UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
| | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from to
Commission file number:
(Exact name of small business issuer as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
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| (Address of principal executive offices) | (Zip Code) |
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| (Registrant’s telephone number, including area code) |
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The Nasdaq Stock Market LLC ( |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.
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).
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 ☐ |
| | Smaller reporting company |
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| 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 ☐
As of August 10, 2023, the Registrant had
TABLE OF CONTENTS
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PART I Consolidated Financial Information |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 |
3 |
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4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 |
7 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 |
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Item 3. |
33 |
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Item 4. |
33 |
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PART II Other Information |
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Item 1. |
35 |
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Item 2. |
35 |
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Item 3. |
35 |
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Item 4. |
35 |
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Item 5. |
35 |
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Item 6. |
35 |
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36 |
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PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RYVYL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
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June 30, 2023 |
December 31, 2022 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | $ | ||||||
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Restricted cash |
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| Accounts receivable, net of allowance of $ |
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| Cash due from gateways, net of allowance of $ |
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Prepaid and other current assets |
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Total current assets |
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Non-current Assets: |
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Property and equipment, net |
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Other assets |
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Goodwill |
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Intangible assets, net |
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Operating lease right-of-use assets, net |
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Investments |
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Total non-current assets |
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Total Assets |
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LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIT) |
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Current Liabilities: |
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Accounts payable |
$ | |||||||
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Other current liabilities |
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Accrued interest |
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Payment processing liabilities, net |
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Short-term notes payable |
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Derivative liability |
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Current portion of operating lease liabilities |
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Total current liabilities |
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Long-term debt, net of debt discount |
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Operating lease liabilities, less current portion |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ Equity / (Deficit): |
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| Common stock, par value $ |
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Common stock issuable, par value $0.001 |
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Additional paid-in capital |
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Deferred stock compensation |
( |
) |
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Accumulated other comprehensive income |
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Accumulated deficit |
( |
) |
( |
) |
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Less: Shares to be returned |
( |
) |
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Total stockholders’ equity / (deficit) |
( |
) |
( |
) |
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Total liabilities and stockholders’ equity / (deficit) |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands, except share and per share data)
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 |
2022 |
2023 |
2022 |
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(as restated) |
(as restated) |
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Revenue |
$ | $ | $ | $ | ||||||||||||
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Advertising and marketing |
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Research and development |
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General and administrative |
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Payroll and payroll taxes |
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Professional fees |
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Stock compensation expense |
( |
) |
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Stock compensation for services |
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Depreciation and amortization |
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Total operating expenses |
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Loss from operations |
( |
) |
( |
) |
( |
) |
( |
) |
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Other income (expense): |
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Interest expense |
( |
) |
( |
) |
( |
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( |
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Interest expense - debt discount |
( |
) |
( |
) |
( |
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( |
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Derecognition expense upon conversion of convertible debt |
( |
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( |
) |
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Loss on settlement of debt |
( |
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( |
) |
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Changes in fair value of derivative liability |
( |
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( |
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Merchant fines and penalty income |
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Other income or expense |
( |
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( |
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Total other income (expense), net |
( |
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( |
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( |
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Income (loss) before income tax provision (benefit) |
( |
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( |
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( |
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Income tax provision (benefit) |
( |
) |
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Net income (loss) |
$ | ( |
) |
$ | $ | ( |
) |
$ | ( |
) |
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Comprehensive income statement: |
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Net income (loss) |
$ | ( |
) |
$ | $ | ( |
) |
$ | ( |
) |
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Foreign currency translation loss |
( |
) |
( |
) |
( |
) |
( |
) |
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Total comprehensive income (loss) |
$ | ( |
) |
$ | $ | ( |
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$ | ( |
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Net loss per share: |
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Basic and diluted |
$ | ( |
) |
$ | $ | ( |
) |
$ | ( |
) |
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Weighted average number of common shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(Dollars in thousands, except share data)
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Common Stock |
Treasury Stock |
Deferred |
Additional |
Other Accumulated |
Total |
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Shares |
Amount |
To be Issued |
Amount |
To be returned |
Amount |
Shares |
at Cost |
Stock Compensation |
Paid In Capital |
Comprehensive Income (Loss) |
Accumulated Deficit |
Stockholders' (Deficit) |
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Balance at December 31, 2022 |
$ | $ | ( |
) | $ | ( |
) | - | $ | - | $ | - | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||
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Common stock issued to employees for compensation |
( |
) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
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Common stock issued for interest on convertible debt |
( |
) | ( |
) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
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Carryover effects of financial statement restatements in prior periods |
- | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
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Share repurchase |
( |
) | - | - | - | - | - | - | ( |
) | - | - | - | |||||||||||||||||||||||||||||||||||||||
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Net loss and comprehensive loss |
- | - | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2023 |
- | - | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||
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Common stock issued to employees for compensation |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
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Common stock issued for conversion of convertible debt |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
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Common stock issued for interest on convertible debt |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
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Restricted common stock issued for compensation |
- | - | - | - | - | - | - | ( |
) | |||||||||||||||||||||||||||||||||||||||||||
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Shares forfeited |
( |
) | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
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Net loss and comprehensive loss |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||
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Balance at June 30, 2023 |
$ | - | $ | - | - | $ | - | - | $ | - | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/ (DEFICIT)
(UNAUDITED)
(Dollars in thousands, except share data)
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Common Stock |
Treasury Stock |
Additional |
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Total Stockholders' |
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Shares |
Amount |
To be Issued |
Amount |
To be returned |
Amount |
Shares |
At Cost |
Paid-In Capital |
Accumulated Deficit |
Equity (Deficit) |
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Balance at December 31, 2021 |
$ | - | - | ( |
) | $ | ( |
) | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||
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Common stock issued for services |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
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Common stock issued to shareholder |
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock issued for stock options exercised |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
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Common stock contributed and cancelled from shareholder |
( |
) | - | - | - | ( |
) | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||
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Comon stock issuable - Acquisition of Sky assets |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
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Common stock shares contributed by shareholder |
- | - | ( |
) | ( |
) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
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Common stock shares issuable to shareholder |
- | - | - | - | - | - | ( |
) | - | - | ||||||||||||||||||||||||||||||||||
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Stock compensation expense |
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
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Net loss |
- | - | - | - | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
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Balance at March 31, 2022 |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
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Common stock issued for services |
( |
) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
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Common stock issued to employees as stock compensation |
- | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
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Common stock issued - acquisition of Sky assets |
( |
) | ( |
) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
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Common stock shares contributed by shareholder |
( |
) | ( |
) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock shares contributed and cancelled from shareholder |
( |
) | ( |
) | - | - | ( |
) | - | - | ||||||||||||||||||||||||||||||||||
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Common stock issued for conversion of convertible debt |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
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Net income |
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
|
Balance at June 30, 2022 |
$ | $ | ( |
) | $ | ( |
) | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
|
Six Months Ended June 30 |
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2023 |
2022 |
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| (as restated) | ||||||||
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Cash flows from operating activities: |
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Net loss |
$ | ( |
) |
$ | ( |
) |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization expense |
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Noncash lease expense |
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Stock compensation expense |
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Common stock issued for professional fees |
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Interest expense - debt discount |
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Derecognition upon conversion of note payable |
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Changes in fair value of derivative liability |
( |
) |
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Loss on settlement of debt |
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Changes in assets and liabilities: |
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Accounts receivable, net |
( |
) |
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Prepaid and other current assets |
( |
) |
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Cash due from gateways |
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Other assets |
( |
) |
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Accounts payable |
( |
) |
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Other current liabilities |
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Accrued interest |
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Payment processing liabilities |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
( |
) |
( |
) |
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Purchase of intangibles |
( |
) |
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Cash provided for Transact Europe Holdings OOD acquisition |
( |
) |
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Cash provided for Sky Financial & Intelligence asset acquisition |
( |
) |
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Net cash used in investing activities |
( |
) |
( |
) |
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Cash flows from financing activities: |
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Treasury stock purchases |
( |
) |
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Proceeds from stock option exercises |
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Repayments on convertible debt |
( |
) |
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Repayments on long-term debt |
( |
) | ||||||
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Net cash used in financing activities |
( |
) | ( |
) |
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Restricted cash acquired from Transact Europe |
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Net increase (decrease) in cash, cash equivalents, and restricted cash |
( |
) |
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Foreign currency translation adjustment |
( |
) | ( |
) |
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Cash, cash equivalents, and restricted cash – beginning of period |
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Cash, cash equivalents, and restricted cash – end of period |
$ | $ | ||||||
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Supplemental disclosures of cash flow information |
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Cash paid during the period for: |
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Interest |
$ | $ | ||||||
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Income taxes |
$ | $ | ||||||
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Non-cash financing and investing activities: |
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Convertible debt conversion to common stock |
$ | $ | ||||||
|
Interest accrual from convertible debt converted to common stock |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
1. |
Description of the Business and Basis of Presentation |
Organization
RYVYL Inc (the “Company”) is a financial technology company that develops, markets, and sells innovative blockchain-based payment solutions, which offer significant improvements for the payment solutions marketplace. The Company’s core focus is developing and monetizing disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record, and store a limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
The Company was formerly known as ASAP Expo, Inc (“ASAP”), and was incorporated in the State of Nevada on April 10, 2007. On January 4, 2020, PubCo and GreenBox POS LLC, a Washington limited liability company (“PrivCo”), entered into an Asset Purchase Agreement (the “Agreement”) On April 12, 2018, the Company acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business, kiosk business, bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, the Company assumed PrivCo’s liabilities that were incurred in the normal course of the GreenBox Business.
On May 3, 2018, the Company formally changed its name to GreenBox POS. LLC, then subsequently changed its name to GreenBox POS on December 13, 2018. On October 13, 2022, GreenBox POS changed its name to RYVYL Inc.
On May 21, 2021, the Company acquired all of the outstanding stock of Northeast Merchant Systems, Inc. (“Northeast”) in a transaction treated as a business combination. Northeast is a merchant services company providing merchant credit card processing through its own Bank Identification Number (BIN) with the acquiring Bank Merrick.
On July 13, 2021 (the “Closing Date”), the Company entered into and closed on a Membership Interest Purchase Agreement with Charge Savvy LLC, an Illinois limited liability company (“Charge Savvy”), and Charge Savvy’s three members (collectively, the “Sellers”). One of the Sellers, Ken Haller, was an employee of the Company on the Closing Date. As a result of the purchase agreement, the Company purchased all of Charge Savvy’s issued and outstanding membership interests from the Sellers and Charge Savvy became a wholly owned subsidiary of the Company. The consideration consisted of
On April 1, 2022, the Company completed the acquisition of Transact Europe Holdings OOD. Transact Europe EAD (“TEU”) is an EU- regulated electronic money institution headquartered in Sofia, Bulgaria. TEU is a Principal Level Member of Visa, a Worldwide Member of MasterCard, and a Principal Member of China UnionPay. In addition, TEU is part of the direct Single Euro Payments Area (“SEPA”) program. With a global footprint, proprietary payment gateway, and technology platforms, TEU offers a comprehensive portfolio of services and decades of industry experience. The Company paid $
Please refer to Note 15 entitled “Subsequent Events.”
Basis of Presentation and Consolidation
The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. All intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements.
Unaudited Interim Financial Information
Certain information and footnote disclosures normally included in the Company’s annual audited financial statements and accompanying notes have been condensed or omitted in this accompanying interim consolidated financial statements and footnotes. Accordingly, the accompanying interim consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
2. |
Summary of Significant Accounting Policies |
The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flows.
Cash, Cash Equivalents and Restricted Cash
The Company’s cash, cash equivalents and restricted cash represents the following:
● Cash and cash equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with an original maturity of three months or less.
● Restricted cash – The Company’s technology enables transactional blockchain ledger to instantly reflect all transaction details. The final cash settlement of each transaction is subject to the gateway policies. This final disposition takes days to weeks to complete in accordance with these policies. Each policy is an integral part of the transactional contracts between the Company, its Independent Sales Organizations (“ISOs”), its agents, and the merchant clients. While the ledger reflects a held balance for the merchant, in reserve or payment in arrears, the Company holds funds in a trust account as cash deemed restricted. The Company’s records reflect such restricted cash as restricted cash and trust accounts, and the balances due to merchants and ISOs as settlement liabilities.
Cash Due from Gateways and Payment Processing Liabilities
The Company’s primary source of revenues consists of payment processing services for its merchant clients. When a merchant makes a sale, the process of receiving the payment card information, engaging the banks for transferring the proceeds to the merchant’s account via digital gateways, and recording the transaction on a blockchain ledger are the activities for which the Company collects fees.
The Company utilized several gateways during the six-months ended June 30, 2023 and the year ended December 31, 2022. These gateways have strict guidelines pertaining to scheduling of the release of funds to merchants which are based on several criteria, such as, and among other things, return and chargeback history, associated risks for specific business verticals, and average transaction size. To mitigate processing risks, these policies determine reserve requirements and payment-in-arrears strategies. While reserve and payment-in-arrears restrictions are in effect for a merchant payout, the Company records receivables from the gateways against these amounts until released.
Cash due from gateways balances presented in the accompanying consolidated balance sheets represent the amount due to the Company for transactions processed wherein the funds have not been distributed.
Research and Development Costs
Research and development costs are expensed as incurred. They consist primarily of salaries and benefits for research and development personnel, outsourced contracted services, as well as associated supplies and materials.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue is recognized upon transfer of control of promised goods or services to the Company’s customers or when the Company satisfies any performance obligations under contract. The amount of revenue represents consideration the Company expects to be entitled to in exchange for the respective goods or services provided. Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, contract assets or contract liabilities that arise from past performance but require a further performance before the obligation can be fully satisfied must be identified and recorded on the balance sheet until respective settlements have been met.
The Company’s primary revenue source is generated from payment processing services. Payment processing services revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed, at a point in time.
Accounts Receivable and Allowance for Credit Losses
The Company maintains an allowance for credit losses for estimated losses from the inability of gateways to make required payments. The allowance for credit losses is evaluated periodically based on the aging of accounts receivable, the operational relationship with gateways and their payment history, historical charge-off experience and other assumptions, such as current assessment of economic conditions.
Prepaid Expenses
Prepaid expenses primarily consist of deposits made with credit card companies under Transact Europe Holdings OOD and the prepayment associated with other acquisitions.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, which range from
Fair Value of Financial Instruments
The Company assesses the fair value of financial instruments based on the provisions of ASC 820, Fair Value Measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability between market participants on the measurement date. ASC 820 also establishes a hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
Fair Value at |
||||
|
June 30, 2023 |
||||
|
Customer relationships |
$ | |||
|
Business intellectual properties |
||||
|
Derivative Liability |
||||
|
Fair Value at |
||||
|
December 31, 2022 |
||||
|
Customer relationships |
$ | |||
|
Business intellectual properties |
||||
|
Derivative liability |
||||
Goodwill and Other Intangible Assets
The Company accounts for acquisitions of businesses in accordance with the acquisition method of accounting which requires assets and liabilities to be recognized at their fair values on the acquisition date. Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable assets acquired and liabilities assumed. Acquisition costs are expensed as incurred.
Under the guidance of ASC 350, goodwill is not amortized, rather it is tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit and would be measured as the excess carrying value of goodwill over the derived fair value of goodwill. The Company’s policy is to perform an annual impairment testing for its reporting units on December 31 of each fiscal year.
Goodwill and other intangible assets acquired in a business combination determined to have an indefinite useful life are generally not amortized, but instead are tested for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
Other intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values.
Impairment of Long-Lived Assets
The Company follows ASC 360 in accounting for finite-lived intangible assets, which requires impairment losses to be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by the assets are less than the assets’ carrying amounts. As of June 30, 2023, the Company determined there were no indicators of impairment of its intangible assets.
Long-lived assets are reviewed for impairment whenever management believes that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent that the carrying value is determined to be unrecoverable, an impairment loss is recognized through a charge to expense. As of June 30, 2023, other than a charge-off of the entire consideration paid in connection with the contracted acquisition of the Sky Financial portfolio, the Company performed an impairment analysis on the other acquired goodwill and other long-lived assets and concluded that their values are supportable and recoverable.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net of operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all the deferred tax assets will not be realized. Judgment is required in determining and evaluating income tax provisions and valuation allowances for deferred income tax assets. We recognize an income tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As of June 30, 2023, and December 31, 2022, we have valuation allowances which serve to reduce net deferred tax assets.
Earnings Per Share
Basic income or (loss) per share is computed by dividing net income or loss by the weighted average number of common shares outstanding for the periods presented. Diluted earnings per share includes the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the years ended December 31, 2022, and three and six-month periods ended June 30, 2023, and 2022, since there are no common stock equivalents outstanding that would have a dilutive effect.
Leases
On February 25, 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. ASC 842 requires that lessees recognize right of use assets and lease liabilities calculated based on the net present value of lease payments for all lease agreements with terms that are greater than twelve months.
ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statements of operations and statements of changes in cash flows. ASC 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the FASB including ASC Topic 840, Leases.
For operating leases, we calculated right-of-use assets and lease liabilities based on the net present value of the remaining lease payments as of the adoption date using our incremental borrowing rate as of that date.
Segment Reporting
The Company has organized its operations into two segments: North America and International. These segments reflect the way management evaluates its business performance and manages its operations.
Our Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer. Management has determined that the operational data used by our CODM is that of the two reportable segments. Management bases strategic goals and decisions on these segments.
Management evaluates the performance of its segments and allocates resources based on operating income or loss as compared to prior periods and current performance levels.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Standard Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses. The standard, including subsequently issued amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has adopted this accounting standard, effective January 1, 2023. Management assessed the adoption of this standard on the effective date and concluded that the adoption did not have a material effect on our consolidated financial condition, results of operations, and cash flows during the three and six-month periods ended June 30, 2023.
Recent Accounting Standards and Guidance Not Adopted
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. ASU 2021-08 is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022. The Company has not acquired any businesses during the effective period and, accordingly, is currently evaluating the effect, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows and disclosures.
The FASB issued ASU 2020-06 (“Update”) to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. These changes are intended to make GAAP easier to apply and, therefore, reduce the frequency of errors in this part of the literature. Early adoption is permitted for fiscal years beginning after December 15, 2020. For SEC filers, excluding smaller reporting companies, this Update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023, including interim periods therein. The Company is evaluating the impact of this guidance on its consolidated financial statements.
|
3. |
Restatements of Previously Issued Consolidated Financial Statements |
During the preparation of its 2022 Annual Report on Form 10-K, the Company determined that it had not appropriately accounted for certain historical transactions under US GAAP. In accordance with Staff Accounting Bulletin (“SAB”) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the materiality of the errors from qualitative and quantitative perspectives, individually and in aggregate, and concluded that the errors were material to the Consolidated Statements of Operations for the quarters ending March 31, 2021, June 30, 2021, September 30, 2021, March 31, 2022, June 30, 2022, and September 30, 2022, and for the annual period ending December 31, 2021. Based on this evaluation, on January 13, 2023, the Audit Committee, with the concurrence of management, concluded that the Company’s previously issued consolidated financial statements for the aforementioned periods would need to be restated and could no longer be relied upon. The Company has restated the impacted financial statements for each of these periods and presented the effects of the restatement adjustments in its 2022 Annual Report on Form 10-K, filed on April 17, 2023 and amended as of August 10, 2023.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
4. |
Acquisitions |
Logicquest Technology, Inc.
In April 2023, the Company executed a purchase agreement for
Merchant Payment Solutions LLC
In November 2021, the Company executed a term sheet to acquire certain ACH business of Merchant Payment Solutions LLC (“MPS”). Upon execution of the term sheet, the Company made a refundable earnest money deposit in the amount of $725,000 toward the total purchase price. After conducting due diligence, the Company elected to terminate the term sheet on April 21, 2023. In June 2023, the Company and MPS agreed to finalize a Portfolio Purchase Agreement (“Purchase Agreement”). Pursuant to the Purchase Agreement, the Company acquired the ACH portfolio of MPS for $
Transact Europe Holdings
On April 1, 2022, the Company acquired Transact Europe Holdings for $
|
Tangible assets (liabilities): |
||||
|
Net assets and liabilities |
$ | |||
|
Intangible assets: |
||||
|
Customer relationships |
||||
|
Goodwill |
||||
|
Total net assets acquired |
$ |
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sky Financial & Intelligence
On March 31, 2022, the Company contracted to acquire a portfolio of merchant accounts from Sky Financial for $
As of the date of this filing, the Company has not received delivery of the acquired merchant list and the associated ISO management portal access. The Company charged off the entire purchase price in 2022. Also, during 2022, the Company suspended its reporting of revenue from the Sky Financial portfolio.
The Company is vigorously pursuing its entitlements under the purchase agreement.
|
5. |
Settlement Processing |
The Company’s proprietary blockchain-based technology serves as the settlement engine for all transactions within the Company’s ecosystem. The blockchain ledger provides a robust and secure platform to log large volumes of immutable transactional records in real time. In summary, blockchain is a distributed ledger that uses digitally encrypted keys to verify, secure and record details of each transaction conducted within an ecosystem. Unlike general blockchain-based systems, the Company uses proprietary, private ledger technology to verify every transaction conducted within the Company ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by us. The Company facilitates all financial elements of our closed-loop ecosystem, and we act as the administrator for all related accounts. Using our TrustGateway technology, we seek authorization and settlement for each transaction from Gateways to the issuing bank responsible for the credit/debit card used in the transaction. When the Gateway settles the transaction, our TrustGateway technology composes a chain of blockchain instructions to our ledger manager system.
When consumers use credit or debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer purchasing tokens from us. The issuance of tokens is accomplished when we load a virtual wallet with a token, which then transfers credits to the merchant’s wallet on a dollar-for-dollar basis, after which the merchant releases its goods or services to the consumer. These transfers take place instantaneously and seamlessly, allowing the transaction experience to seem like any other ordinary credit or debit card transaction to the consumer and merchant. While our blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between us and the gateways we use, between us and our ISOs, and between us and/or our ISOs and merchants who use our services. In the case where we have received transaction funds, but not yet paid a merchant or an ISO, we hold funds in either a trust account or as cash deemed restricted within our operating accounts. We record the total of such funds as cash due from Gateways, net – a current asset. Of these funds, we record the balance due to merchants and ISOs as payment processing liabilities, net – a current liability.
|
6. |
Property and Equipment |
|
June 30, 2023 |
December 31, 2022 |
|||||||
|
Buildings |
$ | $ | ||||||
|
Computers and equipment |
||||||||
|
Furniture and fixtures |
||||||||
|
Improvements |
||||||||
|
Total property and equipment |
||||||||
|
Less: accumulated depreciation |
( |
) |
( |
) |
||||
|
Net property and equipment |
$ | $ | ||||||
Depreciation expense was $
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
7. |
Goodwill |
|
June 30, 2023 |
December 31, 2022 |
|||||||
|
Acquisition of Northeast |
$ | $ | ||||||
|
Acquisition of Charge Savvy |
||||||||
|
Acquisition of Transact Europe |
||||||||
|
Total goodwill |
$ | $ | ||||||
|
8. |
Intangible Assets |
|
As of June 30, 2023 |
As of December 31, 2022 |
|||||||||||||||||||||||||
|
Intangible Assets |
Amortization Period |
Cost |
Accumulated Amortization |
Net |
Cost |
Accumulated Amortization |
Net |
|||||||||||||||||||
|
Customer relationships – North America |
|
$ | $ | ( |
) |
$ | $ | $ | ( |
) |
$ | |||||||||||||||
|
Customer relationships - International |
|
( |
) |
( |
) |
|||||||||||||||||||||
|
Business technology/IP |
|
( |
) |
( |
) |
|||||||||||||||||||||
|
Total intangible assets |
$ | $ | ( |
) |
$ | $ | $ | ( |
) |
$ | ||||||||||||||||
Amortization expense was $
|
Year |
|
Amount |
|
|
|
2023 (remainder) |
|
$ |
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|||
|
Total |
|
$ |
|
|
|
9. |
Long-Term Debt |
|
As of June 30, 2023 |
As of December 31, 2022 |
|||||||
| $ |
$ | $ | ||||||
| $ |
||||||||
| $ |
||||||||
|
Total debt |
||||||||
|
Less: current portion |
( |
) |
( |
) |
||||
|
Net long-term debt |
$ | $ | ||||||
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
Balance, December 31, 2020 |
$ | |||
|
Convertible debentures issued |
||||
|
Derivative liability |
( |
) |
||
|
Original Issue Discount of 16% |
( |
) |
||
|
Placement fees and issuance costs |
( |
) |
||
|
Amortization and write-off of debt discount |
||||
|
Balance, December 31, 2021 |
||||
|
Repayments |
( |
) |
||
|
Amortization of debt discount |
||||
|
Balance, December 31, 2022 |
||||
|
Repayments |
( |
) |
||
|
Amortization and write-off of debt discount |
||||
|
Balance, June 30, 2023 |
$ |
Derivative liability
The notes contain embedded derivatives representing the conversion features, redemption rights, and certain events of default. The Company determined that these embedded derivatives required bifurcation and separate valuation.
The Company utilizes a binomial lattice model to value its bifurcated derivatives included in the notes. ASC 815 does not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be combined together, and fair-valued as a single, compound embedded derivative. The Company selected a binomial lattice model to value the compound embedded derivative because it believes this technique is reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the notes. Such assumptions include, among other inputs, stock price volatility, risk-free rates, credit risk assumptions, early redemption and conversion assumptions, and the potential for future adjustment of the conversion price due to triggering events. Additionally, there are other embedded features of the notes requiring bifurcation, other than the conversion features, which had no value at December 31, 2020 due to management’s estimates of the likelihood of certain events, but that may have value in the future should those estimates change.
The following is a rollforward of the derivative liability for the year ended December 31, 2022, and the six-month period ended June 30, 2023 (dollars in thousands):
|
Balance, December 31, 2021 |
$ | 18,735 | ||
|
Change in fair value 2022 |
(18,480 |
) |
||
|
Balance, December 31, 2022 |
255 | |||
|
Change in fair value |
329 | |||
|
Balance, June 30, 2023 |
$ | 584 |
Senior Convertible Note
On November 8, 2021, the Company sold and issued, in a registered direct offering, an
On July 25, 2023, Company entered into an Exchange Agreement (the “Exchange Agreement”) under which the Company and the Investor have agreed to exchange (the “Exchanges”), in two separate exchanges, an aggregate of $
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 31, 2023, pursuant to the terms of the Exchange Agreement, the Company closed the initial exchange (the “Initial Exchange”) and issued
Additionally,
The Company paid the Investor $
SBA CARES Act Loans
On June 9, 2020, the Company entered into a
On May 8, 2020, Charge Savvy executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the TNB’s business.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), Charge Savvy borrowed an aggregate principal amount of the EIDL Loan of $
In connection therewith, Charge Savvy executed (i) loans for the benefit of the SBA (the “SBA Loan”), which contains customary events of default and (ii) Security Agreements, granting the SBA a security interest in all tangible and intangible personal property of Charge Savvy, which also contains customary events of default (the “SBA Security Agreement”).
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
10. |
Stock Option Awards |
|
Weighted Average |
Aggregate |
|||||||||||
|
Shares |
Exercise Price |
Intrinsic Value |
||||||||||
|
Outstanding at December 31, 2021 |
$ | |||||||||||
|
Granted |
||||||||||||
|
Exercised |
( |
) |
||||||||||
|
Forfeited or expired |
( |
) |
||||||||||
|
Outstanding at June 30, 2022 |
$ | $ | ||||||||||
|
Exercisable at June 30, 2022 |
$ | $ | ||||||||||
|
Outstanding at December 31, 2022 |
$ | |||||||||||
|
Granted |
||||||||||||
|
Exercised |
||||||||||||
|
Forfeited or expired |
||||||||||||
|
Outstanding at June 30, 2023 |
$ | $ | ||||||||||
|
Exercisable at June 30, 2023 |
$ | $ | ||||||||||
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $
The Company adopted the 2021 Restricted Stock Plan (“2021 Plan”) in November 2021, which provides for the grant of restricted stock awards and performance stock awards to executive officers, non-employee directors and other key employees of the Company. The 2021 Plan provides for up to
|
Non-vested Restricted Stock Awards |
Weighted Average Grant Date Fair Value |
|||||||
|
Non-vested at January 1, 2022 |
||||||||
|
Granted |
$ | |||||||
|
Vested |
( |
) |
||||||
|
Forfeited |
||||||||
|
Non-vested at June 30, 2022 |
||||||||
|
Non-vested at January 1, 2023 |
$ | |||||||
|
Granted |
||||||||
|
Vested |
( |
) |
||||||
|
Forfeited |
( |
) |
||||||
|
Non-vested at June 30, 2023 |
$ | |||||||
In addition, the Company issues stock with no exercise price to its employees and outside service providers. These stock grants typically do not have a vesting period and vest immediately upon issuances. The Company issued
The Company recognized stock-based compensation expense in the amount of $
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
11. |
Operating Leases |
The Company leases office space at
In May 2023, the Company entered into a sublease for its Florida office space. As of June 20, 2023, the Company determined that the right-of-use asset for the original operating lease was impaired by approximately $
The Company had operating lease expense of $
|
Year |
Amount |
|||
|
2023 (Remainder) |
$ | |||
|
2024 |
||||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
Thereafter |
||||
|
Total lease payments |
||||
|
Less: imputed interest |
( |
) | ||
|
Present value of total lease liabilities |
||||
|
Less: current lease liabilities |
( |
) | ||
|
Long-term lease liabilities |
$ | |||
|
12. |
Related Party Transactions |
PrivCo
The Company repurchased, in two separate repurchase transactions each consisting of 1 million shares of common stock, an aggregate of 2 million shares owned by PrivCo (an entity controlled by Messrs. Errez and Nisan). In October 2022, the Board unanimously ratified these two repurchase transactions between the Company and PrivCo. The Company repurchased
Family Relationships
The Company employs two of our CEO’s brothers, Dan and Liron Nusonivich, who are paid approximately $
The Company did not pay any commissions to the related parties mentioned above for the three-month and six-month periods ended June 30, 2023, June 30, 2022, or the year ended December 31, 2022.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
13. |
Commitments and Contingencies |
From time-to-time, the Company is involved in legal proceedings. The Company records a liability for those legal proceedings when it determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company also discloses when it is reasonably possible that a material loss may be incurred however, the amount cannot be reasonably estimated. From time to time, the Company may enter into discussions regarding settlement of these matters, and may enter into settlement agreements, if it believes settlement is in the best interest of the Company and its shareholders.
The following is a summary of our current outstanding litigation. Note that references to GreenBox POS are for historical purposes. GreenBox POS changed its name to RYVYL Inc. on October 13, 2022.
|
|
● |
Corporate Performance Consulting, LLC (CPC) v. GreenBox POS – On April 7, 2021, CPC filed a complaint against GreenBox POS in San Diego Superior Court. Plaintiff CPC alleges breach of contract, breach of implied covenant of good faith and fair dealing, goods and services rendered, negligent misrepresentation, violation of CA Business and Professions Code Section 17200, and unjust enrichment. The crux of CPC’s claim is that GreenBox POS failed to compensate for certain consulting and corporate advisory services. GreenBox POS believes the claims are without merit and intends to defend itself vigorously. On June 17, 2021, GreenBox POS filed a Cross-Complaint for breach of contract, breach of implied covenant of good faith and fair dealing, negligent misrepresentation, unjust enrichment, and rescission. The parties attended mediation on December 15, 2022, and subsequently entered into a confidential settlement agreement. The parties have executed a request for dismissal with prejudice to be filed with the Court. |
|
| ● | The Good People Farms, LLC (“TGPF”) - TGPF initiated an arbitration in the American Arbitration Association (“AAA”) on or about April 20, 2020, against the Company, Fredi Nisan, Ben Errez, MTrac Tech Corp., Vanessa Luna, and Jason LeBlanc (the “Defendants”). The complaint generally alleged that the Defendants improperly breached contracts and withheld funds. The action sought damages, including interest, an injunction, and costs of suit incurred. On January 15, 2021, the Company filed a counterclaim in AAA for fraud, intentional misrepresentation, breach of contract, breach of covenant of good faith and fair dealing, violation of California Business and Professions Code Section 17200, and accounting. The complaint generally alleged that that TGPF fraudulently submitted transactions for processing not permissible within the terms of service and sought damages, including interest and costs of suit incurred. The individuals were dismissed from litigation. The parties attended binding arbitration from April 18 to 21, 2023. The AAA panel issued an interim award on July 10, 2023, in favor of TGPF awarding $ |
|
|
● |
On April 27, 2022, Paul Levine (“Levine”), former Chief Executive Officer of Coyni, Inc. (“coyni”), a wholly-owned subsidiary of the Company, filed a charge with the Occupational Safety and Health Administration (“OSHA”) against respondents coyni and the Company. Levine alleged fraudulent payments to a product development vendor and retaliation in violation of the Sarbanes-Oxley Act of 2022, as amended, 18 U.S.C. §1514A and sought a ruling for damages, including interest and other relief the administration deemed proper. The OSHA claim was withdrawn on or around April 3, 2023. |
|
|
● |
On November 8, 2022, the Company filed a complaint against its former Chief Operating Officer Vanessa Luna, Luna Consultant Group, LLC and John Does 1 through 50 in San Diego Superior Court. The Company is alleging Ms. Luna abused her position for additional compensation by failing to follow proper protocols and shirked her responsibilities by scheming and maintaining alternative employment. The action seeks damages, including interest and costs of suit incurred. The parties are currently in the discovery phase. |
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|
● |
On November 10, 2022, Vanessa Luna, former COO of the Company, filed a complaint against the Company and Fredi Nisan in San Diego Superior Court. Ms. Luna alleges that Mr. Nisan used contract negotiations to coerce her, that the Company improperly coded transactions and misled investors, and that when her concerns were reported to management, she was wrongfully terminated, resulting in a number of claims. Ms. Luna is seeking damages including compensatory damages, unpaid wages (past and future), loss of wages and benefits (past and future), expectation damages, and other damages to be proven at trial. The Company denies all allegations. As the Company cannot predict the outcome of the matter, the probability of an outcome cannot be determined. The Company intends to vigorously defend against all claims. The parties are currently in the discovery phase. |
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
● |
On December 12, 2022, Jacqueline Dollar (aka Jacqueline Reynolds), former Chief Marketing Officer of the Company, filed a complaint against the Company, Fredi Nisan, and Does 1-20 in San Diego Superior Court. Ms. Dollar is alleging she was undercompensated compared to her male counterparts and retaliated against after raising concerns to management resulting in sex discrimination in violation of the California Fair Employment and Housing Act (“FEHA”) and failure to prevent discrimination in violation of FEHA. Ms. Dollar is also claiming intentional infliction of emotional distress. Ms. Dollar is seeking an unspecified amount of damages related to, among other things, payment of past and future lost wages, stock issuances, bonuses and benefits, compensatory damages, and general, economic, non-economic, and special damages. As the Company cannot predict the outcome of the matter, the probability of an outcome cannot be determined. The Company intends to vigorously defend against all claims. |
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|
● |
On February 1, 2023, a purported class action lawsuit titled Cullen V. RYVYL Inc. fka Greenbox POS, Inc., et al., Case No. 3:23-cv-00185-GPC-AGS, was filed in the United States District Court for the Southern District of California against several defendants, including the Company and certain of our current and former directors and officers (the “Defendants”). The complaint was filed on behalf of persons who purchased or otherwise acquired the Company’s publicly traded securities between January 29, 2021, and January 20, 2023 (the “Class Action”). The complaint generally alleges that the Defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false and/or misleading statements regarding the Company’s financial controls, performance and prospects. The action seeks damages, including interest, and the award of reasonable fees and costs to the putative class. The Company denies all allegations of liability and intends to vigorously defend against all claims. However, given the preliminary stage of the lawsuit, the uncertainty of litigation, and the legal standards that must be met for success on the merits, the Company cannot predict the outcome at this time or estimate a reasonably possible loss or range of loss that may result from this action. |
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|
● |
Merchant Payment Solutions LLC (“MPS”) – MPS and Manuel Sanchez, former Director of Business Development of the Company, filed a complaint on June 16, 2023 in the United States District Court for the Southern District of California against the Company, Coyni, Inc., certain of the Company’s officers and employees, and Does 1-10 (the “Defendants”). Allegations include failure of the Company to pay consideration in full under a purchase agreement, among other improper facilitations of payments among others, resulting in claims including breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and conversion, among other claims. The Company denied all such allegations and the parties subsequently settled all matters. The complaint was dismissed with prejudice on June 26, 2023 and the Company has no further exposure with respect to the complaint. |
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|
● |
On June 22, 2023, a shareholder derivative complaint was filed in the United States District Court for the Southern District of California against certain of the Company’s current and/or former officers and directors (“the Defendants”), Christy Hertel, derivatively on behalf of RYVYL Inc., f/k/a Greenbox POS v. Ben Errez et al., Case No. 3:23-CV-01165-GPC-SBC. On August 4, 2023, a second shareholder derivative complaint was filed in the United States District Court for the Southern District of California against certain of the Company’s current and/or former officers and directors (the “Defendants”), Marcus Gazaway, derivatively on behalf of RYVYL Inc., f/k/a Greenbox POS v. Ben Errez et al., Case No. 3:23-CV-01425-LAB-BLM. Both derivative complaints generally allege that the Defendants failed to implement adequate internal controls that would prevent false and misleading financial information from being published by the Company and that controlling shareholders participated in overpayment misconduct resulting in violations of Sections 10(b), 14(a) and 20 of the Exchange Act and breached their fiduciary duties and, purportedly on behalf of the Company, seek damages and contribution from Defendants, and a direction that the Company and Defendants take actions to reform and improve corporate governance and internal procedures to comply with applicable laws. Defendants deny all allegations of liability and intend to vigorously defend against all claims. However, given the preliminary stage of the lawsuits, the uncertainty of litigation, and the legal standards that must be met for success on the merits, the Company cannot predict the outcome of either case at this time. |
This is a summary of our current commitments with respect to pending acquisitions:
|
| ● | On July 27, 2022, the Company signed a letter of intent to acquire Fundstr UAB for their foreign exchange conversion and international payment capabilities and made a deposit payment of |
Sale and Leaseback Agreement
On March 28, 2023, the Company’s subsidiary, Charge Savvy executed an agreement to sell and subsequently leaseback its property located in South Chicago Heights, Illinois (the “Property”). The buyer has since defaulted under the agreement and the sale is no longer moving forward.
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
14. |
Segment Reporting |
The Company has organized its operations into
Management evaluates the performance of its segments and allocates resources to them based on operating income or (loss) as compared to prior periods and current performance levels. The reportable segment operational data is presented in the tables below (dollars in thousands):
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 |
2022 |
2023 |
2022 |
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as restated |
as restated |
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Revenue |
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North America |
$ | $ | $ | $ | ||||||||||||
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International |
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Income (loss) from operations |
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North America |
$ | ( |
) |
$ | ( |
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$ | ( |
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$ | ( |
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International |
( |
) |
( |
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$ | ( |
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$ | ( |
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Net income (loss) |
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North America |
$ | ( |
) |
$ | $ | ( |
) |
$ | ( |
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International |
( |
) |
( |
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) |
$ | $ | ( |
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$ | ( |
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Depreciation and amortization |
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North America |
$ | $ | $ | $ | ||||||||||||
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International |
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| $ | $ | $ | $ | |||||||||||||
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As of June 30, 2023 |
As of December 31, 2022 |
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Long-lived assets, net |
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North America |
$ | $ | ||||||
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International |
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| $ | $ | |||||||
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As of June 30, 2023 |
As of December 31, 2022 |
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|
Total assets |
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North America |
$ | $ | ||||||
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International |
||||||||
| $ | $ | |||||||
RYVYL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
15. |
Subsequent Events |
The Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Accordingly, the Company did not have any subsequent events that require disclosure other than the following:
In July 2023, the Company authorized a new class of Series A Preferred Convertible Stock (the “Series A Preferred Stock”), the terms of which are set forth in a Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock of RYVYL, Inc. (the “Certificate of Designations”), which the Company filed with the Nevada Secretary of State on July 26, 2023.
Under the terms of the Certificate of Designations, each share of Series A Preferred Stock will have a stated value of $
On July 31, 2023, the Company issued
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Quarterly Report on Form 10-Q, and other materials we have filed or may filed, as well as information included in our oral or written statements, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events.
You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Quarterly Report on Form 10-Q identify important matters or factors which you should consider in evaluating our forward-looking statements. These matters or factors include, among other things:
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Our ability to effectively execute our business plan; |
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Our ability to manage our expansion, growth and operating expenses both domestically and internationally; |
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Our ability to comply with new regulations and compliance requirements that affect our business; |
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Our ability to evaluate and measure our business, prospects and performance metrics; |
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Our ability to compete and succeed in an evolving industry; |
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Our ability to respond and adapt to rapid changes in technology; |
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Risks in connection with completed or potential acquisitions, post-acquisition integrations, dispositions and other strategic growth opportunities and initiatives; |
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Risks related to shareholders experiencing significant dilution if the 8% senior convertible note due in 2024 in the principal amount of $85.5 million in the event the 8% senior convertible note is repaid in stock; |
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Risks related to the blockchain and cryptocurrency industry or changes in the regulatory environment and turmoil in the banking sector with respect to digital asset management; and |
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Risks related to our dependence on our proprietary technology which we may not be able to protect. |
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The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the SEC or in our press releases) for other factors that may cause actual results to differ materially from those projected by the Company. For additional information regarding risk factors that could affect the Company’s results, see “Risk Factors” beginning on page 13 of the Annual Report on Form 10-K filed on April 17, 2023 and amended on August 10, 2023, and as may be included from time-to-time in our reports filed with the SEC.
The Company intends the forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise such forward-looking statements as more information becomes available or to reflect changes in expectations, assumptions or results. The Company can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q, could materially and adversely affect our results of operations, financial condition, and liquidity, and our future performance.
In this Quarterly Report on Form 10-Q, unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to RYVYL Inc (formerly known as GreenBox POS Inc.), a Nevada corporation.
Unless the context otherwise requires, all references to “PrivCo” or the “Private Company” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.
Our Management’s Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview – Organization and Name Changes
RYVYL Inc. is a financial technology company that develops, markets, and sells innovative blockchain-based payment solutions, which we believe offer significant improvements for the payment solutions marketplace. The Company’s core focus is developing and monetizing disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
The Company was formerly known as ASAP Expo, Inc (“ASAP”), and was incorporated in the State of Nevada on April 10, 2007. On January 4, 2020, PubCo and GreenBox POS LLC, a Washington limited liability company (“PrivCo”), entered into an Asset Purchase Agreement (the “Agreement”) On April 12, 2018, the Company acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business, kiosk business, bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, the Company assumed PrivCo’s liabilities that were incurred in the normal course of the GreenBox Business.
On October 13, 2022, the Company changed its name to RYVYL Inc.
On March 31, 2022, the Company agreed to acquire a portfolio of merchant accounts from Sky Financial & Intelligence (“Sky Financial”) for $18.1 million. The Company paid $16.0 million in cash in March 2022 and issued 500,000 shares of restricted common stock on May 12, 2022. The entire amount tendered in both cash and stock was recorded as an intangible Customer Relationship asset. As of the date of this filing, the Company has not received the delivery of the acquired merchant list and the associated ISO management portal access. The Company charged off the entire purchase price in 2022. Also, during 2022, the Company suspended its reporting of revenue from the Sky Financial portfolio.
On April 1, 2022, the Company completed the acquisition of Transact Europe Holdings OOD. Transact Europe EAD (TEU) is an EU regulated electronic money institution headquartered in Sofia, Bulgaria. TEU is a Principal Level Member of Visa, a Worldwide Member of MasterCard, and a Principal Member of China UnionPay and is also part of the direct Single Euro Payments Area program. With a global footprint, proprietary payment gateway, and technology platforms, TEU offers a comprehensive portfolio of services and decades of industry experience. The Company paid approximately $28.8 million (€26.0 million) in total consideration for the purchase.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Three Months Ended June 30, 2023 (Unaudited) Compared to Three Months June 30, 2022 (Unaudited):
|
Three Months Ended June 30 |
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2023 |
2022 |
Change |
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% of |
% of |
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Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
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as restated |
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Revenue |
$ | 14,849 | 100.0 | % | $ | 6,966 | 100.0 | % | $ | 7,883 | 113.2 | % | ||||||||||||
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Cost of revenue |
8,725 | 58.8 | % | 4,230 | 60.7 | % | 4,495 | 106.3 | % | |||||||||||||||
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Gross profit |
6,124 | 41.2 | % | 2,736 | 39.3 | % | 3,388 | 123.8 | % | |||||||||||||||
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Operating expenses: |
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Advertising and marketing |
33 | 0.2 | % | 527 | 7.6 | % | (494 | ) | -93.8 | % | ||||||||||||||
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Research and development |
1,184 | 8.0 | % | 1,920 | 27.6 | % | (736 | ) | -38.3 | % | ||||||||||||||
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General and administrative |
4,055 | 27.3 | % | 1,354 | 19.4 | % | 2,702 | 199.6 | % | |||||||||||||||
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Payroll and payroll taxes |
2,913 | 19.6 | % | 2,712 | 38.9 | % | 201 | 7.4 | % | |||||||||||||||
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Professional fees |
2,989 | 20.1 | % | 1,168 | 16.8 | % | 1,821 | 156.0 | % | |||||||||||||||
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Stock compensation for employees |
(32 | ) | -0.2 | % | 1,715 | 24.6 | % | (1,747 | ) | -101.9 | % | |||||||||||||
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Stock compensation for services |
- | 0.0 | % | 79 | 1.1 | % | (79 | ) | -100.0 | % | ||||||||||||||
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Depreciation and amortization |
623 | 4.2 | % | 2,127 | 30.5 | % | (1,504 | ) | -70.7 | % | ||||||||||||||
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Total operating expenses |
11,765 | 79.2 | % | 11,602 | 78.1 | % | 163 | 1.4 | % | |||||||||||||||
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Income (loss) from operations |
(5,641 | ) | -38.0 | % | (8,866 | ) | -59.7 | % | 3,225 | -36.4 | % | |||||||||||||
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Other income (expense): |
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Interest expense |
(1,517 | ) | -10.2 | % | (1,783 | ) | -25.6 | % | 266 | -14.9 | % | |||||||||||||
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Interest expense - debt discount |
(2,821 | ) | -19.0 | % | (5,582 | ) | -80.1 | % | 2,761 | -49.5 | % | |||||||||||||
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Derecognition upon conversion |
(188 | ) | -1.3 | % | - | 0.0 | % | (188 | ) | n/a | ||||||||||||||
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Loss on settlement of debt |
- | 0.0 | % | (757 | ) | -10.9 | % | 757 | -100.0 | % | ||||||||||||||
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Changes in fair value of derivative liability |
(497 | ) | -3.3 | % | 26,435 | 379.5 | % | (26,932 | ) | -101.9 | % | |||||||||||||
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Merchant fines and penalty income |
- | 37 | 0.5 | % | (37 | ) | -100.0 | % | ||||||||||||||||
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Other income or expense |
(1,337 | ) | -9.0 | % | 2,531 | 36.3 | % | (3,867 | ) | -152.8 | % | |||||||||||||
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Total other income (expense) |
(6,360 | ) | -42.8 | % | 20,880 | 140.6 | % | (27,239 | ) | -130.5 | % | |||||||||||||
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Income (loss) before provision for income taxes |
(12,001 | ) | -80.8 | % | 12,014 | 80.9 | % | (24,015 | ) | -199.9 | % | |||||||||||||
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Provision for income taxes |
4 | 0.0 | % | (77 | ) | -0.5 | % | 82 | -106.2 | % | ||||||||||||||
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Net loss |
$ | (12,005 | ) | -80.9 | % | $ | 12,092 | 81.4 | % | $ | (24,097 | ) | -199.3 | % | ||||||||||
Revenue
Revenue increased by $7.9 million, or 113%, to $14.8 million for the three months ended June 30, 2023, from $6.9 million for the three months ended June 30, 2022. The change in net revenue was primarily attributable to significant growth in processing volume from our acquired businesses RYVYL EU and American Samoa in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. North America revenue increased by 86%, from $5.9 million for the three months ended June 30, 2022 to $11.0 million for the three months ended June 30, 2023. International revenue increased 270%, from $1.0 million in the three months ended June 30, 2022 to $3.8 million for the three months ended June 30, 2023.
Cost of Revenue
Cost of revenue increased by $4.5 million, or 106%, to $8.7 million for the three months ended June 30, 2023, from $4.2 million for the three months ended June 30, 2022. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Cost of revenues increased due primarily to increased volume, resulting in higher processing fees paid to Gateways, commission payments to ISOs, and cost of revenue of acquired businesses in the US and EU.
Operating Expenses
Operating expenses increased by $0.2 million, or 1.4%, to $11.8 million for the three months ended June 30, 2023, from $11.6 million for the three months ended June 30, 2022. The increase was due primarily to higher general and administrative and external professional expenses for the three months ended June 30, 2023, which was partially offset by decreases in advertising and marketing, stock-based compensation expenses and depreciation and amortization.
The higher general and administrative expenses in the quarter ended June 30, 2023 are primarily attributable to non-recurring legal settlements and ongoing matters and related legal fees, non-recurring provision for credit losses on non-continuing legacy accounts, and accounting fees related to the restatement of prior period financial statements.
Other Income (Expense)
Other expense totaled $6.4 million for the three months ended June 30, 2023, compared to other income of $20.1 million for the three months ended June 30, 2022. Changes in the fair value of derivative liability amounted to a charge of $0.5 million for the three months ended June 30, 2023 and a credit of $26.4 million in the three months ended June 30, 2023. Interest expense for accretion of the debt discount related to the $100 million convertible note issued in November 2021 decreased by $2.8 million. Additionally, we incurred a charge of $0.2 million in the three months ended June 30, 2023, related to the conversion of debt and we recognized a loss of $0.8 million in the three months ended June 30, 2022 in connection with the settlement of debt. Other expense also included $1.2 million in carryover effects of financial statement restatements.
Excluding the effects of the highly volatile changes in the fair value of derivative liability, and the non-recurring carryover effects of financial statement restatements, other income (expense) increased by $0.3 million in the quarter ended June 30, 2023, compared to the year-earlier period.
Six Months Ended June 30, 2023 (Unaudited) Compared to Six Months June 30, 2022 (Unaudited):
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Six Months Ended June 30 |
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2023 |
2022 |
Change |
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% of |
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Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
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as restated |
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Revenue |
$ | 26,140 | 100.0 | % | $ | 11,176 | 100.0 | % | $ | 14,964 | 133.9 | % | ||||||||||||
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Cost of revenue |
14,903 | 57.0 | % | 7,010 | 62.7 | % | 7,893 | 112.6 | % | |||||||||||||||
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Gross profit |
11,237 | 43.0 | % | 4,166 | 37.3 | % | 7,071 | 169.7 | % | |||||||||||||||
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Operating expenses: |
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Advertising and marketing |
108 | 0.4 | % | 668 | 6.0 | % | (560 | ) | -83.9 | % | ||||||||||||||
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Research and development |
3,119 | 11.9 | % | 3,858 | 34.5 | % | (739 | ) | -19.1 | % | ||||||||||||||
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General and administrative |
5,508 | 21.1 | % | 3,146 | 28.1 | % | 2,362 | 75.1 | % | |||||||||||||||
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Payroll and payroll taxes |
5,627 | 21.5 | % | 5,096 | 45.6 | % | 531 | 10.4 | % | |||||||||||||||
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Professional fees |
4,792 | 18.3 | % | 2,672 | 23.9 | % | 2,120 | 79.3 | % | |||||||||||||||
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Stock compensation for employees |
161 | 0.6 | % | 1,882 | 16.8 | % | (1,721 | ) | -91.4 | % | ||||||||||||||
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Stock compensation for services |
- | 0.0 | % | 206 | 1.8 | % | (206 | ) | -100.0 | % | ||||||||||||||
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Depreciation and amortization |
1,242 | 4.8 | % | 2,581 | 23.1 | % | (1,339 | ) | -51.9 | % | ||||||||||||||
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Total operating expenses |
20,557 | 78.6 | % | 20,109 | 179.9 | % | 448 | 2.2 | % | |||||||||||||||
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Loss from operations |
(9,320 | ) | -35.7 | % | (15,943 | ) | -142.7 | % | 6,623 | -41.5 | % | |||||||||||||
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Other income (expense): |
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Interest expense |
(3,246 | ) | -12.4 | % | (5,613 | ) | -50.2 | % | 2,367 | -42.2 | % | |||||||||||||
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Interest expense - debt discount |
(5,443 | ) | -20.8 | % | (13,172 | ) | -117.9 | % | 7,729 | -58.7 | % | |||||||||||||
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Derecognition upon conversion |
(188 | ) | -0.7 | % | - | 0.0 | % | (188 | ) | n/a | ||||||||||||||
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Loss on settlement of debt |
- | 0.0 | % | (1,657 | ) | -14.8 | % | 1,657 | -100.0 | % | ||||||||||||||
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Changes in fair value of derivative liability |
(329 | ) | -1.3 | % | 18,735 | 167.6 | % | (19,064 | ) | -101.8 | % | |||||||||||||
|
Merchant fines and penalty income |
- | 0.0 | % | 82 | 0.7 | % | (82 | ) | -100.0 | % | ||||||||||||||
|
Other income or (expense) |
(1,448 | ) | -5.5 | % | 235 | 2.1 | % | (1,683 | ) | -715.5 | % | |||||||||||||
|
Total other income (expense) |
(10,653 | ) | -40.8 | % | (1,390 | ) | -12.4 | % | (9,263 | ) | 666.4 | % | ||||||||||||
|
Loss before provision for income taxes |
(19,973 | ) | -76.4 | % | (17,333 | ) | -155.1 | % | (2,640 | ) | 15.2 | % | ||||||||||||
|
Provision for income taxes |
9 | 0.0 | % | 2 | 0.0 | % | 7 | 290.5 | % | |||||||||||||||
|
Net loss |
$ | (19,982 | ) | -76.4 | % | $ | (17,335 | ) | -155.1 | % | $ | (2,647 | ) | 15.3 | % | |||||||||
Revenue
Revenue increased by $15.0 million, or 134%, to $26.1 million for the six months ended June 30, 2023, from $11.1 million for the six months ended June 30, 2022. The change in net revenue was primarily attributable to an increase in processing volume in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, and an increase in revenues from our acquired businesses including Charge Savvy, RYVYL EU and American Samoa. North America revenue increased by 96%, from $10.1 million for the six months ended June 30, 2022 to $19.8 million for the six months ended June 30, 2023. International revenue increased over 500%, from $1.0 million in the six months ended June 30, 2022 to $6.3 million for the six months ended June 30, 2023.
Cost of Revenue
Cost of revenue increased by $7.9 million, or 113%, to $14.9 million for the six months ended June 30, 2023, from $7.0 million for the six months ended June 30, 2022. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Cost of revenues increased due primarily to increased volume, resulting in higher processing fees paid to Gateways, commission payments to ISOs, and cost of revenue of acquired businesses in the US and EU.
Operating Expenses
Operating expenses increased by $0.5 million, or 2.2%, to $20.6 million for the six months ended June 30, 2023, from $20.1 million for the six months ended June 30, 2022. The increase was due primarily to higher general and administrative and external professional expenses for legal and accounting services for the financial restatement and 2022 annual reporting plus legal proceedings for the six months ended June 30, 2023, and was partially offset by decreases advertising and marketing, stock-based compensation expenses and depreciation and amortization.
The higher general and administrative expenses in the six-month period ended June 30, 2023 are primarily attributable to non-recurring legal settlements and ongoing matters and related legal fees, non-recurring provision for credit losses on non-continuing legacy accounts, and accounting fees related to the restatement of prior period financial statements.
Other Income (Expense)
Other expense increased to $10.7 million for the six months ended June 30, 2023, from $1.4 million for the six months ended June 30, 2022. Changes in the fair value of derivative liability amounted to a credit of $18.7 million for the six months ended June 30, 2022 and a charge of $0.3 million in the six months ended June 30, 2023. Interest expense, including expense related to the accretion of the debt discount related to the $100 million convertible note issued in November 2021 decreased by $10.1 million, due to a lower amount of debt outstanding. Additionally, we incurred a charge of $0.2 million in the six months ended June 30, 2023, related to the conversion of debt and we recognized a loss of $1.7 million in the six months ended June 30, 2022 in connection with the settlement of debt. Other expense also included $1.2 million in carryover effects of financial statement restatements.
Excluding the effects of the highly volatile changes in the fair value of derivative liability, and the non-recurring carryover effects of financial statement restatements, other income (expense) decreased by $9.8 million in the six-month period ended June 30, 2023 compared to the year-earlier six-month period.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure that represents our net loss before interest expense, amortization of debt discount, income tax expense, depreciation and amortization, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes.
We exclude these items in calculating Adjusted EBITDA because we believe that the exclusion of these items will provide for more meaningful information about our financial performance, and do not consider the excluded items to be part of our ongoing results of operations.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
Because of these and other limitations, you should consider Adjusted EBITDA alongside our other GAAP-based financial performance measures, net income (loss) and our other GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA from net loss, the most directly comparable GAAP measure, for the periods indicated:
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Three Months Ended June 30 |
Six Months Ended June 30 |
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2023 |
2022 |
2023 |
2022 |
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(dollars in thousands) |
(dollars in thousands) |
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Net income (loss) |
$ | (12,005 | ) | $ | 12,092 | $ | (19,982 | ) | $ | (17,335 | ) | |||||
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Interest expense, excluding amortization of debt discount |
1,517 | 1,783 | 3,246 | 5,613 | ||||||||||||
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Amortization of debt discount |
2,821 | 5,582 | 5,443 | 13,172 | ||||||||||||
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Income tax expense (benefit) |
5 | (77 | ) | 9 | 2 | |||||||||||
|
Depreciation and amortization |
623 | 2,127 | 1,242 | 2,581 | ||||||||||||
|
EBITDA |
(7,039 | ) | 21,507 | (10,042 | ) | 4,033 | ||||||||||
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Other non-cash adjustments |
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|
Changes in fair value of derivative liability |
497 | (26,435 | ) | 329 | (18,735 | ) | ||||||||||
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Derecognition expense on conversion of convertible debt |
188 | - | 188 | - | ||||||||||||
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Stock compensation for employees |
(32 | ) | 1,715 | 161 | 1,882 | |||||||||||
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Stock compensation for services |
- | 79 | - | 206 | ||||||||||||
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Special Items |
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Non-recurring legal settlements and ongoing matters and related legal fees |
3,279 | - | 3,279 | - | ||||||||||||
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Carryover effects of financial statement restatements in prior periods |
1,222 | - | 1,222 | - | ||||||||||||
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Non-recurring provision for credit losses on legacy matters |
625 | - | 625 | - | ||||||||||||
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Accounting fees related to the restatement of prior period financial statements |
237 | - | 237 | - | ||||||||||||
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Non-recurring impairment of right of use asset |
100 | 100 | - | |||||||||||||
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Non-recurring costs of spin-off |
29 | 29 | ||||||||||||||
|
Adjusted EBITDA |
$ | (894 | ) | $ | (3,134 | ) | $ | (3,872 | ) | $ | (12,614 | ) | ||||
|
Loss from operations |
$ | (5,641 | ) | $ | (8,866 | ) | $ | (9,320 | ) | $ | (15,943 | ) | ||||
Non-GAAP Measures
U.S. generally accepted accounting procedures (“GAAP”) requires that operating expenses include the amortization of acquired intangible assets, which principally include acquired customer relationships and developed technology. We exclude amortization of intangibles from Adjusted EBITDA because we do not consider amortization expense when we evaluate our ongoing business operations, nor do we factor amortization expense into our evaluation of potential acquisitions, or our measurement of the performance of those acquisitions. We believe that the exclusion of amortization expense enables the comparison of our performance to other companies in our industry as other companies may be more or less acquisitive than us and therefore, amortization expense may vary significantly by company based on their acquisition history. Although we exclude amortization of acquired intangible assets from Adjusted EBITDA, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
We record depreciation primarily for investments in property and equipment. We exclude depreciation in calculating Adjusted EBITDA because we do not consider depreciation when we evaluate our ongoing business operations.
We exclude stock-based compensation expense and other forms of equity incentives primarily awarded to employees because they are non-cash charges that we do not consider when assessing the operating performance of our business. Additionally, the determination of stock-based compensation expense can be calculated using various methodologies and is dependent upon subjective assumptions and other factors that vary on a company-by-company basis. Therefore, we believe that excluding stock-based compensation expense from Adjusted EBITDA improves the comparability of our results to the results of other companies in our industry.
Included in operating expenses are incremental costs directly related to business and asset acquisitions as well as changes in the fair value of contingent consideration liabilities, when applicable. We exclude acquisition-related expense from Adjusted EBITDA because we believe that the exclusion of this expense allows us to better provide meaningful information about our operating performance, facilitates comparisons to our historical operating results, improves the comparability of our results to the results of other companies in our industry, and ultimately, we believe helps investors better understand the acquisition-related expense and the effects of the transaction on our results of operations.
We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes to be indicative of our core operating performance. We do not adjust for ordinary course legal expenses.
Adjusted EBITDA is a key measure that our management uses to understand and evaluate our core operating performance and trends to generate future operating plans, to make strategic decisions regarding the allocation of capital, and to make investments in initiatives that are focused on cultivating new markets for our solutions. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related adjustments and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance. Adjusted EBITDA is not a measure calculated in accordance with GAAP and should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Liquidity and Capital Resources
Our primary source of liquidity has historically been derived from raising capital through the issuance of debt or common stock. Our cash flow from operations has not historically been sufficient to cover our cash requirements.
Notwithstanding the net operating loss for the three months and six months ended June30, 2023, management believes that our current cash balance is sufficient to fund operations for at least one year from the date this Quarterly Report on Form 10-Q is filed with the SEC.
As previously reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 26, 2023, on July 25, 2023, we entered into an Exchange Agreement (the “Exchange Agreement”) with an institutional investor (the “Investor”), which previously provided $100 million in convertible note financing to the Company, evidenced by an 8% Convertible Note Due 2023, issued to the Investor on November 8, 2021 (the “Note”), which Note was originally due on November 5, 2023, and which maturity date was extended to November 5, 2024, pursuant to a Restructuring Agreement, dated as of August 16, 2022.
Under the terms of the Exchange Agreement, the Company and the Investor agreed to exchange (the “Exchanges”), in two separate exchanges, an aggregate of $22.703 million of the outstanding principal and interest under the Note for 15,000 shares of a newly authorized series of preferred stock of the Company designated as Series A Preferred Convertible Stock (the “Series A Preferred Stock”).
On July 31, 2023, pursuant to the terms of the Exchange Agreement, the Company closed the first of the two Exchanges (the “Initial Exchange”) and issued to the Investor 6,000 shares of Series A Preferred Stock in exchange for $4,297,000 of the outstanding principal balance of the Note and $1,703,000 of accrued interest.
The Initial Exchange was made in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended.
For more information on the provisions of the Exchange Agreement and the Leak-Out Agreement, also entered into by the Company and the Investor on July 25, 2023, please see the July 26th Form 8-K and the exhibits filed therewith.
We may, in the future, seek to raise additional capital to fund growth, operations and other business activities, but such additional capital may not be available to us on acceptable terms, on a timely basis, or at all.
The following table summarizes our cash flows from operating, investing and financing activities (unaudited):
|
Six Months Ended June 30, |
||||||||
|
2023
|
2022 (as restated) |
|||||||
|
(dollars in thousands) |
||||||||
|
Cash provided by operating activities |
$ | 23,129 | $ | 3,095 | ||||
|
Cash used in investing activities |
(17 |
) |
(45,559 |
) |
||||
|
Cash used in financing activities |
(7 |
) |
(9,232 |
) |
||||
|
Effect of exchange rate changes on cash |
(13 |
) |
(915 |
) |
||||
|
Cash acquired from acquisition of Transact Europe |
- | 18,677 | ||||||
|
Net increase (decrease) in cash, cash equivalents, and restricted cash |
$ | 23,092 | $ | (33,934 |
) |
|||
Operating Activities – For the six months ended June 30, 2023 and 2022, net cash provided by operating activities was $23.1 million and $3.1 million, respectively. The cash provided by operating activities was primarily due to the timing of settlement of assets and liabilities.
Investing Activities – Net cash used in investing activities for the six months ended June 30, 2022 primarily consisted of the acquisition of Transact Euro and Sky Financial. Investing activities for the six months ended June 30, 2023 were negligible.
Financing Activities – Net cash used by financing activities primarily consisted of repurchases of common stock under treasury method of $3.2 million and repayment of convertible debt of $6,000,000 for the six months ended March 31, 2022. Financing activities for the six months ended June 30, 2023 were negligible.
Critical Accounting Estimates
Management strives to report our financial results in a clear and understandable manner, although in some cases accounting and disclosure rules and principles are complex and require us to use technical terminology. In preparing the Company's Consolidated Financial Statements, we follow accounting principles generally accepted in the U.S. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations as reflected in our financial statements. These judgments and estimates are based on past events and expectations of future outcomes. The amounts of assets and liabilities reported on our balance sheet and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions, which are used for, but not limited to among other things, the accounting for revenue recognition, stock-based compensation and the valuation of deferred taxes. Actual results may differ from our estimates. Management continually reviews our accounting policies including how they are applied and how they are reported and disclosed in our financial statements. Below is a summary of our critical accounting estimates and how they are applied in preparation of the financial statements.
Revenue Recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies.
The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.
The Company generates revenue from payment processing services, licensing fees and equipment sales.
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● |
Payment processing revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed. |
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● |
Licensing revenue is paid in advance and is recorded as unearned income, which is amortized over the period of the licensing agreement. |
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● |
Equipment sales revenue is generated from the sale of POS products, which is recognized when goods are shipped. Revenue recognized from the sale of equipment was not material. |
Cash Due from Gateways and Payment Processing Liabilities
The Company’s primary source of revenues consists of payment processing services for its merchant clients. When a merchant makes a sale, the process of receiving the payment card information, engaging the banks for transferring the proceeds to the merchant’s account via digital gateways, and recording the transaction on a blockchain ledger are the activities for which the Company collects fees.
In 2023 and 2022 the Company utilized several gateways. The gateways have strict guidelines pertaining to scheduling of the release of funds to merchants based on several criteria, such as, among other things, return and chargeback history, associated risks for specific business verticals, and average transaction amounts. To mitigate processing risks, these policies determine reserve requirements and payment-in-arrears strategies. While reserve and payment-in-arrears restrictions are in effect for a merchant payout, the Company records gateway debt against these amounts until released.
Cash due from gateways balances presented in the accompanying consolidated balance sheets represent amounts due to the Company for transactions processed wherein the funds have not been distributed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
ITEM 4. CONTROLS AND PROCEDURES
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of December 31, 2022, our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to our management, including our principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In connection with the financial statement restatements as discussed elsewhere in this report, the Company has reassessed its conclusions regarding the effectiveness of the Company’s internal control over financial reporting as of June 30, 2023, and December 31, 2022, and has determined that one or more material weaknesses exist in the Company’s internal control including a material weakness related to accounting for certain complex business transactions. The Company has engaged third party technical accounting experts to support proper accounting for complex accounting transactions. As a result of the material weakness, the Company’s management concluded its disclosure controls and procedures were not effective as of June 30, 2023, March 31, 2023, December 31, 2022, and September 30, June 30, and March 31, 2022.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company has implemented enhanced reconciliation reviews and reporting of its payment processing activities including gross volumes, fees assessment and return items in 2022 because of the restatement efforts. There were no other material changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act or in other factors that materially affected or are reasonably likely to materially affect our internal controls and procedures over financial reporting during the first quarter of the year ending December 31, 2023.
During the second quarter of 2023, Management identified an internal control deficiency over financial reporting primarily related to the segregation of duties. Management recognizes that the segregation of duties within certain part of its accounting processes can be inadequate for Management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis, and that this deficiency is important enough to merit attention by Management. Specifically, due to the size of the Company and the smaller nature of department teams, opportunities are currently limited to segregate duties, resulting in too few individuals having responsibility for the processing of certain financial information.
While we have designed and implemented, or expect to implement, measures that we believe address or will address this control deficiency, we continue to develop our internal controls, processes and reporting systems by, among other things, hiring qualified personnel with expertise to perform specific functions, and designing and implementing improved processes and internal controls, including ongoing senior management review and audit committee oversight. We plan to remediate the identified control deficiency through the redistribution of job responsibilities, by hiring additional senior accounting staff, and through the design and implementation of additional internal controls in order to promote adequate segregation of duties. We expect to complete the remediation in 2023 in conjunction with the process of developing our various business processes. We expect to incur additional costs to remediate this weakness, primarily personnel costs.
Additional external experienced personnel have been engaged in the accounting and finance department as part of the financial reporting processes. In connection with our preparation of quarterly information, we are implementing new procedures and internal controls surrounding the month-end financial closing and financial reporting processes to ensure proper segregations of duties, and thorough review of journal entries, account reconciliations, access controls and financial statements.
The new procedures and internal controls, however, were not fully implemented as of June 30, 2023. The Company has engaged a new Interim Chief Financial Officer, effective June 1, 2023, hired a new Corporate Controller, effective after the end of the quarter ended June 30, 2023, and is also conducting an on-going search for key management positions in critical control areas. In addition, management intends to initiate measures to immediately remediate the identified material weakness by implementing the new procedures and internal controls. These measures include, but are not limited to, applying a more rigorous review of the monthly financial reporting processes to ensure that the performance of the control is evidenced through appropriate documentation, which is consistently maintained, and evaluating necessary changes to the Company’s formalized process to ensure key controls are identified, the control design is appropriate, and the necessary evidentiary documentation is maintained throughout the process.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information called for by this item is incorporated herein by reference to Note 13 Commitments and Contingencies included in Part I, Item 1, Financial Statements (unaudited) — Notes to Unaudited Condensed Consolidated Financial Statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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3.1 |
Amended and Restated Articles of Incorporation of the Company. |
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3.2 |
Amended and Restated Bylaws of the Company. |
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4.2 |
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4.3 |
Form of Leak-Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on July 26, 2023). | |
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31.1 |
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31.2 |
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32.1* |
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32.2* |
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101.INS |
Inline XBRL Instance Document |
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101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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RYVYL INC. |
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(Registrant) |
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Date: August 14, 2023 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
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Chief Executive Officer (Principal Executive Officer) |
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Date: August 14, 2023 |
By: |
/s/ Gene Jones |
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Gene Jones |
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Interim Chief Financial Officer (Principal Financial Officer) |
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