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 |
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| For the quarterly period ended |
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| OR | |
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
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| For the transition period from to |
Commission file number:
(Exact name of small business issuer as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
| | |
| (Address of principal executive offices) | (Zip Code) |
(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 |
| | | |
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 |
|
| 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 ☐
Number of shares outstanding of the issuer’s classes of common equity, as of November 15, 2022 was
TABLE OF CONTENTS
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PART I Consolidated Financial Information |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. |
32 |
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PART II Other Information |
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Item 1. |
33 |
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Item 1A. |
Risk Factors |
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Item 2. |
33 |
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Item 3. |
33 |
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Item 4. |
33 |
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Item 5. |
33 |
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Item 6. |
34 |
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35 |
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PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RYVYL Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30, |
December 31, |
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2022 |
2021 |
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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 bad debt of $ |
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| Inventory, net of inventory reserve of $ |
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| Cash due from gateways, net of allowance of $ |
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Prepaid and other current assets |
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Total current assets |
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Non-current Assets: |
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Property and equipment, net |
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Other assets |
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Goodwill |
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Intangible Assets, net |
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Operating lease right-of-use assets, net |
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Investments -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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Other current liabilities |
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Accrued interest |
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Payment processing liabilities, net |
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Short-term notes payable, net of debt discount |
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Derivative liability |
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Current portion of operating lease liabilities |
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Total current liabilities |
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Long-term debt |
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| Convertible debt, net of debt discount of $ |
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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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| Common stock, par value $ outstanding of |
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| Common stock issuable, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
( |
) |
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Accumulated deficit |
( |
) |
( |
) |
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| Less: Treasury stock, at cost; |
( |
) |
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Total stockholders' equity |
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Total liabilities and stockholder's equity |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2022 |
2021 |
2022 |
2021 |
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Net 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 for employees |
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Stock grant expense |
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Stock compensation for services |
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Depreciation and amortization |
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Total operating expenses |
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Income (Loss) from operations |
( |
) |
( |
) |
( |
) |
( |
) |
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Other income (expense): |
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Interest expense |
( |
) |
( |
) |
( |
) |
( |
) |
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Interest expense - 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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Merchant liability settlement |
( |
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Other income or expense |
( |
) |
( |
) |
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Total other income (expense), net |
( |
) |
( |
) |
( |
) |
( |
) |
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Income (loss) before provision for income taxes |
( |
) |
( |
) |
( |
) |
( |
) |
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Income tax provision |
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Net income (loss) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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Comprehensive income statement: |
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Net income (loss) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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Foreign currency translation loss |
( |
) |
( |
) |
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Total comprehensive income (loss) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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Net loss per share: |
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Basic and diluted |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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Weighted average number of common shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
Common Stock |
Treasury Stock |
Additional Paid-In |
Other Accumulated Comprehensive |
Accumulated |
Total Stockholders' Equity |
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Shares |
Amount |
Issuable |
Amount |
Shares |
At Cost |
Capital |
Loss |
Deficit |
(Deficit) |
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Balance at June 30, 2022 |
$ | $ | - | $ | - | $ | $ | ( |
) | $ | ( |
) |
$ | |||||||||||||||||||||||||||
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Common stock issued for services |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock issued to employees as stock compensation |
( |
) |
( |
) | - | - | - | - | ||||||||||||||||||||||||||||||||
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Common stock shares contributed by shareholder |
( |
) |
( |
) |
- | - | - | - | - | - | - | ( |
) | |||||||||||||||||||||||||||
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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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Common stock issuable for interest on convertible debt |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Other comprehensive loss |
- | - | - | - | - | - | - | ( |
) |
- | ( |
) |
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Net loss |
- | - | - | - | - | - | - | - | ( |
) |
( |
) |
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Balance at September 30, 2022 |
$ | $ | - | $ | - | $ | $ | ( |
) |
$ | ( |
) |
$ | |||||||||||||||||||||||||||
|
Common Stock |
Treasury Stock |
Additional Paid-In |
Other Accumulated Comprehensive |
Accumulated |
Total Stockholders' Equity |
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|
Shares |
Amount |
Issuable |
Amount |
Shares |
At Cost |
Capital |
Loss |
Deficit |
(Deficit) |
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Balance at December 31, 2021 |
$ | - | $ | - | ( |
) |
$ | ( |
) |
$ | - | $ | ( |
) |
$ | |||||||||||||||||||||||||
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Common stock issued for services |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock issued to shareholder |
- | - | - | - | ( |
) |
- | - | - | |||||||||||||||||||||||||||||||
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Common stock issued to employees as stock compensation |
- | - | - | - | ||||||||||||||||||||||||||||||||||||
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Common stock issued for stock options exercised |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock contributed and cancelled from shareholder |
( |
) |
( |
) |
- | - | - | - | - | - | ( |
) | ||||||||||||||||||||||||||||
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Common stock issuable - Acquisition of Sky assets |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock shares contributed by shareholder |
( |
) |
( |
) |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||
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Common stock shares issuable to shareholder |
- | - | - | - | ( |
) |
- | - | - | |||||||||||||||||||||||||||||||
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Common stock issued for conversion of convertible debt |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock issued for interest on convertible debt |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Common stock issuable for interest on convertible debt |
- | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
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Treasury Stock |
( |
) |
( |
) |
- | - | ( |
) |
- | - | ( |
) |
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Stock compensation expense |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
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Other comprehensive loss |
- | - | - | - | - | - | - | ( |
) |
- | ( |
) |
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Net loss |
- | - | - | - | - | - | - | - | ( |
) |
( |
) |
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Balance at September 30, 2022 |
$ | $ | - | $ | - | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||||||||
RYVYL Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
Common Stock |
Treasury |
Additional |
|
Total Stockholders' |
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|
Shares |
Amount |
To be Issued |
Amount |
Stock at Cost |
Paid-In Capital |
Accumulated Deficit |
Equity (Deficit) |
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|
Balance at June 30, 2021 |
$ | - | $ | - | $ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||||||||||||||
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Exercise of warrants - common stocks issued from issuable |
- | - | - | - | $ | |||||||||||||||||||||||||||
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Issuances of stock for services |
- | - | - | - | $ | |||||||||||||||||||||||||||
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Issuances of stock for stock option exercises |
- | - | - | ( |
) |
- | $ | - | ||||||||||||||||||||||||
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Issuances of stock to board members for services |
- | - | - | - | $ | |||||||||||||||||||||||||||
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Issuances of common stock for acquisition of ChargeSavvy |
- | - | - | - | $ | |||||||||||||||||||||||||||
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Stock option expense |
- | - | - | - | - | - | $ | |||||||||||||||||||||||||
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Correction of number of shares issued and outstanding due to incorrect common stock split |
( |
) |
( |
) |
- | - | - | - | - | $ | ( |
) |
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Treasury Stock |
( |
) |
- | - | - | ( |
) |
- | - | $ | ( |
) |
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|
Net loss |
- | - | - | - | - | - | ( |
) |
$ | ( |
) |
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|
Balance at September 30, 2021 |
$ | - | $ | - | $ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||||||||||||||
|
Common Stock |
Treasury |
Additional |
|
Total Stockholders' |
||||||||||||||||||||||||||||
|
Shares |
Amount |
To be Issued |
Amount |
Stock at cost |
Paid-In Capital |
Accumulated Deficit |
Equity (Deficit) |
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|
Balance at December 31, 2020 |
- | - | - | ( |
) |
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|
Common stock issued for exercise of warrant |
- | - | - | - | ||||||||||||||||||||||||||||
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Common stock issued for conversion of convertible debt |
- | - | - | - | ||||||||||||||||||||||||||||
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Common shares issued for restricted shares to executive |
- | - | - | ( |
) |
- | - | |||||||||||||||||||||||||
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Common stock issued for services |
- | - | - | - | ||||||||||||||||||||||||||||
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Common stock issued for interest for convertible debt |
- | - | - | - | ||||||||||||||||||||||||||||
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Common stock issued for non-cash stock option exercise |
- | - | - | ( |
) |
- | - | |||||||||||||||||||||||||
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Common stock issued for stock options exercised |
- | - | - | - | ||||||||||||||||||||||||||||
| Issuances of common stock, net of issuance costs of $ |
- | - | - | - | ||||||||||||||||||||||||||||
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Issuance of common stock |
- | - | - | ( |
) |
- | - | |||||||||||||||||||||||||
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Issuances of common stock from previous unregistered shares |
- | - | - | ( |
) |
- | - | |||||||||||||||||||||||||
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Stock compensation expense |
- | - | - | - | - | - | ||||||||||||||||||||||||||
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Payment for previous common stock repurchased under treasury method |
- | - | - | - | - | ( |
) |
- | ( |
) |
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Purchases of treasury stock |
( |
) |
( |
) |
- | - | ( |
) |
- | - | ( |
) |
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Issuances of common stock for acquisition of ChargeSavvy |
- | - | - | |||||||||||||||||||||||||||||
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Net loss |
- | - | - | - | - | - | ( |
) |
( |
) |
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Balance at September 30, 2021 |
- | - | ( |
) |
( |
) |
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The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
|
Nine Months Ended September 30, |
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2022 |
2021 |
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Cash flows from operating activities: |
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|
Net loss |
$ | ( |
) |
$ | ( |
) |
||
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Noncash lease expense |
( |
) |
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|
Stock compensation expense |
||||||||
|
Common stocks issued for professional fees |
||||||||
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Stock compensation issued for interest |
||||||||
|
Common stock issued to employees as stock compensation |
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|
Interest expense - debt discount |
||||||||
|
Changes in fair value of derivative liability |
( |
) |
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|
Derecognition expense on conversion of convertible debt |
||||||||
|
Changes in assets and liabilities: |
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|
Guarantee deposits |
||||||||
|
Other receivable, net |
( |
) |
( |
) |
||||
|
Inventory |
( |
) |
||||||
|
Prepaid and other current assets |
( |
) | ( |
) |
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|
Cash due from gateways, net |
|
( |
) |
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|
Other assets |
||||||||
|
Accounts payable |
( |
) |
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|
Other current liabilities |
||||||||
|
Accrued interest |
( |
) |
||||||
|
Payment processing liabilities, net |
( |
) |
||||||
|
Net cash provided by (used in) operating activities |
( |
) |
( |
) |
||||
|
Cash flows from investing activities: |
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|
Purchases of property and equipment |
( |
) |
( |
) |
||||
|
Deposit on acquisitions |
( |
) |
- | |||||
|
Purchase of intangibles |
( |
) |
( |
) |
||||
|
Cash provided for Transact Europe Acquisition |
( |
) |
||||||
|
Cash provided for Sky asset acquisition |
( |
) |
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|
Net cash used in investing activities |
( |
) |
( |
) |
||||
|
Cash flows from financing activities: |
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|
Treasury stock repurchase |
( |
) |
( |
) |
||||
|
Proceeds from stock option exercises |
||||||||
|
Repayments on convertible debt |
( |
) |
||||||
|
Borrowing form notes payable |
||||||||
|
Proceeds from exercise of warrant |
||||||||
|
Repurchase of common stock from stockholder |
( |
) |
||||||
|
Proceeds from issuance of common stock |
||||||||
|
Net cash provided by (used in) financing activities |
( |
) |
||||||
|
Cash acquired from acquisition of Northeast and Charge Savvy |
||||||||
|
Restricted cash acquired from Transact Europe |
||||||||
|
Net increase (decrease) in cash, cash equivalents, and restricted cash |
( |
) |
||||||
|
Foreign currency translation adjustment |
( |
) |
||||||
|
Cash, cash equivalents, and restricted cash – beginning of period |
||||||||
|
Cash, cash equivalents, and restricted cash – end of period |
$ | $ | ||||||
|
Supplemental disclosures of cash flow information |
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|
Cash paid during the period for: |
||||||||
|
Interest |
$ | $ | ||||||
|
Income taxes |
$ | $ | ||||||
|
Non-cash financing and investing activities: |
||||||||
|
Convertible debt conversion to common stock |
$ | $ | ||||||
|
Common stock issued for acquisition of Charge Savvy |
$ | |||||||
|
Interest accrual from convertible debt converted to common stock |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
RYVYL Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
1. |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Organization
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 ("ASAP”), and was incorporated in the state of Nevada on April 10, 2007. On January 4, 2020, the Company and GreenBox POS LLC, a Washington limited liability company ("PrivCo”), entered into an Asset Purchase Agreement (the "Agreement”), to memorialize a verbal agreement (the "Verbal Agreement”) entered into on April 12, 2018, by and among the Company (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. (“RYVYL”).
On May 21, 2021, the Company acquired all of the outstanding stock of Northeast Merchant Systems, Inc. ("Northeast”) in a transaction treated as a business combination. Northeast is a merchant services company providing merchant credit card processing through their own Bank Identification Number (BIN) with the acquiring bank Merrick. This involves inside operations for new merchants that include sales assistance and applications processing, underwriting, and onboarding; 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. Although the Purchase Agreement is dated July 9th, it was entered into and closed on July 13th.The purchase price under the Purchase Agreement for the all- stock transaction consisted of
On April 1, 2022, the Company completed the acquisition of Transact Europe Holdings OOD. Transact Europe EAD (TEU) is an EU regulated electronic money institution headquartered in Sofia Bulgaria. TEU is a Principal Level Member of Visa, a Worldwide Member of MasterCard, and a Principal Member of China UnionPay. In addition, TEU is part of the direct SEPA program. With a global footprint, proprietary payment gateway and technology platforms, TEU offers a comprehensive portfolio of services, and decades of industry experience. TEU provides complete payment solutions by offering acquiring, issuing of prepaid cards and agent banking, serving hundreds of clients. The Company paid approximately $
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. The consolidated financial statements include the accounts of RYVYL Inc., Northeast Merchant Systems, Inc., Charge Savvy LLC, and Transact Europe Holdings. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.
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 these 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, 2021.
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2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein.
Segment Reporting
Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” requires public companies to report financial and descriptive information about their reportable operating segments. We identify our operating segments based on how our chief operating decision maker internally evaluates separate financial information, business activities and management responsibility. We have
We generate
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Three Months Ended |
Nine Months Ended |
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September 30, |
September 30, |
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Net revenue: |
2022 |
2021 |
2022 |
2021 |
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North America |
$ | $ | $ | $ | ||||||||||||
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Europe |
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Totals |
$ | $ | $ | $ | ||||||||||||
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September 30, |
December 31, |
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Long-lived assets, net (property and equipment and intangible assets): |
2022 |
2021 |
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North America |
$ | $ | ||||||
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Europe |
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Totals |
$ | $ | ||||||
Use of Estimates
The preparation of financial statements in conformity with the 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 materially differ from those estimates.
Foreign Currency Translation
The financial position and results of operations of the Company are determined using the local currency, US Dollar (“$”), as the functional currency. The financial position and results of operations of Transact Europe Holdings, the Bulgaria subsidiary of the Company, are initially recorded using its local currency, Bulgarian Lev (“BGN”). Assets and liabilities denominated in foreign currency are translated to the functional currency at the functional currency rate of exchange at the balance sheet date. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period. The registered equity capital denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. All translation adjustments resulting from the translation of the financial statements into the reporting currency, US Dollar, are recorded as a comprehensive income or loss as a component of accumulated other comprehensive income. As of September30, 2022, the exchange rate was BGN
Cash, Cash Equivalents and Restricted Cash
The Company’s Cash and cash equivalent and Restricted cash represents the following:
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Cash and cash equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with a maturity of three months or less when purchased. |
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Restricted Cash – The Company’s technology enables transactional blockchain ledger to instantly reflect all transactions details. The final cash settlement of each transaction is subject to the gateway policies. This final disposition takes days to weeks to complete in accordance with these policies. Each policy is an integral part of the transactional contracts between the Company, its Independent Sales Organizations (ISOs), its agents, and the merchant clients. While the ledger reflects a held balance for the merchant, in reserve or payment in arears, the Company holds funds in a trust account as cash deemed restricted. The Company’s books reflect such restricted cash as a restricted cash and trust accounts, and the sum balance due to merchants and ISOs as settlement liabilities. |
The following table provides a reconciliation of Cash and cash equivalents, and Restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
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September 30, 2022 |
December 31, 2021 |
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Cash and cash equivalents |
$ | $ | ||||||
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
$ | $ | ||||||
Cash Due from Gateways and Payment Processing Liabilities
The Company’s primary source of revenues is payment processing services for its merchant clients. When such 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.
In 2022 and 2021 the Company utilized several gateways. The gateways have strict guidelines pertaining to scheduling of the release of funds to merchants based on several criteria, such as return and chargeback history, associated risk for the specific business vertical, average transaction amount and so on. In order to mitigate processing risks, these policies determine reserve requirements and payment in arrears strategy. While reserve and payment in arrears restrictions are in effect for a merchant payout, the Company records gateway debt against these amounts until released.
Therefore, the total Cash due from gateways on the unaudited consolidated balance sheets represents the amount owed to the Company for processing.
Research and Development Costs
Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits for research and development personnel, outsourced contract services, and supplies and materials costs.
Revenue Recognition
Revenue is recognized upon transfer of control of promised goods or services to the Company’s customers or when the Company satisfies any performance obligations under contract. The amount of revenue reflects the consideration the Company expects to be entitled to in exchange for the respective goods or services provided. Further, under Accounting Standards Codification 606, “Revenue from Contracts with Customers”, (“ASC 606”), contract assets or contract liabilities that arise from past performance but require a further performance before the obligation can be fully satisfied must be identified and recorded on the balance sheet until respective settlements have been met.
The Company’s primary revenue source is generated from payment processing services. Payment processing services revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed, at a point in time.
Fair Value of Financial Instruments
The Company assesses the fair value of financial instruments based on the provisions of ASC 820, Fair Value Measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability between market participants on the measurement date. ASC 820 also establishes a hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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Fair Value at September 30, 2022 |
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Customer Relationship |
$ | |||
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Business intellectual properties |
$ | |||
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Derivative Liability |
$ | |||
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Fair Value at December 31, 2021 |
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Customer Relationship |
$ | |||
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Business Technology/IP |
$ | |||
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Derivative liability |
$ | |||
Prepaid and other current assets
Prepaid expenses include the prepayment of various operating expenses such as insurance and income and property taxes which are expensed when the operating cost is realized.
Other current assets include the income receivable, loan receivable, security deposit and other assets.
Goodwill and Other Intangible Assets
The Company accounts for acquisitions of businesses in accordance with the acquisition method. Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable assets acquired and liabilities assumed. Acquisition costs are expensed as incurred.
Goodwill and other intangible assets acquired in a business combination determined to have an indefinite useful life are generally not amortized, but instead are tested for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
Other intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever management believes that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent that the carrying value is determined to be unrecoverable, an impairment loss is recognized through a charge to expense. As of September 30, 2022, the Company does not believe that impairment indicators are present, and accordingly, based on this assessment, no further impairment analysis was performed.
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 more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As of September 30, 2022, we have no material unrecognized tax benefits, and we expect no material unrecognized tax benefits for the next 12 months.
Earnings Per Share
A basic earnings per share is computed by dividing net income to common stockholders by the weighted average number of shares outstanding for the year. Dilutive earnings per share include the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive. The Company’s diluted earnings/loss per share is the same as the basic earnings/loss per share for the three and six months ended September 30, 2022 and 2021, as there are no potential shares outstanding other than options that would have a dilutive effect.
Recently Adopted Accounting Updates
In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” which created FASB ASC Topic 832, Government Assistance (ASC 832). ASC 832 requires business entities to disclose information about certain government assistance they receive. The Company adopted this standard on January 1, 2022 and determined there was no material impact on the Company's condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, "Revenue from Contracts with Customers," as if the acquirer had originated the contracts. ASU 2021-08 is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the effect, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows and disclosures.
The FASB issued ASU 2020-06 (“Update”) to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. These changes are intended to make GAAP easier to apply and, therefore, reduce the frequency of errors in this part of the literature. Early adoption is permitted for fiscal years beginning after December 15, 2020. For SEC filers, excluding smaller reporting companies, this Update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023, including interim periods therein. The Company is evaluating the impact of this guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. The standard, including subsequently issued amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements.
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3. |
COVID-19 UPDATE |
In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the world. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets. The full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning COVID-19 and the actions to contain or treat its impact and the economic impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows may be materially adversely affected, particularly if the pandemic persists for a significant period of time.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. These provisions are not expected to have a material effect on the Company’s unaudited consolidated financial statements.
On April 29, 2020, the Company entered into a loan agreement with Preferred Bank under Paycheck Protection Program administered by SBA in the amount of $
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4. |
ACQUISITIONS |
On April 1, 2022, the Company acquired Transact Europe Holdings for approximately $
The following summarizes the estimated fair values of the net assets acquired which is recorded as of April 1, 2022:
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Tangible assets (liabilities): |
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Net assets and liabilities |
$ | |||
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Intangible assets: |
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Customer relationships |
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Goodwill |
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Total net assets acquired |
$ |
On March 31, 2022, the Company acquired a portfolio of merchant accounts from Sky Financial & Intelligence for $
The following summarizes the estimated fair values of the net assets acquired:
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Intangible assets: |
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Customer relationships |
$ |
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5. |
SETTLEMENT PROCESSING |
The Company’s proprietary blockchain-based technology serves as the settlement engine for all transactions within the Company’s ecosystem. The blockchain ledger provides a robust and secure platform to log immense volumes of immutable transactional records in real time. Generally speaking, 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, RYVYL Inc. uses proprietary, private ledger technology to verify every transaction conducted within the RYVYL Inc. ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by us. RYVYL Inc. facilitates all financial elements of our closed-loop ecosystem and we act as the administrator for all related accounts. Using our TrustGateway technology, we seek authorization and settlement for each transaction from Gateways to the issuing bank responsible for the credit/debit card used in the transaction. When the Gateway settles the transaction, our TrustGateway technology composes a chain of blockchain instructions to our ledger manager system.
When consumers use credit/debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer purchasing tokens from us. The issuance of tokens is accomplished when we load a virtual wallet with a token, which then transfers credits to the merchant’s wallet on a dollar-for-dollar basis, after which the merchant releases its goods or services to the consumer. These transfers take place instantaneously and seamlessly, allowing the transaction experience to seem like any other ordinary credit/debit card transaction to the consumer and merchant. While our blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between us and the gateways we use, between us and our ISOs, and between us and/or our ISOs and merchants who use our services. In the case where we have received transaction funds, but not yet paid a merchant or an ISO, we hold funds in either a trust account or as cash deemed restricted within our operating accounts. We record the total of such funds as Cash due from gateways, net – a Current Asset. Of these funds, we record the sum balance due to Merchants and ISOs as Payment processing liabilities, net – a Current Liability.
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6. |
PREPAIDS AND OTHER CURRENT ASSETS |
As of September 30, 2022, prepaids and other current assets consists of the following:
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September 30, 2022 |
December 31, 2021 |
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Prepaid expenses |
$ | $ | ||||||
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Income receivable |
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Loan receivable |
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| Gateway deposit | - | |||||||
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Security deposit |
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Other current assets |
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Total prepaids and other current assets |
$ | $ | ||||||
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7. |
PROPERTY AND EQUIPMENT, NET |
Property and equipment consisted of the following:
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September 30, 2022 |
December 31, 2021 |
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Land and building |
$ | $ | ||||||
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Computers |
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Furniture and fixtures |
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Vehicles, machinery and equipment |
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Improvements |
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Total property and equipment |
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Less: accumulated depreciation |
( |
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( |
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Net property and equipment |
$ | $ | ||||||
Depreciation expense was $
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8. |
GOODWILL |
The Company tests goodwill during the fourth quarter of each year or more often if events or circumstances indicate there may be impairment. The Company only has one reporting unit. The Company performs its analysis in accordance with the provisions of FASB ASC Topic 350, Intangibles—Goodwill and Other (ASC 350). This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a goodwill impairment test by comparing the carrying value of its reporting unit to its fair value. The Company determines the estimated fair value of the reporting unit using a discounted cash flow analysis. The fair value of the reporting unit is the implied fair value of goodwill. In the event the reporting unit's carrying value exceeds its fair value, an impairment loss will be recognized. An impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value.
As of September 30, 2022, goodwill assets consisted of the following:
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September 30, 2022 |
December 31, 2021 |
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Acquisition of Northeast |
$ | $ | ||||||
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Acquisition of ChargeSavvy |
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Acquisition of Transact Europe |
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Total goodwill |
$ | $ | ||||||
The Company recorded $
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9. |
INTANGIBLE ASSETS |
As of September 30, 2022 intangible assets consists of the following:
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As of September 30, 2022 |
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As of December 31, 2021 |
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Intangible Assets |
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Amortization Period |
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Cost |
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Accumulated Amortization |
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Net |
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Cost |
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Accumulated Amortization |
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Net |
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Customer relationships |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Business technology/IP |
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( |
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( |
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Total intangible assets |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Amortization expense was $
Estimated amortization expense for each of the years ending December 31 is as follows:
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Year |
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Amount |
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2022 (remainder) |
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$ |
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2023 |
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2024 |
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2025 |
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2026 |
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Total |
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$ |
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10. |
LONG-TERM DEBTS |
Long-term debt consisted of the following:
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As of September 30, 2022 |
As of December 31, 2021 |
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| $ |
$ | $ | ||||||
| $ |
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Total long-term debts |
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Less: current portion |
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Net long-term debts |
$ | $ | ||||||
SBA CARES Act Loans - $649,900
On June 9, 2020, the Company entered into a
On May 8, 2020, Charge Savvy executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the TNB’s business. As of December 31, 2020, the loan payable, Emergency Injury Disaster Loan noted above is not in default.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), Charge Savvy borrowed an aggregate principal amount of the EIDL Loan of $
In connection therewith, Charge Savvy executed (i) loans for the benefit of the SBA (the “SBA Loan”), which contains customary events of default and (ii) Security Agreements, granting the SBA a security interest in all tangible and intangible personal property of Charge Savvy, which also contains customary events of default (the “SBA Security Agreement”).
Due to the continued adverse effects of the COVID-19 emergency, on March 15, 2022 the SBA extended the previously deferments granted to COVID EDIL Borrowers to provide an additional 6-month deferment of principal and interest payments on the COVID EDILs. The 6-month deferment extension is effective for all COVID EDILs approved in calendar years 2020, 2021 and 2022. Payments on the $149,900 EDIL are scheduled to begin on December 3, 2022 and payments on the $500,000 EDIL are scheduled to begin on November 8, 2022.
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11. |
CONVERTIBLE DEBT |
On November 3, 2021, the Company entered into convertible debt with the following terms:
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| ● | Face value of the convertible debt of $ |
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| ● | Original issue discount of |
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| ● | Interest at the rate of |
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| ● | Maturity date of November 202, which was extended to November 2024 as part of the Restructuring Agreement entered into between the Company and the Investor on August 16, 2022. |
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| ● | Certain conversion features. |
Convertible debt consisted of the following:
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As of September 30, 2022 |
As of December 31, 2021 |
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Convertible debt balance |
$ | $ | ||||||
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Debt discount: |
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Derivative liability |
( |
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( |
) |
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Original issue discount of 16% |
( |
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( |
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Placement fees and issuance costs |
( |
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( |
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Total debt discount |
( |
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( |
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Accumulated accretion |
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Derecognition upon conversion |
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Net debt discount after accretion |
( |
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( |
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Convertible debt balance, net of debt discount |
$ | $ | ||||||
The Company recorded accretion expense as interest expense in the amount of $
The Company sold and issued, in a registered direct offering, an 8% senior convertible note due November 3, 2023 in the aggregate original principal amount of $
The Note was issued on November 8, 2021, pursuant to an indenture dated November 2, 2021 between the Company 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 Notes (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.
On January 28, 2022, we and the Investor, entered into an Agreement and Waiver (the “Waiver”) with regard to the Note that had the following major provisions:
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a) |
the Investor agreed to extend the “90 Day Eligibility Date” from February 3, 2022 to May 2, 2022 such that the Investor could no longer, if the closing price of the stock was less than $5.50, convert up to $30 million of the Note into shares of the Company’s common stock (with the conversion price being the lower of (i) the then in effect conversion price and (ii) the greater of (x) the Note’s $1.67 floor price or (y) 98% of the market price on the conversion date) (the “Alternate Optional Conversion Price”) prior to May 2, 2022; |
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b) |
allowed us to acquire, for cancellation, $6 million in in aggregate principal amount of the Note for a purchase price of $6.9 million such that the new principal amount of the Note was $94 million; |
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c) |
lowered the initial fixed conversion price of the Note from $15 to $12; and |
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|
d) |
if the trading volume of our common stock on any individual trading day was over $5 million (the “Alternate Conversion Company Waiver Measuring Date”), allowed the Investor an opportunity to convert up to $5 million of the Note into shares of our common stock from the Alternate Conversion Company Waiver Measuring Date through and including 7:00 PM ET on the immediately following trading day. The conversion price would be the lower of (i) the then in effect conversion price and (ii) the greater of (x) the Note’s $1.67 floor price or (y) 98% of the market price on the conversion date. |
The Company paid the investor $
The foregoing description of the Waiver does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Waiver, a copy of which was attached as Exhibit 10.1 to the Current Report on Form 8-K filed on January 31, 2022.
On August 16, 2022, we and the Investor entered into a Restructuring Agreement (the “Restructuring Agreement”) that had the following major provisions:
|
a) |
the Investor agreed to forbear from requiring the repayment of the Note (to the extent such repayment obligation arises solely as a result of the occurrence of the maturity date and not with respect to any event of default or redemption right in the Note or pursuant to the First Indenture) during the period commencing on November 5, 2023 through, and including, November 5, 2024; |
|
b) |
with respect to interest dates on and after October 3, 2022, subject to the satisfaction of certain equity conditions, unless the Company delivers a written notice to the Investor specifying that the interest due on such interest date shall be paid in cash, on the applicable interest date, the Company shall issue shares of its common stock, solely with respect to such applicable interest due on such interest date, at a conversion price equal to 95% of the lower of (i) the then in effect conversion price and (ii) the lowest volume weighted average price of our common stock during the five trading days immediately prior to such conversion; |
|
c) |
the Company and the Investor agreed that, effective as of August 16, 2022, the Investor would convert $500,000 of principal (together with any accrued and unpaid interest thereon) of the Note into shares of the Company’s common stock at a conversion price equal to the lower of (i) the then in effect conversion price and (ii) the lowest volume weighted average price of our common stock during the five trading days immediately prior to such conversion. The Investor received 495,099 shares of common stock as a result of the conversion price equaling $1.02. |
|
d) |
the Company and the Investor agreed that, with respect to each conversion after August 16, 2022, but not in excess of $4.5 million of principal (together with any accrued and unpaid interest thereon) of the Note, in the aggregate (excluding any interest converted in accordance with the Restructuring Agreement), on each applicable conversion date, the conversion price will equal the lesser of (i) $2.40 and (ii) 97.5% of the lower of (x) the then in effect conversion price and (y) the lowest volume weighted average price of our common stock during the five trading days immediately prior to such conversion; and |
|
e) |
with respect to the Company’s proposed amendment of its Amended and Restated Articles of Incorporation and Amended and Restated By-laws with respect to and in connection with the Company’s proposed name change and increase in the number of authorized shares of the Company (the “Voting Proposal”), the Investor agreed to vote any shares of common stock held by it on the record date of the Voting Proposal in favor of the Voting Proposal. |
The foregoing description of the Restructuring Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Restructuring Agreement, a copy of which was attached as Exhibit 10.1 to the Current Report on Form 8-K filed on August 16, 2022.
Thereafter, if the Company’s common stock closing price remains under $5.50 (prior to November 8, 2022) or $6.50 (on and after November 8, 2022), the investor can convert up to another $20,000,000 of the note at a conversion price that is the lower of (i) the then in effect conversion price and (ii) the greater of (x) the Note’s $1.67 floor price or (y) 98% of the market price on the conversion date.
Ranking
The Note is the senior unsecured obligations of the Company and not the financial obligations of our subsidiaries.
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 Investors to extend the date:
(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
(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 Company obtained a forbearance of the Maturity Date from November 5, 2023 to November 5, 2024.
Interest
The Note bears interest at the rate of
Subject to the satisfaction of certain equity conditions,
Late Charges
We are 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:
|
|
● |
proportional adjustment upon the occurrence of any stock split, stock dividend, stock combination and/or similar transactions; and |
|
|
● |
full-ratchet adjustment in connection a subsequent offering at a per share price less than the fixed conversion price then in effect. |
First Quarter Adjustment to Fixed Conversion Price
Pursuant to the original terms
As part of the Restructuring Agreement entered into with the Investor on August 16, 2022, the Company agreed to allow for the conversion of up to $4.5 million of principal (together with any accrued and unpaid interest thereon) of the Note a conversion price equal to the lesser of (i) $2.40 and (ii) 97.5% of the lower of (x) the then in effect conversion price and (y) the lowest volume weighted average price of our common stock during the five trading days immediately prior to such conversion.
1-Year Alternate Optional Conversion
At any time following the first anniversary of the issuance date of the Note, but only if the closing bid price of our common stock on the immediately prior trading day is less than $6.50, the holder of the Note shall have the option to convert, at such holder’s option, pro rata, up to $30 million of the principal amount of the Note (in $250,000 increments) at the Alternate Optional Conversion Price.
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
|
|
● |
the fixed conversion price then in effect; and |
the greater of:
|
|
● |
the floor price; and |
|
|
● |
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
The Note may not be converted and shares of common stock may not be issued under the Note if, after giving effect to the conversion or issuance, the applicable holder of the Note (together with its affiliates, if any) would beneficially own in excess of 4.99% of the Company’s outstanding shares of common stock, which is referred to herein as the “Note Blocker”. The Note Blocker may be raised or lowered to any other percentage not in excess of 9.99% at the option of the applicable holder of Notes, except that any raise will only be effective upon 61-days’ prior notice to us.
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 Notes and the equity value of the change of control consideration payable to the holder of our common stock underlying the Notes.
The equity value of our common stock underlying the Notes 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 Notes 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 Notes. Rather, the Notes contain standard and customary events of default including but not limited: (i) the suspension from trading or the failure to list our 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 Notes (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 our common stock underlying the Notes.
The equity value of our common stock underlying the Notes is calculated using the greatest closing sale price of our common stock on any trading day immediately preceding such event of default and the date we make the entire payment required.
Company Optional Redemption Rights
The equity value of the Company’s common stock underlying the Notes is calculated using the greatest closing sale price of our common stock on any trading day during the period commencing on the date immediately preceding such date we notify the applicable holder of such redemption election and the date we make the entire payment required.
The foregoing description of the Note does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Note, a copy of which is attached hereto as Exhibit 4.1, and incorporated herein by reference.
Derivative liability
The Notes contain embedded derivatives representing the conversion features, redemption rights, and certain events of default. The Company determined that these embedded derivative required bifurcation and separate valuation.
The Company utilizes a binomial lattice model to value its bifurcated derivatives included in the Notes. ASC 815 does not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be combined together and fair valued as a single, compound embedded derivative. The Company selected a binomial lattice model to value the compound embedded derivative because it believes this technique is reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the Notes. Such assumptions include, among other inputs, stock price volatility, risk-free rates, credit risk assumptions, early redemption and conversion assumptions, and the potential for future adjustment of the conversion price due to triggering events. Additionally, there are other embedded features of the Notes requiring bifurcation, other than the conversion features, which had no value at December 31, 2021 due to management’s estimates of the likelihood of certain events, but that may have value in the future should those estimates change.
A continuity of derivative liability for the nine months ended September 30, 2022 is summarized as follows:
|
Total |
||||
|
Balance, December 31, 2021 |
$ | |||
|
Change in fair value |
( |
) |
||
| Derecognition upon conversion | ( |
) |
||
|
Balance, September 30, 2022 |
$ | |||
The Company sold and issued, in a registered direct offering, an 8% senior convertible note due
The Note was issued on November 8, 2021, pursuant to an indenture dated November 2, 2021 between the Company 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 Notes (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.
|
12. |
STOCK OPTION AWARDS |
The following table represents the employee stock option activity during the nine months ended September 30, 2022 and 2021.
|
Shares |
Weighted Average Exercise Price |
Aggregate Intrinsic Value |
||||||||||
|
Outstanding at December 31, 2020 |
$ | |||||||||||
|
Granted |
||||||||||||
|
Exercised |
( |
) |
||||||||||
|
Forfeited or Expired |
( |
) |
||||||||||
|
Outstanding at September 30, 2021 |
$ | $ | ||||||||||
|
Exercisable at September30, 2021 |
$ | $ | ||||||||||
|
Vested and Expected to Vest at September 30, 2021 |
$ | $ | ||||||||||
|
Outstanding at December 31, 2021 |
$ | |||||||||||
|
Granted |
||||||||||||
|
Exercised |
( |
) |
||||||||||
|
Forfeited or Expired |
( |
) |
||||||||||
|
Outstanding at September 30, 2022 |
$ | $ | - | |||||||||
|
Exercisable at September 30, 2022 |
$ | $ | - | |||||||||
|
Vested and Expected to Vest at September 30, 2022 |
$ | $ | - | |||||||||
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $
The Company adopted the 2021 Restricted Stock Plan (“2021 Plan”) in November 2021, which provides for the grant of restricted stock awards and performance stock awards to executive officers, non-employee directors and other key employees of the Company. The 2021 Plan provides for up to
The following table represents the restricted stock award activity during the nine months ended September 30, 2022 and 2021.
|
Non-vested Restricted Stock Awards |
Weighted Average Grant Date Fair Value |
|||||||
|
Non-vested at January 1, 2021 |
$ | |||||||
|
Granted |
||||||||
|
Vested |
||||||||
|
Forfeited |
||||||||
|
Non-vested at September 30, 2021 |
$ | |||||||
|
Non-vested at January 1, 2022 |
$ | |||||||
|
Granted |
||||||||
|
Vested |
( |
) |
( |
) |
||||
|
Forfeited |
||||||||
|
Non-vested at September 30, 2022 |
$ | |||||||
Total stock-based compensation expense recognized for the Company’s 2021 Plan was $
|
13. |
STOCK GRANT EXPENSE |
The Company issues stock with no exercise price to its employees, outside service providers, and board members. These stock grants typically do not have a vesting period and vest immediately upon issuances.
The Company issued the following stock during the nine months ended September 30, 2022:
|
Number of shares |
||||||||
|
Nine months ended |
Three months ended |
|||||||
|
September 30, 2022 |
September 30, 2022 |
|||||||
|
Employees |
||||||||
|
Services |
||||||||
|
Total stock grants |
||||||||
The Company recorded stock grant compensation expense for employees and board members in the amount of $
|
14. |
COMMON STOCK |
GreenBox POS LLC (“PrivCo”), a privately held company owned by Ben Errez, Chairman and Executive Vice President of the Company, and Fredi Nisan, Chief Executive of the Company and a member of its Board of Directors, owns approximately
|
15. |
LEASES |
For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the incremental borrowing rate, in accordance with ASC 842, Leases.
The Company leases office space at three locations in California, Florida and Massachusetts. The Company had operating lease expense of $
|
Future minimum lease payments for all leases as of September 30, 2022 are as follows: |
|
|
|
|
|
Year |
|
Amount |
|
|
|
2022 (Remainder) |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total lease payments |
|
|
|
|
|
Less: present value adjustment |
|
|
( |
) |
|
Present value of total lease liabilities |
|
|
|
|
|
Less: current lease liabilities |
|
|
( |
) |
|
Long-term lease liabilities |
|
$ |
|
|
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the lease commencement date. As of September 30, 2022, the weighted average remaining lease term is
|
16. |
RELATED PARTY TRANSACTIONS |
● Kenneth Haller and the Haller Companies
Kenneth Haller (“Haller”) became the Company’s Senior Vice President of Payment Systems in November 2018. The Company began working indirectly with Haller earlier in 2018, both individually and through our relationship with MTrac Tech Corporation (“MTrac”), which in turn has business relationships with Haller. Haller brought considerable advantages to the Company’s platform development and business development efforts and capabilities, including transactional business relations and a large network of agents (the “Haller Network”).
The following are certain transactions between the Company and the Haller Companies:
Sky Financial & Intelligence, LLC – Haller owns
On March 31, 2022, the Company acquired a portfolio of merchant accounts from Sky Financial & Intelligence for $
Mr. Haller, became an independent contractor to the Company (and no longer an employee) through his company FINTECH CONSULTING in March 2022. On or around September 2022, the Company terminated the independent contracting agreement with FINTECH Consulting.
On July 13, 2021 (the “Closing Date”), GreenBox POS entered into and closed o a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Charge Savvy, LLC – Sky owned
As a result of the Purchase Agreement, the Company purchased all of Charge Savvy’s issued and outstanding membership interests 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
The Company did not pay any commissions to the related parties mentioned above for the nine months ended September 30, 2022 and 2021.
|
17. |
COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
|
|
● |
Corporate Performance Consulting, LLC (CPC) v. RYVYL Inc. – On April 7, 2021, CPC filed a complaint against RYVYL Inc. in San Diego Superior Court. Plaintiff CPC alleges breach of contract, breach of implied covenant of good faith and fair dealing, goods and services rendered, negligent misrepresentation, violation of CA Business and Professions Code Section 17200, and unjust enrichment. The crux of CPC’s claim is that RYVYL Inc. failed to compensate for certain consulting and corporate advisory services. RYVYL Inc. believes the claims are without merit and intends to defend itself vigorously. On June 17, 2021, RYVYL Inc. filed a Cross-Complaint for breach of contract, breach of implied covenant of good faith and fair dealing, negligent misrepresentation, unjust enrichment, and rescission. The parties are now in the discovery phase and have scheduled mediation on December 15, 2022. |
|
|
● |
The Good People Farms, LLC (TGPF) - TGPF initiated an arbitration in AAA on or about April 20, 2020 against RYVYL Inc., Fredi Nisan, Ben Errez, MTrac Tech., Vanessa Luna, and Jason LeBlanc. The matter was placed in abeyance for some time. On January 15, 2021, RYVYL Inc. filed a counterclaim for fraud - intentional misrepresentation, breach of contract, breach of covenant of good faith and fair dealing, violation of California Business and Professions Code Section 17200, and accounting. The arbitration was stayed pending further proceedings in the separate but related action filed by MTrac and Ms. Luna in San Diego Superior Court. The arbitration has now commenced again upon the state court's January 14, 2022 order denying MTrac's and Ms. Luna's motion for summary judgment and granting of TGPF 's motion to compel arbitration as to MTrac only. TGPF submitted a new complaint on June 21, 2022. There was a preliminary arbitration hearing held the first week of July 2022 and final hearings have been provisionally set for April 18-21, 2023. The parties are now in the discovery phase. |
|
|
● |
Pure Health, et al. v. Worldpay LLC et al - On February 18, 2022, forty-three online marketer Plaintiffs filed suit in the Court of Common Pleas, Hamilton County, Ohio against Worldpay LLC (formerly Vantiv LLC), Fifth Third Bank, ChargeSavvy LLC, a wholly owned subsidiary of RYVYL Inc., RYVYL Inc., and John Does 1 (Defendants) through 10, alleging breach of contract, breach of implied covenant of good faith and fair dealing, conversion, and money had and received (constructive trust). Defendant RYVYL Inc. believes that Plaintiffs’ claims against it are without merit and plans to pursue all judicial remedies necessary to resolve this matter. On April 22, 2022 Worldpay and Fifth Third filed a motion to stay proceedings and compel arbitration. The parties thereafter stipulated to arbitration, and the Court granted the parties’ stipulation to submit the dispute to binding arbitration on June 1, 2022. On June 9, 2022, the same forty-three online marketers (“Claimants”) filed their demand in AAA Arbitration. RYVYL Inc. submitted an answering to the Claimants’ demand on June 24, 2022. The parties are in the process of selecting an arbitrator. Arbitration is scheduled for July 18, 2023. |
|
|
● |
Paul Levine – On April 27, 2022, Paul Levine (“Levine”), former Chief Executive Officer of Coyni, Inc., wholly-owned subsidiary of RYVYL Inc., filed a charge with The Occupational Safety and Health Administration (“OSHA”) against respondents Coyni and RYVYL Inc.. Levine alleges retaliation in violation of the Sarbanes-Oxley Act of 2002, as amended, 18 U.S.C. §1514A (“SOX”). RYVYL Inc. believes the claims are without merit and intends to defend itself vigorously. This matter is currently pending in the investigation phase with OSHA. |
|
18. |
SUBSEQUENT EVENTS |
The Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Accordingly, the Company did not have any subsequent events that require disclosure other than the following:
|
| ● | On June 30, 2022, Transact Europe EAD, a subsidiary of the Company entered into a stock purchase agreement to acquire |
| ● | In December 2021, the Company entered into a letter of intent to acquire the portfolio of merchants from Merchant Payment Solutions, LLC. A draft purchase agreement was issued in October 2022. The Company expects to finalize the purchase in Q4 2022. | |
| ● | On November 8, 2022 RYVYL Inc. filed a complaint against its former COO, Luna Consultant Group, LLC and John Does 1 through 50 in San Diego Superior Court. RYVYL is alleging misappropriation of trade secrets, breach of fiduciary duty, and conversion among other causes of action.
On November 10, 2022, Vanessa Luna, former COO of RYVYL, filed a complaint against RYVYL and Fredi Nisan. Luna alleges breach of contact, unjust enrichment, promissory estoppel, retaliation and wrong termination, fraud among other claims. Luna is seeking damages including compensatory damages, unpaid wages (past and future), loss of wages and benefits (past and future), expectation damages, and other damages to be proven at trial. The Company denies all allegations. Investigation is ongoing. As the Company cannot predict the outcome of the matter the probability of an outcome cannot be determined. The Company intents to vigorously defend against all claims. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Disclaimer Regarding Forward Looking Statements
Our Management’s Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview – Organization and Name Changes
Organization
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 (“ASAP”), and was incorporated in the state of Nevada on April 10, 2007. On January 4, 2020, the Company and GreenBox POS LLC, a Washington limited liability company (“PrivCo”), entered into an Asset Purchase Agreement (the "Agreement”), to memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and amongthe Company (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 10, 2022 GreenBox POS changed its name to RYVYL Inc.
Management Discussion and Analysis
RESULTS OF OPERATIONS
Three Months Ended September 30, 2022 (Unaudited) Compared to Three Months September 30, 2021 (Unaudited):
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | Change | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
|
Net revenue |
$ | 10,629,691 | 100.0 |
% |
$ | 8,045,469 | 100.0 |
% |
$ | 2,584,222 | 32.1 |
% |
||||||||||||
|
Cost of revenue |
4,269,529 | 40.2 |
% |
2.420.748 | 30.1 |
% |
1,848,781 | 76.4 |
% |
|||||||||||||||
|
Gross profit |
6,360,162 | 59.8 |
% |
5,624,721 | 69.9 |
% |
735,441 | 13.1 |
% |
|||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||
|
Advertising and marketing |
438,523 | 4.1 |
% |
37,179 | 0.5 |
% |
401,344 | 1079.5 |
% |
|||||||||||||||
|
Research and development |
1,442,038 | 13.6 |
% |
1,043,385 | 13.0 |
% |
398,653 | 38,2 |
% |
|||||||||||||||
|
General and administrative |
1,186,123 | 11.2 |
% |
784,158 | 9.7 |
% |
401,965 | 51.3 |
% |
|||||||||||||||
|
Payroll and payroll taxes |
2,384,544 | 22.4 |
% |
1,250,451 | 15.5 |
% |
1,134,093 | 90.7 |
% |
|||||||||||||||
|
Professional fees |
1,031,867 | 9.7 |
% |
789,772 | 9.8 |
% |
242,095 | 30.7 |
% |
|||||||||||||||
|
Stock compensation for employees |
- | 0.0 |
% |
3,777,572 | 47.0 |
% |
(3,777,572 |
) |
-100.0 |
% |
||||||||||||||
|
Stock grant expense |
508,313 | 4.8 |
% |
- | 0.0 |
% |
508,313 | n/a | ||||||||||||||||
|
Stock compensation for services |
132,696 | 1.2 |
% |
238,238 | 3.0 |
% |
(105,542 |
) |
-44.3 |
% |
||||||||||||||
|
Depreciation and amortization |
2,298,849 | 21.5 |
% |
457,633 | 5.7 |
% |
1,841,216 | 400.2 |
% |
|||||||||||||||
|
Total operating expenses |
9,422,953 | 88.6 |
% |
8,378,388 | 104.1 |
% |
1,044,565 | 12.4 |
% |
|||||||||||||||
|
Loss from operations |
(3,062,791 |
) |
-28.7 |
% |
(2,753,667 |
) |
-34.2 |
% |
(309,124 |
) |
10.9 |
% |
||||||||||||
|
Other Income (Expense): |
||||||||||||||||||||||||
|
Interest expense |
(1,906,962 |
) |
-17.9 |
% |
(4,736 |
) |
-0.1 |
% |
(1,902,226 |
) |
n/a | |||||||||||||
|
Interest expense - debt discount |
(436,817 |
) |
-4.1 |
% |
- | 0.0 |
% |
(436,817 |
) |
n/a | ||||||||||||||
|
Changes in fair value of derivative liability |
(4,082,056 |
) |
-38.4 |
% |
- | 0.0 |
% |
(4,082,056 |
) |
n/a | ||||||||||||||
|
Derecognition expense on conversion of convertible debt |
(5,709,672 |
) |
-53.7 |
% |
- | 0.0 |
% |
(5,709,672 |
) |
n/a | ||||||||||||||
|
Merchant liability settlement |
- | 0.0 |
% |
- | 0.0 |
% |
- | n/a | ||||||||||||||||
|
Other income or expense |
62,806 | 0.6 |
% |
(37,497 |
) |
-0.5 |
% |
100,303 | -267.5 |
% |
||||||||||||||
|
Total other income (expense) |
(12,072,701 |
) |
-113.6 |
% |
(42,233 |
) |
-0.5 |
% |
(12,030,468 |
) |
28485.9 |
% |
||||||||||||
|
Income (Loss) before provision for income taxes |
(15,135,492 |
) |
-142.4 |
% |
(2,795,900 |
) |
-34.8 |
% |
(12,339,592 |
) |
441.3 |
% |
||||||||||||
|
Provision for income taxes |
34,785 | 0.3 |
% |
3,253,855 | 40.4 |
% |
(3,219,070 |
) |
-98.9 |
% |
||||||||||||||
|
Net income (loss) |
$ | (15,170,277 |
) |
-142.7 |
% |
$ | (6,049,755 |
) |
-75.2 |
% |
$ | (9,120,522 |
) |
150.8 |
% |
|||||||||
Net Revenue
Net revenue increased by $2,584,222, or 32.1%, to $10,629,691 for the three months ended September 30, 2022 from $8,045,469 for the three months ended September 30, 2021. The change in net revenue includes $2.9 million of penalties and fees charged to merchant in accordance with our standard service agreement for transaction fraud and minimum activity fees along with an increase in processing volume compared to the same three month period in 2021offset by lower commissions from a processing partner.
Cost of Revenue
Cost of revenue increased by $1,848,781, or 76.4%, to $4,269,529 for the three months ended September 30, 2022, from $2,420,748 for the three months ended September 30, 2021. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Cost of revenues increased due to the following:
|
|
● |
Increased volume, resulting in higher processing fees paid to Gateways and commission payments to ISOs. The gross margin decreased due to an increase in fees for ISOs. |
Operating Expenses
Operating expenses increased by $1,044,565, or 12.5%, to $9,422,953 for the three months ended September 30, 2022, from $8,378,388 for the three months ended September 30, 2021. The increase was due primarily to higher depreciation and amortization, and payroll and payroll taxes for the three months ended September 30, 2022, offset by decreases in stock compensation for employees.
Other Income (Expense)
Other expense increased by $12,030,468 to $12,072,701 for the three months ended September 30, 2022, from $42,233 for the three months ended September 30, 2021. Interest expense increased significantly in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 due to the $100,000,000 convertible note issued in November 2021. Amortization of the discount and the fair value of the derivative liability associated with the note were also contributing factors. Furthermore, the Company had changes in fair value of derivative liability expense of $4,082,056 for the three months ended September 30, 2022 and none in the previous year same quarter. The Company recorded derecognition expense on conversion of debt of $5,709,67 in the quarter ended September 30, 2022.
Nine Months Ended September 30, 2022 (Unaudited) Compared to Nine Months September 30, 2021 (Unaudited):
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | Change | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
|
Net revenue |
$ | 22,490,824 | 100.0 |
% |
$ | 19,174,089 | 100.0 |
% |
$ | 3,316,735 | 17.3 |
% |
||||||||||||
|
Cost of revenue |
10,976,255 | 48.8 |
% |
5,337,999 | 27.8 |
% |
5,638,256 | 105.6 |
% |
|||||||||||||||
|
Gross profit |
11,514,569 | 51.2 |
% |
13,836,090 | 72.2 |
% |
(2,321,521 |
) |
-16.8 |
% |
||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||
|
Advertising and marketing |
1,106,341 | 4.9 |
% |
84,509 | 0.4 |
% |
1,021,832 | 1209.1 |
% |
|||||||||||||||
|
Research and development |
5,300,115 | 23.6 |
% |
2,504,976 | 13.1 |
% |
2,795,139 | 111.6 |
% |
|||||||||||||||
|
General and administrative |
4,331,918 | 19.3 |
% |
1,648,383 | 8.6 |
% |
2,683,535 | 162.8 |
% |
|||||||||||||||
|
Payroll and payroll taxes |
7,480,377 | 33.3 |
% |
2,871,581 | 15.0 |
% |
4,608,796 | 160.5 |
% |
|||||||||||||||
|
Professional fees |
3,704,226 | 16.5 |
% |
2,114,996 | 11.0 |
% |
1,589,230 | 75.1 |
% |
|||||||||||||||
|
Stock compensation for employees |
166,800 | 0.7 |
% |
5,867,072 | 30.6 |
% |
(5,700,272 |
) |
-97.2 |
% |
||||||||||||||
|
Stock grant expense |
2,223,611 | 9.9 |
% |
- | 0.0 |
% |
2,223,611 | n/a | ||||||||||||||||
|
Stock compensation for services |
338,348 | 1.5 |
% |
10,418,996 | 54.3 |
% |
(10,080,648 |
) |
-96.8 |
% |
||||||||||||||
|
Depreciation and amortization |
4,879,798 | 21.7 |
% |
477,886 | 2.5 |
% |
4,401,912 | 919.1 |
% |
|||||||||||||||
|
Total operating expenses |
29,531,534 | 131.3 |
% |
25,988,399 | 135.5 |
% |
3,543,135 | 13.6 |
% |
|||||||||||||||
|
Loss from operations |
(18,016,965 |
) |
-80.1 |
% |
(12,152,309 |
) |
-63.4 |
% |
(5,864,656 |
) |
48.3 |
% |
||||||||||||
|
Other Income (Expense): |
||||||||||||||||||||||||
|
Interest expense |
(5,662,463 |
) |
-25.2 |
% |
(598,994 |
) |
-3.1 |
% |
(5,063,469 |
) |
845.3 |
% |
||||||||||||
|
Interest expense - debt discount |
(11,539,803 |
) |
-62.3 |
% |
(2,993,408 |
) |
-15.6 |
% |
(8,546,395 |
) |
285.5 |
% |
||||||||||||
|
Changes in fair value of derivative liability |
14,591,938 | 64.9 |
% |
- | 0.0 |
% |
14,591,938 | n/a | ||||||||||||||||
|
Derecognition expense on conversion of convertible debt |
(5,709,672 |
) |
-25.4 |
% |
- | 0.0 |
% |
(5,709,672 |
) |
n/a | ||||||||||||||
|
Merchant liability settlement |
- | 0.0 |
% |
(364,124 |
) |
-1.9 |
% |
364,124 | -100.0 |
% |
||||||||||||||
|
Other income or expense |
298,021 | 1.3 |
% |
(56,057 |
) |
-0.3 |
% |
354,078 | -631.6 |
% |
||||||||||||||
|
Total other income (expense) |
(8,021,979 |
) |
-35.7 |
% |
(4,012,583 |
) |
-20.9 |
% |
(4,009,396 |
) |
-631.6 |
% |
||||||||||||
|
Loss before provision for income taxes |
(26,038,944 |
) |
-115.8 |
% |
(16,164,892 |
) |
-84.3 |
% |
(9,874,052 |
) |
61.1 |
% |
||||||||||||
|
Provision for income taxes |
37,237 | 0.2 |
% |
3,253,855 | 17.0 |
% |
(3,216,618 |
) |
-98.9 |
% |
||||||||||||||
|
Net loss |
$ | (26,6076,181 |
) |
-115.9 |
% |
$ | (19,418,747 |
) |
-101.3 |
% |
$ | (6,657,434 |
) |
34.3 |
% |
|||||||||
Net Revenue
Net revenue increased by $3,316,735, or 17.3%, to $22,490,824 for the nine months ended September 30, 2022, from $19,174,089 for the nine months ended September 30, 2021. The change in net revenue reflected the following:
|
|
● |
Increase in processing volume in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. |
| ● |
$2.9 million revenue in penalties and fees charged to merchants, in accordance with the company’s standard service agreement for transaction fraud and minimum activity fees. |
Cost of Revenue
Cost of revenue increased by $5,638,256 or 105.6%, to $10,976,255 for the nine months ended September 30, 2022, from $5,337,999 for the nine months ended September 30, 2021. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Cost of revenues increased due to the following:
|
|
● |
Increased volume, resulting in higher processing fees paid to Gateways and commission payments to ISOs. The gross margin percentage decreased due to an increase in fees in ISO. |
Operating Expenses
Operating expenses increased by $3,543,135 or 13.6%, to $29,531,534 for the nine months ended September 30, 2022, from $25,988,399 for the nine months ended September 30, 2021. The increase was due primarily to depreciation and amortization, marketing expenses related to re-branding, software development, and payroll and payroll taxes for the nine months ended September 30, 2022, offset by decreases in stock compensation for employees and services.
Other Income (Expense)
Other expense increased by $4,009,396 or 99.9%, to $8,021,979 for the nine months ended September 30, 2022, from $4,012,583 for the nine months ended September 30, 2021. Interest expense increased significantly in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due to the $100,000,000 convertible note issued in November 2021. Amortization of the discount associated with the note and derecognition expense on the conversion of convertible debt were contributing factors offset by the change in fair value of derivative liability of $14,591,938 for the nine months ended September 30, 2022 and none in the previous year same quarter.
Provision for Income Taxes
The Company estimates our annual effective income tax rate to be 0.2% for calendar 2022, which is different from the U.S. federal statutory rate, primarily due to its full valuation position. The Company recorded approximately $37,237 of tax expense. As of September 30, 2022, we have no material unrecognized tax benefits, and the Company expects no change to unrecognized tax benefits within next 12 months.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity have historically been derived from raising capital by issuing debt or common stock. Our cash flow from operations is not yet able to cover cash needs. The Company believes current cash balances will be sufficient to cover our operating needs for the next twelve months. Our $85.5 million convertible note matures in November 2024. There are covenants associated with the note that accelerates the conversion of tranches of the note should certain targets be met.
The Company may, in the future, seek to raise additional capital to fund growth, operations and other business activities, but such additional capital may not be available to us on acceptable terms, on a timely basis, or at all.
The following table summarizes our cash flows from operating, investing and financing activities (unaudited):
|
Nine Months Ended September 30, |
||||||||
|
2022 |
2021 |
|||||||
|
Net cash provided by (used in) operating activities |
$ | (11,444,065 |
) |
$ | (14,034,039 |
) |
||
|
Net cash provided by (used in) investing activities |
(46,863,645 |
) |
(2,597,818 |
) |
||||
|
Net cash provided by (used in) financing activities |
(9,231,508 |
) |
43,015,308 | |||||
|
Cash acquired from acquisition of Northeast & ChargeSavvy |
1,491,068 | |||||||
|
Cash acquired from acquisition of Transact Europe |
18,676,860 | - | ||||||
|
Net increase (decrease) in cash, cash equivalents, and restricted cash |
$ | (48,862,358 |
) |
$ | 27,874,519 | |||
Operating Activities – For the nine months ended September 30, 2022 and 2021, net cash provided by and used in operating activities was ($11,444,065) and ($14,034,039), respectively. The cash used in operating activities was primarily due to net loss and timing of settlement of assets and liabilities including stock compensation expenses.
Investing Activities – Net cash used in investing activities primarily consisted of the acquisition of Transact Europe and Sky Financials for the nine months ended September 30, 2022.
Financing Activities – Net cash provided by financing activities primarily consisted of proceeds from our underwritten offering of $45,805,491 for the nine months ended September 30, 2021 and net cash used in by financing activities primarily consisted of repurchases of common stock under treasury method of $3,236,723 and repayment of convertible debt of $6,000,000 for the nine months ended September 30, 2022.
CRITICAL ACCOUNTING ESTIMATES
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies.
The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.
The Company generates revenue from payment processing services, licensing fees and equipment sales.
|
|
● |
Payment processing revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed. |
|
|
● |
Licensing revenue is paid in advance and is recorded as unearned income, which is amortized over the period of the licensing agreement. |
|
|
● |
Equipment sales revenue is generated from the sale of POS products, which is recognized when goods are shipped. Revenue recognized from the sale of equipment was not material. |
Cash Due from Gateways and Payment Processing Liabilities
The Company’s primary source of revenues continues to be payment processing services for its merchant clients. When such 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.
In 2022 and 2021 the Company utilized several gateways. The gateways have strict guidelines pertaining to scheduling of the release of funds to merchants based on several criteria, such as return and chargeback history, associated risk for the specific business vertical, average transaction amount and so on. In order to mitigate processing risks, these policies determine reserve requirements and payment in arear strategy. While reserve and payment in arrears restrictions are in effect for a merchant payout, the Company records gateway debt against these amounts until released.
Therefore, the total gateway balances reflected in the Company’s books represent the amount owed to the Company for processing – these are funds from transactions processed and not yet distributed.
ITEM 4. CONTROLS AND PROCEDURES
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of September 30, 2022, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to our management, including our principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three and nine months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information called for by this item is incorporated herein by reference to Note 17 Commitments and Contingencies under the heading “Legal Proceedings” included in Part I, Item 1, Financial Statements (unaudited) — Notes to Unaudited Condensed Consolidated Financial Statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have had no sales of unregistered securities in 2022 that have not been previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q other than those disclosed below. All of these shares of common stock were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(a)(2) thereof for the sale of securities not involving a public offering.
In the three months ended March 31, 2022, the Company issued 33,333 shares of common stock owed to an investor pursuant to a securities purchase agreement signed December 31, 2020.
In the three months ended June 30, 2022, the Company issued 45,000 shares of common stock to one independent contractor who provides infrastructure and strategic planning services to the Company.
In the three months ended September 30, 2022, the Company issued a total of 222,500 shares of common stock to three independent contractors who provide infrastructure planning, business development strategy, consulting and broadcast services to the Company.
Share Repurchases
There were no share repurchases in the three months ended September 30, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
3.1 |
|
| 10.1 | Restructuring Agreement, dated August 16, 2022 between GreenBox POS and the Investor (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on August 16, 2022). |
| 31.1 | Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). |
|
31.2 |
|
|
32.1* |
|
|
32.2* |
|
|
101.INS |
Inline XBRL Instance Document |
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* 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.
|
|
RYVYL Inc. (Registrant) |
|
|
|
|
|
|
|
|
Date: November 21, 2022 |
By: |
/s/ Fredi Nisan |
|
|
|
|
Fredi Nisan Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 21, 2022 |
By: |
/s/ J Drew Byelick |
|
|
|
|
J Drew Byelick Chief Financial Officer (Principal Financial Officer) |
|