, 2016, Intermex’s direct wholly owned subsidiary Holdings entered into an Agreement and Plan of Merger pursuant to which Interwire LLC, an affiliate of Stella Point, acquired 100% of the outstanding capital stock of Holdings, the surviving corporation in a merger with a subsidiary of Interwire LLC that was formed for purposes of the transaction, which we refer to as the Stella Point acquisition. The Stella Point acquisition was consummated on February 1, 2017 for a cash purchase price of approximately $52.0 million, plus approximately $12.4 million of rollover equity from certain existing management holders, the assumption of approximately $78.0 million of Holdings’ outstanding debt and an additional funding of $5.0 million of Holdings debt. In connection with the Stella Point acquisition, certain members of our management contributed approximately $12.4 million of Holdings shares held by them to Interwire LLC in exchange for equity interests in Interwire LLC. In connection with the Stella Point acquisition, we applied “push-down accounting” and the assets and liabilities were adjusted to fair value on the closing date of the transaction, February 1, 2017. As a result, our financial statement presentations distinguish between a predecessor period (“Predecessor”), for periods prior to the closing of the Stella Point acquisition, and a successor period (“Successor”), for periods subsequent to the closing of such transaction. The Successor’s financial statements reflect a new basis of accounting that is based on the fair value of assets acquired and liabilities assumed as of the transaction date. The consolidated financial statements presented herein are those of Successor from its inception on February 1, 2017 through September 30, 2018, and those of Predecessor for all periods prior to the transaction date. The successor period may not be comparable to the predecessor periods.

21

How We Assess the Performance of Our Business
 
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenues, services charges from agents and banks, salaries and benefits and selling, general and administrative expenses. To help us assess our performance with these key indicators, we use Adjusted EBITDA as a non-GAAP financial measure. We believe this non-GAAP measure provides useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to our U.S. GAAP consolidated financial statements. See the “Adjusted EBITDA” sections below for reconciliations of Adjusted EBITDA to our net loss, the closest GAAP measure.
 
Revenues
 
Transaction volume is the primary generator of revenue in our business. Revenue on transactions is derived primarily from transaction fees paid by consumers to transfer money. Revenues per transaction vary based upon send and receive locations and the amount sent. In certain transactions involving different send and receive currencies, we generate foreign exchange revenues based on the difference between the set exchange rate charged by us to the sender and the rate available to us in the wholesale foreign exchange market.
 
We use forward foreign exchange contracts to manage the risk associated with currency fluctuations on settlement of wire transfers in foreign currencies.
 
Operating Expenses
 
Service Charges from Agents and Banks
 
Service charges and fees primarily consist of agent commissions and bank fees. Service charges and fees vary based on agent commission percentages and the amount of fees charged by the banks. Agents earn a commission on each transaction they process of approximately 50% of the transaction fee. Service charges and fees may increase if banks or payer organizations increase their fee structure. Service charges also vary based on the method the customer selects to send the transfer and payer organization that facilitates the transaction.
 
Salaries and Benefits
 
Salaries and benefits include cash and share-based compensation associated with our corporate employees, sales team as well as employees at our company-owned stores. Corporate employees include management, customer service, compliance, information technology, finance and human resources. Our sales team, located throughout the United States, is focused on supporting and growing our agent network. Share-based compensation is not comparable between the Successor and Predecessor periods and will also not be comparable in the periods before and after the Merger due to the different compensation plans in place at those times.
 
Other Selling, General and Administrative
 
General and administrative expenses primarily consist of fixed overhead expenses associated with our operations, such as rent expense, insurance, professional services, management fees and other similar types of expenses. General and administrative expenses are expected to increase going forward as we are now a publicly traded company; however, the impact will be partially offset by the termination of the management fee agreement with Stella Point. A portion of general and administrative expenses relate to our 31 company-owned stores, however the majority relate to the overall business. Selling expenses include expenses such as advertising and promotion, provision for bad debt expense and expenses associated with increasing our network of agents. These expenses are expected to continue to increase as our revenues increase.
 
Transaction Costs
 
We have incurred transaction costs associated with both the Stella Point acquisition as well as the Merger. These costs include all internal and external costs directly related to the transaction, consisting primarily of legal, consulting, accounting, advisory fees, and certain incentive bonuses directly related to the transaction. Due to their significance, transaction costs are detailed separately in our consolidated financial statements. The third quarter of 2018 includes certain one-time payments that were contingent on the consummation of the Merger, including employee bonus payments, waiver from our lenders to allow for the Merger and the termination fee associated with the management fee agreement. Payment of these items were funded at closing with a portion of the proceeds received from the Merger.
 
Depreciation and Amortization
 
Depreciation and amortization is not comparable between the Successor and Predecessor companies. Due to the application of “push-down” accounting with the Stella Point acquisition, the Successor company established a new basis for its tangible and intangible assets. Depreciation largely consists of depreciation of computer equipment and software that supports our technology platform. Amortization of intangible assets is primarily related to our trade name, agent relationships and developed technology. The Merger did not result in a new basis for our tangible and intangible assets.

22

Non-Operating Expenses
 
Interest Expense
 
Interest expense consists primarily of interest associated with our senior secured credit facility, which consists of a term loan and revolving credit facility, which was refinanced on August 23, 2017. At September 30, 2018, the interest rates for the term loan and revolving credit facility were 11.51% and 13.0%, respectively. Interest on the term loan is based on the LIBOR Rate plus an applicable margin. Interest on the revolving credit facility is determined based on the highest of the LIBOR Rate, commercial lending rate of the collateral agent and federal funds rate, plus an applicable margin. Also included as a component of interest expense is the amortization of debt origination costs.
 
Income Tax Provision (Benefit)
 
Our income tax provision (benefit) includes the expected benefit of all deferred tax assets, including our net operating loss carryforwards. With few exceptions, our net operating loss carryforwards will expire between 2029 through 2037. The February 1, 2017 acquisition by Stella Point Capital and the Merger were considered change of ownership transactions under Section 382 of the Code. After the change of ownership, utilization of our net operating loss carryforwards are subject to annual limitations, however our current assessment is that no valuation allowance is required for any of our deferred tax assets. Our tax provision (benefit) has been impacted by non-deductible expenses, including equity compensation and transaction costs. The Act, enacted in December 2017, reduced our federal corporate tax rate from 34% to 21% beginning in 2018.
 
Net Loss
 
Net loss is determined by subtracting operating and non-operating expenses from revenues.

23

Results of Operations
 
The following table summarizes key components of our results of operations for the periods indicated:
 
   
Successor Company
   
Predecessor
Company
 
   
Three Months Ended
September 30,
   
Nine
Months Ended
September 30,
   
Period from
February 1, 2017
to September 30,
   
Period from
January 1, 2017
to January 31,
 
(in thousands)
 
2018
   
2017
   
2018
   
2017
   
2017
 
   
(Unaudited)
       
Revenues:
                             
Wire transfer and money order fees
 
$
61,332
   
$
47,642
   
$
168,554
   
$
119,227
   
$
11,877
 
Foreign exchange
   
10,697
     
8,413
     
29,013
     
21,690
     
2,450
 
Other income
   
479
     
338
     
1,277
     
854
     
99
 
Total revenues
   
72,508
     
56,393
     
198,844
     
141,771
     
14,426
 
                                         
Operating expenses:
                                       
Service charges from agents and banks
   
48,305
     
37,846
     
132,565
     
94,608
     
9,441
 
Salaries and benefits
   
10,959
     
5,984
     
24,633
     
16,395
     
4,530
 
Other selling, general and administrative expenses
   
5,207
     
4,163
     
13,390
     
10,400
     
1,063
 
Transaction costs
   
6,305
     
-
     
10,319
     
6,213
     
3,917
 
Depreciation and amortization
   
4,142
     
4,553
     
11,750
     
12,057
     
382
 
Total operating expenses
   
74,918
     
52,546
     
192,657
     
139,673
     
19,333
 
                                         
Operating (loss) income
   
(2,410
)
   
3,847
     
6,187
     
2,098
     
(4,907
)
                                         
Interest expense
   
3,434
     
4,613
     
10,110
     
8,107
     
614
 
                                         
Loss before income taxes
   
(5,844
)
   
(766
)
   
(3,923
)
   
(6,009
)
   
(5,521
)
                                         
Income tax provision (benefit)
   
7,569
     
(192
)
   
8,186
     
1,052
     
(2,203
)
                                         
Net loss
 
$
(13,413
)
 
$
(574
)
 
$
(12,109
)
 
$
(7,061
)
 
$
(3,318
)

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017
 
Revenues
 
Revenues for the above periods are presented below:
 
($ in thousands)
 
Three Months
Ended September 30,
2018
 

%
of
Revenues

 
Three Months
Ended September 30,
2017
 
 
%
of
Revenues
 
                         
Revenues:
                       
Wire transfer and money order fees
 
$
61,332
     
84
%
 
$
47,642
     
84
%
Foreign exchange
   
10,697
     
15
%
   
8,413
     
15
%
Other income
   
479
     
1
%
   
338
     
1
%
Total revenues
 
$
72,508
     
100
%
 
$
56,393
     
100
%
 
 Wire transfer and money order fees of $61.3 million for the three months ended September 30, 2018 increased by $13.7 million from $47.6 million for the three months ended September 30, 2017. This increase of $13.7 million was due to a 28% increase in transaction volume compared to the third quarter of 2017, largely due to the continued growth in our agent network, which has grown by 26% from September 2017 to September 2018.
 
Revenues from foreign exchange of $10.7 million for the three months ended September 30, 2018 increased by $2.3 million from $8.4 million for the three months ended September 30, 2017. This increase was primarily due to higher transaction volume achieved by growth in our agent network.

24

Operating Expenses
 
Operating expenses for the above periods are presented below:
 
($ in thousands)
 
Three Months
Ended September 30,
2018
   
%
of
Revenues
   
Three Months
Ended September 30,
2017
   
%
of
Revenues
 
                         
Operating expenses:
                       
Service charges from agents and banks
 
$
48,305
     
67
%
 
$
37,846
     
67
%
Salaries and benefits
   
10,959
     
15
%
   
5,984
     
11
%
Other selling, general and administrative expenses
   
5,207
     
7
%
   
4,163
     
7
%
Transaction costs
   
6,305
     
9
%
   
-
     
0
%
Depreciation and amortization
   
4,142
     
6
%
   
4,553
     
8
%
Total operating expenses
 
$
74,918
     
104
%
 
$
52,546
     
93
%
 
Service charges from agents and banks — Service charges from agents and banks were $48.3 million, or 67% of revenues, for the three months ended September 30, 2018 compared to $37.8 million, or 67% of revenues, for the three months ended September 30, 2017. The increase of $10.5 million was primarily due to the increase in transaction volume.
 
Salaries and benefits — Salaries and benefits were $11.0 million for the three months ended September 30, 2018, an increase of $5.0 million from $6.0 million for the three months ended September 30, 2017. The increase of $5.0 million primarily consisted of $4.2 million in share-based compensation related to the accelerated vesting of incentive units and the vesting of new options and restricted stock units that were granted in the third quarter of 2018 all in connection with the Merger, $0.4 million in salaries and benefits largely in management and compliance areas associated with our transition to a publicly-traded company, $0.3 million related to additional headcount to support the continued growth of the business and $0.1 million in severance expense.
 
Other selling, general and administrative expenses — Other selling, general and administrative expenses of $5.2 million for the three months ended September 30, 2018 increased by $1.0 million from $4.2 million for the three months ended September 30, 2017. The increase includes $0.6 million of professional fees associated with the registration common stock underlying outstanding warrants and $0.4 million in accounting, legal and investor relation fees associated with our transition to a publicly-traded company.
 
Transaction costs — Transaction costs of $6.3 million for the three months ended September 30, 2018 include $1.8 million in employee bonuses, $1.6 million to terminate our management fee agreement, $1.5 million change in control fee to our lender, and $1.4 million in legal and other professional fees all directly related to the Merger.
 
Depreciation and amortization — Depreciation and amortization of $4.1 million for the three months ended September 30, 2018 decreased by $0.4 million from $4.5 million for the three months ended September 30, 2017. This decrease is due to $0.8 million less amortization related to the trade name, developed technology and agent relationships during the third quarter of 2018 as these intangibles are being amortized on an accelerated basis, which will decline over time. This decrease was partially offset by an increase in depreciation of $0.4 million associated primarily with additional computer equipment to support our growing business and agent network.
 
Non-Operating Expenses
 
Interest expense — Interest expense was $3.4 million for the three months ended September 30, 2018, a decrease of $1.2 million from $4.6 million for the three months ended September 30, 2017. The decrease is due to a $1.7 million prepayment penalty associated with the refinancing on August 23, 2017 recognized in interest expense during the three months ended September 30, 2017, partially offset by an increase in interest expense of $0.5 million during the three months ended September 30, 2018 relating to a higher principal balance outstanding for the respective period in 2018 compared to the same period in 2017 as a result of the August 2017 refinancing.
 
Income tax provision (benefit) — Income tax provision was $7.6 million for the three months ended September 30, 2018, a change of $7.8 million, from an income tax benefit of $0.2 million for the three months ended September 30, 2017. The change in the income tax provision included a $0.4 million increase to tax expense related to taxable income attributable for both federal and state taxes in the three months ended September 30, 2018 period and a $7.3 million increase to tax expense associated with non-deductible expenses, primarily share-based compensation expense and transaction costs, net of the impact from the lower U.S. federal corporate tax rate in 2018 as a result of the Act.
 
Net Loss
 
We had a net loss of $13.4 million for the three months ended September 30, 2018 compared to a net loss of $0.6 million for the three months ended September 30, 2017 due primarily to the same factors discussed above.

25

Adjusted EBITDA
 
Adjusted EBITDA is defined as net income (loss) before depreciation and amortization, interest expense, income taxes, and also adjusted to add back certain charges and expenses, such as transaction costs and non-cash compensation costs, as these charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.
 
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results, because it excludes, among other things, certain results of decisions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the jurisdictions in which we operate and capital investments.
 
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP. Some of these limitations include the following:
 

·
Adjusted EBITDA does not reflect the significant interest expense, or the amounts necessary to service interest or principal payments on our senior secured credit facility;
 

·
Adjusted EBITDA does not reflect income tax expense (benefit), and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate;
 

·
although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any costs of such replacements;
 

·
Adjusted EBITDA does not reflect the noncash component of employee compensation;
 

·
Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations; and
 

·
other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.
 
We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information.
 
Adjusted EBITDA for the three months ended September 30, 2018 was $13.4 million, representing an increase of $4.5 million, or 51%, from $8.9 million for the three months ended September 30, 2017. The increase in Adjusted EBITDA was primarily due to the increase in revenues of $16.1 million less the increase in service charges from agents and banks of $10.5 million as well as increases in other operating expenses to support the growth in our business.
 
The following table presents the reconciliation of Adjusted EBITDA to net loss, our closest GAAP measure.
 
   
Three Months Ended September 30,
 
(in thousands)
 
2018
   
2017
 
             
Net loss
 
$
(13,413
)
 
$
(574
)
                 
Adjusted for:
               
Interest expense
   
3,434
     
4,613
 
Income tax provision (benefit)
   
7,569
     
(192
)
Depreciation and amortization
   
4,142
     
4,553
 
EBITDA
   
1,732
     
8,400
 
Transaction costs (a)
   
6,305
     
-
 
Incentive units plan (b)
   
4,023
     
287
 
Share-based compensation, 2018 Plan (c)
   
430
     
-
 
Costs related to registering stock underlying warrants (d)
   
615
     
-
 
Management fee (e)
   
195
     
195
 
Other employee severance (f)
   
106
     
-
 
Other charges and expenses (g)
   
38
     
37
 
Adjusted EBITDA
 
$
13,444
   
$
8,919
 
 
(a)
Represents direct costs related to the Merger for the three months ended September 30, 2018, which are expensed as incurred and included as “transaction costs” in our condensed consolidated statements of operations and comprehensive loss. These costs include $1.8 million in employee bonuses, $1.6 million to terminate our management fee agreement, $1.5 million change in control fee to our lenders, and $1.4 million in legal, consulting, accounting, advisory fees all directly related to the Merger.

26

(b)
In connection with the Stella Point acquisition, Class B, C and D incentive units were granted to our employees by Interwire LLC. The three months ended September 30, 2018 and 2017 included expense regarding these incentive units, which became fully vested and were paid out upon the Closing Date of the Merger. As a result, employees no longer hold profits interests following the Merger.
(c)
Stock options and restricted stock were granted to employees and independent directors of the Company in connection with the completion of the Merger. The Company recorded $0.4 million of expense related to these equity instruments during the three months ended September 30, 2018.
(d)
The Company incurred $0.6 million of expenses during the three months ended September 30, 2018 for professional fees in connection with the registration of common stock underlying outstanding warrants.
(e)
Represents payments under our management agreement with Stella Point pursuant to which we paid a quarterly fee for certain advisory and consulting services. In connection with the Merger, this agreement was terminated.
(f)
Represents $0.1 million of severance costs related to departmental changes.
(g)
Both the three months ended September 30, 2018 and 2017 includes loss on disposal of fixed assets and foreign currency (gains) or losses.

Nine Months Ended September 30, 2018 Compared to Successor Period from February 1, 2017 to September 30, 2017 (“2017 Q3 Successor Period”) and Predecessor Period from January 1, 2017 to January 31, 2017 (“2017 Predecessor Period”) defined as the “2017 Q3 Combined Period”
 
Revenues
 
Revenues for the above periods are presented below:
 

 
Successor Company
         
Predecessor
Company
       
($ in thousands)
 
Nine Months
Ended September 30,
2018
   
%
of
Revenues
   
Period from
February 1, 2017
to September 30,
2017
   
%
of
Revenues
   
Period from
January 1, 2017
to January 31,
2017
   
%
of
Revenues
 
                                     
Revenues:
                                   
Wire transfer and money order fees
 
$
168,554
     
85
%
 
$
119,227
     
84
%
 
$
11,877
     
82
%
Foreign exchange
   
29,013
     
14
%
   
21,690
     
15
%
   
2,450
     
17
%
Other income
   
1,277
     
1
%
   
854
     
1
%
   
99
     
1
%
Total revenues
 
$
198,844
     
100
%
 
$
141,771
     
100
%
 
$
14,426
     
100
%
 
Wire transfer and money order fees of $168.6 million for the nine months ended September 30, 2018 increased by $37.5 million from $131.1 million for the 2017 Q3 Combined Period, which included $119.2 million for the 2017 Q3 Successor Period and $11.9 million for the 2017 Predecessor Period. This increase of $37.5 million was due to a 30% increase in transaction volume, largely due to the continued growth in our agent network, which has grown by 25% from September 2017 to September 2018.
 
Revenues from foreign exchange of $29.0 million for the nine months ended September 30, 2018 increased by $4.9 million from $24.1 million for the 2017 Q3 Combined Period, which included $21.7 million for the 2017 Q3 Successor Period and $2.4 million for the 2017 Predecessor Period. This increase included a favorable impact from the higher transaction volumes of $6.7 million, partially offset by reduced foreign exchange income earned per wire totaling $1.8 million.

27

Operating Expenses
 
Operating expenses for the above periods are presented below:
 
 
 
Successor Company
         
Predecessor
Company
       
($ in thousands)
 
Nine Months
Ended September 30,
2018
   
%
of
Revenues
   
Period from
February 1, 2017
to September 30,
2017
   
%
of
Revenues
   
Period from
January 1, 2017
to January 31,
2017
   
%
of
Revenues
 
Operating expenses:
                                   
Service charges from agents and banks
 
$
132,565
     
67
%
 
$
94,608
     
67
%
 
$
9,441
     
65
%
Salaries and benefits
   
24,633
     
12
%
   
16,395
     
12
%
   
4,530
     
31
%
Other selling, general and administrative expenses
   
13,390
     
7
%
   
10,400