# RTB Digital, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [RTB Digital, Inc.](/companies/rtb.md) (CIK 1419275)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 17:01 ET
- Period: 2023-09-30
- Accession: 0001185185-23-001176
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1419275/000118518523001176/ryvyl20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1419275/000118518523001176/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $17.5m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $43.6m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $10.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $25.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $6.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $17.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $1.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $4.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$2.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$9.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $4.2m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $9.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $128.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $138.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$3.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$23.1m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $27.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $78.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $15.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $80.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $120.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $73.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $138.3m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $61.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $15.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | −$24.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,832 characters.

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this Report and other materials we have filed or may filed, as well as information included in our oral or written statements, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words, or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events.

You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Report identify important matters or factors which you should consider in evaluating our forward-looking statements. These matters or factors include, among other things:

- Our ability to effectively execute our business plan;
- Our ability to manage our expansion, growth and operating expenses both domestically and internationally;
- Our ability to comply with new regulations and compliance requirements that affect our business;
- Our ability to evaluate and measure our business, prospects and performance metrics;
- Our ability to compete and succeed in an evolving industry;
- Our ability to respond and adapt to rapid changes in technology;
- Our ability to identify and complete, acquisitions, post-acquisition integrations, dispositions and other strategic growth opportunities and initiatives;
- Our ability to avoid or minimize risks related to the blockchain and cryptocurrency industry or changes in the regulatory environment and turmoil in the banking sector with respect to digital asset management; and
- Our ability to protect our proprietary technology.

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by us (such as in our other filings with the SEC or in our press releases) for other factors that may cause actual results to differ materially from those projected by us. For additional information regarding risk factors that could affect the our results, see “Risk Factors” beginning on page 13 of the 2022 Annual Report.

We intend the forward-looking statements to speak only as of the time of such statements and do not undertake or plan to update or revise such forward-looking statements as more information becomes available or to reflect changes in expectations, assumptions or results. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Report, could materially and adversely affect our results of operations, financial condition, liquidity, and future performance.

In this Report, unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to RYVYL Inc (formerly known as GreenBox POS Inc.), a Nevada corporation.

Unless the context otherwise requires, all references to “PrivCo” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.

Our Management’s Discussion and Analysis and Results of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to 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 SEC.

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this Report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

***Overview – Organization and Name Changes***

RYVYL Inc. is a financial technology company that develops, markets, and sells innovative blockchain-based payment solutions, which we believe offer significant improvements for the payment solutions marketplace. Our 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. Our proprietary, blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.

The Company was formerly known as ASAP Expo, Inc. and was incorporated in the State of Nevada on April 10, 2007. On January 4, 2020, PubCo and PrivCo, entered into an Asset Purchase Agreement. On April 12, 2018, we acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business, kiosk business, and 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, we assumed PrivCo’s liabilities that were incurred in the normal course of the GreenBox Business.

On October 13, 2022, we changed our name to RYVYL Inc.

On March 31, 2022, we agreed to acquire a portfolio of merchant accounts from Sky Financial for $18.1 million. We paid $16.0 million in cash in March 2022 and issued 500,000 shares of restricted common stock on May 12, 2022. The entire amount tendered in both cash and stock was recorded as an intangible customer relationship asset. As of the date of the filing of this Report, we have not received the delivery of the acquired merchant list and the associated ISO management portal access. We charged off the entire purchase price in 2022. Also, during 2022, we suspended our reporting of revenue from the Sky Financial portfolio.

On April 1, 2022, we completed the acquisition of Transact Europe Holdings. Transact Europe EAD (“TEU”) is an European Union-regulated electronic money institution headquartered in Sofia, Bulgaria. TEU is a principal level member of Visa, a worldwide member of MasterCard, and a principal member of China UnionPay and is also part of the direct Single Euro Payments Area program. With a global footprint, proprietary payment gateway, and technology platforms, TEU offers a comprehensive portfolio of services and decades of industry experience. We paid approximately $28.8 million (€26.0 million) in total consideration for the purchase.

### Recent Developments

#### Nasdaq Compliance

As previously reported in a Current Report on Form 8-K filed by the Company with the SEC on August 15, 2023, on August 3, 2023, we received a written notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market (“Nasdaq”) indicating that we had regained compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2) but that the Staff of Nasdaq had also imposed a panel monitor, for a period of six months until February 3, 2024, pursuant to which the Staff of Nasdaq would promptly issue a Staff delisting determination, if we failed to comply with any Nasdaq listing standard during the six-month panel monitor period.

As also previously reported in a Current Report on Form 8-K filed by the Company on October 20, 2023, on October 19, 2023, we received a determination letter (the “Letter”) from the Staff of Nasdaq stating that we are not in compliance with the Market Value of Listed Securities (“MVLS”) Standard, since our common stock was below the $35 million minimum MVLS requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(2) and had not been at least $35 million for the previous 30 consecutive business days. As such, the Letter stated that the Staff would commence delisting proceedings against us. We have been provided with the right to appeal the Staff’s determination, and pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series, we have filed such appeal by timely requesting a hearing (the “Hearing”) before a Nasdaq Hearing Panel (the “Hearing Panel”) and paying the applicable $20,000 fee. Our Hearing request has stayed the suspension action by the Staff pending the issuance of the Hearing Panel’s decision. Our common stock will remain listed on Nasdaq, pending the outcome of the Hearing. There can be no assurance that the Hearing Panel will decide in our favor with respect to such appeal. The Hearing Panel’s decision will determine the future of trading of our common stock.

#### Reverse Stock Split

On September 6, 2023, we filed a certificate of amendment to our 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.

All share and per share amounts in this Report reflect the consummation of the Reverse Stock Split at a ratio of one share of common stock for each ten shares of common stock previously outstanding.

#### Approval of 2023 Equity Incentive Plan

On November 2, 2023, we held our 2023 annual meeting of stockholders (the “2023 Annual Meeting”), at which meeting our stockholders approved our 2023 Equity Incentive Plan. As set forth in the proxy statement for the 2023 Annual Meeting, filed with the SEC on September 21, 2023, the Board of Directors authorized and approved the termination of our 2020 Option Plan, 2021 Option Plan, and 2021 Restricted Stock Plan. At a meeting of the Board of Directors held on November 3, 2023, the Board of Directors confirmed the termination of the 2020 Option Plan, the 2021 Option Plan, and the 2021 Restricted Stock Plan so that no further awards can be made under any of those plans, provided that any awards outstanding will continue to be outstanding and in effect, until they are exercised, vest, or are terminated under the provisions of the applicable plan.

### Management's Discussion and Analysis of Financial Condition and Results of Operations

### Three Months Ended September 30, 2023 (Unaudited) Compared to Three Months September 30, 2022 (Unaudited):

### (Dollars in thousands)

|  | Three Months Ended September 30 2023 Amount | % of Revenue | 2022 Amount as restated | % of Revenue | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $17,480 | 100.0% | $10,630 | 100.0% | $6,850 | 64.4% |
| Cost of revenue | 10,800 | 61.8% | 4,333 | 40.8% | 6,467 | 149.3% |
| **Gross profit** | 6,680 | 38.2% | 6,297 | 59.2% | 383 | 6.1% |
| **Operating expenses:** |  |  |  |  |  |  |
| Advertising and marketing | 45 | 0.3% | 438 | 4.1% | (393) | -89.7% |
| Research and development | 1,315 | 7.5% | 1,442 | 13.6% | (127) | -8.8% |
| General and administrative | 3,041 | 17.4% | 1,186 | 11.2% | 1,855 | 156.3% |
| Payroll and payroll taxes | 2,605 | 14.9% | 2,385 | 22.4% | 220 | 9.3% |
| Professional fees | 1,234 | 7.1% | 1,032 | 9.7% | 202 | 19.6% |
| Stock compensation expense | 147 | 0.8% | 641 | 6.0% | (494) | -77.0% |
| Depreciation and amortization | 657 | 3.8% | 2,299 | 21.6% | (1,642) | -71.4% |
| Total operating expenses | 9,044 | 51.7% | 9,423 | 53.9% | (379) | -4.0% |
| **Loss from operations** | (2,364) | -13.5% | (3,126) | -17.9% | 762 | -24.4% |
| **Other income (expense):** |  |  |  |  |  |  |
| Interest expense | (65) | -0.4% | (1,802) | -17.0% | 1,737 | -96.4% |
| Interest expense - debt discount | (4,183) | -23.9% | 1,632 | 15.4% | (5,815) | -356.3% |
| Loss on extinguishment and derecognition expense on conversion of convertible debt | (1,331) | -7.6% | (8,105) | -76.2% | 6,774 | 83.6% |
| Changes in fair value of derivative liability | 6,909 | 39.5% | (4,143) | -39.0% | 11,052 | -266.8% |
| Legal settlements expense | (1,929) | -11.0% | - | 0.0% | (1,929) | n/a |
| Merchant fines and penalty income | - | 0.0% | (368) | -3.5% | 368 | -100.0% |
| Other income or expense | (25) | -0.1% | 63 | 0.6% | (88) | -139.9% |
| Total other income (expense) | (624) | -3.6% | (12,723) | -72.8% | 12,099 | -95.1% |
| Income (loss) before provision for income taxes | (2,988) | -17.1% | (15,849) | -90.7% | 12,861 | -81.1% |
| Provision for income taxes | 128 | 0.7% | 35 | 0.2% | 93 | 268.6% |
| **Net loss** | $(3,116) | -17.8% | $(15,884) | -90.9% | $12,768 | -80.4% |

### Revenue

Revenue increased by approximately $6.8 million, or 64.4%, to approximately $17.5 million for the three months ended September 30, 2023, from approximately $10.7 million for the three months ended September 30, 2022. The change in net revenue, during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, was primarily attributable to significant growth in processing volume from our acquired businesses, RYVYL EU and American Samoa. North America revenue increased by 47%, from $8.5 million for the three months ended September 30, 2022 to $12.5 million for the three months ended September 30, 2023. International revenue increased over 100%, from $2.2 million in the three months ended September 30, 2022 to $5.0 million for the three months ended September 30, 2023.

### Cost of Revenue

Cost of revenue increased by approximately $6.5 million, or 149.3%, to $10.8 million for the three months ended September 30, 2023, from approximately $4.3 million for the three months ended September 30, 2022. Payment processing consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Cost of revenues increased due primarily to increased volume, resulting in higher processing fees paid to gateways, commission payments to ISOs, and cost of revenue of acquired businesses in the United States and the European Union.

### Operating Expenses

Operating expenses decreased by approximately $0.4 million, or 4%, to approximately $9.0 million for the three months ended September 30, 2023, from approximately $9.4 million for the three months ended September 30, 2022. The decrease was due primarily to decrease in depreciation and amortization and stock compensation expense, offset by an increase in general and administrative expenses. The higher general and administrative expenses in the quarter ended September 30, 2023 was primarily attributable to non-recurring provision for credit losses on non-continuing legacy accounts.

### Other Income (Expense)

Other expense totaled approximately $0.6 million for the three months ended September 30, 2023, compared to approximately $12.7 million for the three months ended September 30, 2022. Changes in the fair value of derivative liability amounted to a credit of approximately $6.9 million for the three months ended September 30, 2023 and a charge of approximately $4.1 million for the three months ended September 30, 2022. Interest expense for accretion of the debt discount related to the $100 million convertible note issued in November 2021 increased by $5.8 million. Additionally, we incurred a charge of approximately $1.3 million in the three months ended September 30, 2023, related to the conversion of debt and we recognized a loss of approximately $8.1 million in the three months ended September 30, 2022 in connection with the settlement of debt. We recorded expense of approximately $1.9 million related to non-recurring legal settlements in the three months ended September 30, 2023.

### Nine Months Ended September 30, 2023 (Unaudited) Compared to Nine Months September 30, 2022 (Unaudited):

### (Dollars in thousands)

|  | Nine Months Ended September 30 2023 Amount | % of Revenue | 2022 Amount as restated | % of Revenue | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $43,620 | 100.0% | $21,806 | 100.0% | $21,814 | 100.0% |
| Cost of revenue | 25,703 | 58.9% | 11,343 | 52.0% | 14,360 | 126.6% |
| **Gross profit** | 17,917 | 41.1% | 10,463 | 48.0% | 7,454 | 71.2% |
| **Operating expenses:** |  |  |  |  |  |  |
| Advertising and marketing | 153 | 0.4% | 1,106 | 5.1% | (953) | -86.2% |
| Research and development | 4,434 | 10.2% | 5,300 | 24.3% | (866) | -16.3% |
| General and administrative | 6,709 | 15.4% | 4,332 | 19.9% | 2,377 | 54.9% |
| Payroll and payroll taxes | 8,232 | 18.9% | 7,481 | 34.3% | 751 | 10.0% |
| Professional fees | 5,651 | 13.0% | 3,704 | 17.0% | 1,947 | 52.6% |
| Stock compensation expense | 309 | 0.7% | 2,729 | 12.5% | (2,420) | -88.7% |
| Depreciation and amortization | 1,899 | 4.4% | 4,880 | 22.4% | (2,981) | -61.1% |
| **Total operating expenses** | 27,387 | 62.8% | 29,532 | 135.4% | (2,145) | -7.3% |
| **Loss from operations** | (9,470) | -21.7% | (19,069) | -87.4% | 9,599 | -50.3% |
| **Other income (expense):** |  |  |  |  |  |  |
| Interest expense | (3,310) | -7.6% | (7,415) | -34.0% | 4,105 | -55.4% |
| Interest expense - debt discount | (9,626) | -22.1% | (11,540) | -52.9% | 1,914 | -16.6% |
| Loss on extinguishment and derecognition expense on conversion of convertible debt | (1,518) | -3.5% | (9,762) | -44.8% | 8,244 | 84.4% |
| Changes in fair value of derivative liability | 6,580 | 15.1% | 14,592 | 66.9% | (8,012) | -54.9% |
| Legal settlements expense | (4,142) | -9.5% | - | 0.0% | (4,142) | n/a |
| Merchant fines and penalty income | - | 0.0% | (286) | -1.3% | 286 | n/a |
| Other income or (expense) | (1,474) | -3.4% | 298 | 1.4% | (1,772) | -594% |
| Total other income (expense) | (13,490) | -30.9% | (14,113) | -64.7% | 623 | -4.4% |
| Loss before provision for income taxes | (22,960) | -52.6% | (33,182) | -152.2% | 10,222 | -30.8% |
| Provision for income taxes | 138 | 0.3% | 37 | 0.2% | 101 | 270.1% |
| **Net loss** | $(23,098) | -53.0% | $(33,219) | -152.3% | $10,121 | -30.5% |

33

### Revenue

Revenue increased by approximately $21.8 million, or 100%, to approximately $43.6 million for the nine months ended September 30, 2023, from approximately $21.8 million for the nine months ended September 30, 2022. The change in net revenue was primarily attributable to an increase in processing volume in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, and an increase in revenues from our acquired businesses including Charge Savvy, RYVYL EU and American Samoa. North America revenue increased by 74%, from approximately $18.6 million for the nine months ended September 30, 2022 to approximately $32.3 million for the nine months ended September 30, 2023. International revenue increased over 200%, from approximately $3.2 million in the nine months ended September 30, 2022 to approximately $11.3 million for the nine months ended September 30, 2023.

### Cost of Revenue

Cost of revenue increased by approximately $14.4 million, or 126.6%, to approximately $25.7 million for the nine months ended September 30, 2023, from approximately $11.3 million for the nine months ended September 30, 2022. Payment processing consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Cost of revenues increased due primarily to increased volume, resulting in higher processing fees paid to gateways, commission payments to ISOs, and cost of revenue of acquired businesses in the United States and the European Union.

### Operating Expenses

Operating expenses decreased by approximately $2.1 million, or 7.3%, to approximately $27.4 million for the nine months ended September 30, 2023, from approximately $29.5 million for the nine months ended September 30, 2022. The decrease was due primarily to decreases in stock-based compensation expenses, depreciation and amortization expenses and advertising and marketing expenses for the nine months ended September 30, 2023, and was partially offset by increases in general and administrative and external professional expenses for legal and accounting services related to the restatement of prior period financial statements and non-recurring provision for credit losses on non-continuing legacy accounts.

### Other Income (Expense)

Other expense decreased to approximately $13.5 million for the nine months ended September 30, 2023, from approximately $14.1 million for the nine months ended September 30, 2022. Changes in the fair value of derivative liability amounted to a credit of approximately $9.6 million for the nine months ended September 30, 2023 and a credit of approximately $11.5 million for the nine months ended September 30, 2022. Interest expense, including expense related to the accretion of the debt discount related to the $100 million convertible note issued in November 2021 decreased by approximately $6.0 million. Additionally, we incurred losses of approximately $1.5 million for the nine months ended September 30, 2023 and approximately $9.8 million in the nine months ended September 30, 2022, related to the conversion of debt. Other expense for the nine months ended September 30, 2023 also included approximately $1.2 million in carryover effects of financial statement restatements. Expenses of approximately $4.1 million attributable to non-recurring legal settlements were recognized in the nine-month period ended September 30, 2023.

### Liquidity and Capital Resources

Our primary source of liquidity has historically been derived from raising capital through the issuance of debt or common stock. Our cash flow from operations has not historically been sufficient to cover our cash requirements.

Notwithstanding the net operating loss for the three months and nine months ended September 30, 2023, management believes that our current cash balance is sufficient to fund operations for at least one year from the date of this Report.

As previously reported in a Current Report on Form 8-K filed on July 26, 2023 with the SEC (the “July Form 8-K”), on July 25, 2023, we entered into the Exchange Agreement with an Investor which previously provided $100 million in convertible note financing to the Company, evidenced by a Note, which Note was originally due on November 5, 2023, and which Maturity Date was extended to November 5, 2024, pursuant to a Restructuring Agreement, dated as of August 16, 2022.

Under the terms of the Exchange Agreement, the Company and the Investor agreed to exchange 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 our preferred stock designated as Series A Preferred Stock.

On July 31, 2023, pursuant to the terms of the Exchange Agreement, we closed the Initial Exchange and issued to the Investor 6,000 shares of Series A Preferred Stock in exchange for $4,297,000 of the outstanding principal balance of the Note and $1,703,000 of accrued interest.

The Initial Exchange was made in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act.

For more information on the provisions of the Exchange Agreement and the Leak-Out Agreement, also entered into by us and the Investor on July 25, 2023, please see the July Form 8-K and the exhibits filed therewith.

We may, in the future, seek to raise additional capital to fund growth, operations and other business activities, but such additional capital may not be available to us on acceptable terms, on a timely basis, or at all.

The following table summarizes our cash flows from operating, investing and financing activities (unaudited):

*(dollars in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 (as restated) |
| --- | ---: | ---: |
| Cash provided by (used in) operating activities | $27,584 | $(12,347) |
| Cash used in investing activities | (78) | (46,864) |
| Cash used in financing activities | (11) | (10,052) |
| Effect of exchange rate changes on cash | 26 | (1,410) |
| Cash acquired from acquisition of Transact Europe | - | 18,677 |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $27,521 | $(51,996) |

***Operating Activities –*** For the nine months ended September 30, 2023, net cash provided by operating activities was $27.6 million. The cash provided by operating activities was primarily due to the timing of settlement of assets and liabilities.

***Investing Activities –*** Net cash used in investing activities for the nine months ended September 30, 2022 primarily consisted of the acquisition of Transact Euro and Sky Financial. Investing activities for the nine months ended September 30, 2023 were negligible.

***Financing Activities –*** Net cash used by financing activities primarily consisted of repurchases of common stock under treasury method of $4.0 million and repayment of convertible debt of $6.0 million for the nine months ended September 30, 2022. Financing activities for the nine months ended September 30, 2023 were negligible.

### Critical Accounting Estimates

Management strives to report our financial results in a clear and understandable manner, although in some cases accounting and disclosure rules and principles are complex and require us to use technical terminology. In preparing the consolidated financial statements, we follow GAAP. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations as reflected in our financial statements. These judgments and estimates are based on past events and expectations of future outcomes. The amounts of assets and liabilities reported on our balance sheet and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions, which are used for, but not limited to among other things, the accounting for revenue recognition, stock-based compensation and the valuation of deferred taxes. Actual results may differ from our estimates. Our management continually reviews our accounting policies including how they are applied and how they are reported and disclosed in our financial statements. Below is a summary of our critical accounting estimates and how they are applied in preparation of the financial statements.

### Revenue Recognition

ASC 606 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.

We recognize revenue when i) it is realized or realizable and earned, ii) there is persuasive evidence of an arrangement, iii) delivery and performance has occurred, iv) there is a fixed or determinable sales price, and v) collection is reasonably assured.

We generate 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

Our primary source of revenues consists of payment processing services for our 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 we collect fees.

In 2023 and 2022 we utilized several gateways. The gateways have strict guidelines pertaining to scheduling of the release of funds to merchants based on several criteria, such as, among other things, return and chargeback history, associated risks for specific business verticals, and average transaction amounts. To mitigate processing risks, these policies determine reserve requirements and payment-in-arrears strategies. While reserve and payment-in-arrears restrictions are in effect for a merchant payout, we record gateway debt against these amounts until released.

Cash due from gateways balances presented in the accompanying consolidated balance sheets represent amounts due to us for transactions processed wherein the funds have not been distributed.

## Market risk

As filed, 163 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.

## Controls and procedures

As filed, 6,451 characters.

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 Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of December 31, 2022, our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to our management, including our principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In connection with the financial statement restatements as discussed elsewhere in this report, we have reassessed our conclusions regarding the effectiveness of the Company’s internal control over financial reporting as of September 30, 2023, and December 31, 2022, and have determined that one or more material weaknesses exist in our internal control including a material weakness related to accounting for certain complex business transactions. We have engaged third-party technical accounting experts to support proper accounting for complex accounting transactions. As a result of the material weakness, our management concluded our disclosure controls and procedures were not effective as of September 30, 2023, June 30, 2023, March 31, 2023, December 31, 2022, and September 30, June 30, and March 31, 2022.

### Changes in Internal Controls over Financial Reporting

We have implemented enhanced reconciliation reviews and reporting of our payment processing activities including gross volumes, fees assessment and return items in 2022 because of the restatement efforts. There were no other material changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that materially affected or are reasonably likely to materially affect our internal controls and procedures over financial reporting during the first quarter of the year ending December 31, 2023.

During the second quarter of 2023, our management identified an internal control deficiency over financial reporting primarily related to the segregation of duties. Our management recognizes that the segregation of duties within certain part of its accounting processes can be inadequate for our management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis, and that this deficiency is important enough to merit attention by our management. Specifically, due to the size of the Company and the smaller nature of department teams, opportunities are currently limited to segregate duties, resulting in too few individuals having responsibility for the processing of certain financial information.

While we have designed and implemented, or expect to implement, measures that we believe address or will address this control deficiency, we continue to develop our internal controls, processes and reporting systems by, among other things, hiring qualified personnel with expertise to perform specific functions, and designing and implementing improved processes and internal controls, including ongoing senior management review and Audit Committee oversight. The improvement in our internal controls is a continuous process. We are currently remediating and plan to continue to mitigate the identified control deficiency through the redistribution of job responsibilities, by hiring additional senior accounting staff, and through the design and implementation of additional internal controls to promote adequate segregation of duties. We expect to incur additional costs as we continue to remediate this weakness and strengthen our controls.

Additional external experienced personnel have been engaged in the accounting and finance department as part of the financial reporting processes. In connection with our preparation of quarterly information, we are implementing new procedures and internal controls surrounding the month-end financial closing and financial reporting processes to ensure proper segregations of duties, and thorough review of journal entries, account reconciliations, access controls and financial statements.

The new procedures and internal controls, however, were not fully implemented as of September 30, 2023. The Company hired a new Chief Financial Officer, effective after the end of the quarter ended September 30, 2023, and is also conducting an on-going search for key management positions in critical control areas. In addition, management intends to initiate measures to immediately remediate the identified material weakness by implementing new procedures and internal controls. These measures include, but are not limited to, applying a more rigorous review of the monthly financial reporting processes to ensure that the performance of the control is evidenced through appropriate documentation, which is consistently maintained, and evaluating necessary changes to our formalized process to ensure key controls are identified, the control design is appropriate, and the necessary evidentiary documentation is maintained throughout the process.

Management has engaged a national recognized accounting firm to assist in accounting for certain complex business transactions, and has contracted with two highly experienced certified public accountants with significant experience as a Chief Financial Officer and Corporate Controller, respectively, to assure that 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 Exchange Act 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.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001185185-23-001176. Last ingested by Listed: Nov 4, 2026, 18:58 ET. No prices; not investment advice.