UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from to
Commission file number: 001-34294
RYVYL INC.
(Exact name of small business issuer as specified in its charter)
Nevada | 22-3962936 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
| |
3131 Camino Del Rio North, Suite 1400 | |
San Diego, CA | 92108 |
(Address of principal executive offices) | (Zip Code) |
(619) 631-8261 |
(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 |
Common Stock, $0.001 par value | RVYL | The Nasdaq Stock Market LLC (Nasdaq Capital Market) |
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 12, 2024, the Registrant had 6,755,199 shares of common stock, $0.001 par value per share, outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYVYL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
|
|
June 30, 2024
|
|
|
December 31, 2023
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
6,387 |
|
|
$ |
12,180 |
|
Restricted cash
|
|
|
68,773 |
|
|
|
61,138 |
|
Accounts receivable, net of allowance for credit losses of $80 and $23, respectively |
|
|
793 |
|
|
|
859 |
|
Cash due from gateways, net of allowance of $0 and $2,636, respectively |
|
|
1,136 |
|
|
|
12,834 |
|
Prepaid and other current assets
|
|
|
2,408 |
|
|
|
2,854 |
|
Total current assets
|
|
|
79,497 |
|
|
|
89,865 |
|
Non-current Assets:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
792 |
|
|
|
306 |
|
Goodwill
|
|
|
19,468 |
|
|
|
26,753 |
|
Intangible assets, net
|
|
|
4,071 |
|
|
|
5,059 |
|
Operating lease right-of-use assets, net
|
|
|
3,824 |
|
|
|
4,279 |
|
Other assets
|
|
|
1,381 |
|
|
|
2,403 |
|
Total non-current assets
|
|
|
29,536 |
|
|
|
38,800 |
|
Total assets
|
|
$ |
109,033 |
|
|
$ |
128,665 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
3,156 |
|
|
$ |
1,819 |
|
Accrued liabilities
|
|
|
4,780 |
|
|
|
5,755 |
|
Payment processing liabilities, net
|
|
|
70,575 |
|
|
|
76,772 |
|
Current portion of operating lease liabilities
|
|
|
787 |
|
|
|
692 |
|
Other current liabilities
|
|
|
358 |
|
|
|
504 |
|
Total current liabilities
|
|
|
79,656 |
|
|
|
85,542 |
|
Long term debt, net of debt discount
|
|
|
17,437 |
|
|
|
15,912 |
|
Operating lease liabilities, less current portion
|
|
|
3,311 |
|
|
|
3,720 |
|
Total liabilities
|
|
|
100,404 |
|
|
|
105,174 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, Series B, par value $0.01, 5,000,000 shares authorized; shares issued and outstanding 54,125 and 55,000 at June 30, 2024 and December 31, 2023, respectively |
|
|
1 |
|
|
|
1 |
|
Common stock, par value $0.001, 100,000,000 shares authorized, shares issued and outstanding of 6,750,100 and 5,996,948 at June 30, 2024 and December 31, 2023, respectively |
|
|
7 |
|
|
|
6 |
|
Additional paid-in capital
|
|
|
176,220 |
|
|
|
175,664 |
|
Accumulated other comprehensive (loss) income
|
|
|
(218 |
) |
|
|
401 |
|
Accumulated deficit
|
|
|
(167,381 |
) |
|
|
(152,581 |
) |
Total stockholders' equity
|
|
|
8,629 |
|
|
|
23,491 |
|
Total liabilities and stockholders’ equity
|
|
$ |
109,033 |
|
|
$ |
128,665 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RYVYL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except share and per share data)
(Unaudited)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2024
|
|
|
2023
|
|
|
2024
|
|
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
11,900 |
|
|
$ |
14,849 |
|
|
$ |
28,674 |
|
|
$ |
26,140 |
|
Cost of revenue
|
|
|
7,151 |
|
|
|
8,725 |
|
|
|
16,894 |
|
|
|
14,903 |
|
Gross profit
|
|
|
4,749 |
|
|
|
6,124 |
|
|
|
11,780 |
|
|
|
11,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing
|
|
|
17 |
|
|
|
33 |
|
|
|
33 |
|
|
|
108 |
|
Research and development
|
|
|
819 |
|
|
|
1,184 |
|
|
|
2,212 |
|
|
|
3,119 |
|
General and administrative
|
|
|
1,621 |
|
|
|
2,317 |
|
|
|
3,665 |
|
|
|
3,669 |
|
Payroll and payroll taxes
|
|
|
2,850 |
|
|
|
2,913 |
|
|
|
6,419 |
|
|
|
5,627 |
|
Professional fees
|
|
|
1,261 |
|
|
|
2,614 |
|
|
|
2,295 |
|
|
|
4,417 |
|
Stock compensation expense
|
|
|
182 |
|
|
|
(32 |
) |
|
|
406 |
|
|
|
161 |
|
Depreciation and amortization
|
|
|
578 |
|
|
|
623 |
|
|
|
1,235 |
|
|
|
1,242 |
|
Impairment of goodwill
|
|
|
6,675 |
|
|
|
- |
|
|
|
6,675 |
|
|
|
- |
|
Restructuring charges
|
|
|
1,636 |
|
|
|
- |
|
|
|
1,636 |
|
|
|
- |
|
Total operating expenses
|
|
|
15,639 |
|
|
|
9,652 |
|
|
|
24,576 |
|
|
|
18,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(10,890 |
) |
|
|
(3,528 |
) |
|
|
(12,796 |
) |
|
|
(7,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(125 |
) |
|
|
(1,517 |
) |
|
|
(153 |
) |
|
|
(3,246 |
) |
Accretion of debt discount
|
|
|
(797 |
) |
|
|
(2,821 |
) |
|
|
(1,705 |
) |
|
|
(5,443 |
) |
Changes in fair value of derivative liability
|
|
|
14 |
|
|
|
(497 |
) |
|
|
14 |
|
|
|
(329 |
) |
Derecognition expense on conversion of convertible debt
|
|
|
(69 |
) |
|
|
(188 |
) |
|
|
(69 |
) |
|
|
(188 |
) |
Legal settlement expense
|
|
|
- |
|
|
|
(2,113 |
) |
|
|
|
|
|
|
(2,214 |
) |
Other income (expense)
|
|
|
195 |
|
|
|
(1,337 |
) |
|
|
537 |
|
|
|
(1,447 |
) |
Total other expense, net
|
|
|
(782 |
) |
|
|
(8,473 |
) |
|
|
(1,376 |
) |
|
|
(12,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(11,672 |
) |
|
|
(12,001 |
) |
|
|
(14,172 |
) |
|
|
(19,973 |
) |
Income tax provision
|
|
|
439 |
|
|
|
4 |
|
|
|
629 |
|
|
|
9 |
|
Net loss
|
|
$ |
(12,111 |
) |
|
$ |
(12,005 |
) |
|
$ |
(14,801 |
) |
|
$ |
(19,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(12,111 |
) |
|
$ |
(12,005 |
) |
|
$ |
(14,801 |
) |
|
$ |
(19,982 |
) |
Foreign currency translation loss
|
|
|
(174 |
) |
|
|
(13 |
) |
|
|
(619 |
) |
|
|
(71 |
) |
Total comprehensive loss
|
|
$ |
(12,285 |
) |
|
$ |
(12,018 |
) |
|
$ |
(15,420 |
) |
|
$ |
(20,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(1.88 |
) |
|
$ |
(2.33 |
) |
|
$ |
(2.39 |
) |
|
$ |
(3.90 |
) |
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
6,438,409 |
|
|
|
5,141,710 |
|
|
|
6,205,492 |
|
|
|
5,128,790 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RYVYL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share data)
(Unaudited)
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
Other Accumulated
|
|
|
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Series B
Shares
|
|
|
Amount
|
|
|
Paid In
Capital
|
|
|
Comprehensive
Income (Loss)
|
|
|
Accumulated
Deficit
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2023
|
|
|
5,996,948 |
|
|
$ |
6 |
|
|
|
55,000 |
|
|
$ |
1 |
|
|
$ |
175,664 |
|
|
$ |
401 |
|
|
$ |
(152,581 |
) |
|
$ |
23,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock under equity incentive plans
|
|
|
20,776 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
212 |
|
|
|
- |
|
|
|
- |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options
|
|
|
6,218 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares forfeited
|
|
|
(22,455 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(99 |
) |
|
|
- |
|
|
|
- |
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(445 |
) |
|
|
(2,689 |
) |
|
|
(3,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2024
|
|
|
6,001,487 |
|
|
|
6 |
|
|
|
55,000 |
|
|
$ |
1 |
|
|
|
175,777 |
|
|
|
(44 |
) |
|
|
(155,270 |
) |
|
|
20,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock under equity incentive plans
|
|
|
42,659 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
279 |
|
|
|
- |
|
|
|
- |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon conversion of convertible debt
|
|
|
169,220 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
240 |
|
|
|
- |
|
|
|
- |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon conversion of Series B preferred stock
|
|
|
567,262 |
|
|
|
1 |
|
|
|
(875 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares forfeited
|
|
|
(30,528 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(75 |
) |
|
|
- |
|
|
|
- |
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(174 |
) |
|
|
(12,111 |
) |
|
|
(12,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2024
|
|
|
6,750,100 |
|
|
$ |
7 |
|
|
|
54,125 |
|
|
$ |
1 |
|
|
$ |
176,220 |
|
|
$ |
(218 |
) |
|
$ |
(167,381 |
) |
|
$ |
8,629 |
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
To be Issued
|
|
|
Amount
|
|
|
To be returned
|
|
|
Amount
|
|
|
Shares
|
|
|
At Cost
|
|
|
Additional Paid In Capital
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
Accumulated Deficit
|
|
|
Total Stockholders' (Deficit)
|
|
Balance at December 31, 2022
|
|
|
4,972,736 |
|
|
$ |
5 |
|
|
|
175,392 |
|
|
$ |
0 |
|
|
|
(13,689 |
) |
|
$ |
(7 |
) |
|
|
- |
|
|
$ |
- |
|
|
$ |
97,494 |
|
|
$ |
357 |
|
|
$ |
(99,772 |
) |
|
$ |
(1,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to employees as stock compensation
|
|
|
(891 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
31 |
|
|
|
- |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for interest on convertible debt
|
|
|
175,392 |
|
|
|
- |
|
|
|
(175,392 |
) |
|
|
(0 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share repurchase
|
|
|
(13,672 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,689 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carryover effects of financial statement restatements in prior periods
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
292 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(58 |
) |
|
|
(7,979 |
) |
|
|
(8,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2023
|
|
|
5,133,565 |
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97,518 |
|
|
|
299 |
|
|
|
(107,457 |
) |
|
|
(9,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to employees for compensation
|
|
|
9,511 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon conversion of convertible debt
|
|
|
56,265 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for interest on convertible debt
|
|
|
738 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted common stock for compensation
|
|
|
13,166 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares forfeited
|
|
|
(16,865 |
) |
|
|
(0 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315 |
) |
|
|
|
|
|
|
|
|
|
|
(315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(12,005 |
) |
|
|
(12,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2023
|
|
|
5,196,380 |
|
|
$ |
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
$ |
97,788 |
|
|
$ |
286 |
|
|
$ |
(119,462 |
) |
|
$ |
(21,383 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RYVYL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2024
|
|
|
2023
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(14,801 |
) |
|
$ |
(19,982 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,235 |
|
|
|
1,242 |
|
Noncash lease expense
|
|
|
141 |
|
|
|
67 |
|
Stock compensation expense
|
|
|
406 |
|
|
|
161 |
|
Accretion of debt discount
|
|
|
1,705 |
|
|
|
5,443 |
|
Derecognition upon conversion of convertible debt
|
|
|
69 |
|
|
|
188 |
|
Changes in fair value of derivative liability
|
|
|
(14 |
) |
|
|
329 |
|
Impairment of goodwill
|
|
|
6,675 |
|
|
|
- |
|
Restructuring charges
|
|
|
1,636 |
|
|
|
- |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
66 |
|
|
|
507 |
|
Prepaid and other current assets
|
|
|
445 |
|
|
|
7,366 |
|
Cash due from gateways, net
|
|
|
11,699 |
|
|
|
445 |
|
Other assets
|
|
|
(299 |
) |
|
|
(1,781 |
) |
Accounts payable
|
|
|
1,337 |
|
|
|
11,161 |
|
Accrued and other current liabilities
|
|
|
(1,408 |
) |
|
|
782 |
|
Accrued interest
|
|
|
- |
|
|
|
506 |
|
Payment processing liabilities, net
|
|
|
(6,197 |
) |
|
|
16,695 |
|
Net cash provided by operating activities
|
|
|
2,695 |
|
|
|
23,129 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(7 |
) |
|
|
(17 |
) |
Capitalized software development costs
|
|
|
(546 |
) |
|
|
- |
|
Purchases of intangible assets
|
|
|
(92 |
) |
|
|
- |
|
Net cash used in investing activities
|
|
|
(645 |
) |
|
|
(17 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments on long-term debt
|
|
|
(9 |
) |
|
|
(7 |
) |
Treasury stock purchases
|
|
|
(190 |
) |
|
|
- |
|
Net cash used in financing activities
|
|
|
(199 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
|
|
(9 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents, and restricted cash
|
|
|
1,842 |
|
|
|
23,092 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash – beginning of period
|
|
|
73,318 |
|
|
|
40,834 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash – end of period
|
|
$ |
75,160 |
|
|
$ |
63,926 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
2,709 |
|
Income taxes
|
|
$ |
380 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
Convertible debt conversion to common stock
|
|
$ |
200 |
|
|
$ |
300 |
|
Interest accrual from convertible debt converted to common stock
|
|
$ |
- |
|
|
$ |
3 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
RYVYL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Description of the Business
|
Organization
RYVYL Inc. is a financial technology company that develops, markets, and sells innovative blockchain-based payment solutions, which offer significant improvements for the payment solutions marketplace. The Company’s core focus is developing and monetizing disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record, and store a limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
Name Change
On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018. On October 13, 2022 GreenBox POS changed its name to RYVYL Inc. Unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer collectively to RYVYL Inc. and its subsidiaries. Unless the context otherwise requires, all references to “PrivCo” or the “Private Company” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.
2.
|
Summary of Significant Accounting Policies
|
Going Concern
In February 2024, the Company transitioned its QuickCard product in North America away from terminal-based to app-based processing. This transition was driven by a change in our banking partner that was prompted by recent changes in the compliance environment and banking regulations impacting certain niche high-risk business verticals, which were the predominant revenue driver for QuickCard. The recovery of revenues associated with this product transition has been impacted by continuous changes in the regulatory environment and our previous banking relationships, which led management to make the decision, during the second quarter, to terminate the rollout of the app-based product in certain niche high-risk business verticals. To address this change, the Company recently introduced a licensing product for its payments processing platform, which will enable it to serve the same customer base in such verticals through a business partner with more suitable banking compliance capabilities. These developments have led to a significant decline in revenues in the Company’s North America segment.
The decline in revenues has adversely impacted the Company’s liquidity in the short term, within the North America segment. As a result, management has determined that the Company’s cash and cash equivalents as of June 30, 2024 are not sufficient to fund the North America segment’s operations and capital needs for the next 12 months from the issuance of this Report. As a result, substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon the successful execution of management’s intended plan over the next twelve months to improve the liquidity of its North America segment, which includes, without limitation:
|
●
|
continued execution of its accelerated business development efforts to drive volumes in diversified business verticals with the Company’s other products, including the recently launched licensing of the Company’s payments processing platform in certain niche high-risk business verticals;
|
|
●
|
continued implementation of cost control measures to more effectively manage spending in the North America segment and right sizing the organization, where appropriate;
|
|
●
|
the sale of certain noncore assets; and
|
|
●
|
repatriation of offshore profits from the Company’s European subsidiaries, whose continued accelerated growth and generation of positive cash flow have already provided, and will continue to provide, an immediate and viable short-term source of capital during this product transition (to date, the Company has repatriated approximately $8.0 million from Europe).
|
Management has assessed that its intended plan is appropriate and sufficient to address the liquidity shortfall in its North America segment. However, there can be no guarantee that we will be successful in implementing our plan, that our projections of our future capital needs will prove accurate, or that any additional funding will be sufficient to continue our operations in the North America segment. The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The report of the Company’s independent auditor on the consolidated financial statements for the year ended December 31, 2023 contains an explanatory paragraph referring to a substantial doubt concerning the Company’s ability to continue as a going concern.
Basis of Presentation and Consolidation
The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. All intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements.
Unaudited Interim Financial Information
Certain information and footnote disclosures normally included in the Company’s annual audited financial statements and accompanying notes have been condensed or omitted in this accompanying interim consolidated financial statements and footnotes. Accordingly, the accompanying interim consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 26, 2024 (the “2023 Annual Report”).
In the opinion of management, these unaudited consolidated financial statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported financial position, results of operations or cash flows.
Reverse Stock Split
On September 6, 2023, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Nevada to effect a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the Company’s shares of common stock, par value $0.001 per share (the “common stock”). Such amendment and ratio were previously approved by the board of directors. Under Nevada Revised Statutes Section 78.207, stockholder approval of the Reverse Stock Split was not required because (i) both the number of authorized shares of the common stock and the number of issued and outstanding shares of the common stock were proportionally reduced as a result of the Reverse Stock Split; (ii) the Reverse Stock Split did not adversely affect any other class of stock of the Company; and (iii) the Company did not pay money or issue scrip to stockholders who would otherwise be entitled to receive a fractional share as a result of the Reverse Stock Split. As a result of the Reverse Stock Split, which was effective September 6, 2023, every ten shares of the Company’s pre-reverse split outstanding common stock were combined and reclassified into one share of common stock. Proportionate voting rights and other rights of common stockholders were not affected by the Reverse Stock Split. Any fractional shares of common stock resulting from the Reverse Stock Split were rounded up to the nearest whole share. All stock options outstanding and common stock reserved for issuance under the Company’s equity incentive plans outstanding immediately prior to the Reverse Stock Split were adjusted by dividing the number of affected shares of common stock by ten and, as applicable, multiplying the exercise price by ten. All share numbers, share prices, exercise prices and per share amounts have been adjusted, on a retroactive basis to reflect this 1-for-10 Reverse Stock Split.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with an original maturity of three months or less.
Restricted cash substantially consists of cash received from gateways for merchant transactions processed, which has yet to be distributed to merchants, Independent Sales Organizations (“ISOs”) and their agents at the end of the period.
The gateways have strict policies pertaining to the scheduling of the release of funds to merchants based on several criteria that include, but are not limited to, return and chargeback history, associated risk for the specific business vertical, average transaction amount, etc. To mitigate potential credit losses associated with these risks, the gateways use these policies to determine reserve requirements and a payment in arrears strategy. While reserve and payment in arrears restrictions are in effect for a merchant payout, the Company records the reserved amounts against cash due from the gateways until the restriction is released.
Cash Due from Gateways, Net
The Company generates the majority of its revenue from payment processing services provided to its merchant clients. When a merchant makes a sale, the process of receiving the payment card information, engaging the banks for transferring the proceeds to the merchant’s account via digital gateways, and recording the transaction on a blockchain ledger, are the activities for which the Company gets to collect fees. Cash due from gateways represent amounts due to the Company for transactions processed but not yet distributed by the gateways.
Payment Processing Liabilities
The Company’s proprietary blockchain-based technology serves as the settlement engine for all transactions within the Company’s ecosystem. The blockchain ledger provides a robust and secure platform to log large volumes of immutable transactional records in real time. In summary, blockchain is a distributed ledger that uses digitally encrypted keys to verify, secure and record details of each transaction conducted within an ecosystem. Unlike general blockchain-based systems, the Company uses proprietary, private ledger technology to verify every transaction conducted within the Company’s ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by the Company. The Company facilitates all financial elements of its closed-loop ecosystem, and it acts as the administrator for all related accounts. Using the Company’s TrustGateway technology, the Company seeks authorization and settlement for each transaction from gateways to the issuing bank responsible for the credit/debit card used in the transaction. When a gateway settles the transaction, the Company’s TrustGateway technology composes a chain of blockchain instructions to the Company’s ledger manager system.
When consumers use their credit or debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer funding their virtual wallets with an amount that is equal to the cost of the good or service they intend to purchase from the merchant. Once this occurs, the Company transfers the respective funds to the merchant’s virtual wallet, after which the merchant releases its goods or services to the consumer. These transfers take place instantaneously and seamlessly, allowing the transaction experience to seem like any other ordinary credit or debit card transaction to the consumer and merchant.
While the Company’s blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between the Company and the gateways the Company uses, between the Company and its ISOs, and between the Company and/or its ISOs and merchants who use the Company’s services. In the case where the gateways have not yet remitted funds to the Company pertaining to transactions already processed, the Company records those amounts as cash due from gateways, net – a current asset. Concurrently, the Company records a portion of the cash due from gateways as revenue and the remaining balance, which is due to merchants and ISOs, as payment processing liabilities, net – a current liability. The balance included in payment processing liabilities, net in the consolidated balance sheets is equal to the sum of amounts due to merchants and ISOs related to the aforementioned unsettled transactions and the amounts due to merchants and ISOs on already settled transactions that these merchants and ISOs have not yet redeemed in the blockchain.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company generates the majority of its revenue from payment processing services. Payment processing services revenue is typically based on a percentage of the value of each transaction processed and/or upon fixed amounts specified per each transaction or service. The Company satisfies its performance obligations and, therefore, recognizes the processing fees as revenue at a point in time, upon the authorization of a merchant sale transaction.
Research and Development Costs
Research and development costs primarily consist of salaries and benefits for research and development personnel and outsourced contracted services, as well as associated supplies and materials. These costs are expensed as incurred.
Internal-use Software Development Costs
Internal-use software development costs consist of the costs related to outsourced consultants who are directly associated with and who devote time to creating and enhancing internally developed software for the Company’s platforms. Internal-use software development activities generally consist of three stages: (i) the preliminary project stage, (ii) the application development stage, and (iii) the postimplementation-operation stage. In accordance with Accounting Standards Codification (“ASC”) 350-40, Internal Use Software, costs incurred in the preliminary and postimplementation-operation stages of software development are expensed as incurred. Costs incurred in the application development stage, including significant enhancements and upgrades, are capitalized. Capitalized internal-use software development costs are included within property and equipment, net on the unaudited condensed consolidated balance sheets, and are amortized on a straight-line basis over an estimated useful life of three years upon the software or additional features being ready for their intended use.
Accounts Receivable, Net
Accounts receivable consist of amounts recorded in connection with the sale of payment processing terminals and related accessories. Accounts receivable are recorded at invoiced amounts, net of an allowance for credit losses, and do not bear interest. In accordance with Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), the Company measures its allowance for credit losses using an expected credit loss model that reflects the Company’s current estimate of expected credit losses inherent in the enterprise and the accounts receivable balance. In determining the expected credit losses, the Company considers its historical loss experience, the aging of its accounts receivable balance, current economic and business conditions, and anticipated future economic events that may impact collectability. The Company reviews its allowance for credit losses periodically and, as needed, amounts are written-off when determined to be uncollectible. As of June 30, 2024 and December 31, 2023, the allowance for credit losses was immaterial.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets primarily consist of inventory and deposits made by our European subsidiaries with credit card companies.
Property and Equipment, Net
Property and equipment primarily consist of computer equipment, leasehold improvements, and furniture and fixtures. Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to eight years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period.
Fair Value Measurements
The Company applies fair value accounting for assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. Fair value is defined as the price received to sell an asset or paid to transfer a liability in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820, Fair Value Measurements, establishes a three-level hierarchy priority for disclosure of assets and liabilities recorded at fair value. The ordering of priority reflects the degree to which objective prices in external active markets are available to measure fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The three levels in the hierarchy are as follows:
|
●
|
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
|
|
●
|
Level 2 – Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
●
|
Level 3 – Unobservable inputs that cannot be directly corroborated by observable market data and that typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
|
The Company measures its convertible note and related derivative liability at fair value. The Company classifies these liabilities as Level 3 of the fair value hierarchy, as fair values are estimated using models that use both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
Goodwill and Intangible Assets
Goodwill is recorded when the consideration paid for the acquisition of a business exceeds the fair value of the identifiable net tangible and intangible assets acquired. ASC 350-20, Intangibles—Goodwill and Other—Goodwill, requires companies to assess goodwill for impairment annually or more frequently if indicators of impairment exist. Testing goodwill for impairment is performed at the reporting unit level, using a two-step test, and requires companies to compare the fair value of a reporting unit with its carrying amount, including goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds its fair value. ASC 350-20 also provides for an optional qualitative assessment for testing goodwill for impairment that enables companies to skip the two-step test if it is determined that it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is greater than its carrying amount.
The Company’s policy is to perform its annual impairment test of goodwill as of December 31 of each fiscal year. However, due to the existence of impairment indicators, the Company determined that it needed to perform a goodwill impairment test as of June 30, 2024. Based on that assessment, the Company determined that the carrying value of its North America reporting unit exceeded its fair value, and recorded an impairment charge during the quarter ended June 30, 2024 equal to $6.7 million or one hundred percent (100%) of the goodwill balance in that operating unit.
Intangible assets consist of acquired customer relationships and business intellectual properties. In accordance with ASC 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill, the Company’s intangible assets are amortized over their estimated useful lives, ranging from two to five years, using the straight-line method. Intangible assets amortized under ASC 350-30 must be reviewed for impairment when indicators of impairment are present, in accordance with ASC 360-10. During the quarter ended June 30, 2024, the Company determined that impairment indicators were present and performed an impairment assessment over the intangible assets at the asset group level. Based on that assessment, the Company determined that the carrying value of its intangible assets within its North America segment are recoverable and, as such, no impairment was recorded.
Leases
The Company leases office space under non-cancellable operating leases with various expiration dates. The Company determines whether an arrangement is a lease for accounting purposes at contract inception. Operating leases are recorded as right-of-use (“ROU”) assets, which are included within noncurrent assets, and lease liabilities, which are included within current and noncurrent liabilities on our consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. ROU assets are based on the lease liability and are increased by prepaid lease payments and decreased by lease incentives received, where applicable. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate because the interest rate implicit in the Company’s leases is not readily determinable. The Company’s incremental borrowing rate is estimated to approximate the interest rate that the Company would pay to borrow on a collateralized basis with similar terms and payments as the lease, and in economic environments where the leased asset is located. Certain leases require the Company to pay taxes, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities. These lease costs are recognized as lease expenses when incurred.
The Company evaluates ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of a ROU asset may not be recoverable. When a decision has been made to exit a lease prior to the contractual term or to sublease that space, the Company evaluates the asset for impairment and recognizes the associated impact to the ROU asset and related expense, if applicable. The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level. Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives. If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques.
Foreign Currency
Assets and liabilities are translated into the reporting currency using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the period, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive income in the accompanying consolidated statements of stockholders’ equity.
Stock Based Compensation
Stock-based compensation expense relates to restricted stock awards (“RSAs”) and stock options granted to employees and non-employee directors under the Company’s equity incentive plans, which are measured based on the grant-date fair value. The fair value of RSAs is determined by the closing price of the Company’s common stock on the grant date. The fair value of stock options is estimated on the date of grant using the Black-Scholes-Merton option valuation model. Generally, stock-based compensation expense is recorded on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net of operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion of or all the deferred tax assets will not be realized. Judgment is required in determining and evaluating income tax provisions and valuation allowances for deferred income tax assets. We recognize an income tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As of June 30, 2024 and December 31, 2023, the Company has valuation allowances which serve to reduce net deferred tax assets.
Net Loss Per Share
The Company’s basic net loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding during the period without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss available to common shareholders by the weighted-average number of shares of common stock outstanding, adjusted for the dilutive effect of all potential shares of common stock. For the three and six-month periods ended June 30, 2024 and 2023, the Company’s diluted net loss per share is the same as the basic net loss per share, since there are no common stock equivalents outstanding that would have a dilutive effect.
Segment Reporting
The Company determines its reportable segments based on how its Chief Operating Decision Maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer and we have identified two reportable segments: North America and International. These segments represent the components of the Company for which separate financial information is available that is utilized on a regular basis by the CODM to assess segment performance, set strategic goals, and allocate the Company’s resources. The primary financial measure used by the CODM to evaluate the performance of its segments and allocate resources to them is operating income or (loss).
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended by subsequently issued ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03 and 2022-02 (collectively, “Topic 326”). Topic 326 requires entities to utilize a new impairment model known as the current expected credit loss (“CECL”) model for certain financial assets held at the reporting date. The CECL model requires entities to estimate lifetime “expected credit loss” amounts and record them as an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. The guidance also amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on such debt security is a credit loss. The Company adopted the updates as of January 1, 2023, with no material impact on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (ASC 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers,” as if the acquirer had originated the contracts. Under current accounting standards, contract assets and contract liabilities acquired in a business combination are to be recorded at fair value using the ASC 805 measurement principle. ASU 2021-08 is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2022. The adoption of ASU 2021-08, effective January 1, 2023, did not have an impact on the financial condition, results of operations, cash flows and disclosures of the Company.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 aims to simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. ASU 2020-06 also simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity and amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. Early adoption is permitted for fiscal years beginning after December 15, 2020. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods therein. The adoption of ASU 2020-06, effective January 1, 2024, did not have an impact on the financial condition, results of operations, cash flows and disclosures of the Company.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the impact this amended guidance may have on the footnotes to its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. This amended guidance requires fair value measurement of certain crypto assets each reporting period with the changes in fair value reflected in net income. The amendments also require disclosures of the name, fair value, units held, and cost bases for each significant crypto asset held and annual reconciliations of crypto asset holdings. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted. We are required to apply these amendments as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is adopted. The adoption of this guidance is not expected to have an impact on our consolidated financial statements, as we currently do not hold any crypto assets.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amended guidance is effective for fiscal years beginning after December 15, 2024. The guidance can be applied either prospectively or retrospectively. The Company is currently in the process of evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.
Logicquest Technology, Inc.
In April 2023, the Company executed a purchase agreement for 99.4 million shares of restricted common stock of Logicquest Technology, Inc., a Nevada corporation (“Logicquest”) representing ownership of 99.1% of Logicquest, 48 shares of Series C Convertible Non-Redeemable Preferred Stock of Logicquest, and 10 shares of Series D Convertible Non-Redeemable Preferred Stock of Logicquest, in exchange for an aggregate purchase price of $225,000. Logicquest was a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) quoted on the Over-the-Counter Pink Open Market under the symbol “LOGQ” and is required to file reports and other information with the SEC pursuant to the Exchange Act. In June 2023, the Company merged the assets of Coyni, Inc., a wholly-owned subsidiary of the Company, and Logicquest, with Logicquest as the surviving entity. Subsequently, Logicquest changed its name to Coyni, Inc. (“Coyni PubCo”). In the fourth quarter of 2023, the Company amended the share purchase agreement to reflect 98 million shares of restricted common stock of Logicquest, 48 shares of Series C Convertible Non-Redeemable Preferred Stock of Logicquest, and 10 shares of Series D Convertible Non-Redeemable Preferred Stock of Logicquest, in exchange for an aggregate purchase price of $225,000. In accordance with ASC 805, this transaction was accounted for as an asset acquisition and the acquired assets are included in the consolidated financial statements of the Company as of June 30, 2024.
As previously disclosed, the Company originally intended to transfer the Coyni platform assets, which are owned by the Company, into Coyni PubCo, and subsequently spin-off Coyni PubCo into a new publicly traded entity. However, we subsequently determined that it was in the best interest of the Company and its shareholders to retain the Coyni Platform at the Company to expand payment processing and banking-as-a-service solutions. As such, management no longer plans to pursue a spin-off of Coyni PubCo.
Merchant Payment Solutions LLC
In November 2021, the Company executed a term sheet to acquire certain Automated Clearing House (“ACH”) business of Merchant Payment Solutions LLC (“MPS”). Upon execution of the term sheet, the Company made a refundable earnest money deposit in the amount of $725,000 toward the total purchase price. After conducting due diligence, the Company elected to terminate the term sheet on April 21, 2023. In June 2023, the Company and MPS agreed to finalize a Portfolio Purchase Agreement (“Purchase Agreement”). Pursuant to the Purchase Agreement, the Company acquired the ACH portfolio of MPS for $725,000. In accordance with ASC 805, this transaction was accounted for as an asset acquisition.
4.
|
Property and Equipment, Net
|
The following table details property and equipment, less accumulated depreciation (dollars in thousands):
|
|
June 30, 2024
|
|
|
December 31, 2023
|
|
Computers and equipment
|
|
$ |
253 |
|
|
$ |
276 |
|
Furniture and fixtures
|
|
|
152 |
|
|
|
152 |
|
Improvements
|
|
|
186 |
|
|
|
171 |
|
Internal-use software development
|
|
|
546 |
|
|
|
- |
|
Total property and equipment
|
|
|
1,137 |
|
|
|
599 |
|
Less: accumulated depreciation
|
|
|
(345 |
) |
|
|
(293 |
) |
Net property and equipment
|
|
$ |
792 |
|
|
$ |
306 |
|
Depreciation expense was $0.12 million and $0.04 million for the three-month periods ended June 30, 2024, and 2023, respectively and $0.16 million and $0.07 million for the six-month periods ended June 30, 2024 and 2023, respectively.
The following table summarizes goodwill activity by reportable segment (dollars in thousands):
|
|
North America
|
|
|
International
|
|
|
Consolidated
|
|
Goodwill - December 31, 2023
|
|
$ |
6,675 |
|
|
$ |
20,078 |
|
|
$ |
26,753 |
|
Goodwill Acquired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Goodwill Impairment
|
|
|
(6,675 |
) |
|
|
- |
|
|
|
(6,675 |
) |
Adjustments (1)
|
|
|
- |
|
|
|
(610 |
) |
|
|
(610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill – June 30, 2024
|
|
$ |
- |
|
|
$ |
19,468 |
|
|
$ |
19,468 |
|
(1)
6.
|
Intangible Assets, Net
|
The following table details acquired intangible assets (dollars in thousands):
|
|
|
|
June 30, 2024
|
|
|
December 31, 2023
|
|
Intangible Assets
|
|
Amortization Period
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer relationships
|
|
2-5 years |
|
$ |
7,812 |
|
|
$ |
(4,913 |
) |
|
|
2,899 |
|
|
$ |
7,812 |
|
|
$ |
(4,100 |
) |
|
$ |
3,712 |
|
Business technology/IP
|
|
5 years |
|
|
2,767 |
|
|
|
(1,595 |
) |
|
|
1,172 |
|
|
|
2,675 |
|
|
|
(1,328 |
) |
|
|
1,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$ |
10,579 |
|
|
$ |
(6,508 |
) |
|
|
4,071 |
|
|
$ |
10,487 |
|
|
$ |
(5,428 |
) |
|
$ |
5,059 |
|
Amortization expense was $0.5 million and $0.6 million for the three months ended June 30, 2024 and 2023, respectively and $1.1 million and $1.2 million for the six months ended June 30, 2024 and 2023, respectively.
The estimated amortization expense related to intangible assets as of June 30, 2024 is as follows (dollars in thousands):
Year
|
|
Amount
|
|
2024 (remainder)
|
|
$ |
931 |
|
2025
|
|
|
1,863 |
|
2026
|
|
|
1,010 |
|
2027
|
|
|
167 |
|
2028
|
|
|
91 |
|
Thereafter
|
|
|
9 |
|
Total
|
|
$ |
4,071 |
|
The following table details the balance in accrued liabilities (dollars in thousands):
|
|
June 30, 2024
|
|
|
December 31, 2023
|
|
Accrued gateway fees
|
|
$ |
92 |
|
|
$ |
2,356 |
|
Payroll related accruals
|
|
|
976 |
|
|
|
1,235 |
|
Accrued legal and professional fees
|
|
|
2,750 |
|
|
|
1,342 |
|
Accrued taxes
|
|
|
347 |
|
|
|
528 |
|
Other
|
|
|
615 |
|
|
|
294 |
|
Total accrued liabilities
|
|
$ |
4,780 |
|
|
$ |
5,755 |
|
The following table summarizes the Company’s debt (dollars in thousands):
| | June 30, 2024 | | | December 31, 2023 | |
$100,000,000 8% senior convertible note, due April 5, 2026 | | $ | 19,000 | | | $ | 19,200 | |
Less: Unamortized debt discount | | | (2,173 | ) | | | (3,906 | ) |
Net carrying value | | | 16,827 | | | | 15,294 | |
| | | | | | | | |
$149,900 Economic Injury Disaster Loan (EIDL), interest rate of 3.75%, due June 1, 2050 | | | 144 | | | | 146 | |
$500,000 EIDL, interest rate of 3.75%, due May 8, 2050 | | | 481 | | | | 487 | |
Total debt | | | 17,452 | | | | 15,927 | |
| | | | | | | | |
Less: current portion | | | (15 | ) | | | (15 | ) |
Long-term debt, net | | $ | 17,437 | | | $ | 15,912 | |
Senior Convertible Note
On November 8, 2021, the Company sold and issued, in a registered direct offering, an 8% Senior convertible note, originally due November 3, 2023, and subsequently extended to April 5, 2026, in the aggregate original principal amount of $100 million (the “Note”). The Note had an original issue discount of sixteen percent (16%) resulting in gross proceeds of $84 million. The Note was sold pursuant to the terms of a Securities Purchase Agreement, dated November 2, 2021 (the “SPA”), between the Company and the investor in the Note (the “Investor”).
The Note was issued on November 8, 2021, pursuant to an indenture dated November 2, 2021 between us and Wilmington Savings Fund Society, FSB, as trustee (the “Base Indenture”), as supplemented by a first supplemental indenture thereto, dated November 2, 2021, relating to the Note (the “First Supplemental Indenture” and the Base Indenture as supplemented by the First Supplemental Indenture, the “First Indenture”). The terms of the Note include those provided in the First Indenture and those made part of the First Indenture by reference to the Trust Indenture Act.
First Exchange Agreement
On July 25, 2023, the Company entered into an Exchange Agreement (the “First Exchange Agreement”) under which the Company and the Investor agreed to exchange (the “Series A Exchanges”), in two separate exchanges, an aggregate of $22.703 million of the outstanding principal and interest under the Note for 15,000 shares of a newly authorized series of preferred stock of the Company designated as Series A Preferred Convertible Stock (the “Series A Preferred Stock”), the terms of which are set forth in a Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock of RYVYL Inc. (the “Series A Certificate of Designations”), which the Company filed with the Nevada Secretary of State prior to the initial issuance of the Series A Preferred Stock. The Series A Preferred Stock is further described in Note 10, Convertible Preferred Stock. As part of the First Exchange Agreement, the Company also agreed to allow for the conversion of up to an additional $9.0 million of principal (together with any accrued and unpaid interest thereon) of the Note at a conversion price equal to 97.5% of the lower of (x) the then in effect conversion price and (y) the lowest volume weighted average price of the Company’s common stock during the five trading days immediately prior to such conversion; and the Investor agreed to waive any interest that would otherwise accrue on the Note during the period commencing on April 1, 2023 through, and including, December 31, 2023.
On July 31, 2023, pursuant to the terms of the First Exchange Agreement, the Company closed the initial exchange (the “Initial Series A Exchange”) and issued 6,000 shares of Series A Preferred Stock in exchange for $4.297 million of the outstanding principal balance of the Note and $1.703 million of accrued interest. Additionally, upon satisfaction of all applicable closing conditions, including, without limitation, the Company having obtained any stockholder approval required for the consummation of the transactions and the issuance of the common stock issuable upon the conversion of all of the shares of Series A Preferred Stock (unless waived by the applicable other party), in the final exchange (the “Final Series A Exchange”), the parties agreed to exchange the remaining $16.703 million of outstanding principal balance subject to the Series A Exchanges for 9,000 shares of Series A Preferred Stock on a date mutually agreed to by the Company and the Investor. The Company determined that the parties’ obligation to exchange the remaining $16.703 million of outstanding principal balances subject to the Series A Exchanges for 9,000 shares of Series A Preferred Stock in the Final Series A Exchange represents an embedded conversion feature that does not require bifurcation and separate valuation because it would not meet the definition of a derivative, if freestanding, under ASC 815, Derivatives and Hedging (“ASC 815”), as net settlement could not be achieved.
The Company analyzed the changes made to the Note under the First Exchange Agreement under ASC 470-50 to determine if extinguishment accounting was applicable. Under ASC 470-50-40-10, a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date is always considered substantial and requires extinguishment accounting. Since the First Exchange Agreement added a substantive conversion option, the Company determined that extinguishment accounting was applicable. In accordance with the extinguishment accounting guidance, the Company recorded a loss on extinguishment of $1.3 million which represents the difference between (a) the fair value of the modified Note and the 6,000 shares of Series A Preferred Stock issued in the Initial Series A Exchange and (b) the carrying amount of the Note and the fair value of the bifurcated embedded derivative immediately prior to giving effect to the First Exchange Agreement.
Second Exchange Agreement
Under the terms of the First Exchange Agreement, a final closing was to be held upon which the Investor was to exchange an additional $16.703 million of principal of the Note into 9,000 shares of Series A Preferred Stock (the “Unissued Series A Preferred Stock”) which shares of Unissued Series A Preferred Stock were convertible into shares of common stock, in accordance with the terms of the Series A Certificate of Designations.
On November 27, 2023, the Company entered into an Exchange Agreement (the “Second Exchange Agreement”) with the Investor under which the Company and the Investor agreed to exchange (the “Series B Exchange”), (i) all of the existing shares of Series A Preferred Stock issued to the Investor in the Initial Series A Exchange, (ii) the right to exchange the shares of Unissued Series A Preferred Stock for an additional $16.703 million of principal of the Note, and (iii) $60.303 million of the outstanding principal under the Note for 55,000 shares of a newly authorized series of preferred stock of the Company designated as Series B Preferred Convertible Stock (the “Series B Preferred Stock,” and collectively with the Series A Preferred Stock, the “Preferred Stock”), the terms of which are set forth in a Certificate of Designations of Rights and Preferences of Series B Convertible Preferred Stock of RYVYL Inc. (the “Series B Certificate of Designations”), which the Company filed with the Nevada Secretary of State prior to the initial issuance of any shares of Series B Preferred Stock. The Series B Preferred Stock is further described in Note 10, Convertible Preferred Stock. As additional consideration for the Series B Exchange, the Company has also agreed to make a cash payment to the Investor in the amount of $3.0 million. As part of the Second Exchange Agreement, the Investor also 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 rights in the Note or pursuant to the Indenture (as such term is defined in the Second Exchange Agreement)) during the period commencing on November 5, 2024 through, and including, April 5, 2025; and to extend the waiver of payment of interest under the Note through July 1, 2024.
The Company analyzed the changes made to the Note under the Second Exchange Agreement under ASC 470-50 to determine if extinguishment accounting was applicable. Under ASC 470-50-40-10, a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date is always considered substantial and requires extinguishment accounting. Since the Second Exchange Agreement eliminated a substantive conversion option (the parties’ obligation to exchange the remaining $16.703 million of outstanding principal balances subject to the Series A Exchanges for 9,000 shares of Series A Preferred Stock in the Final Series A Exchange), the Company determined that extinguishment accounting was applicable. In accordance with the extinguishment accounting guidance, the Company recorded a loss on extinguishment of $22.5 million which represents the difference between (a) the fair value of the modified Note, the fair value of the 55,000 shares of Series B Preferred Stock issued in the Series B Exchange, and the $3.0 million cash payment made to the Investor, and (b) the carrying amount of the Note, the fair value of the bifurcated embedded derivative immediately prior to giving effect to the Second Exchange Agreement, and the fair value of the existing shares of Series A Preferred Stock issued to the Investor in the Initial Series A Exchange forfeited to the Company by the Investor.
On November 29, 2023, the Company closed the Series B Exchange, pursuant to which the Company issued to the Investor 55,000 shares of Series B Convertible Preferred Stock and paid the Investor a cash payment in the amount of $3.0 million, in exchange for 6,000 shares of Series A Convertible Preferred Stock previously issued to the Investor, the right to exchange the shares of Unissued Series A Preferred Stock for an additional $16.703 million of principal of the Note, and the reduction of principal of the Note in the aggregate amount of $60.303 million.
Forbearance Agreement
On May 17, 2024, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with the Investor pursuant to which the Investor, in consideration for the Company’s cash payment in the amount of $80,000 as an advance payment of a portion of the next interest payment, in the estimated amount of $380,000, due and payable under the Note on October 1, 2024, agreed to further 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 rights in the Note or pursuant to the Indenture) during the period commencing on April 5, 2025 through, and including, April 5, 2026. The Company analyzed the changes made to the Note under the Forbearance Agreement under ASC 470-60 to determine if the transaction qualified as a troubled debt restructuring. For a debt restructuring to be considered troubled, the debtor must be experiencing financial difficulties and the creditor must have granted a concession. The Company considered the indicators of financial difficulties provided in ASC 470-60 and determined that one or more indicators were present at the time the Forbearance Agreement was entered into, such as the existence of substantial doubt about the Company’s ability to continue as a going concern. Furthermore, the Company determined that the effective borrowing rate on the Note decreased as a result of the changes made to the Note under the Forbearance Agreement and, as such, the Investor granted a concession on the debt. As a result, the changes made to the Note under the Forbearance Agreement were accounted for as a troubled debt restructuring. However, no restructuring gain or corresponding adjustment to the carrying amount of the Note was recorded because the net carrying amount of the Note at the time the Forbearance Agreement was entered into was less than the total undiscounted future principal and interest payments of the restructured Note. The $80,000 cash payment made to the Investor in connection with the Forbearance Agreement was treated as a lender fee and expensed as incurred under the troubled debt restructuring model.
During the year ended December 31, 2022, the Investor converted $8.55 million of the outstanding principal balance into 598,695 shares of the Company’s common stock at a weighted average conversion price of $1.43. In addition, the Company paid the Investor $6.9 million in January 2022 in exchange for cancellation of $6.0 million of the outstanding principal balance. During the year ended December 31, 2023, the Investor converted $1.65 million of the outstanding principal balance into 606,187 shares of the Company’s common stock at a weighted average conversion price of $1.18. During the three months ended June 30, 2024, the Investor converted $0.2 million of the outstanding principal balance into 169,220 shares of the Company’s common stock at a conversion price of $1.18.
Ranking
The Note is the senior unsecured obligation of the Company and not the financial obligation of our subsidiaries. Until such date as the principal amount of the Note is $5 million or less, all payments due under the Note will be senior to all other indebtedness of the Company and/or any of its 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 Investor 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 “Restructuring Agreement”), the Company obtained a forbearance of the Maturity Date from November 5, 2023 to November 5, 2024. As part of the Second Exchange Agreement entered into with the Investor on November 27, 2023, the Company obtained a further forbearance of the Maturity Date from November 5, 2024 to April 5, 2025. As part of the Forbearance Agreement entered into with the Investor on May 17, 2024, the Company obtained a further forbearance of the Maturity Date from April 5, 2025 to April 5, 2026.
Interest
The Note bears interest at the rate of 8% per annum which (a) shall commence accruing on the date of issuance, (b) shall be computed on the basis of a 360-day year and twelve 30-day months and (c) shall be payable in cash quarterly in arrears on the first trading day of each calendar quarter or otherwise in accordance with the terms of the Note. If the holder elects to convert or redeem all or any portion of the Note prior to the Maturity Date, all accrued and unpaid interest on the amount being converted or redeemed will also be payable. If we elect to redeem all or any portion of the Note prior to the Maturity Date, all accrued and unpaid interest on the amount being redeemed will also be payable. The interest rate of the Note will automatically increase to 15% per annum upon the occurrence and continuance of an event of default (See “Events of Default” below).
Subject to the satisfaction of certain equity conditions, the terms of the Restructuring Agreement require the holder to voluntarily convert certain interest payments when due under the Note at 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.
As part of the First Exchange Agreement, the Investor agreed to waive any interest that would otherwise accrue on the Note during the period commencing on April 1, 2023 through, and including, December 31, 2023. As part of the Second Exchange Agreement, the Investor agreed to extend the waiver of payment of interest under the Note through July 1, 2024.
Late Charges
The Company is required to pay a late charge of 15% on any amount of principal or other amounts that are not paid when due.
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 with a subsequent offering at a per share price less than the fixed conversion price then in effect.
|
Pursuant to the original terms of the Note, since during the fiscal quarter ending March 31, 2022, the Company (i) failed to process at least $750 million in transaction volume or (ii) had revenue that was less than $12 million, the Note’s fixed conversion price then in effect exceeded the greater of (x) the Note's $1.67 floor and (y) 140% of the market price as of April 1, 2022 (the “Adjustment Measuring Price”), on April 1, 2022, the fixed conversion price automatically adjusted to the Adjustment Measuring Price.
As part of the Restructuring Agreement, 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 at 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.
As part of the First Exchange Agreement, the Company agreed to allow for the conversion of up to an additional $9.0 million of principal (together with any accrued and unpaid interest thereon) of the Note at a conversion price equal to 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,” which is equal to 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.
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 15% redemption premium) at the “alternate event of default conversion price” equal to the lesser of:
|
●
|
the fixed conversion price then in effect; and
|
the greater of:
|
●
|
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 the Note, 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 Note, and the equity value of the change of control consideration payable to the holder of our Common Stock underlying the Note.
The equity value of our Common Stock underlying the Note is calculated using the greatest closing sale price of our Common Stock during the period immediately preceding the consummation or the public announcement of the change of control and ending the date the holder gives notice of such redemption.
The equity value of the change of control consideration payable to the holder of our common stock underlying the Note is calculated using the aggregate cash consideration and aggregate cash value of any non-cash consideration per share of our common stock to be paid to the holders of our common stock upon the change of control.
Events of Default
Under the terms of the First Supplemental Indenture, the events of default contained in the Base Indenture shall not apply to the Note. Rather, the Note contains standard and customary events of default including but not limited to: (i) the suspension from trading or the failure to list the Company’s common stock within certain time periods; (ii) failure to make payments when due under the Notes; and (iii) bankruptcy or insolvency of the Company.
If an event of default occurs, the holder may require us to redeem all or any portion of the Note (including all accrued and unpaid interest and late charges thereon), in cash, at a 15% redemption premium to the greater of the face value and the equity value of the Company’s common stock underlying the Note.
The equity value of the Company’s common stock underlying the Note is calculated using the greatest closing sale price of the Company’s common stock on any trading day immediately preceding such event of default and the date the Company makes the entire payment required.
Company Optional Redemption Rights
At any time no event of default exists, the Company may redeem all, but not less than all, of the Note outstanding in cash all, or any portion, of the Note at a 5% redemption premium to the greater of the face value and the equity value of the Company’s common stock underlying the Note.
The equity value of the Company’s common stock underlying the Note is calculated using the greatest closing sale price of the Company’s common stock on any trading day during the period commencing on the date immediately preceding such date the Company notifies the applicable holder of such redemption election and the date the Company makes the entire payment required.
The following is a rollforward of the senior convertible note balance (dollars in thousands):
Balance, December 31, 2020
|
|
$ |
- |
|
Convertible debentures issued
|
|
|
100,000 |
|
Derivative liability
|
|
|
(21,580 |
) |
Original issue discount of 16% |
|
|
(16,000 |
) |
Placement fees and issuance costs
|
|
|
(7,200 |
) |
Accretion and write-off of debt discount
|
|
|
3,435 |
|
Balance, net of unamortized debt discount of $41,345 - December 31, 2021 |
|
|
58,655 |
|
Repayments and conversion
|
|
|
(14,550 |
) |
Accretion and write-off of debt discount
|
|
|
16,996 |
|
Balance, net of unamortized debt discount of $24,349 - December 31, 2022 |
|
|
61,101 |
|
Repayments and conversion
|
|
|
(66,250 |
) |
Accretion and write-off of debt discount
|
|
|
20,443 |
|
Balance, net of unamortized debt discount of $3,906 - December 31, 2023 |
|
|
15,294 |
|
Conversion
|
|
|
(200 |
) |
Accretion and write-off of debt discount
|
|
|
1,733 |
|
Balance, net of unamortized debt discount of $2,173 – June 30, 2024 |
|
$ |
16,827 |
|
The Company recorded debt discount accretion expense of $0.8 million and $2.8 million for the three months ended June 30, 2024 and 2023, respectively and $1.7 million and $5.4 million for the six months ended June 30, 2024 and 2023, respectively.
The Company incurred other interest expense of $0.01 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively and $0.02 million and $3.2 million for the six months ended June 30, 2024 and 2023, respectively.
Derivative Liability
The senior convertible note contains embedded derivatives representing certain conversion features, redemption rights, and contingent payments upon the occurrence of certain events of default. The Company determined that these embedded derivatives required bifurcation and separate valuation.
The Company utilizes a binomial lattice model to value its bifurcated derivatives included in the note. ASC 815 does not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be combined and fair-valued as a single compound embedded derivative. The Company selected a binomial lattice model to value the compound embedded derivative because it believes this technique is reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the note. Such assumptions include, among other inputs, stock price volatility, risk-free rates, credit risk assumptions, early redemption and conversion assumptions, and the potential for future adjustment of the conversion price due to triggering events. Additionally, there are other embedded features of the note requiring bifurcation, other than the conversion features, which had no value at June 30, 2024 and December 31, 2023, due to management’s estimates of the likelihood of certain events, but that may have value in the future should those estimates change.
The following is a rollforward of the derivative liability balance (dollars in thousands):
Balance, December 31, 2021
|
|
$ |
18,735 |
|
Change in fair value 2022
|
|
|
(18,480 |
) |
Balance, December 31, 2022
|
|
|
255 |
|
Increase in derivative liability upon extinguishment of debt
|
|
|
6,312 |
|
Change in fair value 2023
|
|
|
(6,548 |
) |
Balance, December 31, 2023
|
|
|
19 |
|
Change in fair value 2024
|
|
|
(14 |
) |
Balance, June 30, 2024
|
|
$ |
5 |
|
Small Business Association CARES Act Loans
On June 9, 2020, the Company entered into a 30-year loan agreement with the Small Business Association (“SBA”) under the CARES Act in the amount of $149,900. The loan bears interest at 3.75% per annum and requires monthly principal and interest payments of $731 beginning June 9, 2021. Both the Chief Executive Officer and Chairman of the Company signed personal guarantees under this loan. As of June 30, 2024, the loan is not in default.
On May 8, 2020, Charge Savvy, a wholly-owned subsidiary of the Company, entered into a 27-year loan agreement with the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in the amount of $150,000. The loan bears interest at 3.75% per annum and required principal and interest payments of $731 beginning on May 8, 2021, which were subsequently deferred to November 8, 2022. On August 4, 2021, Charge Savvy was granted a loan increase in the amount of $350,000 on identical terms as the initial loan, for an aggregate loan amount of $500,000. Monthly principal and interest payments on the aggregate loan are $2,477 and began on November 8, 2022. Pursuant to the terms of Security Agreements executed in connection with this loan, the SBA was granted a security interest in all tangible and intangible personal property of Charge Savvy. As of June 30, 2024, the loan is not in default.
9.
|
Convertible Preferred Stock
|
On July 31, 2023, the Company issued 6,000 shares of Series A Preferred Stock in exchange for $4.297 million of the outstanding principal balance of the 8% senior convertible note, currently due April 5, 2026 and $1.703 million of accrued interest pursuant to the First Exchange Agreement entered into with the investor in the senior convertible note on July 25, 2023. On November 29, 2023, the existing shares of Series A Preferred Stock issued to the investor were forfeited to the Company by the investor and the Company issued 55,000 shares of Series B Preferred Stock, along with a cash payment of $3.0 million, in exchange for $60.303 million of the outstanding principal balance of the senior convertible note pursuant to the Second Exchange Agreement entered into with the investor on November 27, 2023. See Note 9, Long-Term Debt, for further information. The Series A Preferred Stock had a stated value of $1,000 per share and a fair value of approximately $1,111 per share at issuance, as determined by a valuation performed by third-party experts. The Series B Preferred Stock has a stated value of $1,000 per share and a fair value of approximately $1,339 per share at issuance, as determined by a valuation performed by third-party experts.
Preferred Stock consisted of the following (dollars in thousands):
|
|
June 30, 2024
|
|
|
|
Preferred Shares
Authorized
|
|
|
Preferred Shares
Issued and Outstanding
|
|
|
Carrying
Value
|
|
|
Liquidation
Preference
|
|
|
Common Stock
Issuable Upon
Conversion
|
|
Series A
|
|
|
15,000 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Series B
|
|
|
55,000 |
|
|
|
54,125 |
|
|
|
72,460 |
|
|
|
62,244 |
|
|
|
17,403,537 |
|
Total Preferred Stock
|