Ryvyl (RVYL) - 2022 Q2 - Quarterly Report

PART I Consolidated Financial Information Financial Statements (unaudited) Unaudited Q2 2022 financial statements reflect increased assets and net income, driven by acquisitions and a significant derivative liability gain, with positive operating cash flow Condensed Consolidated Balance Sheets As of June 30, 2022, total assets increased to $139.8 million due to acquisitions, while liabilities rose and stockholders' equity decreased Condensed Consolidated Balance Sheet Highlights (in USD) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $29,098,753 | $89,559,695 | | Goodwill | $26,625,946 | $6,048,034 | | Intangible Assets, net | $24,505,648 | $7,578,935 | | Total assets | $139,781,295 | $132,672,828 | | Liabilities & Equity | | | | Payment processing liabilities, net | $33,467,867 | $4,997,807 | | Derivative liability | $61,006 | $18,735,000 | | Total liabilities | $99,831,958 | $87,167,405 | | Total stockholders' equity | $39,949,337 | $45,505,423 | Condensed Consolidated Statements of Operations and Comprehensive Income Q2 2022 saw net revenue grow 9.2% to $7.0 million, but gross profit fell due to higher costs, with a $26.4 million derivative liability gain leading to $10.4 million net income Three Months Ended June 30, (in USD) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net revenue | $6,965,578 | $6,379,179 | | Gross profit | $2,822,700 | $5,055,699 | | Loss from operations | ($8,779,065) | ($35,611) | | Changes in fair value of derivative liability | $26,373,994 | - | | Net income (loss) | $10,410,085 | ($39,560) | | Basic and diluted EPS | $0.24 | ($0.00) | Six Months Ended June 30, (in USD) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net revenue | $11,861,104 | $11,128,620 | | Gross profit | $5,154,396 | $8,211,369 | | Loss from operations | ($14,954,165) | ($9,398,642) | | Changes in fair value of derivative liability | $18,673,994 | - | | Net income (loss) | ($10,905,902) | ($13,368,992) | | Basic and diluted EPS | ($0.26) | ($0.43) | Condensed Consolidated Statements of Stockholders' Equity For the six months ended June 30, 2022, total stockholders' equity decreased from $45.5 million to $39.9 million, primarily due to a $10.9 million net loss and treasury stock activity - Total stockholders' equity decreased from $45,505,423 at the end of 2021 to $39,949,337 as of June 30, 2022[13] - Key activities during the six months included the conversion of $5 million in convertible debt, stock compensation expenses, and a net loss of $10.9 million[14] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, operating cash flow was $3.1 million positive, while investing activities used $45.6 million for acquisitions, leading to a cash decrease Cash Flow Summary for Six Months Ended June 30, (in USD) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,094,938 | ($13,667,974) | | Net cash used in investing activities | ($45,559,088) | ($2,568,411) | | Net cash provided by (used in) financing activities | ($9,231,508) | $44,200,398 | | Net (decrease) increase in cash | ($33,018,798) | $27,964,013 | - Investing activities in 2022 included $28.8 million for the Transact Europe acquisition and $16.0 million for the Sky asset acquisition[16] Notes to Condensed Consolidated Financial Statements Notes detail the company's blockchain payment business, recent acquisitions of Transact Europe and Sky Financial, accounting policies, a $100 million convertible note, and ongoing legal proceedings - The company is a financial technology firm focused on developing and monetizing blockchain-based payment applications[18] - On March 31, 2022, the company acquired Transact Europe Holdings for approximately $28.8 million in cash[23][57] - On March 31, 2022, the company acquired a portfolio of merchant accounts from Sky Financial & Intelligence for $18.1 million[58] - The company has a $100 million convertible note issued in November 2021, with complex conversion features treated as a derivative liability. The fair value of this liability decreased by $18.7 million in the first six months of 2022, resulting in a gain[73][77] - The company is involved in several legal proceedings, including disputes with Corporate Performance Consulting, The Good People Farms, and a lawsuit filed by Pure Health against its subsidiary ChargeSavvy[117] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2022 revenue growth to increased volume, but gross margin declined due to higher costs, with net income primarily driven by a significant non-cash derivative liability gain Results of Operations Comparison - Three Months Ended June 30 | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | $6,965,578 | $6,379,179 | 9.2% | | Cost of revenue | $4,142,878 | $1,323,480 | 213.0% | | Gross profit | $2,822,700 | $5,055,699 | -44.2% | | Total operating expenses | $11,601,765 | $5,091,310 | 127.9% | | Net income (loss) | $10,410,085 | ($39,560) | -26414.7% | - The increase in cost of revenue and resulting decrease in gross margin was due to higher processing fees paid to Gateways and commission payments to ISOs[127] - The significant increase in Other Income was primarily due to a $26.4 million gain on the change in fair value of derivative liability related to the convertible note issued in November 2021[129] - The company believes its current cash balances are sufficient to cover operating needs for the next twelve months, despite the $89 million convertible note maturing in November 2023[136] Quantitative and Qualitative Disclosures About Market Risk This section was included in the table of contents but no substantive content was provided Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[147] - No material changes to internal control over financial reporting occurred during the three and six months ended June 30, 2022[148] PART II Other Information Legal Proceedings Legal proceedings, including disputes with Corporate Performance Consulting and Pure Health, are detailed in Note 17 of the financial statements - Information regarding legal proceedings is detailed in Note 17 of the financial statements[151] Risk Factors This section was included in the table of contents but no substantive content was provided Unregistered Sales of Equity Securities and Use of Proceeds The Board approved increasing the share repurchase program to $15 million, with $7.9 million in repurchases as of March 31, 2022, and none in Q2 2022 - The Board approved an increase of the share repurchase program to $15,000,000[152] - From May 13, 2021, to March 31, 2022, the company repurchased 1,098,586 shares for $7,936,785[152] - There were no share repurchases in the three months ended June 30, 2022[153] Defaults Upon Senior Securities No defaults upon senior securities were reported - None[154] Mine Safety Disclosures No mine safety disclosures were reported - None[155] Other Information No other information was reported - None[156] Exhibits This section lists exhibits filed, including CEO and CFO certifications and Inline XBRL data files - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101 series)[158] Signatures The report was signed on August 15, 2022, by the Chief Executive Officer and Chief Financial Officer - The report was signed on August 15, 2022, by Fredi Nisan, Chief Executive Officer, and Benjamin Chung, Chief Financial Officer[163]