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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| (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 |
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 ☐ No
As of November 12, 2024, the Registrant had
TABLE OF CONTENTS
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PART I Consolidated Financial Information |
Page |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023 |
3 |
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Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months and Nine Months Ended September 30, 2024 and 2023 (unaudited) |
4 |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2024 and 2023 (unaudited) |
5 |
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited) |
7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
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Item 3. |
39 |
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Item 4. |
39 |
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PART II Other Information |
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Item 1. |
40 |
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Item 2. |
42 |
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Item 3. |
42 |
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Item 4. |
42 |
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Item 5. |
42 |
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Item 6. |
43 |
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44 |
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYVYL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
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September 30, 2024 |
December 31, 2023 |
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(Unaudited) |
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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 for credit losses 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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Goodwill |
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Intangible assets, net |
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Operating lease right-of-use assets, net |
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Other assets |
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Total non-current assets |
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Total assets |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities: |
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Accounts payable |
$ | $ | ||||||
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Accrued liabilities |
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Payment processing liabilities, net |
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Current portion of operating lease liabilities |
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Other current 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: |
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| Preferred stock, Series B, par value $ |
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| Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
( |
) | ( |
) | ||||
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RYVYL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except share and per share data)
(Unaudited)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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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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Depreciation and amortization |
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Impairment of goodwill |
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Restructuring charges |
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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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Accretion of debt discount |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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Changes in fair value of derivative liability |
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Derecognition expense on conversion of convertible debt |
( |
) | ( |
) | ( |
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Legal settlement expense |
( |
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) | ( |
) | ( |
) | ||||||||
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Other income (expense) |
( |
) | ( |
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Total other income (expense), net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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Loss before provision for income taxes |
( |
) | ( |
) | ( |
) | ( |
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Income tax provision |
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Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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Comprehensive income statement: |
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Net loss |
( |
) | ( |
) | ( |
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Foreign currency translation gain (loss) |
( |
) | ( |
) | ||||||||||||
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Total comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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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 unaudited condensed consolidated financial statements.
RYVYL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share data)
(Unaudited)
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Common Stock |
Preferred Stock |
Additional | Other Accumulated Comprehensive | Accumulated | Total Stockholders' | |||||||||||||||||||||||||||
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Shares |
Amount |
Series B Shares |
Amount |
Paid In Capital |
Income (Loss) |
Deficit |
Equity |
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Balance at December 31, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
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Issuance of common stock under equity incentive plans |
- | - | - | - | ||||||||||||||||||||||||||||
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Issuance of restricted common stock under equity incentive plans |
- | - | - | - | - | |||||||||||||||||||||||||||
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Issuance of common stock upon exercise of stock options |
- | - | - | - | - | - | - | |||||||||||||||||||||||||
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Shares forfeited |
( |
) | ( |
) | - | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||
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Net loss and comprehensive loss |
- | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
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Balance at March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
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Issuance of restricted common stock under equity incentive plans |
- | - | - | - | - | |||||||||||||||||||||||||||
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Issuance of common stock upon conversion of convertible debt |
- | - | - | - | - | |||||||||||||||||||||||||||
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Issuance of common stock upon conversion of Series B preferred stock |
( |
) | - | ( |
) | - | - | - | ||||||||||||||||||||||||
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Shares forfeited |
( |
) | - | - | - | ( |
) | - | - | ( |
) | |||||||||||||||||||||
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Net loss and comprehensive loss |
- | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
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Balance at June 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
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Issuance of restricted common stock under equity incentive plans |
- | - | - | - | ||||||||||||||||||||||||||||
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Issuance of common stock upon conversion of convertible debt |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
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Issuance of common stock upon conversion of Series B preferred stock |
( |
) | ( |
) | ( |
) | - | - | ||||||||||||||||||||||||
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Shares forfeited |
( |
) | ( |
) | - | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||
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Net loss and comprehensive loss |
- | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||
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Balance at September 30, 2024 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
RYVYL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share data)
(Unaudited)
|
Common Stock |
Treasury Stock |
Deferred Stock | Additional |
Other Accumulated Comprehensive |
Accumulated |
Total Stockholders' Equity |
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Shares |
Amount |
To be Issued |
Amount |
To be returned |
Amount |
Shares |
at Cost |
Compensation |
Paid In Capital |
Income (Loss) |
Deficit |
(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 |
- | - | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||
|
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 |
( |
) | - | - | - | - | - | - | - | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||||||||||||||||||
|
Net loss and comprehensive loss |
- | - | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
|
Balance at June 30, 2023 |
- | - | - | - | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
|
Common stock issued to employees for compensation |
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
|
Restricted common stock issued for compensation |
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
|
Shares forfeited |
- | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
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Net loss and comprehensive loss |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||
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Balance at September 30, 2023 |
$ | - | $ | - | - | $ | - | - | $ | - | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RYVYL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
Nine Months Ended September 30, |
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2024 |
2023 |
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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 (used in) 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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Accretion of debt discount |
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Derecognition expense upon conversion of convertible debt |
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Changes in fair value of derivative liability |
( |
) | ( |
) | ||||
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Impairment of goodwill |
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Restructuring charges |
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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, net |
( |
) | ||||||
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Other assets |
( |
) | ( |
) | ||||
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Accounts payable |
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Accrued and other current liabilities |
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Accrued interest |
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Payment processing liabilities, net |
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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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Capitalized software development costs |
( |
) | ||||||
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Purchase of intangible assets |
( |
) | ||||||
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Net cash used in investing activities |
( |
) | ( |
) | ||||
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Cash flows from financing activities: |
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Repayments on long term debt |
( |
) | ( |
) | ||||
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Treasury stock purchases |
( |
) | ||||||
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Net cash used in financing activities |
( |
) | ( |
) | ||||
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Effects of exchange rates on cash, cash equivalents, and restricted cash |
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Net increase in cash, cash equivalents, and restricted cash |
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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 |
$ | $ | ||||||
|
Convertible debt conversion to preferred stock |
$ | $ | ||||||
|
Interest accrual from convertible debt converted to preferred stock |
$ | $ | ||||||
|
Interest accrual from convertible debt converted to common stock |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RYVYL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
1. |
Description of the Business |
Organization
RYVYL Inc. 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.
Name Change
On May 3, 2018, PubCo 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. Unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer collectively to RYVYL Inc. and its subsidiaries. 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.
|
2. |
Summary of Significant Accounting Policies |
Going Concern
In February 2024, the Company transitioned its QuickCard product in North America away from terminal-based to app-based processing. This transition was driven by a change in our banking partner that was prompted by recent changes in the compliance environment and banking regulations impacting certain niche high-risk business verticals, which were the predominant revenue driver for QuickCard. The recovery of revenues associated with this product transition has been impacted by continuous changes in the regulatory environment and our previous banking relationships, which led management to make the decision, during the second quarter of 2024, to terminate the rollout of the app-based product in certain niche high-risk business verticals. To address this change, the Company recently introduced a licensing product for its payments processing platform, which will enable it to serve the same customer base in such verticals through a business partner with more suitable banking compliance capabilities. Revenues from the new licensing product are not expected to materialize until early 2025. These developments have led to a significant decline in revenues in the Company’s North America segment since the first quarter of 2024.
The decline in revenues has adversely impacted the Company’s liquidity in the short term, within the North America segment. As a result, management has determined that the Company’s cash and cash equivalents as of September 30, 2024 are not sufficient to fund the North America segment’s operations and capital needs for the next 12 months from the issuance of this Report. As a result, substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon the successful execution of management’s intended plan over the next twelve months to improve the liquidity of its North America segment, which includes, without limitation:
|
| ● | continued execution of its accelerated business development efforts to drive volumes in diversified business verticals with the Company’s other products, including the recently launched licensing of the Company’s payments processing platform in certain niche high-risk business verticals; |
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| ● | continued implementation of cost control measures to more effectively manage spending in the North America segment and right sizing the organization, where appropriate; |
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| ● | the sale of certain noncore assets; and |
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| ● | repatriation of offshore profits from the Company’s European subsidiaries, whose continued accelerated growth and generation of positive cash flow have already provided, and will continue to provide an immediate and viable short-term source of capital during this product transition. As of the date of the issuance of this Report, the Company has repatriated approximately $ |
Management has assessed that its intended plan described above, if successfully implemented, is appropriate and sufficient to address the liquidity shortfall in its North America segment and provide sufficient funds to cover operations for the next 12 months from the date of issuance of this Report. However, there can be no guarantee that we will be successful in implementing our plan, that our projections of our future capital needs will prove accurate, or that any additional funding will be sufficient to continue our operations in the North America segment. The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The report of the Company’s independent auditor on the consolidated financial statements for the year ended December 31, 2023 contains an explanatory paragraph referring to a substantial doubt concerning the Company’s ability to continue as a going concern.
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 interim 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 for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 26, 2024 (the “2023 Annual Report”).
In the opinion of management, these unaudited interim 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. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.
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.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported financial position, results of operations or cash flows.
Reverse Stock Split
On September 6, 2023, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Nevada to effect a
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents primarily consist of cash on hand and cash on deposit with banks.
Restricted cash substantially consists of cash received from gateways for merchant transactions processed, which has yet to be distributed to merchants, Independent Sales Organizations (“ISOs”) and their agents at the end of the period.
The gateways have strict policies pertaining to the scheduling of the release of funds to merchants based on several criteria that include, but are not limited to, return and chargeback history, associated risk for the specific business vertical, average transaction amount, etc. To mitigate potential credit losses associated with these risks, the gateways use these policies to determine reserve requirements and a payment in arrears strategy. While reserve and payment in arrears restrictions are in effect for a merchant payout, the Company records the reserved amounts against cash due from the gateways until the restriction is released.
Cash Due from Gateways, Net
The Company generates the majority of its revenue from payment processing services provided to 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 gets to collect fees. Cash due from gateways represent amounts due to the Company for transactions processed but not yet distributed by the gateways.
Payment Processing Liabilities
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, a 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’s ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by the Company. The Company facilitates all financial elements of its closed-loop ecosystem, and it acts as the administrator for all related accounts. Using the Company’s TrustGateway technology, the Company seeks authorization and settlement for each transaction from gateways to the issuing bank responsible for the credit/debit card used in the transaction. When a gateway settles the transaction, the Company’s TrustGateway technology composes a chain of blockchain instructions to the Company’s ledger manager system.
When consumers use their credit or debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer funding their virtual wallets with an amount that is equal to the cost of the good or service they intend to purchase from the merchant. Once this occurs, the Company transfers the respective funds to the merchant’s virtual wallet, 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 the Company’s blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between the Company and the gateways the Company uses, between the Company and its ISOs, and between the Company and/or its ISOs and merchants who use the Company’s services. In the case where the gateways have not yet remitted funds to the Company pertaining to transactions already processed, the Company records those amounts as cash due from gateways, net – a current asset. Concurrently, the Company records a portion of the cash due from gateways as revenue and the remaining balance, which is due to merchants and ISOs, as payment processing liabilities, net – a current liability. The balance included in payment processing liabilities, net in the consolidated balance sheets is equal to the sum of amounts due to merchants and ISOs related to the aforementioned unsettled transactions and the amounts due to merchants and ISOs on already settled transactions that these merchants and ISOs have not yet redeemed in the blockchain.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company generates the majority of its revenue from payment processing services. Payment processing services revenue is typically based on a percentage of the value of each transaction processed and/or upon fixed amounts specified per each transaction or service. The Company satisfies its performance obligations and, therefore, recognizes the processing fees as revenue at a point in time, upon the authorization of a merchant sale transaction.
Research and Development Costs
Research and development costs primarily consist of salaries and benefits for research and development personnel and outsourced contracted services, as well as associated supplies and materials. These costs are expensed as incurred.
Internal-use Software Development Costs
Internal-use software development costs consist of the costs related to outsourced consultants who are directly associated with and who devote time to creating and enhancing internally developed software for the Company’s platforms. Internal-use software development activities generally consist of three stages: (i) the preliminary project stage, (ii) the application development stage, and (iii) the postimplementation-operation stage. In accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software, costs incurred in the preliminary and postimplementation-operation stages of software development are expensed as incurred. Costs incurred in the application development stage, including significant enhancements and upgrades, are capitalized. Capitalized internal-use software development costs are included within property and equipment, net on the unaudited condensed consolidated balance sheets, and are amortized on a straight-line basis over an estimated useful life of three years upon the software or additional features being ready for their intended use.
Accounts Receivable, Net
Accounts receivable consist of amounts recorded in connection with the sale of payment processing terminals and related accessories. Accounts receivable are recorded at invoiced amounts, net of an allowance for credit losses, and do not bear interest. In accordance with Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), the Company measures its allowance for credit losses using an expected credit loss model that reflects the Company’s current estimate of expected credit losses inherent in the enterprise and the accounts receivable balance. In determining the expected credit losses, the Company considers its historical loss experience, the aging of its accounts receivable balance, current economic and business conditions, and anticipated future economic events that may impact collectability. The Company reviews its allowance for credit losses periodically and, as needed, amounts are written-off when determined to be uncollectible. As of September 30, 2024 and December 31, 2023, the allowance for credit losses was immaterial.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets primarily consist of inventory and short term deposits made by our European subsidiaries with credit card companies.
Property and Equipment, Net
Property and equipment primarily consist of computer equipment, leasehold improvements, and furniture and fixtures. Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from
Fair Value Measurements
The Company applies fair value accounting for assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. Fair value is defined as the price received to sell an asset or paid to transfer a liability in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820, Fair Value Measurements, establishes a three-level hierarchy priority for disclosure of assets and liabilities recorded at fair value. The ordering of priority reflects the degree to which objective prices in external active markets are available to measure fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The three levels in the hierarchy are as follows:
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● |
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
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● |
Level 2 – Observable inputs other than Level 1 quoted 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. |
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● |
Level 3 – Unobservable inputs that cannot be directly corroborated by observable market data and that typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. |
The Company measures its convertible note and related derivative liability at fair value. The Company classifies these liabilities as Level 3 of the fair value hierarchy, as fair values are estimated using models that use both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
Goodwill and Intangible Assets
Goodwill is recorded when the consideration paid for the acquisition of a business exceeds the fair value of the identifiable net tangible and intangible assets acquired. ASC 350-20, Intangibles—Goodwill and Other—Goodwill, requires companies to assess goodwill for impairment annually or more frequently if indicators of impairment exist. Testing goodwill for impairment is performed at the reporting unit level, using a two-step test, and requires companies to compare the fair value of a reporting unit with its carrying amount, including goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds its fair value. ASC 350-20 also provides for an optional qualitative assessment for testing goodwill for impairment that enables companies to skip the two-step test if it is determined that it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is greater than its carrying amount.
The Company’s policy is to perform its annual impairment test of goodwill as of December 31 of each fiscal year or more frequently if indicators of impairment are identified. Based on the most recent impairment assessment, performed as of June 30, 2024, the Company previously recorded an impairment charge of $
Intangible assets consist of acquired customer relationships and business intellectual properties. In accordance with ASC 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill, the Company’s intangible assets are amortized over their estimated useful lives, ranging from
Leases
The Company leases office space under non-cancellable operating leases with various expiration dates. The Company determines whether an arrangement is a lease for accounting purposes at contract inception. Operating leases are recorded as right-of-use (“ROU”) assets, which are included within noncurrent assets, and lease liabilities, which are included within current and noncurrent liabilities on our consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. ROU assets are based on the lease liability and are increased by prepaid lease payments and decreased by lease incentives received, where applicable. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate because the interest rate implicit in the Company’s leases is not readily determinable. The Company’s incremental borrowing rate is estimated to approximate the interest rate that the Company would pay to borrow on a collateralized basis with similar terms and payments as the lease, and in economic environments where the leased asset is located. Certain leases require the Company to pay taxes, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities. These lease costs are recognized as lease expenses when incurred.
The Company evaluates ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of a ROU asset may not be recoverable. When a decision has been made to exit a lease prior to the contractual term or to sublease that space, the Company evaluates the asset for impairment and recognizes the associated impact to the ROU asset and related expense, if applicable. The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level. Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives. If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques.
Foreign Currency
Assets and liabilities of our foreign subsidiaries are translated into the reporting currency using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the period, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive income in the accompanying interim consolidated statements of stockholders’ equity.
Stock Based Compensation
Stock-based compensation expense relates to restricted stock awards (“RSAs”) and stock options granted to employees and non-employee directors under the Company’s equity incentive plans, which are measured based on the grant-date fair value. The fair value of RSAs is determined by the closing price of the Company’s common stock on the grant date. The fair value of stock options is estimated on the date of grant using the Black-Scholes-Merton option valuation model. Generally, stock-based compensation expense is recorded on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur.
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 of 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.
Net Loss Per Share
The Company’s basic net loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding during the period without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss available to common shareholders by the weighted-average number of shares of common stock outstanding, adjusted for the dilutive effect of all potential shares of common stock. For the three and nine-month periods ended September 30, 2024 and 2023, the Company’s diluted net loss per share is the same as the basic net loss per share, since there are no common stock equivalents outstanding that would have a dilutive effect.
Segment Reporting
The Company determines its reportable segments based on how its Chief Operating Decision Maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer and we have identified
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended by subsequently issued ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03 and 2022-02 (collectively, “Topic 326”). Topic 326 requires entities to utilize a new impairment model known as the current expected credit loss (“CECL”) model for certain financial assets held at the reporting date. The CECL model requires entities to estimate lifetime “expected credit loss” amounts and record them as an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. The guidance also amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on such debt security is a credit loss. The Company adopted the updates as of January 1, 2023, with no material impact on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (ASC 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. Under current accounting standards, contract assets and contract liabilities acquired in a business combination are to be recorded at fair value using the ASC 805 measurement principle. ASU 2021-08 is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022. The adoption of ASU 2021-08, effective January 1, 2023, did not have an impact on the financial condition, results of operations, cash flows and disclosures of the Company.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 aims to simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. ASU 2020-06 also simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity and amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. Early adoption is permitted for fiscal years beginning after December 15, 2020. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods therein. The adoption of ASU 2020-06, effective January 1, 2024, did not have an impact on the financial condition, results of operations, cash flows and disclosures of the Company.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the impact this amended guidance may have on the footnotes to its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. This amended guidance requires fair value measurement of certain crypto assets each reporting period with the changes in fair value reflected in net income. The amendments also require disclosures of the name, fair value, units held, and cost bases for each significant crypto asset held and annual reconciliations of crypto asset holdings. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted. We are required to apply these amendments as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is adopted. The adoption of this guidance is not expected to have an impact on our consolidated financial statements, as we currently do not hold any crypto assets.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five (5) percent of total income taxes paid (net of refunds received). The amended guidance is effective for fiscal years beginning after December 15, 2024. The guidance can be applied either prospectively or retrospectively. The Company is currently in the process of evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.
|
3. |
Acquisitions |
Logicquest Technology, Inc.
In April 2023, the Company executed a purchase agreement for
As previously disclosed, the Company originally intended to transfer the Coyni platform assets, which are owned by the Company, into Coyni PubCo, and subsequently spin-off Coyni PubCo into a new publicly traded entity. However, we subsequently determined that it was in the best interest of the Company and its shareholders to retain the Coyni Platform at the Company to expand payment processing and banking-as-a-service solutions. As such, management no longer plans to pursue a spin-off of Coyni PubCo.
Merchant Payment Solutions LLC
In November 2021, the Company executed a term sheet to acquire certain Automated Clearing House (“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 $
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4. |
Property and Equipment, Net |
|
September 30, 2024 |
December 31, 2023 |
|||||||
|
Computers and equipment |
$ | $ | ||||||
|
Furniture and fixtures |
||||||||
|
Improvements |
||||||||
|
Internal-use software development |
||||||||
|
Total property and equipment |
||||||||
|
Less: accumulated depreciation |
( |
) | ( |
) | ||||
|
Net property and equipment |
$ | $ | ||||||
Depreciation expense was $
|
5. |
Goodwill |
|
North America |
International |
Consolidated |
||||||||||
|
Goodwill - December 31, 2023 |
$ | $ | $ | |||||||||
|
Goodwill Acquired |
||||||||||||
|
Goodwill Impairment |
( |
) | ( |
) | ||||||||
|
Adjustments (1) |
||||||||||||
|
Goodwill – September 30, 2024 |
$ | $ | $ | |||||||||
(1)
|
6. |
Intangible Assets, Net |
|
September 30, 2024 |
December 31, 2023 |
|||||||||||||||||||||||||
|
Intangible Assets |
Amortization Period |
Cost |
Accumulated Amortization |
Net |
Cost |
Accumulated Amortization |
Net |
|||||||||||||||||||
|
Customer relationships |
|
$ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||
|
Business technology/IP |
|
( |
) | ( |
) | |||||||||||||||||||||
|
Total intangible assets |
$ | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
Amortization expense was $
|
Year |
Amount |
|||
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2024 (remainder) |
$ | |||
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2025 |
||||
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2026 |
||||
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2027 |
||||
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2028 |
||||
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Thereafter |
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Total |
$ | |||
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7. |
Accrued Liabilities |
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September 30, 2024 |
December 31, 2023 |
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Accrued gateway fees |
$ | $ | ||||||
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Payroll related accruals |
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Accrued legal and professional fees |
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Accrued taxes |
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Accrued legal settlement |
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Other |
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Total accrued liabilities |
$ | $ | ||||||
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8. |
Long-Term Debt, Net |
| September 30, 2024 | December 31, 2023 | |||||||
| $ | $ | $ | ||||||
| Less: Unamortized debt discount | ( | ) | ( | ) | ||||
| Net carrying value | ||||||||
| $ | ||||||||
| $ | ||||||||
| Total debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term debt, net | $ | $ | ||||||
Senior Convertible Note
On November 8, 2021, the Company sold and issued, in a registered direct offering, an 8% Senior convertible note, originally due November 3, 2023, and subsequently extended to
The Note was issued on November 8, 2021, pursuant to an indenture dated November 2, 2021 between us and Wilmington Savings Fund Society, FSB, as trustee (the “Base Indenture”), as supplemented by a first supplemental indenture thereto, dated November 2, 2021, relating to the Note (the “First Supplemental Indenture” and the Base Indenture as supplemented by the First Supplemental Indenture, the “First Indenture”). The terms of the Note include those provided in the First Indenture and those made part of the First Indenture by reference to the Trust Indenture Act.
First Exchange Agreement
On July 25, 2023, the Company entered into an Exchange Agreement (the “First Exchange Agreement”) under which the Company and the Investor agreed to exchange (the “Series A Exchanges”), in two separate exchanges, an aggregate of $
On July 31, 2023, pursuant to the terms of the First Exchange Agreement, the Company closed the initial exchange (the “Initial Series A Exchange”) and issued
The Company analyzed the changes made to the Note under the First Exchange Agreement under ASC 470-50 to determine if extinguishment accounting was applicable. Under ASC 470-50-40-10, a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date is always considered substantial and requires extinguishment accounting. Since the First Exchange Agreement added a substantive conversion option, the Company determined that extinguishment accounting was applicable. In accordance with the extinguishment accounting guidance, the Company recorded a loss on extinguishment of $
Second Exchange Agreement
Under the terms of the First Exchange Agreement, a final closing was to be held upon which the Investor was to exchange an additional $
On November 27, 2023, the Company entered into an Exchange Agreement (the “Second Exchange Agreement”) with the Investor under which the Company and the Investor agreed to exchange (the “Series B Exchange”), (i) all of the existing shares of Series A Preferred Stock issued to the Investor in the Initial Series A Exchange, (ii) the right to exchange the shares of Unissued Series A Preferred Stock for an additional $
The Company analyzed the changes made to the Note under the Second Exchange Agreement under ASC 470-50 to determine if extinguishment accounting was applicable. Under ASC 470-50-40-10, a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date is always considered substantial and requires extinguishment accounting. Since the Second Exchange Agreement eliminated a substantive conversion option (the parties’ obligation to exchange the remaining $16.7 million of outstanding principal balances subject to the Series A Exchanges for
On November 29, 2023, the Company closed the Series B Exchange, pursuant to which the Company issued to the Investor
Forbearance Agreement
On May 17, 2024, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with the Investor pursuant to which the Investor, in consideration for the Company’s cash payment in the amount of $
During the year ended December 31, 2022, the Investor converted $
Ranking
Maturity Date
Under its original terms, unless earlier converted, or redeemed, the Note was to mature on November 3, 2023, the second anniversary of the issuance date, which we refer to herein as the “Maturity Date,” subject to the right of the Investor to extend the date:
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(i) |
if an event of default under the Note has occurred and is continuing (or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an event of default under the Note) and |
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(ii) |
for a period of 20 business days after the consummation of a fundamental transaction if certain events occur. |
We are required to pay, on the Maturity Date, all outstanding principal, accrued and unpaid interest and accrued and unpaid late charges on such principal and interest, if any.
As part of the Restructuring Agreement entered into with the Investor on August 16, 2022 (the “Restructuring Agreement”), the Company obtained a forbearance of the Maturity Date from November 5, 2023 to November 5, 2024. As part of the Second Exchange Agreement entered into with the Investor on November 27, 2023, the Company obtained a further forbearance of the Maturity Date from November 5, 2024 to April 5, 2025. As part of the Forbearance Agreement entered into with the Investor on May 17, 2024, the Company obtained a further forbearance of the Maturity Date from April 5, 2025 to April 5, 2026.
Interest
The Note bears interest at the rate of
As part of the First Exchange Agreement, the Investor agreed to waive any interest that would otherwise accrue on the Note during the period commencing on April 1, 2023 through, and including, December 31, 2023. As part of the Second Exchange Agreement, the Investor agreed to extend the waiver of payment of interest under the Note through July 1, 2024.
Late Charges
The Company is required to pay a late charge of
Conversion
Fixed Conversions at Option of Holder
The holder of the Note may convert all, or any part, of the outstanding principal and interest of the Note, at any time at such holder’s option, into shares of our common stock at an initial fixed conversion price, which is subject to:
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proportional adjustment upon the occurrence of any stock split, stock dividend, stock combination and/or similar transactions; and |
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full-ratchet adjustment in connection with a subsequent offering at a per share price less than the fixed conversion price then in effect. |
Pursuant to the original terms of the Note, since during the fiscal quarter ending March 31, 2022,
As part of the Restructuring Agreement,
As part of the First Exchange Agreement,
1-Year Alternate Optional Conversion
Alternate Event of Default Optional Conversion
If an event of default has occurred under the Note, the holder may alternatively elect to convert the Note (subject to an additional
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● |
the fixed conversion price then in effect; and |
the greater of:
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● |
the floor price; and |
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80% of the lowest volume weighted average price of our common stock during the five trading days immediately prior to such conversion. |
Beneficial Ownership Limitation
Change of Control Redemption Right
In connection with a change of control of the Company, the holder may require us to redeem in cash all, or any portion, of the Notes at a 15% redemption premium to the greater of the face value, the equity value of our Common Stock underlying the Note, and the equity value of the change of control consideration payable to the holder of our Common Stock underlying the Note.
The equity value of our Common Stock underlying the Note is calculated using the greatest closing sale price of our Common Stock during the period immediately preceding the consummation or the public announcement of the change of control and ending the date the holder gives notice of such redemption.
The equity value of the change of control consideration payable to the holder of our common stock underlying the Note is calculated using the aggregate cash consideration and aggregate cash value of any non-cash consideration per share of our common stock to be paid to the holders of our common stock upon the change of control.
Events of Default
Under the terms of the First Supplemental Indenture, the events of default contained in the Base Indenture shall not apply to the Note. Rather, the Note contains standard and customary events of default including but not limited to: (i) the suspension from trading or the failure to list the Company’s common stock within certain time periods; (ii) failure to make payments when due under the Notes; and (iii) bankruptcy or insolvency of the Company.
If an event of default occurs, the holder may require us to redeem all or any portion of the Note (including all accrued and unpaid interest and late charges thereon), in cash, at a 15% redemption premium to the greater of the face value and the equity value of the Company’s common stock underlying the Note.
The equity value of the Company’s common stock underlying the Note is calculated using the greatest closing sale price of the Company’s common stock on any trading day immediately preceding such event of default and the date the Company makes the entire payment required.
Company Optional Redemption Rights
The equity value of the Company’s common stock underlying the Note is calculated using the greatest closing sale price of the Company’s common stock on any trading day during the period commencing on the date immediately preceding such date the Company notifies the applicable holder of such redemption election and the date the Company makes the entire payment required.
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Balance, December 31, 2020 |
$ | |||
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Convertible debentures issued |
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Derivative liability |
( |
) | ||
| Original issue discount of |
( |
) | ||
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Placement fees and issuance costs |
( |
) | ||
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Accretion and write-off of debt discount |
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| Balance, net of unamortized debt discount of $ |
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Repayments and conversion |
( |
) | ||
|
Accretion and write-off of debt discount |
||||
| Balance, net of unamortized debt discount of $ |
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|
Repayments and conversion |
( |
) | ||
|
Accretion and write-off of debt discount |
||||
| Balance, net of unamortized debt discount of $ |
||||
|
Conversion |
( |
) | ||
|
Accretion and write-off of debt discount |
||||
| Balance, net of unamortized debt discount of $ |
$ |
The Company recorded debt discount accretion expense of $
The Company incurred other interest expense of $
Derivative Liability
The senior convertible note contains embedded derivatives representing certain conversion features, redemption rights, and contingent payments upon the occurrence of 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 note. 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 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 note. 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 note requiring bifurcation, other than the conversion features, which had no value at September 30, 2024 and December 31, 2023, due to management’s estimates of the likelihood of certain events, but that may have value in the future should those estimates change.
|
Balance, December 31, 2021 |
$ | |||
|
Change in fair value 2022 |
( |
) | ||
|
Balance, December 31, 2022 |
||||
|
Increase in derivative liability upon extinguishment of debt |
||||
|
Change in fair value 2023 |
( |
) | ||
|
Balance, December 31, 2023 |
||||
|
Change in fair value 2024 |
( |
) | ||
|
Balance, September 30, 2024 |
$ |
Small Business Association CARES Act Loans
On June 9, 2020, the Company entered into a
On May 8, 2020, Charge Savvy, a wholly-owned subsidiary of the Company, entered into a
|
9. |
Convertible Preferred Stock |
On July 31, 2023, the Company issued
|
September 30, 2024 |
||||||||||||||||||||
|
Preferred Shares Authorized |
Preferred Shares Issued and Outstanding |
Carrying Value |
Liquidation Preference |
Common Stock Issuable Upon Conversion |
||||||||||||||||
|
Series A |
$ | $ | $ | |||||||||||||||||
|
Series B |
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|
Total Preferred Stock |
$ | $ | $ | |||||||||||||||||
|
December 31, 2023 |
||||||||||||||||||||
|
Preferred Shares Authorized |
Preferred Shares Issued and Outstanding |
Carrying Value |
Liquidation Preference |
Common Stock Issuable Upon Conversion |
||||||||||||||||
|
Series A |
$ | $ | $ | |||||||||||||||||
|
Series B |
||||||||||||||||||||
|
Total Preferred Stock |
$ | $ | $ | |||||||||||||||||
The holders of the Preferred Stock have the following rights and preferences:
Voting – The Preferred Stock has no voting power and the holders of Preferred Stock have no right to vote on any matter at any time, either as a separate series or class or together with any other series or class of share of capital stock.
Dividends – The holders of Preferred Stock are entitled to receive dividends when and as declared by the Board of Directors, from time to time, in its sole discretion. Such dividends are not cumulative. No such dividends have been declared to date.
Liquidation – In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series B Preferred Stock shall be entitled to receive in cash out of the assets of the Company, prior and in preference to any distribution of the proceeds of such liquidation event to the holders of Series A Preferred Stock or common stock, an amount per share of Series B Preferred Stock equal to the greater of (A) 115% of the stated value of such share of Series B Preferred Stock plus all declared and unpaid dividends on such share of Series B Preferred Stock and (B) the amount per share such holder would receive if it converted such share of Series B Preferred Stock into common stock (at the Series B Alternate Conversion Price, as defined below, then in effect) immediately prior to the date of such payment. If at any time, there is more than one holder of the Series B Preferred Stock, and the proceeds thus distributed among the holders of the Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire proceeds legally available for distribution shall be distributed ratably among the holders in proportion to the full preferential amount that each such holder is otherwise entitled to receive.
Redemption – Upon a change of control of the Company (as defined in the Company’s “Series B Certificate of Designations”), the holders of Series B Preferred Stock may require the Company to exchange their shares of Series B Preferred Stock for consideration, in the form of the securities or other assets to which holders of shares of common stock are entitled to receive with respect to or in exchange for their shares of common stock in such change of control, equal to the greatest of (i) 115% of the stated value of such share of Series B Preferred Stock plus all declared and unpaid dividends on such share of Series B Preferred Stock, (ii) 115% of the greatest closing sale price of the number of shares of common stock into which such share of Series B Preferred Stock could be converted (at the Series B Alternate Conversion Price, as defined below, then in effect) during the period beginning on the date immediately preceding the earlier to occur of (a) the consummation of the applicable change of control and (b) the public announcement of such change of control and ending on the date such holder delivers notice to the Company of its election, and (iii) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of common stock that would be paid to the holder upon consummation of such change of control if it converted all of its shares of Series B Preferred Stock into common stock at the conversion price then in effect.
Conversion –
|
10. |
Income Taxes |
The Company recorded income tax expense of approximately $
As of September 30, 2024, we have no material unrecognized tax benefits and we expect no material unrecognized tax benefits for the next 12 months.
|
11. |
Stock-Based Compensation |
Equity Incentive Plans
The Company adopted the 2023 Equity Incentive Plan (“2023 Plan”) on November 2, 2023, which provides employees, directors, and consultants with opportunities to acquire the Company’s shares, or to receive monetary payments based on the value of such shares. Management has determined that it is in the best interests of the Company to replace the 2020 Incentive and Nonstatutory Stock Option Plan, the 2021 Incentive and Nonstatutory Stock Option Plan, and the 2021 Restricted Stock Plan, with one plan, the 2023 Plan, pursuant to which the Company will be able to grant stock option awards, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The 2023 Plan provides for up to
Stock Option Activity
|
Shares |
Weighted Average Exercise Price |
|||||||
|
Outstanding at December 31, 2023 |
$ | |||||||
|
Granted |
||||||||
|
Exercised |
( |
) | ||||||
|
Cancelled/forfeited/expired |
( |
) | ||||||
|
Outstanding at September 30, 2024 |
$ | |||||||
|
Exercisable at September 30, 2024 |
$ | |||||||
The aggregate intrinsic value for stock options exercised was $
Restricted Stock Activity
|
Number of Shares |
Weighted Average Grant Date Fair Value |
|||||||
|
Unvested at January 1, 2024 |
$ | |||||||
|
Granted |
||||||||
|
Vested |
( |
) | ||||||
|
Forfeited |
||||||||
|
Unvested at September 30, 2024 |
$ | |||||||
The total fair value of restricted shares that vested was $
|
12. |
Operating Leases |
The Company leases office space under operating leases at
The Company’s operating lease expense totaled $
|
Year Ending December 31, |
Total |
|||
|
2024 (remainder) |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
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2028 |
||||
|
Total lease payments |
||||
|
Less: imputed interest |
( |
) | ||
|
Present value of total lease payments |
||||
|
Less: current portion |
( |
) | ||
|
Long-term lease liabilities |
$ | |||
|
13. |
Related Party Transactions |
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 and nine months ended September 30, 2024 and 2023.
|
14. |
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.
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|
● |
On November 8, 2022, the Company filed a complaint against its former Chief Operating Officer Vanessa Luna, Luna Consultant Group, LLC and Does 1 through 50 in San Diego Superior Court (the “Company Filing”). The Company is alleging that Ms. Luna abused her position for additional compensation, failed to follow proper protocols and breached her fiduciary duties and duty of loyalty by secretly maintaining alternative employment. The action seeks damages, including interest and costs of suit incurred. On November 10, 2022, Ms. Luna filed her own complaint against the Company and Fredi Nisan in San Diego Superior Court (the “Luna Filing”). 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 also alleges sexual misconduct on the part of Mr. Nisan. Ms. Luna is seeking damages including compensatory damages, unpaid wages (past and future), loss of wages and benefits (past and future), and other damages to be proven at trial. The Company and Mr. Nisan deny all allegations of the Luna Filing. In April 2023, Ms. Luna sought to add Coyni, Inc. as a defendant with regard to her claims. She was granted permission to file a Second Amended Complaint, and Coyni, Inc. has challenged the allegations by way of demurrer, which was denied on August 9, 2024. In addition, the Company and Mr. Nisan have filed a motion for leave to amend their complaint against Luna, adding additional claims against her, including securities fraud, and, on August 9, 2024, the Court granted permission for the Company to file a Second Amended Complaint. 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 asserted by Ms. Luna and to vigorously prosecute its own claims against Ms. Luna. The San Diego Superior Court consolidated the Company Filing and Luna Filing into a single proceeding, RYVYL Inc. v. Luna, on August 4, 2023. On October 17, 2024, the parties entered into a confidential settlement agreement, and on October 24, 2024, a stipulated motion to stay all pleadings was filed with the Court. |
|
|
● |
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. The parties are currently in the discovery phase. |
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|
● |
On February 1, 2023, a putative 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 “Cullen 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 complaint alleged that the Cullen Defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended (the “Securities Act”) and Sections 10(b) and 20(a) of the Exchange Act by making false and/or misleading statements regarding the Company’s financial controls, performance and prospects. On June 30, 2023, the plaintiff filed an amended complaint. All defendants filed motions to dismiss the amended complaint on August 14, 2023. On March 1, 2024, the Court issued an order granting in part and denying in part defendants’ motions to dismiss, which included dismissing all Securities Act claims and narrowing the potential class period. The plaintiff filed a second amended complaint on April 30, 2024, which alleges claims against the Cullen Defendants under Exchange Act Sections 10(b) and 20(a) only and a class period of May 13, 2021 through January 20, 2023. The Company filed its motion to dismiss the second amended complaint on July 1, 2024. On October 21, 2024, the Court issued an order granting in part and denying in part defendants’ motions to dismiss. The scope of the remaining claims is consistent with the Court’s last motion to dismiss decision dated March 1, 2024. On November 12, 2024, Plaintiff filed a Third Amended Complaint, which asserts the same legal causes of action and proposed class period as the previous complaint. The Company is evaluating the amended complaint and may be filing a further motion to dismiss.
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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|
● |
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 “Hertel 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 the Hertel 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 Hertel 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. On April 2, 2024, the Court granted the parties’ joint motion for an order consolidating the Hertel and Gazaway cases under the caption In re RYVYL Inc. Derivative Litigation, Lead Case No. 3:23-CV-01165-GPC-SBC (S.D. Cal.). On May 6, 2024, the Court issued an order staying the action until after the final resolution of any motion to dismiss the securities class action detailed above. On May 1, 2024, a third nearly identical shareholder derivative complaint was filed in Clark County, Nevada by plaintiff Christina Brown, derivatively on behalf of RYVYL, Inc., v. Ben Errez et al., Case No. A-24-892382-C. The Company currently is working with Ms. Brown’s counsel to coordinate a stay of the Nevada action on the same terms as the stay of the Hertel and Gazaway cases.
The complaint seeks damages and contribution from the Hertel Defendants and a direction that the Company and the Hertel Defendants take actions to reform and improve corporate governance and internal procedures to comply with applicable laws. The Hertel 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. |
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|
● |
On October 1, 2023, the Company filed a demand for arbitration against Sky Financial & Intelligence LLC, a Wyoming limited liability company (“Sky Financial”) with the American Arbitration Association in San Diego, California (the “Arbitration”). In the Arbitration, the Company seeks to recover for breach of contract and Sky Financial’s failure to perform its obligations. On October 2, 2023, the Company filed a complaint against Sky Financial in San Diego Superior Court asserting the same claims asserted in the Arbitration, solely to toll any applicable statutes of limitations pending the Arbitration and, if necessary, provide jurisdiction for the court to compel arbitration. The action seeks damages, including interest and costs of suit incurred. The parties agreed to proceed in the Arbitration and to implement the steps needed to extend the current stay of the San Diego Superior Court action pending the Arbitration. Subsequently, the parties agreed to stay the Arbitration and attend mediation. A mediation was scheduled but then vacated by stipulation of the parties. The parties have agreed to continue the stay of the Arbitration pending a mediation, which is to be re-scheduled. |
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|
● |
On July 6, 2022, the Company’s subsidiary, RYVYL EU (formerly known as Transact Europe OOD), received a notary invitation from Satya Consulting PTE Limited (“Satya”) filed in Bulgaria. In the filed claim, Satya alleges nonpayment of its fee in the amount of EUR 900,000, to which statutory default interest is to be added, for failure of payment under the Company’s stock purchase agreement for Transact Europe Holdings OOD. RYVYL EU has retained Bulgarian counsel to assist in the defense of the asserted claim and denies all allegations. As RYVYL EU cannot predict the outcome of the matter, the probability of an outcome cannot be determined. RYVYL EU intends to vigorously defend against all claims. On October 18, 2024, RYVYL EU entered into a confidential settlement agreement with no material impact to the Company. A hearing is scheduled for November 15, 2024, where it is expected that the Court will approve the settlement and terminate the case. |
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|
● |
On January 2, 2024, the Company filed a Statement of Claim against Chessa Sabourin in the Ontario Superior Court of Justice. Case No. CV-24-00712190-0000. The Company seeks to recover funds unlawfully held by Ms. Sabourin, or in the alternative, damages in the equivalent amount. Additionally, punitive and exemplary damages. In September 2023, the Company mistakenly sent funds to Ms. Sabourin and attempted to reverse or recall the transfers but was unable to do so. To date, Ms. Sabourin has failed and/or refused to return the funds mistakenly sent to her. On October 21, 2024, the Court issued a default judgment against Sabourin. |
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|
● |
On June 25, 2024, J. Drew Byelick, a former Chief Financial Officer of the Company, filed a complaint against the Company in the United States District Court for the Southern District of California, Case No. ‘24CV1096 JLS MSB. Mr. Byelick is alleging breach of contract, fraudulent inducement of employment, along with intentional misrepresentation and concealment. The Company filed a motion to dismiss the complaint on October 4, 2024 and Mr. Byelick filed an opposition to the Company’s motion on November 8, 2024. 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. |
|
15. |
Segment Reporting |
The Company has organized its operations into
The following tables present discrete financial information for our two reportable segments (dollars in thousands):
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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Revenue |
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|
North America |
$ | $ | $ | $ | ||||||||||||
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International |
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| $ | $ | $ | $ | |||||||||||||
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Loss from operations |
||||||||||||||||
|
North America |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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International |
||||||||||||||||
| $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
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Net loss |
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|
North America |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
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International |
||||||||||||||||
| $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
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Depreciation and amortization |
||||||||||||||||
|
North America |
$ | $ | $ | $ | ||||||||||||
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International |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Assets by reportable segment were not included, as that information is not reviewed by the CODM to make operating decisions or allocate resources. Assets are reviewed on a consolidated basis.
|
16. |
Subsequent Events |
On November 11, 2024, the Company and the Investor entered into a non-binding Memorandum of Understanding (the “MOU”) setting forth the terms agreed to by the Company and the Investor for the full repayment and termination of the Note and the redemption of all shares of the Company’s Preferred Stock held by the Investor. As of October 31, 2024, the outstanding Note principal was $
Under the terms of the MOU, the Company has agreed to pay total consideration of $
| ● | $ |
|
● |
$3.7 million will be paid in full satisfaction of the remaining principal balance of the Note, which will remain outstanding under the existing Note with the maturity date of the Note being accelerated to January 31, 2025. |
The Company is required to execute definitive agreements with the Investor (the “Definitive Agreements”) and pay the first tranche payment of $12.8 million on or before November 22, 2024, or the MOU will be terminated and the transactions contemplated under the MOU will not be completed. Prior to payment of the first tranche payment, the Investor shall retain the ability, subject to certain market limitations, to convert the Note and the Preferred Stock into common stock.
The Company expects to pay the first tranche payment of $12.8 million from proceeds raised in equity, debt and/or convertible debt financings from one or more new investors. In the event that RYVYL is unable to raise funds sufficient to pay the first tranche payment of $12.8 million by November 22, 2024, the transactions contemplated under the MOU will not be completed.
The Company will use its reasonable best efforts to raise the financing required, but there is no assurance that it will be able to do so by November 22, 2024. Even if the Company does raise sufficient funds, since the MOU is not binding, there is no assurance that the Company will be able to enter into the Definitive Agreements with the Investor.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Quarterly Report on Form 10Q (this “Report”) 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 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“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 filings with the Securities and Exchange Commission (the “SEC”). 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 Report 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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Our ability to identify and complete, and the risks associated with acquisitions, post-acquisition integrations, dispositions and other strategic growth opportunities and initiatives; |
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Our ability to avoid or minimize 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; |
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Our ability to protect our proprietary technology. |
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Possible dilution of our common stock if the 8% Senior convertible note due in 2026 in the principal amount of $19.0 million, as of September 30, 2024, is repaid in stock; |
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Our dependence on our proprietary technology, which we may not be able to protect; and |
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Our dependence on our European subsidiaries as an immediate and viable short-term source of capital while we are transitioning our QuickCard product from a terminal-based to an app-based product for our North America business. |
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 us (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 us. For additional information regarding risk factors that could affect our results, see “Risk Factors” beginning on page 14 of our 2023 Annual Report and “Risk Factors” on page 41 of this Report.
We intend the forward-looking statements to speak only as of the time of such statements and do 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. We 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 Report, could materially and adversely affect our results of operations, financial condition, liquidity, and future performance.
In this Report, unless the context otherwise requires, all references to “the Company,” “we,” “our,” “us” and “PubCo” refer collectively to RYVYL Inc., a Nevada corporation, and its subsidiaries.
Unless the context otherwise requires, all references to “PrivCo” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.
Our Management’s Discussion and Analysis and Results 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 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 SEC.
Although the forward-looking statements in this 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, 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 to develop and monetize 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. and was incorporated in the State of Nevada on April 10, 2007. On January 4, 2020, PubCo and PrivCo entered into an Asset Purchase Agreement to memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and among PubCo (the buyer) and PrivCo (the seller). On April 12, 2018, pursuant to the Verbal Agreement, the Company acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and 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 had been 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. (“NEMS”) in a transaction treated as a business combination. NEMS is a merchant services company providing merchant credit card processing through its own Bank Identification Number with the acquiring bank, Merrick. This involves inside operations for new merchants that include sales assistance and applications processing, underwriting, and onboarding and inside operations for existing merchants include risk monitoring and customer service. Outside operations include equipment service or replacement; sales calls and applications; site inspections and identity verification; security verification; and on-site customer service and technical support.
On July 13, 2021 (the “Closing Date”), GreenBox POS entered into and closed on a Membership Interest Purchase Agreement (the “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 purchase price under the Purchase Agreement for the all-stock transaction consisted of 1,000,000 shares of the Company’s common stock being issued and delivered to Sellers in proportion to the Sellers’ share of their membership interests in Charge Savvy. The share price at issuance was $12.14. Charge Savvy is a fintech company specializing in developing software and providing payment processing and point-of-sale (“POS”) services to the merchant services industry. Charge Savvy also owned an approximately 64,000 square foot office building located in Chicago, Illinois, where it is headquartered.
On March 31, 2022, the Company acquired a portfolio of merchant accounts from Sky Financial for $18,110,000. The Company paid $16,000,000 of cash in March 2022 and issued 500,000 shares of restricted common stock for the transaction on May 12, 2022.
On April 1, 2022, the Company completed the acquisition of Transact Europe Holdings OOD (“Transact Europe Holdings”). Transact Europe Holdings is the holding company of Transact Europe EAD (“TEU”). TEU formally changed its name to RYVYL EU on December 16, 2022. RYVYL EU is a European Union (“EU”) regulated electronic money institution headquartered in Sofia, Bulgaria. RYVYL EU is a Principal Level member of Visa, a worldwide member of MasterCard, and a principal member of China UnionPay. In addition, RYVYL EU is part of the direct Single Euro Payments Area (“SEPA”) program, a payment system enabling cashless payments across continental Europe. RYVYL EU provides complete payment solutions by offering acquiring, issuing of prepaid cards and agent banking, serving hundreds of clients. With a global footprint, proprietary payment gateway, and technology platforms, RYVYL EU 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.
Recent Developments
In February 2024, the Company transitioned its QuickCard product in North America away from terminal-based to app-based processing. This transition was driven by a change in our banking partner that was prompted by recent changes in the compliance environment and banking regulations impacting certain niche high-risk business verticals, which were the predominant revenue driver for QuickCard.
As previously disclosed, management’s plan to recover the loss of revenues resulting from this product transition included the acceleration of business development efforts to launch the new app-based product in existing and new business verticals. However, due to continuous changes in the regulatory environment and our previous banking relationships, during the second quarter of 2024, management determined that the app-based product may not be a viable long-term solution for certain niche high-risk business verticals and made the decision to terminate the rollout of the app-based product in those business verticals. To address this change, the Company recently introduced a licensing product for its payments processing platform, which will enable it to serve the same customer base in such verticals through a business partner with more suitable banking compliance capabilities. Revenues from the new licensing product are not expected to materialize until early 2025. Due of this strategy shift as well as a reorganization of the Company’s business to better align with management’s revised strategy, which was executed during the second quarter, the recovery of the loss of revenues resulting from this product transition is now not expected to occur until early 2025.
The decline in revenues resulting from this product transition has adversely impacted the Company’s liquidity in its North America segment in the short term. As a result, management has determined that its cash and cash equivalents in the North America segment as of September 30, 2024, will not be sufficient to fund the segment’s operations and capital needs for the next 12 months from the issuance of this Report. Management’s intended plan over the next twelve months to address the liquidity shortfall in the North America segment includes, but is not limited to, the following:
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● |
continued execution of its accelerated business development efforts to drive volumes in diversified business verticals with the Company’s other products, including the recently launched licensing of the Company’s payments processing platform in certain niche high-risk business verticals; |
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● |
continued implementation of cost control measures to more effectively manage spending in the North America segment and right sizing the organization, where appropriate; |
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the sale of certain noncore assets; and |
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● |
repatriation of offshore profits from the Company’s European subsidiaries, whose continued accelerated growth and generation of positive cash flow have already provided, and will continue to provide, an immediate and viable short-term source of capital during this product transition (to date, the Company has repatriated approximately $12.8 million from Europe). |
Management has assessed that its intended plan described above, if successfully implemented, is appropriate and sufficient to address the liquidity shortfall in its North America segment and provide funds to cover operations for the next 12 months from the date of the issuance of this Report. However, there can be no guarantee that we will be successful in implementing our plan, that our projections of our future capital needs will prove accurate, or that any additional funding will be sufficient to continue our operations in the North America segment.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2024 (Unaudited) Compared to Three Months September 30, 2023 (Unaudited):
(Dollars in thousands)
|
Three Months Ended September 30, |
||||||||||||||||||||||||
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2024 |
2023 |
Change |
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% of |
% of |
|||||||||||||||||||||||
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Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
|||||||||||||||||||
|
Revenue |
$ | 12,606 | 100.0 | % | $ | 17,480 | 100.0 | % | $ | (4,874 | ) | (27.9 | )% | |||||||||||
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Cost of revenue |
7,749 | 61.5 | % | 10,800 | 61.8 | % | (3,050 | ) | (28.2 | )% | ||||||||||||||
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Gross profit |
4,857 | 38.5 | % | 6,680 | 38.2 | % | (1,824 | ) | (27.3 | )% | ||||||||||||||
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Operating expenses: |
||||||||||||||||||||||||
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Advertising and marketing |
42 | 0.3 | % | 45 | 0.3 | % | (3 | ) | (8.2 | )% | ||||||||||||||
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Research and development |
815 | 6.5 | % | 1,315 | 7.5 | % | (500 | ) | (38.0 | )% | ||||||||||||||
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General and administrative |
1,442 | 11.4 | % | 3,041 | 17.4 | % | (1,598 | ) | (52.6 | )% | ||||||||||||||
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Payroll and payroll taxes |
3,251 | 25.8 | % | 2,605 | 14.9 | % | 645 | 24.8 | % | |||||||||||||||
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Professional fees |
1,061 | 8.4 | % | 1,234 | 7.1 | % | (173 | ) | (14.0 | )% | ||||||||||||||
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Stock compensation expense |
136 | 1.1 | % | 147 | 0.8 | % | (12 | ) | (7.8 | )% | ||||||||||||||
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Depreciation and amortization |
590 | 4.7 | % | 657 | 3.8 | % | (67 | ) | (10.1 | )% | ||||||||||||||
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Total operating expenses |
7,337 | 58.2 | % | 9,044 | 51.7 | % | (1,708 | ) | (18.9 | )% | ||||||||||||||
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Loss from operations |
(2,480 | ) | (19.7 | )% | (2,364 | ) | (13.5 | )% | (116 | ) | 4.9 | % | ||||||||||||
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Other income (expense): |
||||||||||||||||||||||||
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Interest expense |
(309 | ) | (2.5 | )% | (65 | ) | (0.4 | )% | (244 | ) | 380.9 | % | ||||||||||||
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Accretion of debt discount |
(273 | ) | (2.2 | )% | (4,183 | ) | (23.9 | )% | 3,910 | (93.5 | )% | |||||||||||||
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Changes in fair value of derivative liability |
- | 0.0 | % | 6,909 | 39.5 | % | (6,909 | ) | (100.0 | )% | ||||||||||||||
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Derecognition expense on conversion of convertible debt |
- | 0.0 | % | (1,331 | ) | (7.6 | )% | 1,331 | (100.0 | )% | ||||||||||||||
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Legal settlement expense |
(1,598 | ) | (12.7 | )% | (1,929 | ) | (11.0 | )% | 331 | (17.2 | )% | |||||||||||||
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Other income (expense) |
72 | 0.6 | % | (25 | ) | (0.1 | )% | 97 | (387.1 | )% | ||||||||||||||
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Total other expense, net |
(2,108 | ) | (16.7 | )% | (624 | ) | (3.6 | )% | (1,484 | ) | 238.0 | % | ||||||||||||
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Loss before provision for income taxes |
(4,588 | ) | (36.4 | )% | (2,988 | ) | (17.1 | )% | (1,600 | ) | 53.6 | % | ||||||||||||
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Income tax provision |
586 | 4.6 | % | 128 | 0.7 | % | 458 | 356.8 | % | |||||||||||||||
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Net loss |
$ | (5,174 | ) | (41.0 | )% | $ | (3,116 | ) | (17.8 | )% | $ | (1,860 | ) | 59.7 | % | |||||||||
Revenue
|
Three Months Ended September 30, |
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2024 |
2023 |
$ Change |
% Change |
|||||||||||||
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North America |
$ | 2,832 | $ | 12,488 | $ | (9,656 | ) | (77.3 | )% | |||||||
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International |
9,774 | 4,992 | 4,782 | 95.8 | % | |||||||||||
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Total revenue |
$ | 12,606 | $ | 17,480 | $ | (4,874 | ) | (27.9 | )% | |||||||
Revenue decreased by $4.9 million, or 27.9%, to $12.6 million for the three months ended September 30, 2024, from $17.5 million for the three months ended September 30, 2023. In the North America segment, revenue decreased $9.7 million, or 77.3%, compared to the three months ended September 30, 2023. In the International segment, revenue increased $4.8 million, or 95.8%, compared to the three months ended September 30, 2023. The decrease in revenue was primarily driven by a decrease in processing volume in the North America segment, which decreased from $341.0 million in the quarter ended September 30, 2023, to $170.6 million in the quarter ended September 30, 2024, and is attributable to the previously disclosed impact associated with the Company’s QuickCard product transition that began in February 2024. The decrease in revenue in North America was partially offset by an increase in revenue in the International segment that was primarily attributable to continued growth in processing volume, which increased from $517.0 million in the quarter ended September 30, 2023, to $952.3 million in the quarter ended September 30, 2024. The increase in processing volume in the International segment was driven by continued strong growth across multiple verticals, primarily, our Independent Sales Organizations (“ISO”) and partnership network, our global payments processing businesses, and banking-as-a-service offering.
Cost of Revenue
Cost of revenue decreased by $3.1 million, or 28.2%, to $7.7 million for the three months ended September 30, 2024, from $10.8 million for the three months ended September 30, 2023. In the North America segment, cost of revenue decreased $6.0 million, or 77.1%, compared to the three months ended September 30, 2023. In the International segment, cost of revenue increased $2.9 million, or 94.6%, compared to the three months ended September 30, 2023. Cost of revenue primarily consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships. The decrease in cost of revenue was primarily driven by the decrease in processing volumes in North America, as noted above, partially offset by an increase in processing volumes in the International segment.
Operating Expenses
Operating expenses decreased by $1.7 million, or 18.9%, to $7.3 million for the three months ended September 30, 2024, from $9.1 million for the three months ended September 30, 2023. The decrease was primarily driven by a decrease in research and development expenses of $0.5 million, as the Company began capitalizing a portion of these costs during the second quarter of 2024, and decreases in general and administrative expenses of $1.6 million and in professional fees of $0.2 million, both due to lower accounting, consulting, and legal fees incurred in 2023 in connection with the Company’s restatement of prior period consolidated financial statements.
Other Income (Expense)
Other expense increased by $1.5 million, or 238.0%, to $2.1 million for the three months ended September 30, 2024, from $0.6 million for the three months ended September 30, 2023. The increase was primarily driven by a net increase of $1.7 million related to debt discount accretion (+$3.9 million), changes in fair value of derivative liability (-$6.9 million), and derecognition expense on conversion of convertible debt (+$1.3 million), all primarily recognized in connection with the Company’s restructuring of its convertible note during the second quarter of 2024. Additionally, interest expense increased $0.2 million and legal settlement expense decreased $0.3 million.
Nine Months Ended September 30, 2024 (Unaudited) Compared to Nine Months September 30, 2023 (Unaudited):
(Dollars in thousands)
|
Nine Months Ended September 30, |
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2024 |
2023 |
Change |
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% of |
% of |
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Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
|||||||||||||||||||
|
Revenue |
$ | 41,280 | 100.0 | % | $ | 43,620 | 100.0 | % | $ | (2,340 | ) | (5.4 | )% | |||||||||||
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Cost of revenue |
24,643 | 59.7 | % | 25,703 | 58.9 | % | (1,059 | ) | (4.1 | )% | ||||||||||||||
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Gross profit |
16,637 | 40.3 | % | 17,917 | 41.1 | % | (1,281 | ) | (7.1 | )% | ||||||||||||||
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Operating expenses: |
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Advertising and marketing |
74 | 0.2 | % | 153 | 0.4 | % | (79 | ) | (51.1 | )% | ||||||||||||||
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Research and development |
3,027 | 7.3 | % | 4,434 | 10.2 | % | (1,408 | ) | (31.7 | )% | ||||||||||||||
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General and administrative |
5,107 | 12.4 | % | 6,709 | 15.4 | % | (1,603 | ) | (23.9 | )% | ||||||||||||||
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Payroll and payroll taxes |
9,670 | 23.4 | % | 8,232 | 18.9 | % | 1,438 | 17.5 | % | |||||||||||||||
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Professional fees |
3,356 | 8.1 | % | 5,651 | 13.0 | % | (2,295 | ) | (40.6 | )% | ||||||||||||||
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Stock compensation expense |
542 | 1.3 | % | 309 | 0.7 | % | 233 | 75.5 | % | |||||||||||||||
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Depreciation and amortization |
1,826 | 4.4 | % | 1,899 | 4.4 | % | (73 | ) | (3.9 | )% | ||||||||||||||
|
Impairment of goodwill |
6,675 | 16.2 | % | - | 0.0 | % | 6,675 | N/A | ||||||||||||||||
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Restructuring charges |
1,636 | 4.0 | % | - | 0.0 | % | 1,636 | N/A | ||||||||||||||||
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Total operating expenses |
31,913 | 77.3 | % | 27,387 | 62.8 | % | 4,525 | 16.5 | % | |||||||||||||||
|
Loss from operations |
(15,276 | ) | (37.0 | )% | (9,470 | ) | (21.7 | )% | (5,806 | ) | 61.3 | % | ||||||||||||
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Other income (expense): |
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Interest expense |
(462 | ) | (1.1 | )% | (3,310 | ) | (7.6 | )% | 2,848 | (86.0 | )% | |||||||||||||
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Accretion of debt discount |
(1,978 | ) | (4.8 | )% | (9,626 | ) | (22.1 | )% | 7,648 | (79.4 | )% | |||||||||||||
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Changes in fair value of derivative liability |
14 | 0.0 | % | 6,580 | 15.1 | % | (6,566 | ) | (99.8 | )% | ||||||||||||||
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Derecognition expense on conversion of convertible debt |
(68 | ) | (0.2 | )% | (1,518 | ) | (3.5 | )% | 1,450 | (95.5 | )% | |||||||||||||
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Legal settlement expense |
(1,598 | ) | (3.9 | )% | (4,142 | ) | (9.5 | )% | 2,545 | (61.4 | )% | |||||||||||||
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Other income (expense) |
608 | 1.5 | % | (1,474 | ) | (3.4 | )% | 2,081 | (141.3 | )% | ||||||||||||||
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Total other expense, net |
(3,484 | ) | (8.4 | )% | (13,490 | ) | (30.9 | )% | 10,006 | (74.2 | )% | |||||||||||||
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Loss before provision for income taxes |
(18,760 | ) | (45.4 | )% | (22,960 | ) | (52.6 | )% | 4,201 | (18.3 | )% | |||||||||||||
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Income tax provision |
1,214 | 2.9 | % | 138 | 0.3 | % | 1,077 | 781.3 | % | |||||||||||||||
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Net loss |
$ | (19,974 | ) | (48.4 | )% | $ | (23,098 | ) | (53.0 | )% | $ | 3,322 | (14.4 | )% | ||||||||||
Revenue
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Nine Months Ended September 30, |
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2024 |
2023 |
$ Change |
% Change |
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North America |
$ | 15,478 | $ | 32,330 | $ | (16,852 | ) | (52.1 | )% | |||||||
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International |
25,802 | 11,290 | 14,512 | 128.5 | % | |||||||||||
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Total revenue |
$ | 41,280 | $ | 43,620 | $ | (2,340 | ) | (5.36 | )% | |||||||
Revenue decreased by $2.3 million, or 5.4%, to $41.3 million for the nine months ended September 30, 2024, from $43.6 million for the nine months ended September 30, 2023. In the North America segment, revenue decreased by $16.9 million, or 52.1%, compared to the nine months ended September 30, 2023. In the International segment, revenue increased by $14.5 million, or 128.5%, compared to the nine months ended September 30, 2023. The decrease in revenue was driven by a decrease in processing volume in the North America segment, which decreased from $1.0 billion in the nine months ended September 30, 2023, to $562 million in the nine months ended September 30, 2023, and is attributable to the previously disclosed impact associated with the Company’s QuickCard product transition that began in February 2024. The decrease in revenue in North America was partially offset by an increase in revenue in the International segment that was driven by continued growth in processing volume, which increased from $1.1 billion in the nine months ended September 30, 2023 to $2.6 billion in the nine months ended September 30, 2024. The increase in processing volume in the International segment was driven by continued strong growth across multiple verticals, primarily, our ISO and partnership network, our global payments processing businesses, and banking-as-a-service offering.
Cost of Revenue
Cost of revenue decreased by $1.1 million, or 4.1%, to $26.6 million for the nine months ended September 30, 2024, from $25.7 million for the nine months ended September 30, 2023. In the North America segment, cost of revenue decreased by $9.7 million, or 51.5%, compared to the nine months ended September 30, 2023. In the International segment, cost of revenue increased by $8.6 million, or 125.6%, compared to the nine months ended September 30, 2023. Cost of revenue primarily consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships. The decrease in cost of revenue was primarily driven by a decrease in processing volumes in North America, as noted above, which were partially offset by an increase in processing volumes in the International segment.
Operating Expenses
Operating expenses increased by $4.5 million, or 16.5%, to $31.9 million for the nine months ended September 30, 2024, from $27.4 million for the nine months ended September 30, 2023. The increase was primarily due to a $6.7 million non-cash charge related to the write-off of goodwill in North America and restructuring charges of $1.6 million related to the Company’s reorganization and restructuring of its business in North America, both recorded during the second quarter of 2024. These increases were partially offset by a decrease in professional fees of $2.3 million due to lower accounting, consulting, and legal fees incurred in 2023 in connection with the Company’s restatement of prior period consolidated financial statements, and a decrease in research and development expenses of $1.4 million, as the Company began capitalizing a portion of these costs in the second quarter of 2024.
Other Income (Expense)
Other expense decreased by $10.0 million, or 74.2%, to $3.5 million for the nine months ended September 30, 2024, from $13.5 million for the nine months ended September 30, 2023. The decrease was primarily driven by a net decrease of $2.5 million related to debt discount accretion expense (-$7.6 million), changes in fair value of derivative liability (+$6.6 million), and derecognition expense on conversion of convertible debt (-$1.5 million), all primarily recognized in connection with the Company’s restructuring of its convertible note during the second quarter of 2024. Additionally, interest expense decreased $2.8 million, legal settlement expense decreased $2.6 million and other income (expense) decreased $2.1 million.
Liquidity and Capital Resources
The Company’s consolidated working capital at September 30, 2024 was negative $4.2 million, which included cash and cash equivalents of $4.3 million and restricted cash of $87.2 million. Historically, the Company has financed its operations with proceeds from cash from operations, the sales of equity securities, and its $100 million convertible note. Our material liquidity needs principally relate to working capital requirements and research and development expenditures.
Due to the product transition described under the Recent Developments section above, we believe that our cash and cash equivalents as of September 30, 2024 are not sufficient to fund the North America segment’s operations and capital needs for the next 12 months from the issuance of this Report. Our ability to fund working capital and other expenditures in the North America segment will depend on our ability to generate cash from operating activities from our two operating segments, which is subject to our future operating success, further repatriation of offshore profits from our European subsidiaries, and short-term borrowings in the U.S.
Our ability to successfully address the short-term liquidity shortfall in the North America segment is contingent on management’s intended plan over the next twelve months to improve the segment’s liquidity and working capital requirements. Management has determined that its intended plan, if successfully implemented, is appropriate and sufficient to address the liquidity shortfall in the North America segment and provide sufficient funds to cover operations for the next 12 months from the date of issuance of this Report. However, there can be no guarantee that we will be successful in implementing our plan or in acquiring additional funding, that our projections of our future capital needs will prove accurate, or that any additional funding will be sufficient to continue our operations in the North America segment.
Cash Flow
The following table shows cash flows for the periods presented (dollars in thousands):
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Nine Months Ended September 30, |
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2024 |
2023 |
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Cash provided by operating activities |
$ | 19,119 | $ | 27,584 | ||||
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Cash used in investing activities |
(1,226 | ) | (78 | ) | ||||
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Cash used in financing activities |
(207 | ) | (11 | ) | ||||
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Effects of exchange rates on cash, cash equivalents, and restricted cash |
479 | 26 | ||||||
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Net increase in cash, cash equivalents, and restricted cash |
$ | 18,165 | $ | 27,521 | ||||
Operating Activities – For the nine months ended September 30, 2024 and 2023, net cash provided by operating activities was $19.1 million and $27.6 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 nine months ended September 30, 2024 and 2023, was $1.2 million and $0.1 million, respectively. The net cash used in investing activities for the nine months ended September 30, 2024 primarily relates to capitalized software development costs.
Financing Activities – Net cash used by financing activities in the nine-month period ended September 30, 2024 was $0.2 million. Net cash used in financing activities in the nine-month period ended September 30, 2023 was negligible.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”). GAAP requires us 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience, anticipated future trends, and other assumptions we believe to be reasonable under the circumstances. Because these estimates require significant judgment, our actual results may differ materially from our estimates.
Cash Due from Gateways
The Company generates the majority of its revenue from payment processing services provided to 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 gets to collect fees.
The gateways have strict guidelines pertaining to the scheduling of the release of funds to merchants based on several criteria that include, but are not limited to, return and chargeback history, associated risk for the specific business vertical, average transaction amount, etc. To mitigate potential credit losses associated with these risks, these gateway policies determine reserve requirements and a payment in arrears strategy. While reserve and payment in arrears restrictions are in effect for a merchant payout, the Company records the reserved amounts against cash due from the gateways until released.
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
Evaluation of Disclosure Controls and Procedures
Regulations under the Exchange Act require public companies to maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and timely communicated to management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on their evaluation as of September 30, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of such date.
Remediation of Material Weakness
During the first nine months of 2024, with the oversight of the Audit Committee of the Board of Directors, the Company executed its remediation plan to address the material weakness identified in Item 9A of its 2023 Annual Report related to not having a complete process in place to fully reconcile the transactions between its operating system (a Company-developed platform) and its general ledger system, at the individual transaction level. The Company took the following actions during the execution of its remediation plan:
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Implemented an enhanced reconciliation preparation and review process |
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Implemented changes to its operating system to improve reporting |
Management has determined, through its current year testing, that these controls have been designed and implemented effectively and that these controls operated effectively for a sufficient period of time to conclude that the previously disclosed material weakness related to the reconciliation of transactions between the Company’s operating system and its general ledger system as of December 31, 2023, has been remediated as of the date of the filing of this Report.
Changes in Internal Control Over Financial Reporting
Except as discussed above, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time-to-time, the Company is involved in legal proceedings. 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.
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On November 8, 2022, the Company filed a complaint against its former Chief Operating Officer Vanessa Luna, Luna Consultant Group, LLC and Does 1 through 50 in San Diego Superior Court (the “Company Filing”). The Company is alleging that Ms. Luna abused her position for additional compensation, failed to follow proper protocols and breached her fiduciary duties and duty of loyalty by secretly maintaining alternative employment. The action seeks damages, including interest and costs of suit incurred. On November 10, 2022, Ms. Luna filed her own complaint against the Company and Fredi Nisan in San Diego Superior Court (the “Luna Filing”). 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 also alleges sexual misconduct on the part of Mr. Nisan. Ms. Luna is seeking damages including compensatory damages, unpaid wages (past and future), loss of wages and benefits (past and future), and other damages to be proven at trial. The Company and Mr. Nisan deny all allegations of the Luna Filing. In April 2023, Ms. Luna sought to add Coyni, Inc. as a defendant with regard to her claims. She was granted permission to file a Second Amended Complaint, and Coyni, Inc. has challenged the allegations by way of demurrer, which was denied on August 9, 2024. In addition, the Company and Mr. Nisan have filed a motion for leave to amend their complaint against Luna, adding additional claims against her, including securities fraud, and, on August 9, 2024, the Court granted permission for the Company to file a Second Amended Complaint. 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 asserted by Ms. Luna and to vigorously prosecute its own claims against Ms. Luna. The San Diego Superior Court consolidated the Company Filing and Luna Filing into a single proceeding, RYVYL Inc. v. Luna, on August 4, 2023. The parties are currently in the discovery phase. On October 17, 2024, the parties entered into a confidential settlement agreement, and on October 24, 2024, a stipulated motion to stay all pleadings was filed with the Court. |
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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. The parties are currently in the discovery phase. |
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On February 1, 2023, a putative 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 “Cullen 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 complaint alleged that the Cullen Defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act by making false and/or misleading statements regarding the Company’s financial controls, performance and prospects. On June 30, 2023, the plaintiff filed an amended complaint. All defendants filed motions to dismiss the amended complaint on August 14, 2023. On March 1, 2024, the Court issued an order granting in part and denying in part defendants’ motions to dismiss, which included dismissing all Securities Act claims and narrowing the potential class period. The plaintiff filed a second amended complaint on April 30, 2024, which alleges claims against the Cullen Defendants under Exchange Act Sections 10(b) and 20(a) only and a class period of May 13, 2021 through January 20, 2023. The Company filed its motion to dismiss the second amended complaint on July 1, 2024. On October 21, 2024, the Court issued an order granting in part and denying in part defendants’ motions to dismiss. The scope of the remaining claims is consistent with the Court’s last motion to dismiss decision dated March 1, 2024. On November 12, 2024, Plaintiff filed a Third Amended Complaint, which asserts the same legal causes of action and proposed class period as the previous complaint. The Company is evaluating the amended complaint and may be filing a further motion to dismiss.
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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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 “Hertel 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 the Hertel 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 Hertel 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. On April 2, 2024, the Court granted the parties’ joint motion for an order consolidating the Hertel and Gazaway cases under the caption In re RYVYL Inc. Derivative Litigation, Lead Case No. 3:23-CV-01165-GPC-SBC (S.D. Cal.). On May 6, 2024, the Court issued an order staying the action until after the final resolution of any motion to dismiss the securities class action detailed above. On May 1, 2024, a third nearly identical shareholder derivative complaint was filed in Clark County, Nevada by plaintiff Christina Brown, derivatively on behalf of RYVYL, Inc., v. Ben Errez et al., Case No. A-24-892382-C. The Company currently is working with Ms. Brown’s counsel to coordinate a stay of the Nevada action on the same terms as the stay of the Hertel and Gazaway cases.
The complaint seeks damages and contribution from the Hertel Defendants and a direction that the Company and the Hertel Defendants take actions to reform and improve corporate governance and internal procedures to comply with applicable laws. The Hertel 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. |
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On October 1, 2023, the Company filed a demand for arbitration against Sky Financial with the American Arbitration Association in San Diego, California (the “Arbitration”). In the Arbitration, the Company seeks to recover for breach of contract and Sky Financial’s failure to perform its obligations On October 2, 2023, the Company filed a complaint against Sky Financial in San Diego Superior Court asserting the same claims asserted in the Arbitration, solely to toll any applicable statutes of limitations pending the Arbitration and, if necessary, provide jurisdiction for the court to compel arbitration. The action seeks damages, including interest and costs of suit incurred. The parties agreed to proceed in the Arbitration and to implement the steps needed to extend the current stay of the San Diego Superior Court action pending the Arbitration. Subsequently, the parties agreed to stay the Arbitration and attend mediation. A mediation was scheduled but then vacated by stipulation of the parties. The parties have agreed to continue the stay of the Arbitration pending a mediation, which is to be re-scheduled. |
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On July 6, 2022, the Company’s subsidiary, RYVYL EU (formerly known as Transact Europe OOD), received a notary invitation from Satya Consulting PTE Limited (“Satya”) filed in Bulgaria. In the filed claim, Satya alleges nonpayment of its fee in the amount of EUR 900,000, to which statutory default interest is to be added, for failure of payment under the Company’s stock purchase agreement for Transact Europe Holdings OOD. RYVYL EU has retained Bulgarian counsel to assist in the defense of the asserted claim and denies all allegations. As RYVYL EU cannot predict the outcome of the matter, the probability of an outcome cannot be determined. RYVYL EU intends to vigorously defend against all claims. On October 18, 2024, RYVYL EU entered into a confidential settlement agreement with no material impact to the Company. A hearing is scheduled for November 15, 2024, where it is expected that the Court will approve the settlement and terminate the case. |
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On January 2, 2024, the Company filed a Statement of Claim against Chessa Sabourin in the Ontario Superior Court of Justice. Case No. CV-24-00712190-0000. The Company seeks to recover funds unlawfully held by Sabourin, or in the alternative, damages in the equivalent amount. Additionally, punitive and exemplary damages. In September 2023, the Company mistakenly sent funds to Ms. Sabourin and attempted to reverse or recall the transfers but was unable to do so. To date, Ms. Sabourin has failed and/or refused to return the funds mistakenly sent to her. On October 21, 2024, the Court issued a default judgment against Sabourin. |
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On June 25, 2024, J. Drew Byelick, a former Chief Financial Officer of the Company, filed a complaint against the Company in the United States District Court for the Southern District of California, Case No. ‘24CV1096 JLS MSB. Mr. Byelick is alleging breach of contract, fraudulent inducement of employment, along with intentional misrepresentation and concealment. The Company filed a motion to dismiss the complaint on October 4, 2024 and Mr. Byelick filed an opposition to the Company’s motion on November 8, 2024. 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. |
ITEM 1A. RISK FACTORS
Other than the newly identified risk factor described below, there have been no material changes with respect to risk factors previously disclosed in the Company’s 2023 Annual Report.
Our revenue projections related to our new licensing arrangements with payment services providers may not materialize due to customer acquisition and banking compliance issues that are outside of our control.
As part of the Company’s plan to diversify its business, it recently launched a new licensing product for its payment processing platform. The Company will generate revenues from these arrangements from use-based license fees that it will charge to the payment services providers. The Company’s ability to generate revenues from these licensing arrangements is contingent on the success of the licensees in utilizing and servicing their customers on their platforms, as the licensees will have exclusive control over, among other things, implementation and operations of the point of banking system, procurement of ACH processing solutions, and customer acquisitions.
The licensees will also have control in determining clients and industries utilizing the licensed technology, which requires an understanding of various banking laws and regulations that may impact the licensee’s servicing of customer accounts. For example, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with operators of certain industries, particularly those with heightened cash reporting obligations and restrictions. As a result, banks may refuse to process certain payments and/or require onerous reporting obligations by payment processors to avoid compliance risk. These and other complexities surrounding banking and payment processing laws may make it difficult for the licensees to acquire customers, thereby negatively impacting the Company’s ability to generate revenues from these arrangements.
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
Trading Arrangements
During the quarterly period ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange Act)
ITEM 6. EXHIBITS
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Exhibit |
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Reference |
Filed or Furnished |
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Number |
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Exhibit Description |
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Form |
Exhibit |
Filing Date |
Herewith |
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31.1 |
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X |
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31.2 |
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X |
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32.1* |
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X |
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32.2* |
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X |
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101.INS |
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Inline XBRL Instance Document |
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X |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema |
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X |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase |
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X |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase |
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X |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase |
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X |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase |
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X |
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104 |
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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: November 14, 2024 |
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: November 14, 2024 |
By: |
/s/ George Oliva |
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George Oliva |
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Chief Financial Officer (Principal Financial Officer) |
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