# RTB Digital, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [RTB Digital, Inc.](/companies/rtb.md) (CIK 1419275)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 16:04 ET
- Period: 2024-09-30
- Accession: 0001185185-24-001121
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1419275/000118518524001121/ryvyl20240930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1419275/000118518524001121/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $12.6m | us-gaap:Revenues |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $41.3m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $7.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $24.6m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $4.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $16.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $815.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $3.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$2.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$15.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $586.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$5.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$20.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.76 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$3.12 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.76 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$3.12 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 6,812,248 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 6,408,993 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $19.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $34.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $194.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $4.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $95.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $127.3m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $100.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $121.0m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $17.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $15.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $6.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,843 characters.

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this Quarterly Report on Form 10Q (this “Report”) and other materials we have filed or may filed, as well as information included in our oral or written statements, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words, or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein and in our other filings with the Securities and Exchange Commission (the “SEC”). You should not rely upon forward-looking statements as predictions of future events.

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

- 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, and the risks associated with 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;
- Our ability to protect our proprietary technology.
- Possible dilution of our common stock if the 8% Senior convertible note due in 2026 in the principal amount of $19.0 million, as of September 30, 2024, is repaid in stock;
- Our dependence on our proprietary technology, which we may not be able to protect; and
- Our dependence on our European subsidiaries as an immediate and viable short-term source of capital while we are transitioning our QuickCard product from a terminal-based to an app-based product for our North America business.

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by us (such as in our other filings with the SEC or in our press releases) for other factors that may cause actual results to differ materially from those projected by us. For additional information regarding risk factors that could affect our results, see “Risk Factors” beginning on page 14 of our 2023 Annual Report and “Risk Factors” on page 41 of this Report.

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

In this Report, unless the context otherwise requires, all references to “the Company,” “we,” “our,” “us” and “PubCo” refer collectively to RYVYL Inc., a Nevada corporation, and its subsidiaries.

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

Our Management’s Discussion and Analysis and Results of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the SEC.

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

**Overview – Organization and Name Changes**

RYVYL Inc. is a financial technology company that develops, markets, and sells innovative blockchain-based payment solutions, which we believe offer significant improvements for the payment solutions marketplace. The Company’s core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.

The Company was formerly known as ASAP Expo, Inc. and was incorporated in the State of Nevada on April 10, 2007. On January 4, 2020, PubCo and PrivCo entered into an Asset Purchase Agreement to memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and among PubCo (the buyer) and PrivCo (the seller). On April 12, 2018, pursuant to the Verbal Agreement, the Company acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, the Company assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business.

On May 3, 2018, the Company formally changed its name to “GreenBox POS, LLC,” then subsequently changed its name to “GreenBox POS” on December 13, 2018. On October 13, 2022, GreenBox POS changed its name to “RYVYL Inc.”

On May 21, 2021, the Company acquired all of the outstanding stock of Northeast Merchant Systems, Inc. (“NEMS”) in a transaction treated as a business combination. NEMS is a merchant services company providing merchant credit card processing through its own Bank Identification Number with the acquiring bank, Merrick. This involves inside operations for new merchants that include sales assistance and applications processing, underwriting, and onboarding and inside operations for existing merchants include risk monitoring and customer service. Outside operations include equipment service or replacement; sales calls and applications; site inspections and identity verification; security verification; and on-site customer service and technical support.

On July 13, 2021 (the “Closing Date”), GreenBox POS entered into and closed on a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Charge Savvy LLC, an Illinois limited liability company (“Charge Savvy”), and Charge Savvy’s three members (collectively, the “Sellers”). One of the Sellers, Ken Haller, was an employee of the Company on the Closing Date. As a result of the Purchase Agreement, the Company purchased all of Charge Savvy’s issued and outstanding membership interests from the Sellers and Charge Savvy became a wholly owned subsidiary of the Company. The purchase price under the Purchase Agreement for the all-stock transaction consisted of 1,000,000 shares of the Company’s common stock being issued and delivered to Sellers in proportion to the Sellers’ share of their membership interests in Charge Savvy. The share price at issuance was $12.14. Charge Savvy is a fintech company specializing in developing software and providing payment processing and point-of-sale (“POS”) services to the merchant services industry. Charge Savvy also owned an approximately 64,000 square foot office building located in Chicago, Illinois, where it is headquartered.

On March 31, 2022, the Company acquired a portfolio of merchant accounts from Sky Financial for $18,110,000. The Company paid $16,000,000 of cash in March 2022 and issued 500,000 shares of restricted common stock for the transaction on May 12, 2022.

On April 1, 2022, the Company completed the acquisition of Transact Europe Holdings OOD (“Transact Europe Holdings”). Transact Europe Holdings is the holding company of Transact Europe EAD (“TEU”). TEU formally changed its name to RYVYL EU on December 16, 2022. RYVYL EU is a European Union (“EU”) regulated electronic money institution headquartered in Sofia, Bulgaria. RYVYL EU is a Principal Level member of Visa, a worldwide member of MasterCard, and a principal member of China UnionPay. In addition, RYVYL EU is part of the direct Single Euro Payments Area (“SEPA”) program, a payment system enabling cashless payments across continental Europe. RYVYL EU provides complete payment solutions by offering acquiring, issuing of prepaid cards and agent banking, serving hundreds of clients. With a global footprint, proprietary payment gateway, and technology platforms, RYVYL EU offers a comprehensive portfolio of services and decades of industry experience. The Company paid approximately $28.8 million (€26.0 million) in total consideration for the purchase.

### Recent Developments

In February 2024, the Company transitioned its QuickCard product in North America away from terminal-based to app-based processing. This transition was driven by a change in our banking partner that was prompted by recent changes in the compliance environment and banking regulations impacting certain niche high-risk business verticals, which were the predominant revenue driver for QuickCard.

As previously disclosed, management’s plan to recover the loss of revenues resulting from this product transition included the acceleration of business development efforts to launch the new app-based product in existing and new business verticals. However, due to continuous changes in the regulatory environment and our previous banking relationships, during the second quarter of 2024, management determined that the app-based product may not be a viable long-term solution for certain niche high-risk business verticals and made the decision to terminate the rollout of the app-based product in those business verticals. To address this change, the Company recently introduced a licensing product for its payments processing platform, which will enable it to serve the same customer base in such verticals through a business partner with more suitable banking compliance capabilities. Revenues from the new licensing product are not expected to materialize until early 2025. Due of this strategy shift as well as a reorganization of the Company’s business to better align with management’s revised strategy, which was executed during the second quarter, the recovery of the loss of revenues resulting from this product transition is now not expected to occur until early 2025.

The decline in revenues resulting from this product transition has adversely impacted the Company’s liquidity in its North America segment in the short term. As a result, management has determined that its cash and cash equivalents in the North America segment as of September 30, 2024, will not be sufficient to fund the segment’s operations and capital needs for the next 12 months from the issuance of this Report. Management’s intended plan over the next twelve months to address the liquidity shortfall in the North America segment includes, but is not limited to, the following:

- 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 $12.8 million from Europe).

Management has assessed that its intended plan described above, if successfully implemented, is appropriate and sufficient to address the liquidity shortfall in its North America segment and provide funds to cover operations for the next 12 months from the date of the issuance of this Report. However, there can be no guarantee that we will be successful in implementing our plan, that our projections of our future capital needs will prove accurate, or that any additional funding will be sufficient to continue our operations in the North America segment.

### RESULTS OF OPERATIONS

### Three Months Ended September 30, 2024 (Unaudited) Compared to Three Months September 30, 2023 (Unaudited):

### (Dollars in thousands)

|  | Three Months Ended September 30, 2024 Amount | % of Revenue | 2023 Amount | % of Revenue | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $12,606 | 100.0% | $17,480 | 100.0% | $(4,874) | (27.9)% |
| Cost of revenue | 7,749 | 61.5% | 10,800 | 61.8% | (3,050) | (28.2)% |
| **Gross profit** | 4,857 | 38.5% | 6,680 | 38.2% | (1,824) | (27.3)% |
| **Operating expenses:** |  |  |  |  |  |  |
| Advertising and marketing | 42 | 0.3% | 45 | 0.3% | (3) | (8.2)% |
| Research and development | 815 | 6.5% | 1,315 | 7.5% | (500) | (38.0)% |
| General and administrative | 1,442 | 11.4% | 3,041 | 17.4% | (1,598) | (52.6)% |
| Payroll and payroll taxes | 3,251 | 25.8% | 2,605 | 14.9% | 645 | 24.8% |
| Professional fees | 1,061 | 8.4% | 1,234 | 7.1% | (173) | (14.0)% |
| Stock compensation expense | 136 | 1.1% | 147 | 0.8% | (12) | (7.8)% |
| Depreciation and amortization | 590 | 4.7% | 657 | 3.8% | (67) | (10.1)% |
| Total operating expenses | 7,337 | 58.2% | 9,044 | 51.7% | (1,708) | (18.9)% |
| **Loss from operations** | (2,480) | (19.7)% | (2,364) | (13.5)% | (116) | 4.9% |
| **Other income (expense):** |  |  |  |  |  |  |
| Interest expense | (309) | (2.5)% | (65) | (0.4)% | (244) | 380.9% |
| Accretion of debt discount | (273) | (2.2)% | (4,183) | (23.9)% | 3,910 | (93.5)% |
| Changes in fair value of derivative liability | - | 0.0% | 6,909 | 39.5% | (6,909) | (100.0)% |
| Derecognition expense on conversion of convertible debt | - | 0.0% | (1,331) | (7.6)% | 1,331 | (100.0)% |
| Legal settlement expense | (1,598) | (12.7)% | (1,929) | (11.0)% | 331 | (17.2)% |
| Other income (expense) | 72 | 0.6% | (25) | (0.1)% | 97 | (387.1)% |
| Total other expense, net | (2,108) | (16.7)% | (624) | (3.6)% | (1,484) | 238.0% |
| Loss before provision for income taxes | (4,588) | (36.4)% | (2,988) | (17.1)% | (1,600) | 53.6% |
| Income tax provision | 586 | 4.6% | 128 | 0.7% | 458 | 356.8% |
| **Net loss** | $(5,174) | (41.0)% | $(3,116) | (17.8)% | $(1,860) | 59.7% |

34

### Revenue

|  | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| North America | $2,832 | $12,488 | $(9,656) | (77.3)% |
| International | 9,774 | 4,992 | 4,782 | 95.8% |
| Total revenue | $12,606 | $17,480 | $(4,874) | (27.9)% |

Revenue decreased by $4.9 million, or 27.9%, to $12.6 million for the three months ended September 30, 2024, from $17.5 million for the three months ended September 30, 2023. In the North America segment, revenue decreased $9.7 million, or 77.3%, compared to the three months ended September 30, 2023. In the International segment, revenue increased $4.8 million, or 95.8%, compared to the three months ended September 30, 2023. The decrease in revenue was primarily driven by a decrease in processing volume in the North America segment, which decreased from $341.0 million in the quarter ended September 30, 2023, to $170.6 million in the quarter ended September 30, 2024, and is attributable to the previously disclosed impact associated with the Company’s QuickCard product transition that began in February 2024. The decrease in revenue in North America was partially offset by an increase in revenue in the International segment that was primarily attributable to continued growth in processing volume, which increased from $517.0 million in the quarter ended September 30, 2023, to $952.3 million in the quarter ended September 30, 2024. The increase in processing volume in the International segment was driven by continued strong growth across multiple verticals, primarily, our Independent Sales Organizations (“ISO”) and partnership network, our global payments processing businesses, and banking-as-a-service offering.

### Cost of Revenue

Cost of revenue decreased by $3.1 million, or 28.2%, to $7.7 million for the three months ended September 30, 2024, from $10.8 million for the three months ended September 30, 2023. In the North America segment, cost of revenue decreased $6.0 million, or 77.1%, compared to the three months ended September 30, 2023. In the International segment, cost of revenue increased $2.9 million, or 94.6%, compared to the three months ended September 30, 2023. Cost of revenue primarily consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships. The decrease in cost of revenue was primarily driven by the decrease in processing volumes in North America, as noted above, partially offset by an increase in processing volumes in the International segment.

### Operating Expenses

Operating expenses decreased by $1.7 million, or 18.9%, to $7.3 million for the three months ended September 30, 2024, from $9.1 million for the three months ended September 30, 2023. The decrease was primarily driven by a decrease in research and development expenses of $0.5 million, as the Company began capitalizing a portion of these costs during the second quarter of 2024, and decreases in general and administrative expenses of $1.6 million and in professional fees of $0.2 million, both due to lower accounting, consulting, and legal fees incurred in 2023 in connection with the Company’s restatement of prior period consolidated financial statements.

### Other Income (Expense)

Other expense increased by $1.5 million, or 238.0%, to $2.1 million for the three months ended September 30, 2024, from $0.6 million for the three months ended September 30, 2023. The increase was primarily driven by a net increase of $1.7 million related to debt discount accretion (+$3.9 million), changes in fair value of derivative liability (-$6.9 million), and derecognition expense on conversion of convertible debt (+$1.3 million), all primarily recognized in connection with the Company’s restructuring of its convertible note during the second quarter of 2024. Additionally, interest expense increased $0.2 million and legal settlement expense decreased $0.3 million.

### Nine Months Ended September 30, 2024 (Unaudited) Compared to Nine Months September 30, 2023 (Unaudited):

### (Dollars in thousands)

|  | Nine Months Ended September 30, 2024 Amount | % of Revenue | 2023 Amount | % of Revenue | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $41,280 | 100.0% | $43,620 | 100.0% | $(2,340) | (5.4)% |
| Cost of revenue | 24,643 | 59.7% | 25,703 | 58.9% | (1,059) | (4.1)% |
| **Gross profit** | 16,637 | 40.3% | 17,917 | 41.1% | (1,281) | (7.1)% |
| **Operating expenses:** |  |  |  |  |  |  |
| Advertising and marketing | 74 | 0.2% | 153 | 0.4% | (79) | (51.1)% |
| Research and development | 3,027 | 7.3% | 4,434 | 10.2% | (1,408) | (31.7)% |
| General and administrative | 5,107 | 12.4% | 6,709 | 15.4% | (1,603) | (23.9)% |
| Payroll and payroll taxes | 9,670 | 23.4% | 8,232 | 18.9% | 1,438 | 17.5% |
| Professional fees | 3,356 | 8.1% | 5,651 | 13.0% | (2,295) | (40.6)% |
| Stock compensation expense | 542 | 1.3% | 309 | 0.7% | 233 | 75.5% |
| Depreciation and amortization | 1,826 | 4.4% | 1,899 | 4.4% | (73) | (3.9)% |
| Impairment of goodwill | 6,675 | 16.2% | - | 0.0% | 6,675 | N/A |
| Restructuring charges | 1,636 | 4.0% | - | 0.0% | 1,636 | N/A |
| Total operating expenses | 31,913 | 77.3% | 27,387 | 62.8% | 4,525 | 16.5% |
| **Loss from operations** | (15,276) | (37.0)% | (9,470) | (21.7)% | (5,806) | 61.3% |
| **Other income (expense):** |  |  |  |  |  |  |
| Interest expense | (462) | (1.1)% | (3,310) | (7.6)% | 2,848 | (86.0)% |
| Accretion of debt discount | (1,978) | (4.8)% | (9,626) | (22.1)% | 7,648 | (79.4)% |
| Changes in fair value of derivative liability | 14 | 0.0% | 6,580 | 15.1% | (6,566) | (99.8)% |
| Derecognition expense on conversion of convertible debt | (68) | (0.2)% | (1,518) | (3.5)% | 1,450 | (95.5)% |
| Legal settlement expense | (1,598) | (3.9)% | (4,142) | (9.5)% | 2,545 | (61.4)% |
| Other income (expense) | 608 | 1.5% | (1,474) | (3.4)% | 2,081 | (141.3)% |
| Total other expense, net | (3,484) | (8.4)% | (13,490) | (30.9)% | 10,006 | (74.2)% |
| Loss before provision for income taxes | (18,760) | (45.4)% | (22,960) | (52.6)% | 4,201 | (18.3)% |
| Income tax provision | 1,214 | 2.9% | 138 | 0.3% | 1,077 | 781.3% |
| **Net loss** | $(19,974) | (48.4)% | $(23,098) | (53.0)% | $3,322 | (14.4)% |

### Revenue

|  | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| North America | $15,478 | $32,330 | $(16,852) | (52.1)% |
| International | 25,802 | 11,290 | 14,512 | 128.5% |
| Total revenue | $41,280 | $43,620 | $(2,340) | (5.36)% |

36

Revenue decreased by $2.3 million, or 5.4%, to $41.3 million for the nine months ended September 30, 2024, from $43.6 million for the nine months ended September 30, 2023. In the North America segment, revenue decreased by $16.9 million, or 52.1%, compared to the nine months ended September 30, 2023. In the International segment, revenue increased by $14.5 million, or 128.5%, compared to the nine months ended September 30, 2023. The decrease in revenue was driven by a decrease in processing volume in the North America segment, which decreased from $1.0 billion in the nine months ended September 30, 2023, to $562 million in the nine months ended September 30, 2023, and is attributable to the previously disclosed impact associated with the Company’s QuickCard product transition that began in February 2024. The decrease in revenue in North America was partially offset by an increase in revenue in the International segment that was driven by continued growth in processing volume, which increased from $1.1 billion in the nine months ended September 30, 2023 to $2.6 billion in the nine months ended September 30, 2024. The increase in processing volume in the International segment was driven by continued strong growth across multiple verticals, primarily, our ISO and partnership network, our global payments processing businesses, and banking-as-a-service offering.

### Cost of Revenue

Cost of revenue decreased by $1.1 million, or 4.1%, to $26.6 million for the nine months ended September 30, 2024, from $25.7 million for the nine months ended September 30, 2023. In the North America segment, cost of revenue decreased by $9.7 million, or 51.5%, compared to the nine months ended September 30, 2023. In the International segment, cost of revenue increased by $8.6 million, or 125.6%, compared to the nine months ended September 30, 2023. Cost of revenue primarily consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships. The decrease in cost of revenue was primarily driven by a decrease in processing volumes in North America, as noted above, which were partially offset by an increase in processing volumes in the International segment.

### Operating Expenses

Operating expenses increased by $4.5 million, or 16.5%, to $31.9 million for the nine months ended September 30, 2024, from $27.4 million for the nine months ended September 30, 2023. The increase was primarily due to a $6.7 million non-cash charge related to the write-off of goodwill in North America and restructuring charges of $1.6 million related to the Company’s reorganization and restructuring of its business in North America, both recorded during the second quarter of 2024. These increases were partially offset by a decrease in professional fees of $2.3 million due to lower accounting, consulting, and legal fees incurred in 2023 in connection with the Company’s restatement of prior period consolidated financial statements, and a decrease in research and development expenses of $1.4 million, as the Company began capitalizing a portion of these costs in the second quarter of 2024.

### Other Income (Expense)

Other expense decreased by $10.0 million, or 74.2%, to $3.5 million for the nine months ended September 30, 2024, from $13.5 million for the nine months ended September 30, 2023. The decrease was primarily driven by a net decrease of $2.5 million related to debt discount accretion expense (-$7.6 million), changes in fair value of derivative liability (+$6.6 million), and derecognition expense on conversion of convertible debt (-$1.5 million), all primarily recognized in connection with the Company’s restructuring of its convertible note during the second quarter of 2024. Additionally, interest expense decreased $2.8 million, legal settlement expense decreased $2.6 million and other income (expense) decreased $2.1 million.

### Liquidity and Capital Resources

The Company’s consolidated working capital at September 30, 2024 was negative $4.2 million, which included cash and cash equivalents of $4.3 million and restricted cash of $87.2 million. Historically, the Company has financed its operations with proceeds from cash from operations, the sales of equity securities, and its $100 million convertible note. Our material liquidity needs principally relate to working capital requirements and research and development expenditures.

Due to the product transition described under the *Recent Developments* section above, we believe that our cash and cash equivalents as of September 30, 2024 are not sufficient to fund the North America segment’s operations and capital needs for the next 12 months from the issuance of this Report. Our ability to fund working capital and other expenditures in the North America segment will depend on our ability to generate cash from operating activities from our two operating segments, which is subject to our future operating success, further repatriation of offshore profits from our European subsidiaries, and short-term borrowings in the U.S.

Our ability to successfully address the short-term liquidity shortfall in the North America segment is contingent on management’s intended plan over the next twelve months to improve the segment’s liquidity and working capital requirements. Management has determined that its intended plan, if successfully implemented, is appropriate and sufficient to address the liquidity shortfall in the North America segment and provide sufficient funds to cover operations for the next 12 months from the date of issuance of this Report. However, there can be no guarantee that we will be successful in implementing our plan or in acquiring additional funding, that our projections of our future capital needs will prove accurate, or that any additional funding will be sufficient to continue our operations in the North America segment.

### Cash Flow

The following table shows cash flows for the periods presented (dollars in thousands):

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Cash provided by operating activities | $19,119 | $27,584 |
| Cash used in investing activities | (1,226) | (78) |
| Cash used in financing activities | (207) | (11) |
| Effects of exchange rates on cash, cash equivalents, and restricted cash | 479 | 26 |
| Net increase in cash, cash equivalents, and restricted cash | $18,165 | $27,521 |

*Operating Activities –* For the nine months ended September 30, 2024 and 2023, net cash provided by operating activities was $19.1 million and $27.6 million, respectively. The cash provided by operating activities was primarily due to the timing of settlement of assets and liabilities.

*Investing Activities –* Net cash used in investing activities for the nine months ended September 30, 2024 and 2023, was $1.2 million and $0.1 million, respectively. The net cash used in investing activities for the nine months ended September 30, 2024 primarily relates to capitalized software development costs.

*Financing Activities –* Net cash used by financing activities in the nine-month period ended September 30, 2024 was $0.2 million. Net cash used in financing activities in the nine-month period ended September 30, 2023 was negligible.

### Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience, anticipated future trends, and other assumptions we believe to be reasonable under the circumstances. Because these estimates require significant judgment, our actual results may differ materially from our estimates.

### Cash Due from Gateways

The Company generates the majority of its revenue from payment processing services provided to its merchant clients. When a merchant makes a sale, the process of receiving the payment card information, engaging the banks for transferring the proceeds to the merchant’s account via digital gateways, and recording the transaction on a blockchain ledger, are the activities for which the Company gets to collect fees.

The gateways have strict guidelines pertaining to the scheduling of the release of funds to merchants based on several criteria that include, but are not limited to, return and chargeback history, associated risk for the specific business vertical, average transaction amount, etc. To mitigate potential credit losses associated with these risks, these gateway policies determine reserve requirements and a payment in arrears strategy. While reserve and payment in arrears restrictions are in effect for a merchant payout, the Company records the reserved amounts against cash due from the gateways until released.

## 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, 2,687 characters.

#### Evaluation of Disclosure Controls and Procedures

Regulations under the Exchange Act require public companies to maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and timely communicated to management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on their evaluation as of September 30, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of such date.

#### Remediation of Material Weakness

During the first nine months of 2024, with the oversight of the Audit Committee of the Board of Directors, the Company executed its remediation plan to address the material weakness identified in Item 9A of its 2023 Annual Report related to not having a complete process in place to fully reconcile the transactions between its operating system (a Company-developed platform) and its general ledger system, at the individual transaction level. The Company took the following actions during the execution of its remediation plan:

- Implemented an enhanced reconciliation preparation and review process
- Implemented changes to its operating system to improve reporting

Management has determined, through its current year testing, that these controls have been designed and implemented effectively and that these controls operated effectively for a sufficient period of time to conclude that the previously disclosed material weakness related to the reconciliation of transactions between the Company’s operating system and its general ledger system as of December 31, 2023, has been remediated as of the date of the filing of this Report.

#### Changes in Internal Control Over Financial Reporting

Except as discussed above, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,946 characters.

Other than the newly identified risk factor described below, there have been no material changes with respect to risk factors previously disclosed in the Company’s 2023 Annual Report.

***Our revenue projections related to our new licensing arrangements with payment services providers may not materialize due to customer acquisition and banking compliance issues that are outside of our control.***

As part of the Company’s plan to diversify its business, it recently launched a new licensing product for its payment processing platform. The Company will generate revenues from these arrangements from use-based license fees that it will charge to the payment services providers. The Company’s ability to generate revenues from these licensing arrangements is contingent on the success of the licensees in utilizing and servicing their customers on their platforms, as the licensees will have exclusive control over, among other things, implementation and operations of the point of banking system, procurement of ACH processing solutions, and customer acquisitions.

The licensees will also have control in determining clients and industries utilizing the licensed technology, which requires an understanding of various banking laws and regulations that may impact the licensee’s servicing of customer accounts. For example, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with operators of certain industries, particularly those with heightened cash reporting obligations and restrictions. As a result, banks may refuse to process certain payments and/or require onerous reporting obligations by payment processors to avoid compliance risk. These and other complexities surrounding banking and payment processing laws may make it difficult for the licensees to acquire customers, thereby negatively impacting the Company’s ability to generate revenues from these arrangements.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001185185-24-001121. Last ingested by Listed: Nov 4, 2026, 18:58 ET. No prices; not investment advice.