UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20192021
Commission File Number:001-34294
GREENBOX POS |
(Exact name of registrant as specified in its charter) |
Nevada | 22-3962936 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
San Diego, CA | 92108 | |
(Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code: (619) 631-8261
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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–212b-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the 21,216,37221.2 million shares of voting common stock held by non-affiliates of the registrant as of June 28, 201930, 2021 was $2,758,128$226 million based on the closing price of $0.13$11.93 per share of the registrant’s common stock as quoted on the OTC Pink Current Information marketplaceNasdaq Capital Market on that date.
As of May 10, 2020,March 25, 2022, there were 175,921,93343,289,572 shares of registrant's common stock outstanding.
Documents Incorporated by Reference: None.
Audit Firm ID | Auditor Name | Auditor Location | ||
5041 | BF Borgers CPA PC | Lakewood, Colorado |
EXPLANATORY NOTE
This Amendment No. 1 (this “Amendment”) amends the Annual Report on Form 10-K for the year ended December 31, 2021, of GreenBox POS (the “Company”) that we filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022 (the “Original Filing”). This Amendment is being filed to amend and restate Items 10, 11, 12, 13, and 14 of Part III of the Form 10-K in their entirety to provide the information we indicated that we would incorporate by reference from our Proxy Statement for the 2022 annual meeting of stockholders in reliance on General Instruction G(3) to Form 10-K.
The Company is also filing as Exhibits to this Amendment certifications with respect to this filing by its principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; accordingly, Item 15 of Part IV has also been amended to reflect the filing of these new exhibits. Because no financial statements are being filed in this Amendment, and this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. The Company is also not including the certifications required under Section 906 of the Sarbanes-Oxley Act of 2002, since no financial statements are being filed with this Amendment.
Other than the items outlined above, this Amendment does not modify or update the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing. This Amendment does not reflect events occurring after the date of the Original Filing or modify or update those disclosures that may be affected by subsequent events. Such subsequent matters are addressed in subsequent reports filed by us with the SEC.
Capitalized terms not defined in this Amendment have the meaning given to them in the Original Filing.
EXPLANATORY NOTE
On March 25, 2020, the Securities and Exchange Commission (“SEC”) issued an order and guidance (collectively, the “Order”) providing regulatory relief to public companies whose operations may be affected by the novel coronavirus disease (“COVID-19”). The Order provided public companies with a 45-day extension to file certain disclosure reports, including their Annual Report on 10-K (“Annual Report”), that would otherwise have been due between March 1, 2020 and July 1, 2020.
Due to its operations being impacted by COVID-19, GreenBox POS (the “Company”) was unable to meet its filing deadline with respect to its Annual Report and on April 10, 2020 submitted a Current Report on Form 8-K in reliance upon the Order.
Due to the outbreak of coronavirus disease 2019 (COVID-19), starting from early March 2020, the Company’s employees and external auditors have been asked to work remotely. As a result, the Company’s books and records have not been easily accessible and communication among internal financial staff and external auditors has been challenging, resulting in delay in preparation and completion of its consolidated financial statements. Based on the foregoing, on April 10, 2020, the Company filed a Current Report on Form 8-K to avail itself of a 45-day extension to file this Form 10-K relying on the exemptions provided by the SEC Order. This Form 10-K is being filed in reliance on the SEC Order.
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PART III | ||||
Item 10. | ||||
Item 11. | ||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||
Item 14. | ||||
PART IV | ||||
Item 15. | ||||
Signatures | ||||
SPECIALCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Amendment and the Annual Report on Form 10-K that it amends, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or 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. Furthermore, such
You should not place undue reliance on forward looking statements. In addition, you should consult other disclosures made by the Company (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 the Company. For additional information regarding risk factors that could affect the Company’s results, see “Risk Factors” in the Annual Report on Form 10-K amended hereby, and as may be included from time-to-time in our reports filed with the SEC.
The Company intends the forward-looking statements to speak only as of the datetime of this report. Except as required by law, wesuch statements and does not undertake no obligationor plan to update anyor revise such forward-looking statements as more information becomes available or to reflect eventschanges in expectations, assumptions or circumstances afterresults. The Company 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 date of such statements.
In thisrisk factors or risks and uncertainties referred to in the Annual Report on Form 10-K the terms “the Company,” “we,” “our”, “us”amended hereby, could materially and “PubCo” refer to GreenBox POS.adversely affect our results of operations, financial condition, and liquidity, and our future performance.
PART I
Organization
On January 4, 2020, PrivCo and GreenBox POS, a Nevada corporation (“PubCo”) entered into an Asset Purchase Agreement (the “Agreement”), to memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and between PubCo and PrivCo.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo 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, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (the “GreenBox Acquisition”).
For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition”with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
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. Prior to the name changes, PubCo was known as ASAP Expo, Inc (“ASAP”). ASAP was incorporated April 10, 2007 under the laws of the State of Nevada (collectively, “PubCo”).
Our primary office is in San Diego, California. Our website is www.greenboxpos.com.
UnlessIn this Amendment, unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS.POS, a Nevada corporation.
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.
Significant Transactions
On March 23, 2018,February 17, 2021, the then controlling shareholderCompany effected a reverse stock split of the Company’s shares of common stock outstanding and then sole officera proportional decrease of the Company’s authorized shares of common stock at a ratio of one-for-six (the “Stock Split”). Following the Stock Split, the Company has 82,500,000 shares of common stock authorized (the number of authorized shares of Preferred Stock remains 5,000,000). All share and sole director of PubCo, Frank Yuan, along with his wife, Vicky PMW Yuan (collectively, the “Yuans”), entered into a Purchase Agreement with PrivCo (the “Yuan SPA”).
Pursuantper share information in this Amendment have been retroactively adjusted for all periods presented, unless otherwise indicated, to give effect to the Yuan SPA,Stock Split, including the Yuans agreed to sell 144,445,000 restricted shares of PubCo’s common stock, par value $0.001 per share (the “Common Stock”), to PrivCo for a consideration of $500,000: $250,000 in cash, paid at closing,financial statements and $250,000 in restricted shares of Common Stock (the “Shares Due”) to be issued within 30 days of the close of the Yuan SPA.notes thereto.
On or about March 29, 2018, Frank Yuan converted a portion of a line of credit that he had previously issued to PubCo, in exchange for 144,445,000 restricted shares of Common Stock, representing approximately 90% of PubCo’s issued and outstanding shares of Common Stock (the “Control Block”). Subsequently, on or about June 8, 2018, PrivCo paid the Shares Due, by transferring 609,756 restricted shares of Common Stock from the Control Block to the Yuan’s designees, Frank Yuan and his son, Jerome Yuan.
Pursuant to the Yuan SPA, on April 12, 2018, Frank Yuan caused the Control Block to be transferred to PrivCo.
On April 12, 2018, all business being conducted at that time by PubCo (the “ASAP Business”) was transferred from PubCo to ASAP Property Holdings Inc., a company owned and operated by Frank Yuan (“Holdings”). In consideration for the ASAP Business, Holdings assumed all liabilities related to the ASAP Business. On April 12, 2018, following the consummation of the Yuan SPA and the transfer of the ASAP Business to Holdings, Ben Errez (“Errez”) and Fredi Nisan (“Nisan”) became the sole acting officers and sole acting directors of PubCo.
On May 3, 2018, Frank Yuan formally resigned, and Errez and Nisan were formally appointed the sole officers and sole directors of PubCo.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired the GreenBox Business and assumed PrivCo’s liabilities per the terms of the Agreement. The value of the assets acquired on April 12, 2018 was $843,694, which excluded the Control Shares, which remain a PrivCo asset. The value of PrivCo’s assumed liabilities on April 12 was $589,078. The difference between assets and liabilities was $254,616, which PubCo booked as a “Gain on Bargain Purchase.” However, because we are using Reverse Acquisition accounting, PubCo subsequently recorded the gain as Paid in Capital.
From April 12, 2018 through January 4, 2020 (the “In Between Period”), because there was ambiguity regarding the validity of the Verbal Agreement, PubCo filed required quarterly and annual reports with the Securities and Exchange Commission as if there had not been a Reverse Acquisition. During the In Between Period, PrivCo continued to operate as if it still owned the GreenBox Business, which included maintaining records of GreenBox Business financial transactions on PrivCo’s accounting software, and entering into contracts and agreements as PrivCo, while PubCo paid all expenses, including expenses related to PrivCo contracts entered into prior to and after April 12, 2018, as well as expenses incurred as a result of litigation resulting from disagreements between PrivCo and other parties. During the In Between Period, PubCo represented itself in press releases, as being the owner/operator of the GreenBox Business. Additionally, from April 12, 2018 through approximately December 31, 2018, PubCo and PrivCo shared control of PrivCo’s bank accounts, and on or about January 1, 2019, PubCo assumed control of PrivCo’s bank accounts.
By virtue of the payment of PrivCo’s litigation expenses by PubCo, by virtue of PubCo representing itself in press releases, as being the owner/operator of the GreenBox Business, and by virtue of the shared control of PrivCo’s bank accounts starting on April 12, 2018, both PubCo and PrivCo concluded that the Verbal Agreement was valid and the GreenBox Business Acquisition took place on April 12, 2018.
Reverse Acquisition Reporting Requirements
In accordance with SEC Financial Reporting Manual, Topic 12 - Reverse Acquisitions and Reverse Recapitalizations, Section 12200 - Reporting Issues, Sub-section 12210.2 - Reverse Acquisition with a domestic registrant that is not a shell company, PubCo is required to file two years of audited Financials for PrivCo. However, since PrivCo was formed in August 2017, only the period from August 2017 through December 31, 2018 was audited. PubCo is also required to file on a combined basis with PrivCo starting with PubCo’s 10-Q filing for the period ending June 30, 2018.
Given these considerations, PubCo:
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Our Business
GreenBox POS is a tech company formed with the intent of developing, marketing and selling innovative blockchain-based payment solutions, which we believe will cause favorable disruption in the payment solutions marketplace. Our 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. Our proprietary, blockchain-based ecosystem is designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
We’ve been awarded five provisional patents for our technology, each directly related to our core business focus. Subsequently, we filed non-provisional patent application 16/212,627 on December 6, 2018, under which we claimed the benefit of the five provisional patents.
In March 2018, we formally announced DEL, PAY, QuickCard, POS and Loopz to an international audience, during a presentation at the Israel International Innovation Expo, in Tijuana, Mexico.
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In March 2018, our QuickCard Payment System was comprised of PAY, proprietary kiosks and e-wallet management.
In June 2018, we commenced a soft launch of our system, onboarded our initial customers and began generating revenue.
In July 2018, we introduced TrustGateway, a new fraud prevention component for our QuickCard payment system.
Throughout the remainder of 2018, we continued to build, expand and improve our system, which allowed for an escalation in merchants using our system, as well as increasing revenues.
On or about October 4, 2018, we entered into a lease agreement with Hyundai Rio Vista, Inc. for our current office space at 8880 Rio San Diego Drive, Suite 102, San Diego, CA 92108.
In March and April of 2020, we added new features to our ecosystem, including RTP (Real Time Payments), same day ACH capabilities, and SEPA payments options.
In December 2019, the company received PCI (Payment Card Industry) Level 1 certificate for its technology, its security, privacy, reliability and other aspects of its payment infrastructure.
In March of 2020, we added two platforms to our technology spectrum: we are now able to complete payouts in crypto currency, and we are also able to process same day international FOREX transactions.
Q1/20 signified the return of operations in full scale for the Company. In Q4/2019, the Company invested in research and development, improving its acquiring platform and enabling safer, faster and significantly more scalable services. These technology improvements allow for major new capabilities, including Real Time Payments (RTP), a very sought-after payment feature. This change also reduces the Company COGS. Although the Company saw a decrease in operations in Q4/2019, the improved platform is expected to perform better than its predecessor platform and increase total volumes while increasing profit margins and operating sustainability. The Company returned to ramping up commercial large-scale operations, on-boarding large number of clients, and increasing the Company operational bandwidth to accommodate the needs of its clients. To date in 2020, we continue to execute on these management directives.
Management is focused on the following KPI (Key Performance Indices):
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[Table 1]
In order to process the targeted ATPV goal, $1B, the Company must be able to process close to $90M/month, or $3M/day, in a consistent fashion. The Company needed to invest further in its core technologies to reach this capacity, a task now completed. The Company now has the required bandwidth and technical capabilities to achieve this goal. The Company projects it will process transactions in volumes greater than $1M/day within Q2/2020 and will ramp up the targeted Average Daily Volumes in Q4/2020. We believe the current operational bandwidth for the Company is virtually unlimited.
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[Table 2]
Based on the above and the current traction in Q2/20, the Company is comfortable projecting approximately $12-14M EBITDA in FY20.
The Company owns all the IP rights for operations in its space: tokenizer, gateway, ledger manager and blockchain substrate. Other, supporting patents, such as fraud proofing, on-boarding accelerators, and an all new blockchain implementation, are pending.
With the visibility into the Company’s operation management has at the end of Q1/2020 the Company plans on uplisting to a senior exchange by Q1 of FY21 and does not plan on an artificial stock price increase, such as a reverse split. The current plan is to grow the company organically to the size and value required by the exchange.
The ATPV, Profitability and other major KPIs remain sensitive to regulatory changes global and national economic trends. These will impact and influence the Company’s product line, its potential mergers and acquisitions targets, its joint ventures and the Company’s technology emphasis.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are not required to provide the information under this item.
Item 1B – Unresolved Staff Comments
Not applicable.
We do not own any real estate or other physical properties material to our operations. We operate from leased space. Our executive offices are located within the Rio Vista Tower, at 8880 Rio San Diego Drive, Suite 102, San Diego, CA 92108, and our telephone number is (619) 631-8261.
In October 2017, we secured our first office in San Diego, California. During the first six months of 2018, we entered into additional, separate lease agreements for additional offices in San Diego. In October 2018, we executed a lease agreement with Hyundai Rio Vista, Inc. within the Rio Vista Tower, which we moved into on or about December 1, 2018. Our lease agreement with Hyundai Rio Vista is through January 15, 2022, with monthly rent starting at $10,648 and increasing to $11,636 over the period of the lease.
On or about February 20, 2018, we secured a virtual Canadian office, located at 885 West Georgia Street Suite 1500, Vancouver, British Columbia, V6C 3E8, under an Office Agreement with Regus Canada. Subsequently, on or around May 3, 2018 we added a physical office at the same location, on a month-to-month basis. We vacated the office in or about July 2019.
Monthly lease rates during 2019 are shown in the table below:
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Residential Lease (1) |
| Feb 23, 2018 |
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| Feb 22, 2019 |
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| 2,040 |
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Historic Decatur Road (2) |
| Mar 1, 2018 |
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| Oct 31, 2022 |
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| 696 |
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Virtual Office – Canada (3) |
| Mar 1, 2018 |
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| Feb 28, 2019 |
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| 278 |
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Canada Office (3) |
| May 3, 2018 |
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| July 31, 2019 |
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| 1,372 |
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Rio Vista |
| Dec 1, 2018 |
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| Jan 15, 2022 |
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| $ | 10,729 |
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(1) The Company leases residential space to house visiting consultants and prospective employees.
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Item 4 – Mine Safety Disclosures
Not applicable.
PART II
Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted for trading on OTC Markets, OTC Pink Sheets tier, under the symbol “GRBX.”
Holders
As of May 6, 2020, there were 181,330,260 shares of common stock outstanding held by approximately 163 holders of record (not including an indeterminate number of beneficial holders of stock held in street name).
Warrants
There were no warrants issued nor outstanding as of December 31, 2019.
Dividends
There have been no cash dividends declared on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. Dividends are declared at the sole discretion of our Board of Directors.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company has never had an equity compensation plan.
Recent Issuance of Unregistered Securities
During the year ended December 31, 2019, we issued the following securities that were not registered under the Securities Act. Except where noted, all the securities discussed in this Item 5 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
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The following three share transactions summarized below, totaling 1,085,000 shares, were each inadvertently transferred from PrivCo’s Control Block rather than PubCo issuing new shares. Subsequently, on or about August 14, 2019, PubCo issued 1,085,000 shares to PrivCo, as reimbursement of the shares inadvertently transferred by PrivCo.
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Item 6 – Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are not required to provide the information under this item.
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may”“will,”“expect,”“anticipate,”“believe,”“estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company's services, fluctuations in pricing for materials, and competition.
Organization
GreenBox POS (the “Company” or “PubCo”) was formerly known as ASAP Expo, Inc (“ASAP”), which was incorporated on April 10, 2007 under the laws of the State of Nevada.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo 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, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (the “GreenBox Acquisition”).
On January 4, 2020, PrivCo and GreenBox POS, a Nevada corporation (“PubCo”) entered into the Agreement to memorialize the Verbal Agreement with PrivCo which was formed on August 10, 2017 (the seller).
For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition”with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
New Name
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.
RESULTS OF OPERATIONS
The following results are for the years ended December 31, 2019 and 2018.
Years Ended December 31, | ||||||||||||||||||||||||
2019 | 2018 | Changes | ||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
Net revenue | $ | 10,002,857 | 100.0 | % | $ | 910,808 | 100.0 | % | $ | 9,092,049 | 998.2 | % | ||||||||||||
Cost of revenue | 11,091,140 | 110.9 | % | 670,539 | 73.6 | % | 10,420,601 | 1554.1 | % | |||||||||||||||
Gross profit | (1,088,283 | ) | -10.9 | % | 240,269 | 26.4 | % | (1,328,552 | ) | -552.9 | % | |||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Advertising and marketing | 45,928 | 0.5 | % | 166,149 | 18.2 | % | (120,221 | ) | -72.4 | % | ||||||||||||||
Research and development | 1,255,296 | 12.5 | % | 376,871 | 41.4 | % | 878,425 | 233.1 | % | |||||||||||||||
Cash due from gateway reserve expense | - | 0.0 | % | - | 0.0 | % | - | 1000.0 | % | |||||||||||||||
Payroll and payroll taxes | 1,429,136 | 14.3 | % | 331,894 | 36.4 | % | 1,097,242 | 330.6 | % | |||||||||||||||
Professional fees | 1,026,556 | 10.3 | % | 767,869 | 84.3 | % | 258,687 | 33.7 | % | |||||||||||||||
General and administrative | 750,078 | 7.5 | % | 302,333 | 33.2 | % | 447,745 | 148.1 | % | |||||||||||||||
Depreciation and amortization | 16,216 | 0.2 | % | 6,608 | 0.7 | % | 9,608 | 145.4 | % | |||||||||||||||
Total operating expenses | 4,523,210 | 45.2 | % | 1,951,724 | 214.3 | % | 2,571,486 | 131.8 | % | |||||||||||||||
Loss from operations | (5,611,493 | ) | -56.1 | % | (1,711,455 | ) | -187.9 | % | (3,900,038 | ) | 227.9 | % | ||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest (expense) income | (604,504 | ) | -6.0 | % | (106,821 | ) | -11.7 | % | (497,683 | ) | 465.9 | % | ||||||||||||
Interest expense - debt discount | (195,201 | ) | -2.0 | % | - | 0.0 | % | (195,201 | ) | 0.0 | % | |||||||||||||
Derivative expense | (634,766 | ) | -6.3 | % | - | 0.0 | % | (634,766 | ) | 0.0 | % | |||||||||||||
Changes in fair value of derivative liability | (415,297 | ) | -4.2 | % | - | 0.0 | % | (415,297 | ) | -100.0 | % | |||||||||||||
Merchant fines and penalty income | 2,776,687 | 27.8 | % | - | 0.0 | % | 2,776,687 | -100.0 | % | |||||||||||||||
Asset impairment | - | 0.0 | % | (75,000 | ) | -8.2 | % | 75,000 | -100.0 | % | ||||||||||||||
Total other income (expense) | 926,919 | 9.3 | % | (181,821 | ) | -20.0 | % | 1,108,740 | -609.8 | % | ||||||||||||||
Loss before provision for income taxes | (4,684,574 | ) | -46.8 | % | (1,893,276 | ) | -207.9 | % | (2,791,298 | ) | 147.4 | % | ||||||||||||
Provision for income taxes | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | |||||||||||||||
Net loss | $ | (4,684,574 | ) | -46.8 | % | $ | (1,893,276 | ) | -207.9 | % | $ | (2,791,298 | ) | 147.4 | % | |||||||||
Revenue
For the year ended December 31, 2019 and 2018, we recognized revenue of $10,002,857and $910,808, respectively. Throughout 2018, we conducted numerous tests of our products and services, and began to sign up our initial customers. After a soft launch of the GreenBox Network during the last few days of June 2018, when we began processing transactions, we processed approximately $5,100,000 in completed transactions on behalf of merchants. We believe this accomplishment to be indicative of the validity of our proprietary blockchain-based systems, which are the foundation of the GreenBox Network, and indicative of our future potential.
Cost of Goods Sold
Our Cost of Goods Sold (“COGS”) for payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. For the year ended December 31, 2019 and 2018, our COGS associated with payment processing was $11,091,140 and $670,539, respectively, which included the absorption by us, of chargebacks, which was limited to 2018, as a promotional tool. As regards Licensing Revenue, we do not incur any direct costs of services or products, thus we did not record COGS for Licensing Revenue.
Operating Expenses
Overall, operating expenses increased during 2019 as the Company ramped up operations. For the year ended December 31, 2019 and 2018, our general and administrative expense was $10,188,241 and $1,951,724, respectively; our legal and professional expenses, most of which were outsourced, were $1,026,556 and $767,869, respectively; and our R&D expense was $1,255,296 and $376,871, respectively. We incurred $5,665,031 of cash due from gateway reserve expense for the year ended December 31, 2019 and none in the prior year.
Non-Operating Expenses
For the year ended December 31, 2019 and 2018, we recorded non-operating expenses of $1,849,768 and $181,821, respectively, of which $604,504 and $106,821, respectively, were for interest, $634,766 represented derivative expense for the year ended December 31, 2019. We also recorded $75,000 as asset impairment for the year ended December 31, 2019.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital for the periods presented is summarized as follows:
Cash Requirements
We incurred a working capital deficit of $4,429,424 as of December 31, 2019. For December 31, 2018, our working capital was $874,980. Based on our revenues, operational expenses, cash on hand and future operational needs, we will need to continue procuring capital from external sources, which may include equity, debt or hybrid financing, in order to fund operations.
Cash Flow
The following table shows cash flows for the periods presented:
Years Ended December 31, | ||||||||
2019 | 2018 | |||||||
Net cash provided by (used in) operating activities | $ | (165,556 | ) | $ | (1,601,851 | ) | ||
Net cash provided by (used in) investing activities | (49,795 | ) | (31,254 | ) | ||||
Net cash provided by (used in) financing activities | 684,671 | 1,834,730 | ||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 469,320 | $ | 201,625 | ||||
Operating Activities – For the years ended December 31, 2019 and 2018, net cash provided by (used in) operating activities was $(165,556) and $(1,601,851), respectively, was primarily due to net loss and timing of settlement of assets and liabilities.
Investing Activities – For the years ended December 31, 2019 and 2018, net cash used in investing activities was $(49,795) and $(31,254), respectively, primarily due to cash used for purchases of property and equipment.
Financing Activities – For the years ended December 31, 2019 and 2018, net provided by financing activities was $684,671 and $1,834,730, respectively, primarily due to borrowings and repayments of convertible debt and proceeds from issuances of common stock.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the our financial statements and the accompanying notes. 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, the accounting for revenue recognition, stock based compensation and the valuation of deferred taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements:
Revenue Recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.
The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.
The Company generates revenue from payment processing services, licensing fees and equipment sales.
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Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management provides a valuation allowance for significant deferred tax assets when it is more likely than not that such asset will not be recovered.
Item 7A – Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8 – Financial Statements and Supplementary Data
The consolidated financial statements required by this item begin on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A – Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Executive Vice President, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management's evaluation, our Chief Executive Officer and Executive Vice President concluded that, as a result of the material weaknesses described below, as of December 31, 2019, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Executive Vice President, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
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Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Principal Financial Officer, a bookkeeper and external accounting consultants, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will eliminate or greatly decrease any control and procedure issues we may encounter in the future.
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
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There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the year ended December 31, 2018 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2019 for the reasons discussed above.
None.
PART III
Item 10 –- Directors, Executive Officers and Corporate Governance
The namesfollowing table sets forth the name, age, and position of oureach of the Company’s executive officers and directors and their age, title, and biography as of May ___, 2020, are set forth below:directors.
Name | Age | Position(s) | |||
Executive Officers | |||||
| 40 | Director and Chief Executive Officer (Principal Executive Officer) | |||
Ben Errez | 61 |
| Chairman of the Board of Directors and Executive Vice President | ||
Benjamin Chung | 46 | Chief Financial Officer (Principal Financial Officer and Principal | |||
Jacqueline Dollar | 56 | Chief Marketing Officer | |||
| 37 | Vice President Legal and Board Secretary | |||
Min Wei | 47 | Chief Operating Officer | |||
Non-Employee Directors | |||||
Genevieve Baer | 44 | Director | |||
William J. Caragol | 54 | Director | |||
N. Adele Hogan | 60 | Director | |||
Dennis James | 71 | Director | |||
Ezra Laniado | 38 | Director
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Business Experience of Executive Officers
Ben Errez has acted as Chairman of theour Board of Directors (the “Board”), Executive Vice President, Principal Financial Officer
Ben Errez’s (“Errez”) past positions have included positions at large companies like Microsoft and Intel.Principal Accounting Officer since July 2017. He has brought this expertise to the Company to lead the Company into the forefront of the blockchain-based financial software, services and hardware market.
Since 2017, Errez was onehas been a principal of the early managersGreenBox Business. From August 2004 until August 2015, Errez formed the start-up IHC Capital, where he held the position of MicrosoftPrincipal Consultant from founding to the present date, through which he advises clients in 1991.the South Pacific region with market capitalizations ranging from $50M to $150M on matters such as commerce, security, reliability and privacy. From January 1991 to August 2004, he served as Software Development Lead for the Microsoft International Product Group. He led the International Microsoft Office Components team (Word, Excel, PowerPoint) in design, engineering, development and successful deployment. He also served as Executive Representative of Microsoft Office and was a founding member of the Microsoft Trustworthy Computing Forum, both within the company, and internationally. Errez co-authored the first Microsoft Trustworthy Computing Paper on Reliability. At Microsoft, Mr. Errez was responsible for the development of the first Microsoft software translation Software Development Kit (“SDK”) in Hebrew, Arabic, Thai and Simplified Chinese, as well as the development of the first bidirectional extensions to Rich Text Format (“RTF”) file format, all bidirectional extensions in text converters for Microsoft Office, and contributed to the development of the international extensions to the Unicode standard to include bidirectional requirements under the World Wide Web Consortium (“W3C”). He received his Bachelor Degree in Mathematics and Computer Science from the Hebrew University.
In 2004, Errez transitioned into the world of consulting, forming the start-up IHC Capital, where he held the position of Principal Consultant from founding to the present date, through which he advises clients in the South Pacific region with market capitalizations ranging from $50M to $150M on matters such as commerce, security, reliability and privacy.
In 2017, immediately before partnering with Fredi Nisan to launch the GreenBox Business, Errez was asked to take over the Microsoft Alumni Network for the Southern California region has served as a regional director. ErrezDirector and our Chief Executive Office since July 2017, and has been a principal of the GreenBox BusinessCompany since its inceptionAugust 2017. In May 2016, Nisan founded Firmness, LLC. Through Firmness, Nisan created “QuickCitizen,” a software program that simplfies the onboarding process for new clients of law firms specializing in 2017.
Fredi Nisan, Director, Chief Executive Officer
Fredi Nisan (“Nisan”)’s career in tech began during his years of service in the Israeli Defense Forces, where he served as IT Manager for all of Israel’s Northern Bases. After serving in the military, Nisan opened and operated a computer hardware store before becoming the Inventory Operations Manager for Zicon Israel in 2005, a hardware andimmigration issues. The QuickCitizen software producer. At Zicon, he supervised inventory operations, worked on quality controls for motherboards and chips, and educated customers on software and hardware product functionality. Subsequently, Nisan movedsignificantly reduced law firm’s onboarding processing time from more than three hours to the United States, where he worked for One Coach, in San Diego, CA, as a business coach. One Coach specializes in customized growth solutions for small business owners, including the latest strategies for sales, internet marketing, branding and ROI. Nisan was consistently ranked as the top salesperson for small business coaching while working with One Coach.
approximately fifteen minutes. In January 2010, Nisan launched Brava POS, where he served as President until 2015. Brava POS provided point of sale (“POS”) systems for specialty retail companies. Nisan developed software to provide clients with solutions for issues ranging from inventory management to payroll to processing high volume transactions in the form of a cloud-based POS system. This system had the capability to manage multiple stores with centralized inventory and process sales without an internet connection, and offeredoffered a secure login for each employee, as well as including advanced inventory management and reporting, plus powerful functionality for its end users.
In 2016, Nisan founded Firmness, LLC. Through Firmness, Nisan created “QuickCitizen,” a software program that simplifies the onboarding process for new clients of law firms specializing in immigration issues. The QuickCitizen software significantly reduced law firm’s onboarding processing time from more than three hours to approximately fifteen minutes. Nisan has been a principal of the GreenBox Business since its August 2017 inception. In January 2018, Firmness sold QuickCitizen to GreenBox (See QuickCitizen Acquisition, included in Item 13 - Certain Relationships and Related Transactions below).
Employment AgreementsBenjamin Chung has served as Chief Financial Officer since April 2021. From 2012 until April 2021, Mr. Chung was the founder and was a managing partner at Benjamin & Ko, a public accounting and consulting firm (“Ben & Ko”). From 2010 through June 2012, Mr. Chung was the International Controller and International Chief Financial Officer for American Apparel, Inc., a global vertically integrated apparel manufacturing and retail company that was publicly traded on the NYSE American. From 2008 to 2010, Mr. Chung was a Partner at BDO Korea and Senior Manager of the Korea Desk for BDO USA. From January 2007 to October 2008, Mr. Chung was a Director of Internal Audit of Big 5 Sporting Goods, Inc., a retailer in consumer sporting goods. From 2004 to 2007, Mr. Chung was an Audit Manager at Ernst & Young and PwC. From 1999 to 2004, Mr. Chung was an Audit Manager at PricewaterhouseCooper. Mr. Chung was also previously an Audit Committee Chair and Board Member for Franklin Wireless Corp, a public company listed on NASDAQ, between 2016 and June 2020. He has an undergraduate degree from California State Polytechnic University, Pomona and is a certified public accountant.
The CompanyJacqueline Dollar has not entered into employment agreements orserved as Chief Marketing Officer since November 2021. From February 2021 to November 2021 Ms. Dollar served as vice president of marketing for Sprouts Farmers Market. She has built her reputation as a world-class global marketer, working with Coca-Cola, McDonald’s, Verizon, Walmart, L’Oréal, Xbox, 7-Eleven and many other compensation agreementsFortune 500 brands. From May 2014 through September 2018 Ms. Dollar served as Chief Marketing Officer of Storydog and from September 2018 to March 2020, Ms. Dollar served as Managing Director of Newlink Communications. She has managed award-winning marketing programs with its executive officers. The Company’s agreement with existing employees are all “at will” agreements.partners such as the NFL, Super Bowl LIV, the Olympics, the FIFA World Cup, Sony Pictures, Universal Music and others.
Lindsey-Shannon Lee has served as Vice President Legal and Board Secretary since June 2019. Prior to joining GreenBox, Ms. Lee served as in-house counsel for two globally recognized archetypal brands. She began her legal career in copyright litigation. Following admission to the CA Bar, she set roots in-house at an iconic international media company in Los Angeles, California, where she oversaw all in house legal matters including development, production, and clearances for television, radio, and digital platforms. In 2015, Ms. Lee moved to San Diego, California where she served as in-house counsel for LG Electronics U.S.A., Inc. through June 2019. There she advised various LG divisions and subsidiaries on day-to-day operations, corporate affairs, marketing, advertising, intellectual property issues, and regulatory compliance including data privacy and cybersecurity. She managed and oversaw various complex litigation matters and her complex contract negotiations contributed to upwards of $500 million annual revenue. She advised the global mobile division on emerging trends, regulatory updates, and best practices governing data privacy and cybersecurity.
Min Wei has served as Chief Operating Officer since February 2022. Mr. Wei is an accomplished operations executive with extensive experience in overseeing and managing the strategic vision while driving operational, managerial and administrative excellence to foster growth. Mr. Wei has built and led teams in international tech companies over the past 20+ years. Prior to joining GreenBox, from March 2020 to February 2022, Mr. Wei was Senior VP, Chief Customer Officer at Cubic Corporation where he spearheaded the cultural shift to win over customers and, from November 2015 to March 2020 he Senior Vice President of Operations at Cubic's transportation business where he successfully led global service strategy, transformation and technology driven innovation that significantly improved 24x7x365 service performance and user experience for major public transit payment management systems serving 50 million+ people globally. Previously Mr. Wei also held executive positions at Cubic, ERG, and a number of tech companies where he oversaw financial management, business operations and M&A integrations. Mr. Wei is active in promoting technology advancement and digital transformation and served on the advisory board at the Technology & Services Industry Association (TSIA). He holds an MBA with an emphasis in finance, banking and international business from the University of San Francisco.
Business Experience of Non-Employee Directors
Genevieve Baer has served as a Director since February 2021 and has been chief executive officer of JKH Consulting since 2009. JKH Consulting is a real estate finance consulting firm that has advised on transactions with a collective value of over $10 billion. Prior to her work with JKH Consulting, Ms. Baer worked at Magnet Industrial Bank for 6 years at the end of which tenure she was a Senior Vice President. Ms. Baer also worked at US Bancorp Piper Jaffray for 9 years as a Vice President working on equity and debt real estate financings. Ms. Baer earned a B.S. in chemistry from the University of Utah.
William J. Caragol has served as a Director since February 2021 and has, since April 2020, been Executive Vice President and Chief Financial Officer of Hawaiian Springs LLC, a natural artesian bottled water company. From 2018 to the present, Mr. Caragol has also been Managing Director of Quidem LLC, a corporate advisory firm. Since 2015, Mr. Caragol has been Chairman of the Board of Thermomedics, Inc., a medical diagnostic equipment company. From 2012 to 2018, Mr. Caragol was Chairman and CEO of PositiveID, a holding company that was publicly traded that had a portfolio of products in the fields of bio detection systems, molecular diagnostics, and diabetes management products. Mr. Caragol earned a B.S. in business administration and accounting from Washington & Lee University.
Dennis James has served as a Director since May 2021. Mr. James is an accomplished financial executive with over 45 years of banking, accounting, and M&A experience, with both public and private companies. After nine years in public accounting, Mr. James joined Bank OZK in 1981 as its Chief Financial Officer and a member of its board of directors. In November 1984, he left the Bank to serve as Vice Chairman and Chief Operating Officer of LSI Financial Group. In 2005, James rejoined Bank OZK and moved to the Dallas area to serve as its North Texas Division President, returning to Little Rock, Arkansas in 2012 to direct the Bank’s Mergers and Acquisition activities and their Regulatory and Government Relations. James retired from the Bank in February 2022 but remains active on boards of directors and providing executive consulting services to various companies. Throughout his public accounting and executive management career, Mr. James served on boards of a variety of private companies and nonprofits. Mr. James graduated from the University of Arkansas with honors, receiving a Bachelor of Science and Bachelor of Law degree with a major in accounting.
N. Adele Hogan has served as a Director since April 2022. Ms. Hogan has over 20 years of experience in legal work and has been a Partner and Co-Chair of the Corporate and Securities Practice Group at Lucosky Bookman LLP since March 2021. From 2012 to March 2021, she was a Partner at Hogan Law Associates PLLC. During 2016, Ms. Hogan was also a Director at Deutsche Bank. From 2009 to 2012 Ms. Hogan was Counsel at Cadwalader, Wickersham & Taft LLP, from 2007 to 2009 she was a Partner at White & Case LLP, and from 2005 to 2007 she was a Partner at Linklaters LLP. From 1995 to 2005, Ms. Hogan was a Senior Attorney at Cravath Swaine & Moore LLP. Ms. Hogan is a director of Jupiter Wellness Acquisition Corp. Ms. Hogan received a J.D. from Cornell University Law School in 1985 and a B.A. from Cornell University in 1982.
Ezra Laniado has served as a Director since February 2021 and has, since 2018, been Executive Director of the San Diego chapter of Friends of Israel Defence Forces and, since 2017, been Regional Director of the San Diego chapter of the Israeli-American Council, two American charitable organizations providing support and funds for Israel and the Israeli community in America. In such capacity, Mr. Laniado has raised over $5 million in donations and managed over 30 volunteers. From 2014 to 2017, Mr. Laniado was Co-Founder and Business Director of Shonglulu Group, a fashion brand. As Business Director, Mr. Laniado raised capital, coordinated the company’s marketing strategy, and implemented its business plan. Prior to 2014, Mr. Laniado was an attorney in Israel for 4 years. Mr. Laniado received a B.A. and an L.L.B. from the Interdisciplinary Center Herzliya.
Family Relationships
The Company employs two of our CEO’s brothers, Dan and Liron Nusonivich, who are paid approximately $96,000$195,000 and $92,000$105,000 per year, respectively. There are no family relationships between any of other directors or executive officers and any other employees or directors or executive officers. The Company made charitable donations to a 501(c)(3) no-profit organizations in which Nate Errez, the son of Ben Errez, is a member, and may be seen as the primary beneficiary of the donations.
Delinquent Section 16(a) ReportsCorporate Governance Overview
Section 16(a)Director Independence
The Board has reviewed the independence of our directors based on the listing standards of the Securities Exchange ActNasdaq Capital Market. Based on this review, the Board has determined that each of 1934, as amended, requiresMs. Baer and Messrs. Caragol, James, and Laniado are independent within the meaning of the Nasdaq rules. In making this determination, our DirectorsBoard considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our Board deemed relevant in determining their independence. As required under applicable Nasdaq rules, we anticipate that our independent directors will meet in regularly scheduled executive officerssessions at which only independent directors are present.
Board Committees
The Board has established the following three standing committees: audit committee; compensation committee; and persons who own more than 10% of a registered classnominating and governance committee, or nominating committee. Each of our equity securitiesindependent directors, Ms. Baer and Messrs. Caragol, James, and Laniado, serves on each committee. Mr. Caragol serves as chairman of each committee. Our Board has adopted written charters for each of these committees. Copies of the charters are available on our website. Our Board may establish other committees as it deems necessary or appropriate from time to file various reportstime.
Audit Committee
The audit committee is responsible for, among other matters:
● | appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; |
● | discussing with our independent registered public accounting firm the independence of its members from its management; |
● | reviewing with our independent registered public accounting firm the scope and results of their audit; |
● | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; |
● | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; |
● | reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements; |
● | coordinating the oversight by our Board of our code of business conduct and our disclosure controls and procedures |
● | establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; |
● | reviewing and approving related-person transactions; and |
● | appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; |
The Board has reviewed the independence of our directors based on the listing standards of Nasdaq. Based on this review, the Board has determined that that each of Ms. Baer and Messrs. Caragol, James and Laniado meet the definition of “independent director” for purposes of serving on an audit committee under Rule 10A-3 and NASDAQ rules. The Board has determined that Mr. Caragol qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.
Compensation Committee
The compensation committee is responsible for, among other matters:
● | reviewing key employee compensation goals, policies, plans and programs; |
● | reviewing and approving the compensation of our directors and executive officers; |
● | reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and |
● | appointing and overseeing any compensation consultants or advisors. |
Nominating Committee
The purpose of the nominating committee is to assist the Board in identifying qualified individuals to become Board members, in determining the composition of the board and in monitoring the process to assess board effectiveness.
Board Leadership Structure
Currently, Mr. Nisan is our principal executive officer and Mr. Errez is chairman of the Board.
Risk Oversight
Our Board oversees a company-wide approach to risk management. Our Board determines the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our Board has ultimate oversight responsibility for the risk management process, its committees oversee risk in certain specified areas.
Specifically, our compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our audit committee oversees management of enterprise risks and financial risks, as well as potential conflicts of interests. The Board is responsible for overseeing the management of risks associated with the Securities and Exchange Commission concerning their holdingsindependence of and transactions in, securities we issued. Each such person is required to provide us with copies of the reports filed. Our two executive officers and directors have not yet filed any Forms 3, 4 or 5.our Board.
Code of Business Conduct and Ethics
We have not previouslyOur Board adopted a Codecode of Ethics due to the small number of officersbusiness conduct and employees and the size of our operations. It is anticipated that during 2020 we will adopt a Code of Ethicsethics that applies to our directors, officers and employees. A copy of this code is available on our website. We intend to disclose on our website any amendments to the Company’s directorsCode of Business Conduct and executive officers serving inEthics and any capacity, includingwaivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, or controller, or persons performing similar functions.
Board Composition, Committees, and IndependenceDelinquent Section 16(A) Reports
We are not required to have any independent membersSection 16(a) of the BoardSecurities Exchange Act of Directors. As we do not have any board committees nor any “independent1934 requires our directors,” the board carries out all functions that might otherwise be delegated to board committees. of committees, and such has been made pursuant to the committee independence standards.
Involvement in Certain Legal Proceedings
Our two executive officers, and any beneficial owners of more than 10% of our common stock to file reports relating to their ownership and changes in ownership of our common stock with the SEC and Nasdaq by certain deadlines. With respect to our current directors have not been involved in any of the following eventsand executive officers who also held such positions during the past ten years:year ended December 31, 2021, based on a review of their Section 16 filings, we believe that the below late reports were made. There were no known failures to file a required form. The Company is putting in place processes to ensure our directors and executive officers file on a timely basis in 2022.
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Name and Affiliation | No. of Late Reports | No. of Transaction not Filed on a Timely Basis |
Ben Errez, Chairman of the Board | 4 | 10 |
Fredi Nisan, Director and Chief Executive Officer | 4 | 10 |
Benjamin Chung, Chief Financial Officer | 1 | 2 |
Genevieve Baer, Director | 3 | 9 |
William J. Caragol, Director | 3 | 9 |
Dennis James, Director | 3 | 6 |
Ezra Laniado, Director | 4 | 16 |
Lindsey Lee, VP of Legal | 4 | 19 |
Item 11 –- Executive Compensation
Summary Compensation Table
The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our Chief Executive Officer (Principal Executive Officer) and our two most highly compensated executive officers other than the Principal Executive Officer during fiscal years 2019 and 2018 (collectively, the “Named Executive Officers”)
Summary Compensation Table
Name and Principal Position |
| Fiscal Year |
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| Option Awards ($) |
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| Non-Equity Incentive Plan Compensation ($) |
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| Non-Qualified Deferred Compensation ($) |
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| All Other Compensation ($) |
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| Total ($) |
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Ben Errez Chairman / EVP |
| 2019 |
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| $ | 200,000 |
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| - |
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| - |
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| $ | 200,000 |
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| 2018 |
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| $ | 206,655 |
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| - |
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| - |
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| - |
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| $ | 206,655 |
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Fredi Nisan CEO / Director |
| 2019 |
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| $ | 200,000 |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| $ | 200,000 |
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| 2018 |
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| $ | 206,157 |
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| $ | 206,157 |
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*Both during fiscal years 2021 and 2020. Our Named Executive Officers in 2020 were Mr. Nisan, Mr. Errez, and Mr. Haller (Senior Vice President of Payment Systems in 2020). While Mr. Haller remained an employee of the Company through March 2022, he was not a Named Executive Officer in 2021. Our Named Executive Officers in 2021 were Mr. Nisan, were paid as consultants in 2018Benjamin Chung, and as employees in 2019.Vanessa Luna. In addition, we are disclosing Mr. Errez’s compensation for 2021 because he is a member of the Board of Directors.
Option/Stock Appreciation Grants in Fiscal Year Ended December 31, 2019
The Company has never had an equity compensation plan.
Name and Principal Position | Year | Salary | Bonus | Stock | Options | All Other ($)(2) | Total | ||||||||||||||||||||
Ben Errez | 2021 | 201,545 | 52,500 | 12,708 | 40,009 | 114,953 | 381,710 | ||||||||||||||||||||
Chairman/EVP | 2020 | 200,099 | - | - | 537,500 | 26,275 | 750,846 | ||||||||||||||||||||
Fredi Nisan | 2021 | 202,959 | 20,000 | 12,708 | 40,009 | 104,686 | 346,357 | ||||||||||||||||||||
CEO/Director | 2020 | 200,099 | 537,500 | 13,672 | 751,271 | ||||||||||||||||||||||
Kenneth Haller | 2021 | - | - | - | - | - | - | ||||||||||||||||||||
SVP of Payment Systems | 2020 | 202,492 | - | - | - | 202,492 | |||||||||||||||||||||
Benjamin Chung | 2021 | 213,333 | - | 495,000 | - | 961 | 709,294 | ||||||||||||||||||||
Chief Financial Officer (3) | 2020 | - | - | - | - | - | - | ||||||||||||||||||||
Vanessa Luna | 2021 | 224,109 | - | - | 40,002 | 10,899 | 274,998 | ||||||||||||||||||||
Chief Operating Officer (4) | 2020 | - | - | - | - | - | - | ||||||||||||||||||||
1. | Represents the fair value of the share and option awards for the year ended December 31, 2021, using the Black-Scholes valuation method and calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. These amounts do not necessarily correspond to the actual value that may be realized by the holder. |
2. | All other compensation includes Company paid healthcare insurance premiums, compensation for board member, and 401(k) match. For each of Messrs. Errez and Nisan, as members of the Board, their compensation includes $50,000 in cash and $40,005 in stock awards. |
3. | Mr. Chung joined the Company in May 2021 | |
4. | Ms. Luna joined the Company in 2021 and left in March 2022. |
Outstanding Equity Awards at Fiscal Year-End Table
The Company has no outstandingfollowing table sets forth information regarding equity awards held by Mr. Nisan and Ms. Luna (two of our Named Executive Officers for 2021) as of December 31, 2021. Mr. Chung did not hold any equity awards as of December 31, 2019.that date:
Option Awards(1) | Stock Awards | ||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options, Exercisable (#) | Number of Securities Underlying Unexercised Options, Not Exercisable (#) | Option Exercise Price ($) | Option Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | |||||||||||||||
Fredi Nisan | 83,333 | 6.06 | 06/01/2026 | 482 | 10.37 | ||||||||||||||||
| 3,005 | 13.31 | 06/02/2026 | 647 | 7.73 | |||||||||||||||||
| 496 | 10.09 | ||||||||||||||||||||
| 659 | 7.59 | ||||||||||||||||||||
Vanessa Luna | 3,306 | 12.10 | 06/02/2031 | 50,000 | 11.79 | ||||||||||||||||
| 41,667 | 8.91 | ||||||||||||||||||||
| 125,000 | 4.95 | ||||||||||||||||||||
Employment/Consulting Contracts, Termination of Employment, Change-in-Control Arrangements
The Company has not entered into employment agreements or other compensation agreements with its executive officers. All employee contracts are “at will.” There are no potential payments payable to the Named Executive Officers upon a termination of employment in connection with a change in control.
Director Compensation
Our two current directors are executive officers and majority shareholders through their shared majority ownership of PrivCo, which held approximately 85% of our issued and outstanding shares as ofThe following table sets forth compensation earned by each non-employee Director who served during the year ended December 31, 2019. During 2019, we did not separately compensate our2021.
Name | Fees Earned or | Stock Awards | Total ($) | |||||||||
Genevieve Baer | 22,500 | 12,477 | 34,947 | |||||||||
William J. Caragol | 45,000 | 24,962 | 69,962 | |||||||||
Dennis James | 15,000 | 5,010 | 20,010 | |||||||||
Ezra Laniado | 22,500 | 17,537 | 40,037 | |||||||||
Carl Williams (3) | 15,000 | 5,010 | 20,010 | |||||||||
(1) | Represents the cash portion of annual director fees. |
(2) | Represents the fair value of the share awards for the year ended December 31, 2021, using the Black-Scholes valuation method calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. These amounts do not necessarily correspond to the actual value that may be realized by the board member. |
(3) | Mr. Williams resigned in April 2022. |
Each non-employee director has entered into Board of Director Agreements (the “BOD Agreements”). Pursuant to the BOD Agreements, each non-employee director receives cash compensation in the amount of $2,500 per month, with Mr. Caragol receiving $5,000 per month. Pursuant to the BOD Agreements, each non-employee director will each receive equity compensation in the form of shares of Common Stock in an amount equal to $2,500 per month, with Mr. Caragol receiving shares of Common Stock in an amount equal to $5,000 per month. Additionally, from time to time, each of the independent directors for their service onmay receive awards pursuant to the Company’s Equity Incentive Plan.
Each non-employee director has agreed to execute an indemnification agreement in favor of the Board member substantially in the form of Directors.the agreement attached to each BOD Agreement as Exhibit A (the “Indemnification Agreement”). In addition, so long as the Company’s indemnification obligations exist under the Indemnification Agreement, the Company shall provide the Board member with directors’ and officers’ liability insurance coverage in the amounts specified in the Indemnification Agreement.
Item 12 –- Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
The following table sets forth certain information based on the 181,330,260 shares of our common stock outstanding as of May 5, 2020 date hereof with respect to the beneficially owned holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. Applicable percentage ownership is based on the 41,898,391 (this is the 43,297,977 shares reported on the shareholders list minus the 1,398,586 shares held by the Company itself which are nonvoting treasury shares) shares of Common Stock outstanding as of April 27, 2022. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at 88803131 Camino Del Rio San Diego Drive,North, Suite 102,1400, San Diego, California.
Name and Address of Owner | Shares of Common Stock Owned Beneficially | Percent of Class | ||||||
Investors | ||||||||
GreenBox POS LLC (1) (2) | 141,735,244 | 78.1 | % | |||||
Officers, Directors & Related Persons | ||||||||
Ben Errez (3) | 70,867,622 | 39.0 | % | |||||
Fredi Nisan (4) | 70,867,622 | 39.0 | % | |||||
Total | 141,735,244 | 78.1 | % | |||||
Name and Address of Owner | Shares of Common Stock Owned Beneficially | Percent of Class | ||||||
5% Holders | ||||||||
GreenBox POS LLC (1) | 20,455,875 | 48.82 | % | |||||
Ken Haller | 2,383,667 | 5.69 | % | |||||
Officers and Directors | ||||||||
Ben Errez (2) | 10,227,938 | (3) | 49.03 | % | ||||
Fredi Nisan (4) | 10,357,339 | (3) | 48.96 | % | ||||
Min Wei | 0 | * | ||||||
| Lindsey-Shannon Lee (5) | 23,798 | * | ||||||
| Jacqueline Dollar | 0 | * | ||||||
Benjamin Chung | 20,000 | * | ||||||
Genevieve Baer | 6,318 | * | ||||||
Adele Hogan | 0 | * | ||||||
William J. Caragol | 11,161 | * | ||||||
Dennis James | 17,703 | * | ||||||
Ezra Laniado | 10,887 | * | ||||||
Total of Officers and Directors (11 Persons) | 23,158,679 | 55.04 | % | |||||
* Less than 1%
(1) GreenBox POS LLC (“PrivCo”) holds 141,735,24420,455,875 shares of the Company’s issued and outstanding stock. PrivCo is managed by its two managing members, Ben Errez and Fredi Nisan, both of whom serve as our sole officers and directors. Messrs. Errez and Nisan have equal ownershipeach own 50% of PrivCo.
(2) A corporate investor, RB Capital Partners (“RB Cap”), has a disputed claim to approximately six million shares, Mr. Errez owns 50% of PrivCo and possibly more, currentlytherefore owns 10,227,938 shares held by PrivCo. The numbers in the table above assume RB Cap will not receive anyAs one of PrivCo’s shares. It is possible that the dispute will be settled, in part, by PubCo issuing six million new shares to RB Cap, however, as of February 3, 2020 a settlement between the parties has not been finalized. In a matter related to the RB Capital claim, the GreenBox Parties are negotiating a return of a previous transfer of 440,476 shares by PrivCo to a third party. Likewise, these shares are excluded from the table (see Section C. Legal Matters under Note 11 – Subsequent Events).
(3) Ben Errez is Chairman of the Board of Directors and Executive Vice President of the Company. Through his shared majority ownershiptwo managing members of PrivCo, Mr. Errez has influence over PrivCo’s entire holding of 20,455,875 shares.
(3) Includes 86,338 fully vested options.
(4) Mr. Nisan owns 70,867,62250% of PrivCo and therefore owns 10,227,937 shares held by PrivCo. As one of two managing members of PrivCo, Mr. Nisan has influence over PrivCo’s entire holding of 20,455,875 shares. Additionally, relatives of Mr. Nisan, who may be influenced by Mr. Nisan, hold 106 shares of the Company’s issued and outstanding stock. As one of two managing membersOf the 20,455,875 shares held in the name of PrivCo, Errez has influence over PrivCo’s entire holding of 141,735,244 shares of the Company’s issued and outstanding stock.
(4) Fredi Nisan is a Director serving on our Board of Directors and is the Company’s Chief Executive Officer. Through his shared majority ownership of PrivCo, Nisan owns 70,867,622 shares of the Company’s issued and outstanding stock. As one of two managing members of PrivCo,Mr. Nisan has influence over PrivCo’s entire holdingpledged 136,987 shares as security for a loan (based on a price per share of 141,735,244 shares$3.65).
(5) Includes 5,923 fully vested options.
There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
Item 13 –- Certain Relationships and Related Transactions and Director Independence
QuickCitizen Acquisition
On or about January 18, 2018, we purchased QuickCitizen, a client interfacing charge card platform, from Firmness, LLC (“Firmness”), an affiliated company, which was 50% owned by Fredi Nisan our CEO and co-owner of PrivCo, our controlling shareholder, for $75,000. Nisan believed there to be great long-term value in his involvement with GreenBox, therefore, Nisan and Firmness’s other owner, Marlena Chang Sharvit, agreed that Nisan would forgo any compensation contemplated or realized by the transaction, and that Sharvit would receive the entire consideration paid to Firmness.
America 2030 Capital Limited and Bentley Rothschild Capital LimitedMr. Nisan
On or about July 30, 2018, Nisan and Errez, the sole officers and directors of PubCo, and the majority owners of PrivCo, each entered into a separate Master Loan Agreement (each an "MLA"): Errez with America 2030 Capital Limited (“America 2030”) and Nisan with Bentley Rothschild Capital Limited ("Bentley"), a company affiliated with America 2030, both located in Nevis, West Indies. Each MLA was for a $5,700,000 loan, at 5.85% interest, maturing in ten years.
Per the MLA’s terms, Nisan and Errez caused PrivCo to transfer 1,600,000 PubCo shares, valued at $2,144,000 at close of trading on the day of issuance, as "Transferred Collateral" from the Control Block (not a new issuance by PubCo) to Bentley (although both contracts acknowledge receipt of 1.6 million shares, there was only was transference of 1.6 million shares). The transfer occurred on or about August 1, 2018. To date, there has been no funding under either of the MLAs.
Subsequently, both Nisan and Errez received constitutive notice, regarding arbitration of an alleged breach of their respective MLAs (see Item 3 – Legal Proceedings above).
Charitable Contributions
During 2018, PrivCo made $13,355 in charitable donations to organizations in which Nate Errez (“Nate”) is a member, including sponsorship of the San Diego Kayak Team (a 501(c)(3) no-profit organization). Nate, the son of Ben Errez, is a competitive athlete and races Surf Skis for the US National Team.
Brothers
WeCompany hired Dan Nusinovich on or about February 19, 2018 as our Development and Testing Manager.Manager and he was promoted to Vice President of Development on or about January 12, 2022. Dan is the brother of Fredi Nisan, our CEO and Director. Subsequently, we entered into a Referral Commission Agreement with Dan in November 2018, which expired November 2019, under which Dan is to receive 10% for new business resulting from his direct introductions. To date, no new business has been generated by Dan, thus Dan has not been paid under the Referral Agreement. On or about June 18, 2019, the Company issued 160,000 restricted shares to Dan, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $16,000 at closing, on the day of issuance. We pay Dan approximately $96,000 per year.
WeThe Company hired Liron Nusinovich on or about July 16, 2018 as oura Risk Analyst.Analyst and he was promoted to Junior Product Owner on or about February 16, 2022. Liron is the brother of Fredi Nisan, our CEO and Director.
Mr. Haller
On or about June 18, 2019,January 25, 2021, the Company issued 110,000a press release announcing it had entered into a non-binding Memorandum of Understanding to acquire ChargeSavvy LLC, a financial technology company specializing in payment processing and POS systems, for total consideration of up to $52 million in restricted shares to Liron, who was one of nine employees to receive a performance bonus inthe Company’s common stock on this day. with $31 million.
The shares were fully vested upon issuance and worth $11,000 at closing, on the day of issuance. We pay Liron approximately $92,000 per year.
Pop N Pay, LLC
In addition to his employment withfollowing are certain transactions between the Company Dan Nusinovichand the Haller Companies:
Sky Financial & Intelligence, LLC – Haller owns 100% of Pop N Pay,Sky Financial & Intelligence LLC (“PNP”Sky”), a Delaware registeredWyoming limited liability company, and serves as its sole Managing Member. Sky is a strategic merchant services company that he formed August 20, 2018.
During the late summer offocuses on high risk merchants and international credit card processing solutions. In 2018, when both market opportunity and demand necessitated opening additional bank accounts to support ourSky was using GreenBox’s QuickCard payment system as its main payment processing productsinfrastructure, through Sky’s relationship with MTrac. It was through this successful relationship, that we came to know Haller and services,the Haller Network. Realizing that the Haller Network and Haller’s unique skill set was highly complementary to our business objectives, we turnedcommenced discussions to PNP to open new accounts, as a trustee, on our behalf. For his assistance, Dan,retain Haller through his ownershipconsulting firm, Sky, for a senior role, directly responsible for growing GreenBox’s operations. Subsequently, in November 2018, Haller was appointed as our Senior Vice President of PNP, received approximately $3,000 (in additionPayment Systems, for a monthly consulting fee of $10,000, paid to Dan’s salary) in early 2019,Sky (“Haller Consulting Fee”). The Company did not pay any commissions to the related parties mentioned above for services rendered in the fourth quarter of 2018.years ended December 31, 2021 and 2020.
Inadvertent Share Transfers
On or aboutThe Company recognized net revenue of $13,130,482 from outside third-party merchants through independent sales organization (ISO), Sky, for the year ended December 27, 2018 and January 4, 2019, 1,085,000 shares, worth approximately $325,50031, 2012. The Company had accounts receivables of $6,540,027 from outside third-party merchants through Sky as of December 31, 2021 which have since been received. Net revenue through Sky for the closeyear ended December 31, 2020 was not material.
On March 31, 2022, the Company entered into and closed an asset purchase agreement with Sky Financial to purchase a portfolio of trading oncertain merchant accounts. The asset purchase required $16.0 million of initial cash payment at closing. The Company will also issue to Sky Financial 500,000 shares of common stock (issuance still pending as of April 27, 2022). As of March 31, 2022, Mr. Haller is no longer an employee of the daysCompany.
Charge Savvy, LLC – Sky owns 68.4% of issuance, were inadvertently transferred from PrivCo insteadCharge Savvy, LLC (“Charge Savvy”), an Illinois limited liability company. Haller serves as one of three Managing Members of Charge Savvy, along with Higher Ground Capital, LLC (owns 14%), and Jeff Nickel (owns 17.4%). As a result of the Purchase Agreement, the Company purchased all of Charge Savvy’s issued and outstanding membership interests and Charge Savvy became a wholly owned subsidiary of the Company. The purchase price under the Purchase Agreement for the all-stock transaction consisted of 1,000,000 shares of Common Stock being issued byand delivered to the Sellers in proportion to the Sellers’ share of their membership interests in Charge Savvy. The share price at issuance was $12.14.
The Company did not pay any commissions to the related parties mentioned above for the years ended December 31, 2021 and 2020.
Ms. Hogan
Ms. Hogan joined the Board on April 4, 2022. Ms. Hogan has been a Partner and Co-Chair of the Corporate and Securities Practice Group at Lucosky Bookman LLP since March 2021. Lucosky Brookman provides legal services to the Company. Subsequently, on or about August 14, 2019,Since January 1, 2021, the Company issued 1,085,000 shareshas paid $907,897 in legal fees to PrivCo, as repayment of the shares that had been previously inadvertently transferred.Lucosky Brookman.
Item 14 –- Principal Accounting Fees and Services
The aggregatefollowing fees billedwere paid to BF Borgers CPA, PC for the two most recently completed fiscal periodsservices rendered in years ended December 31, 20192020 and December 31, 20182021. On April 19, 2022 BF Borgers CPA, PC was dismissed as the Company’s independent registered public accounting firm and Simon & Edward, LLP was appointed as the Company’s new independent registered public accounting firm.
Year Ended December 31, | ||||||||
2020 | 2021 | |||||||
Audit Fees(1) | $ | 125,000 | $ | 372,600 | ||||
Audit Related Fees | - | - | ||||||
Tax Fees | - | - | ||||||
All Other Fees(2) | 73,200 | - | ||||||
(1) | Audit fees consist of fees billed for professional services |
(2) | All other fees consist of fees billed for professional services by Borgers CPA, PC for services related to the Transact Euro and Charge Savvy transactions. |
Pre-Approval Policies and Procedures
In accordance with Section 10A(i) of the Securities Exchange Act of 1934, as amended, before we engage our independent registered public accounting firm auditors forto render audit or non-audit services, the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by independent accountants in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
Audit Fees (audit for original filings) | $ | 58,000 | $ | 12,000 | ||||
Audit Fees (audit for amended filings) | $ | - | $ | 34,560 | ||||
Tax Fees | $ | - | $ | 20,750 | ||||
Total | $ | 58,000 | $ | 67,310 | ||||
In the above table, Audit Fees are fees billedengagement is approved by our company’s external auditor for services providedAudit Committee. Our Audit Committee approved all of the fees referred to in auditing our company’s annual financial statements for the subject year. “Tax fees” are fees billed for professional services rendered for tax compliance, tax advicerows titled “Audit Fees,” and tax planning. The audit fees include review of our interim financial statements and year-end audit. The aggregate fees billed collectively by BF Borgers CPA PC (“Borgers”), for professional services rendered for“All Other Fees” in the audit of our amended annual financial statements for the years ended December 31, 2018, including review of our interim amended financial statements.table above.
PART IV
Item 15 –- Exhibits and Financial Statement Schedules
b) | Exhibits: |
The following documents areis a list of all exhibits filed or furnished as part of this Annual Report on Form 10-K: report.
Exhibit |
Reference | Filed or Furnished | ||||||||
Number | Exhibit Description | Form | Exhibit | Filing Date | Herewith | |||||
31.3 | Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a), As adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
31.4 | Certification of Principal Financial | X | ||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | X | ||||||||
Our financial statements and the Report of Independent Registered Public Accounting Firm are included herein on page F-1.
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The financial statement schedules are omitted as they are either not applicable or the information required is presented in the financial statements and notes thereto on page F-6.
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10.3 |
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10.4 |
| Asset Purchase Agreement, dated January 4, 2020, by and between GreenBox POS and GreenBox POS LLC |
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| 01/07/2020 |
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10.5 |
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21.1 |
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32.1* |
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101.PRE |
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* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
GreenBox POS | |||
Date: May | By: | /s/ | |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
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GREENBOX POS
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of GreenBox POS
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GreenBox POS as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company's auditor since 2019
Lakewood, CO
May 15, 2020
CONSOLIDATED BALANCE SHEETS
(Restated) | ||||||||
December 31, | 2019 | 2018 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | - | $ | 45,854 | ||||
Restricted cash | 763,110 | 239,124 | ||||||
Accounts receivable, net of allowance for bad debt of $5,665,031 and $0, respectively | 70,257 | 49,998 | ||||||
Accounts receivables from fines and fees from merchant, net of allowance for bad debt of $6,665,031 and $0, respectively. | 2,776,687 | - | ||||||
Cash due from gateways, net | 8,426,844 | 630,699 | ||||||
Prepaid and other current assets | 42,062 | 37,232 | ||||||
Total current assets | 12,078,960 | 1,002,907 | ||||||
Non-current Assets: | ||||||||
Property and equipment, net | 66,491 | 30,715 | ||||||
Operating lease right-of-use assets, net | 229,639 | - | ||||||
Total non-current assets | 296,130 | 30,715 | ||||||
Total assets | $ | 12,375,090 | $ | 1,033,622 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 504,505 | $ | 127,029 | ||||
Other current liabilities | 15,100 | 9,401 | ||||||
Accrued interest | 368,071 | 29,871 | ||||||
Payment processing liabilities, net | 14,021,892 | 865,086 | ||||||
Short-term notes payable, net of debt discount of $32,418 and $0, respectively | 741,253 | - | ||||||
Convertible debt | 807,500 | 846,500 | ||||||
Derivative liability | 1,050,063 | - | ||||||
Current portion of operating lease liabilities | 113,935 | - | ||||||
Total current liabilities | 17,622,319 | 1,877,887 | ||||||
Operating lease liabilities, less current portion | 120,110 | - | ||||||
Long-term debt | - | 75,000 | ||||||
Total liabilities | 17,742,429 | 1,952,887 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Deficit: | ||||||||
Common stock, par value $0.001, 495,000,000 shares authorized, shares issued and | 169,863 | 166,390 | ||||||
Common stock - issuable | 695 | 1,000 | ||||||
Additional paid-in capital | 1,179,272 | 945,940 | ||||||
Accumulated deficit | (6,717,169 | ) | (2,032,595 | ) | ||||
Total stockholders' deficit | (5,367,339 | ) | (919,265 | ) | ||||
Total liabilities and stockholder's deficit | $ | 12,375,090 | $ | 1,033,622 | ||||
The accompanying notes are an integral part of these audited financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, | 2019 | 2018 | ||||||
Net revenue | $ | 10,002,857 | $ | 910,808 | ||||
Cost of revenue | 11,091,140 | 670,539 | ||||||
Gross profit | (1,088,283 | ) | 240,269 | |||||
Operating expenses: | ||||||||
Advertising and marketing | 45,928 | 166,149 | ||||||
Research and development | 1,255,296 | 376,871 | ||||||
Cash due from gateway reserve expense | - | - | ||||||
Payroll and payroll taxes | 1,429,136 | 331,894 | ||||||
Professional fees | 1,026,556 | 767,869 | ||||||
General and administrative | 750,078 | 302,333 | ||||||
Depreciation and amortization | 16,216 | 6,608 | ||||||
Total operating expenses | 4,523,210 | 1,951,724 | ||||||
Loss from operations | (5,611,493 | ) | (1,711,455 | ) | ||||
Other income (expense): | ||||||||
Interest expense - debt discount | (195,201 | ) | - | |||||
Interest (expense) income | (604,504 | ) | (106,821 | ) | ||||
Derivative expense | (634,766 | ) | - | |||||
Changes in fair value of derivative liability | (415,297 | ) | - | |||||
Merchant fines and penalty income | 2,776,687 | - | ||||||
Asset impairment | - | (75,000 | ) | |||||
Total other expense, net | 926,919 | (181,821 | ) | |||||
Loss before provision for income taxes | (4,684,574 | ) | (1,893,276 | ) | ||||
Income tax provision | - | - | ||||||
Net loss | $ | (4,684,574 | ) | $ | (1,893,276 | ) | ||
Earnings (loss) per share: | ||||||||
Basic and diluted | $ | (0.03 | ) | $ | (0.02 | ) | ||
Weighted average number of common shares outstanding: | ||||||||
Basic and diluted | 167,818,209 | 88,662,960 | ||||||
The accompanying notes are an integral part of these audited financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | |||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance at December 31, 2017 | 14,445,363 | $ | 14,445 | - | $ | - | $ | 185,655 | $ | (139,319 | ) | $ | 60,781 | |||||||||||||||
Common stock issued | 144,445,000 | 144,445 | - | - | 611,285 | - | 755,730 | |||||||||||||||||||||
Shares issued | 7,500,000 | 7,500 | - | - | - | - | 7,500 | |||||||||||||||||||||
Shares to be issued | - | - | 1,000,000 | 1,000 | 149,000 | - | 150,000 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (1,893,276 | ) | (1,893,276 | ) | |||||||||||||||||||
Balance at December 31, 2018 | 166,390,363 | $ | 166,390 | 1,000,000 | $ | 1,000 | $ | 945,940 | $ | (2,032,595 | ) | $ | (919,265 | ) | ||||||||||||||
Common stock issuable under convertible debt | - | - | 25,000 | 4,500 | - | - | 4,500 | |||||||||||||||||||||
Warrants issuable under convertible debt | - | - | 125,000 | - | 55,311 | - | 55,311 | |||||||||||||||||||||
Common stock and warrants issuable forfeited | - | - | (150,000 | ) | (4,500 | ) | (55,311 | ) | - | (59,811 | ) | |||||||||||||||||
Share issued to employees and vendor | 860,000 | 860 | - | - | 85,640 | - | 86,500 | |||||||||||||||||||||
Shares issuable from conversion of convertible debt | - | - | 2,307,692 | 2,308 | 147,692 | - | 150,000 | |||||||||||||||||||||
Shares issued from conversion of convertible debt | 2,307,692 | 2,308 | (2,307,692 | ) | (2,308 | ) | - | - | - | |||||||||||||||||||
Shares issued from issuable shares | 304,878 | 305 | (304,878 | ) | (305 | ) | - | - | - | |||||||||||||||||||
Net loss | - | - | - | - | - | (4,684,574 | ) | (4,684,574 | ) | |||||||||||||||||||
Balance at December 31, 2019 | 169,862,933 | $ | 169,863 | 695,122 | $ | 695 | $ | 1,179,272 | $ | (6,717,169 | ) | $ | (5,367,339 | ) | ||||||||||||||
The accompanying notes are an integral part of these audited financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, | 2019 | 2018 | ||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,684,574 | ) | $ | (1,893,276 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation expense | 14,019 | 6,608 | ||||||
Interest expense - debt discount | 195,201 | - | ||||||
Stock compensation expense | 86,500 | - | ||||||
Derivative expense | 634,766 | - | ||||||
Changes in fair value of derivative liability | 415,297 | - | ||||||
Noncash lease expense | (4,406 | ) | - | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (20,259 | ) | (49,998 | ) | ||||
| Accounts receivables from fines and fees from merchant, net | (2,776,687 | ) | - | |||||
Prepaid and other current assets | (4,830 | ) | (33,893 | ) | ||||
Cash due from gateways, net | (7,796,145 | ) | (630,699 | ) | ||||
Accounts payable | 377,476 | 95,049 | ||||||
Other current liabilities | 5,699 | 9,401 | ||||||
Accrued interest | 235,581 | 29,871 | ||||||
Payment processing liabilities, net | 13,156,806 | 865,086 | ||||||
Deferred income | - | - | ||||||
Net cash provided by (used in) operating activities | (165,556 | ) | (1,601,851 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (49,795 | ) | (31,254 | ) | ||||
Net cash used in investing activities | (49,795 | ) | (31,254 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings from convertible debt | 482,500 | 921,500 | ||||||
Repayments on convertible debt | (496,500 | ) | - | |||||
Repayment on long-term debt | (75,000 | ) | - | |||||
Borrowings from short-term notes payable | 1,132,975 | |||||||
Repayments on short-term notes payable | (359,304 | ) | ||||||
Proceeds from issuances of common stock | - | 913,230 | ||||||
Net cash provided by financing activities | 684,671 | 1,834,730 | ||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 469,320 | 201,625 | ||||||
Cash, cash equivalents, and restricted cash – beginning of year | 284,978 | 83,353 | ||||||
Cash, cash equivalents, and restricted cash – end of year | $ | 763,110 | $ | 284,978 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 266,304 | $ | 152,868 | ||||
Income taxes | $ | 800 | $ | 800 | ||||
Non-cash financing activities: | ||||||||
Convertible debt conversion to common stock | $ | (150,000 | ) | $ | - | |||
The accompanying notes are an integral part of these audited financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Organization
GreenBox POS (the “Company” or “PubCo”) is a tech company formed with the intent of developing, marketing and selling innovative blockchain-based payment solutions, which the Company believes will cause favorable disruption in the payment solutions marketplace. The Company’s core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
The Company was formerly known as ASAP Expo, Inc (“ASAP”), which was incorporated April 10, 2007 under the laws of the State of Nevada. On January 4, 2020, PubCo and GreenBox POS LLC, a Washington limited liability company (“PrivCo”), entered into an Asset Purchase Agreement (the “Agreement”), to memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and among PubCo (the buyer) and PrivCo, which was formed on August 10, 2017 (the seller). On April 12, 2018, pursuant to the Verbal Agreement, PubCo 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, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (the “GreenBox Acquisition”).
For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
Significant Transactions
On March 23, 2018, the then controlling shareholder and then sole officer and sole director of PubCo, Frank Yuan, along with his wife, Vicky PMW Yuan, entered into a Purchase Agreement with PrivCo (the “SPA”).
Pursuant to the SPA, Frank Yuan agreed to convert a portion of a line of credit that he had previously issued to PubCo, in exchange for 144,445,000 shares of PubCo’s common stock, par value $0.001 per share (the “Control Block”). The Yuans agreed to sell the Control Block to PrivCo for a consideration of $500,000: $250,000 in cash and $250,000 in PubCo shares to be issued within 30 days of the completion of the SPA (the “Shares Due”), which were subsequently paid by PrivCo.
On April 12, 2018, all business being conducted at that time by PubCo (the “ASAP Business”) was transferred from PubCo to ASAP Property Holdings Inc., a company owned and operated by Frank Yuan (“Holdings”). In consideration for the ASAP Business, Holdings assumed all liabilities related to the ASAP Business.
On April 12, 2018, following the SPA being entered into and the ASAP Business being transferred to Holdings, Errez and Nisan were the sole acting officers and sole acting directors of PubCo.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and 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 PubCo assumed nearly all PrivCo’s liabilities (the “Assumed Liabilities”) that had been incurred in the normal course of GreenBox Business (collectively, the “GreenBox Acquisition”).
The value of the GreenBox Business assets on April 12, 2018 was $843,694, which excluded the Control Shares, which remained with PrivCo. The value of the Assumed Liabilities on April 12 was $589,078, which excluded $185,000 of a $300,000 convertible promissory note issued by PrivCo to RB Capital Partners. The difference between assets and liabilities was $254,616, which PubCo booked as a “Gain on Bargain Purchase.” However, because we are using Reverse Acquisition accounting, we recorded the gain as Paid in Capital.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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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. Unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS. 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.
Basis of Presentation and Consolidation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial statements include the combined accounts of PubCo and PrivCo. All amounts are presented in U.S. Dollars unless otherwise stated. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”).
Going Concern
As of December 31, 2019, the Company had cash, cash equivalents, and restricted cash of $254,617, has incurred a net loss of $1,425,058 for the nine months ended September 30, 2019, and has accumulated a deficit of $3,457,653 as of September 30, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Additionally, as the GreenBox ecosystem grows, substantially larger volumes of working capital financing will be required to support our platform’s growth. The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Accordingly, the accompanying financial statements have been prepared in conformity with GAAP, which contemplate our continuation as a going concern, and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Restatement
On April 12, 2018, pursuant to a verbal agreement (the “Verbal Agreement”), PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and 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, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”).
From April 12, 2018 through January 4, 2020 (the “In Between Period”), because there was ambiguity regarding the validity of the Verbal Agreement, PubCo filed required quarterly and annual reports with the Securities and Exchange Commission as if there had not been a Reverse Acquisition. During the In Between Period, PrivCo continued to operate as if it still owned the GreenBox Business, which included maintaining records of GreenBox Business financial transactions on PrivCo’s accounting software, and entering into contracts and agreements as PrivCo, while PubCo paid all expenses, including expenses related to PrivCo contracts entered into prior to April 12, 2018 and after April 12, 2018, as well as expenses incurred as a result of litigation resulting from disagreements between PrivCo and other parties. During the In Between Period, PubCo represented itself in press releases, as being the owner/operator of the GreenBox Business. Additionally, from April 12, 2018 through approximately December 31, 2018, PubCo and PrivCo shared control of PrivCo’s bank accounts, and on approximately January 1, 2019, PubCo assumed control of PrivCo’s bank accounts.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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By virtue of the payment of PrivCo’s litigation expenses by PubCo, by virtue of PubCo representing itself in press releases, as being the owner/operator of the GreenBox Business, and by virtue of the shared control of PrivCo’s bank accounts starting on April 12, 2018, both PubCo and PrivCo concluded that the Verbal Agreement was valid and the GreenBox Business asset acquisition took place on April 12, 2018.
On January 4, 2020, PubCo and PrivCo entered into an Asset Purchase Agreement (the “Agreement”), to memorialize the Verbal Agreement. For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
Because PubCo previously filed quarterly and annual reports for 2018 with the Securities and Exchange Commission as if there had not been a Reverse Acquisition, PubCo was required to file amended Form 10-Qs for the periods ending June 30, 2018 and September 30, 2018, and an amended Form 10-K for the year ending December 31, 2018 (collectively the “Amended Reports”). These Amended Reports differ substantially from previously filed reports in that PubCo’s financials are presented on a combined basis with PrivCo. Additionally, the previous business operations of PubCo prior to April 12, 2018 are disregarded.
The Company therefore filed, on February 7, 2020, an amended 10-K (“Amended 10-K”) to the Company’s audited financial statements for the year ended December 31, 2018, contained in the Company’s Annual Report on Form 10-K, originally filed with the SEC on April 16, 2019 (the “2018 Report”) to restate the Company’s financial statements and revise related disclosures. As a substantial part of the Amended 10-K was amended and/or restated, the Company presented the entire text of the 2018 Report, as amended and/or restated by the Amended 10-K. Readers should therefore read and rely only on the Amended 10-K in lieu of the original 2018 Report.
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Use of Estimates
The preparation of financial statements in conformity with the GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could 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 results of operations or cash flows.
Cash, Cash Equivalents and Restricted Cash
The Company’s cash, cash equivalent and Restricted cash represents the following:
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GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
December 31, 2019 | December 31, 2018 | |||||||
Cash and cash equivalents | $ | - | $ | 45,854 | ||||
Restricted cash | 763,110 | 239,124 | ||||||
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows | $ | 763,110 | $ | 284,978 | ||||
Cash Due from Gateways and Payment Processing Liabilities
The Company’s primary source of revenues continues to be payment processing services for its merchant clients. When such merchant makes a sale, the process of receiving the payment card information, engaging the banks for transferring the proceeds to the merchant’s account via digital gateways, and recording the transaction on a blockchain ledger are the activities for which the Company gets to collect fees.
In 2019 the Company utilized several gateways. The gateways have strict guidelines pertaining to scheduling of the release of funds to merchants based on several criteria, such as return and chargeback history, associated risk for the specific business vertical, average transaction amount and so on. In order to mitigate processing risks, these policies determine reserve requirements and payment in arear strategy. While reserve and payment in arear restrictions are in effect for a merchant payout, the Company records gateway debt against these amounts until released.
Therefore, the total gateway balances reflected in the Company’s books represent the amount owed to the Company for processing – these are funds from transactions processed and not yet distributed.
Advertising and Marketing Costs
Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $45,928 and $166,149 for the years ended December 31, 2019 and 2018, respectively.
Research and Development Costs
Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits for research and development personnel, outsourced contract services, and supplies and materials costs. Research and development expenses were $1,255,296 and $376,871 for the years ended December 31, 2019 and 2018, respectively.
Revenue Recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.
The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The Company generates revenue from payment processing services, licensing fees and equipment sales.
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Accounts Receivables from Fines and Fees from Merchants
The fines and penalties charged to the Company’s merchants is a normal course of business and historically, the Company has had more than 90% collections success rate. These fees and penalties represent certain chargebacks which are at fault by the Company’s merchants and are imposed as the merchant agreement between the Company and the merchant. The Company has legal rights under the merchant agreement to claim the chargeback. These chargebacks, fees, and fines are earned and delivered because the Company has been “chargebacked” by the Gateways and the Company has legal rights under the agreement to claim this against the merchants.
In end of Q3 2019, GreenBox received constructive notice of potential violations of its Terms of Service by a merchant, The Good People Farms (“TGPF”). An ongoing audit and investigation of this account resulted in the discovery of a number of violations GreenBox believes TGPF is responsible for, including but not limited to violations of VISA, Mastercard, and American Express’s rules.
This investigation is ongoing, but initial results indicate that excessively high chargeback percentages are connected with fraudulent activity and / or transaction laundering. These issues lead to the implementation of aggressive bank reserves, stunting GreenBox’s ability to conduct business and contributed to undetermined consequential damages. GreenBox promptly terminated the merchant account and placed all processed funds on reserve.
Although the investigation is ongoing, GreenBox estimates that the total amount of fees, fines, and chargebacks are currently $9,441,718. The Company has provided for an allowance for bad debt of $6,665,031 on the gross balance of $9,441,718 bringing to net balance of $2,776,687. To date, GreenBox has successfully recouped $840,739.33 (collected in 2019). The Company expects to recoup at minimum approximately $2.8M in fiscal year 2020. The Company may assess $100,000 per fraudulent transactions but the Company used $5,000 per transaction to calculate the fees and fines.
The Company recorded net balance of $2,776,687 as other income in the statements of operations for the year ended December 31, 2019.
Accounts Receivable and Allowance for Bad Debt
The Company maintains an allowance for doubtful accounts for estimated losses from the inability of customers to make required payments. The allowance for doubtful accounts is evaluated periodically based on the aging of accounts receivable, the financial condition of customers and their payment history, historical write-off experience and other assumptions, such as current assessment of economic conditions.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily 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 useful life of the related assets or the lease term. 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.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Fair Value of Financial Instruments
The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s financial instruments consisted of cash, accounts payable and accrued liabilities, advances to due to or from affiliated companies, notes payable to officers. The estimated fair value of cash, accounts payable and accrued liabilities, due to or from affiliated companies, and notes payable approximates its carrying amount due to the short maturity of these instruments.
The table below describes the Company’s valuation of financial instruments using guidance from ASC 820-10:
December 31, 2019 | Level 1 | Level 2 | Level 3 | |||||||||
Derivative liability | $ | - | $ | - | $ | 1,050,063 | ||||||
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 or all of the deferred tax assets will be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
Long-Lived Asset Impairments
The Company reviews long-lived assets, including property and equipment and intangible assets, for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, and at least annually. The Company considers assets to be impaired and writes them down to estimated fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows.
Earnings Per Share
A basic earnings per share is computed by dividing net income to common stockholders by the weighted average number of shares outstanding for the year. Dilutive earnings per share include the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive. The Company’s diluted earnings/loss per share is the same as the basic earnings/loss per share for the years ended December 31, 2019 and 2018, as there are no potential shares outstanding that would have a dilutive effect.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Leases
Prior to January 1, 2019, the Company accounted for leases under Accounting Standards Codification (ASC) 840, Accounting for Leases. Effective from January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases.
On February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. ASC 842 requires that lessees recognize right of use assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months.
ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows. ASC 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the Financial Accounting Standards Board (“FASB”) including ASC Topic 840, Leases.
For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the IBR as of that date.
The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of liabilities of $229,639 and $234,045, respectively as of December 31, 2019. The difference between the operating lease ROU assets and operating lease liabilities at transition represented tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.
Recently Adopted Accounting Updates
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with prior GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease. However, unlike prior GAAP—which required only finance (formerly capital) leases to be recognized on the balance sheet—the new ASU requires both types of leases to be recognized on the balance sheet. The ASU took effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This standard can be applied at the beginning of the earliest period presented using the modified retrospective approach, which includes certain practical expedients that an entity may elect to apply, including an election to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840.
The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of liabilities of $229,639 and $234,045, respectively as of December 31, 2019. The difference between the operating lease ROU assets and operating lease liabilities at transition represented tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. While the Company is currently in the process of evaluating the effects of this standard on the consolidated financial statements, the Company plans to adopt ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company plans to adopt the updated disclosure requirements of ASU No. 2018-15 prospectively in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.
Other recently issued accounting updates are not expected to have a material impact on the Company’s financial statements.
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On January 4, 2020, PubCo and PrivCo entered into the Agreement to memorialize the Verbal Agreement. On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and 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, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”).
For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
The value of the assets acquired and liabilities assumed was $843,694 and $589,078, respectively, on April 12, 208. Exclusions from the Agreement included shares in PubCo held by PrivCo, which remain a PrivCo asset, and $185,000 of a $300,000 convertible promissory note issued by PrivCo.
The following is the purchase price allocation on April 12, 2018:
April 12, 2018 | ||||
Cash and Cash Equivalents | $ | 752,393 | ||
Customer Accounts | 83 | |||
Inventory | 56,988 | |||
Security Deposits | 3,990 | |||
Fixed Assets, net | 17,697 | |||
Prepaid Expense | 12,543 | |||
Assets Acquired | 843,694 | |||
Total Consideration – Liabilities Assumed | 589,078 | |||
Gain on Bargain Purchase | $ | 254,616 | ||
This acquisition resulted in a “Gain on Bargain Purchase” for PubCo because the fair value of assets we acquired exceeded the total of the fair value of consideration we paid by $254,616. However, as we deemed the acquisition a Reverse Acquisition for accounting purposes, the $254,616 gain was rerecorded and presented as Paid in Capital within our Consolidated Balance Sheet on the date of acquisition. The operating results of the GreenBox Business for the period from April 12, 2018 going forward have been included in the Company’s Consolidated Statements of Operations. The Company did not incur a significant amount in transaction costs in connection with the acquisition, but any and all costs were expensed as incurred and are included within the Consolidated Statement of Operations.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The Company’s proprietary blockchain-based technology serves as the settlement engine for all transactions within the Company’s ecosystem. The blockchain ledger provides a robust and secure platform to log immense volumes of immutable transactional records in real time. Generally speaking, blockchain is a distributed ledger that uses digitally encrypted keys to verify, secure and record details of each transaction conducted within an ecosystem. Unlike general blockchain-based systems, GreenBox uses proprietary, private ledger technology to verify every transaction conducted within the GreenBox ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by us.
GreenBox facilitates all financial elements of our closed-loop ecosystem and we act as the administrator for all related accounts. Using our TrustGateway technology, we seek authorization and settlement for each transaction from Gateways to the issuing bank responsible for the credit/debit card used in the transaction. When the Gateway settles the transaction, our TrustGateway technology composes a chain of blockchain instructions to our ledger manager system.
When consumers use credit/debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer purchasing tokens from us. The issuance of tokens is accomplished when we load a virtual wallet with a token, which then transfers credits to the merchant’s wallet on a dollar for dollar basis, after which the merchant releases its goods or services to the consumer. These transfers take place instantaneously and seamlessly, allowing the transaction experience to seem like any other ordinary credit/debit card transaction to the consumer and merchant.
While our blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between us and the gateways we use, between us and our ISOs, and between us and/or our ISOs and merchants who use our services. In the case where we have received transaction funds, but not yet paid a merchant or an ISO, we hold funds in either a trust account or as cash deemed restricted within our operating accounts. We record the total of such funds as Cash held for Settlements – a Current Asset. Of these funds, we record the sum balance due to Merchants and ISOs as Settlement Liabilities to Merchants and Settlement Liabilities to ISOs, respectively.
The table below shows the status of transaction settlements:
December 31, 2019 | December 31, 2018 | |||||||
Settlement Processing Assets: | ||||||||
Cash held for settlements | $ | 763,110 | $ | 239,124 | ||||
Cash due from gateways | 3,073,183 | 291,112 | ||||||
Amount due from gateways and merchants – hold and fees | 4,824,223 | - | ||||||
Chargeback allowances (1) | - | (139,374 | ) | |||||
Reserves (2) | 5,353,661 | 474,224 | ||||||
Total before allowance for uncollectable | 14,014,177 | 865,086 | ||||||
Allowance for uncollectable – hold and fees | (5,587,333 | ) | - | |||||
Total – settlement processing assets | $ | 8,426,844 | $ | 865,086 | ||||
Settlement Processing Liabilities: | ||||||||
Settlement liabilities to merchants | 14,014,177 | 786,425 | ||||||
Settlement liabilities to ISOs | - | 107,342 | ||||||
Refund allowances (3) | - | (28,681 | ) | |||||
Totals | $ | 14,014,177 | $ | 865,086 | ||||
(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.
(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.
(3) The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using our proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with our allowance.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Cash due from gateways consisted of the following:
December 31, 2019 | December 31, 2018 | |||||||
Cash due from Gateways | $ | 3,073,183 | $ | 291,112 | ||||
Amount due from gateways and merchants – hold and fees | 4,824,223 | - | ||||||
Reserves (2) | 5,353,661 | 474,224 | ||||||
Total cash due from gateways | 13,251,067 | 765,336 | ||||||
Chargeback Allowances (1) | - | (134,637 | ) | |||||
Allowance of uncollectable – hold and fees | (4,824,223 | ) | - | |||||
Total cash due from gateways, net | $ | 8,426,844 | $ | 630,699 | ||||
(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.
(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.
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Property and equipment consisted of the following:
December 31, 2019 | December 31, 2018 | |||||||
Computers | $ | 38,938 | $ | 15,285 | ||||
Furniture | 37,339 | 4,919 | ||||||
Kiosks | 12,750 | 12,750 | ||||||
Vehicles | 4,578 | 4,578 | ||||||
Total property and equipment | 93,605 | 37,532 | ||||||
Less: Accumulated depreciation | (27,114 | ) | (6,817 | ) | ||||
Total property and equipment, net | $ | 66,491 | $ | 30,715 | ||||
Depreciation expense was $16,530 and $6,608 for the years ended December 31, 2019 and 2018, respectively.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Payment processing liabilities consisted of the following:
December 31, 2019 | December 31, 2018 | |||||||
Settlement liabilities to merchants | $ | 14,014,177 | $ | 786,425 | ||||
Settlement liabilities to ISOs | - | 107,342 | ||||||
Total processing liabilities | 14,014,177 | 893,767 | ||||||
Refund allowances | - | (28,681 | ) | |||||
Total payment processing liabilities | $ | 14,014,177 | $ | 865,086 | ||||
The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using our proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with our allowance.
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Convertible notes payable consisted of the following:
December 31, 2019 | December 31, 2018 | |||||||
March 11, 2019 ($500,000) – 8% one-time interest charge with outstanding principal and interest due October 6, 2019. | $ | 500,000 | $ | - | ||||
December 27, 2018 ($150,000) – 12% interest per annum paid quarterly with outstanding principal and remaining interest due December 12, 2019. | - | 150,000 | ||||||
December 13, 2018 ($83,000) – 10% interest per annum with outstanding principal and interest due December 13, 2019. | - | 83,000 | ||||||
November 26, 2018 ($200,000) – 12% interest per annum with outstanding principal and interest due November 26, 2019. | 200,000 | 200,000 | ||||||
September 27, 2018 ($53,000) – 10% interest per annum with outstanding principal and interest due September 27, 2019. | - | 53,000 | ||||||
August 6, 2018 ($253,000) – 10% interest per annum with outstanding principal and interest due August 6, 2019. | - | 253,000 | ||||||
March 15, 2018 ($300,00) – 12% interest per annum with outstanding principal and interest due March 15, 2019. | 107,500 | 107,500 | ||||||
Total convertible notes payable | $ | 807,500 | $ | 846,500 | ||||
Vista Capital Investments, LLC - $500,000 (original received $375k)
On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon repayment of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”). The Vista Note’s principal and interest were due to be paid October 6, 2019.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The Company and Vista amended the convertible debt agreement as follows:
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The Vista Note has matured as of September 30, 2019. The Company has defaulted on the Vista Note and subsequently the Vista Note has not been extended. The Company is currently negotiating with Vista on extension of the Vista Note.
Saskatchewan Ltd – $150,000
On December 27, 2018, PubCo issued a convertible promissory note for $150,000 to Saskatchewan Ltd (“Sask”) (the “Sask Note”). The note incurs interest at 12% per year, paid quarterly, in advance. The outstanding principal and any remaining interest are due December 12, 2019. The note includes a conversion feature where, beginning six months after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and any accrued interest balance into shares of PubCo’s common stock at a discounted rate of 50%. This note holder issued a notice of conversion to the Company on June 27, 2019 to convert the outstanding principal into 2,307,692 shares of the Company’s stock. The shares were subsequently issued to Sask on August 14, 2019.
Power Up Lending Ltd
On August 6, 2018, the Company entered into a Securities Purchase Agreement with Power Up Lending Up Ltd (“PULG”) under which PULG agreed to issue notes of up to $1,500,000 in aggregate over twelve months at the discretion of PULG (the “PULG SPA”). Under this agreement, the Company issued the following convertible notes:
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On August 6, 2018, the Company issued a convertible note for $253,000 to PULG, with a net $250,000 received by the Company. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due August 6, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the Company’s common stock at a discounted rate of 65%. The Company incurred $3,000 in financing fees associated with the loan. The Company paid this note on January 30, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $93,333, which was recorded as interest expense.
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On September 27, 2018, the Company issued a convertible note for $53,000 to PULG, with a net $50,000 received by the Company. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due September 27, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the Company’s common stock at a discounted rate of 65%. The Company incurred $3,000 in financing fees associated with the loan. The Company paid this note on March 13, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $19,378, which was recorded as interest expense.
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On December 13, 2018, PubCo issued a convertible note for $83,000 to PULG, with a net $80,000 received by PubCo. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due December 13, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the PubCo’s common stock at a discounted rate of 65%. PubCo incurred $3,000 in financing fees associated with the loan. The Company paid this note on March 13, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $17,005, which was recorded as interest expense.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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RB Cap – $200,000
On November 26, 2018, PubCo issued a convertible promissory note for $200,000 to RB Cap (the “RB Cap $200K Note”). The note incurs interest at 12% per year and the outstanding principal and accrued interest are due November 26, 2019. RB Cap may elect to convert the note at any time from six months from the date of issuance at a fixed price per share of $4.50. This note became part of a claim/counter claim suit with RB Capital (See Section C. Legal Matters below.)
RB Cap – $300,000
On or about March 15, 2018, PrivCo issued a twelve-month, $300,000 convertible promissory note to RB Capital Partners (“RB Cap”), with an interest rate of 12% per annum (“RB Cap 300K Note”). The note’s convertibility feature commenced six months after the note’s issuance, at a conversion rate of $0.001 per share of the Company’s common stock. Under the terms of the Agreement which memorialized the Verbal Agreement, we assumed the note, however, PrivCo agreed to pay $185,000 of the principal balance due on this note. On or about June 8, 2018, PrivCo transferred 440,476 restricted shares of Common Stock from the Control Block, with a market value of $185,000, to a purported designee of RB Cap, as a payment of principal of the note. Subsequently, RB Cap disputed the reduction in principal and subsequently, and we, along with PrivCo, disputed whether these shares should have been issued by PrivCo, and sought their return. On or about October 23, 2018, we issued 7,500,000 newly issued, restricted shares of our stock to RB Cap, in repayment of $7,500 of the RB Cap $300,000 Note. Subsequently, we disputed whether these shares should have been issued to RB Cap. As of December 31, 2018, our recorded principal balance for the note was $107,500 and accrued interest on the note was $15,880. On or about March 13, 2019, we issued a final cash payment towards the RB Cap 300K Note of approximately $126,092 (the “Payoff Funds”). However, RB Cap contested the amount of the Payoff Funds. (See Section C. Legal Matters below, under Note 12 – Subsequent Events)
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Short-term notes payable consisted of the following:
December 31, 2019 | December 31, 2018 | |||||||
December 10, 2019 ($260,000) – Total interest charge of $106,000 with daily installments (5 days per week) of $4,073 for four months totaling $366,000. | $ | 213,671 | $ | - | ||||
December 9, 2019 ($200,000) – Total interest charge of $40,000 with 15 weekly installments of $16,000 totaling $240,000. | 160,000 | - | ||||||
November 12, 2019 ($400,000) – Total interest charge of $196,000 with daily installments (5 days per week) of $5,960 for four months totaling $596,000. | 400,000 | - | ||||||
Total short-term notes payable | $ | 773,671 | - | |||||
Debt discount | (32,418 | ) | ||||||
Total short-term notes payable, net of debt discount | $ | 741,253 | ||||||
Fox Capital Group, Inc. - $260,000
On or about December 5, 2019, PubCo entered into a Secured Merchant Agreement with Fox Capital Group, Inc. (“Fox”). Under the terms of the Secured Merchant Agreement, the Company agreed to sell Fox $366,000 of future incoming cashflow from the GreenBox Business, to be delivered to Fox in daily installments of $4,073, for $260,000, from which $26,000 in fees was deducted, providing the Company with net cash of $234,000. For accounting purposes, the Company recorded this transaction as a loan of $260,000, with interest of $106,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Secured Merchant Agreement.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Complete Business Solutions Group, Inc. - $200,000
On or about December 9, 2019, PubCo entered into an Agreement for the Purchase and Sale of Future Receivables (the “Purchase and Sale Agreement”) with Complete Business Solutions Group Inc, (“CBSG”). Under the terms of the Purchase and Sale Agreement, we agreed to sell CBSG $240,000 of future incoming cashflow from the GreenBox Business, to be delivered to CBSG in weekly installments of $16,000, for $200,000, from which $35 in fees was deducted, providing us with net cash of $199,965. For accounting purposes, we recorded this transaction as a loan of $200,000, with interest of $40,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase and Sale Agreement.
West Coast Business Capital, LLC - $400,000
On or about November 12, 2019, the Company entered into a Purchase Agreement with West Coast Business Capital, LLC (“West Coast”). Under the terms of the Purchase Agreement, the Company agreed to sell West Coast $596,000 of future incoming cashflow from the GreenBox Business, to be delivered to West Coast in daily installments of $5,960, for $400,000, from which $16,000 in fees was deducted, providing the Company with net cash of $384,000. For accounting purposes, the Company recorded this transaction as a loan of $400,000, with interest of $196,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.
MTrac - $200,000
On or about September 10, 2019, the Company entered into a loan agreement of $200,000 including fixed interest of $72,975. The loan was fully paid off on September 23, 2019.
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Derivative liability consisted of the following:
December 31, 2019 | December 31, 2018 | |||||||
Beneficial conversion feature – convertible debt | $ | 1,050,063 | $ | - | ||||
Total derivative liability | $ | 1,050,063 | $ | - | ||||
On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon payback of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”).
Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and valued the derivative using the Black-Scholes method. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated life and interest rates) that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s operating results will reflect the volatility in these estimate and assumption changes.
The Company performs valuation of derivative instruments at the end of each reporting period. The fair value of derivative instruments is recorded and shown separately under current liabilities as these instruments can be converted anytime. Changes in fair value are recorded in the consolidated statement of income under other income (expenses).
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The Company did not have income tax provision (benefit) due to net loss and deferred tax assets having a full valuation allowances as of and for the year ended December 31, 2019 and 2018.
The provision for income taxes differs from the amounts computed by applying the federal statutory tax rate of 21% to earnings before income taxes, as follows:
Years Ended December 31, | ||||||||
2019 | 2018 | |||||||
Book income at statutory rate | 21.00 | % | 21.00 | % | ||||
Others | 0 | % | -0.80 | % | ||||
Change in Valuation Allowance | -21.00 | % | -20.14 | % | ||||
Effective income tax rate | 0 | % | 0.06 | % | ||||
Deferred tax assets and liabilities consist of the following tax-effected temporary differences:
December 31, 2019 | December 31, 2018 | |||||||
Deferred tax assets (liabilities): | ||||||||
Charitable contributions | $ | - | $ | (3,700 | ) | |||
Unearned revenue | - | (75,600 | ) | |||||
Depreciation | - | (26,300 | ) | |||||
Net operating loss carryforward | 498,888 | 612,800 | ||||||
Total deferred tax assets, net | 498,888 | 507,200 | ||||||
Valuation allowance | (498,888 | ) | (507,300 | ) | ||||
Net deferred tax assets (liabilities) | $ | - | $ | (100 | ) | |||
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2019, the Company had federal and California net operating loss carryforwards of approximately $2.4 million. The federal and California net operating loss carryforwards will expire at various dates from 2026 through 2028; however, $2.4 million of the Federal operating loss does not expire and will be carried forward indefinitely.
As of December 31, 2019 and 2018, the Company maintained full valuation allowance for net operating loss carryforward deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced.
The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statutes of limitations for its consolidated federal income tax returns are open for years 2016 and after, and state and local income tax returns are open for years 2015 and after.
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The Company issued the following common shares:
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The Company had the following related party transactions:
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Dan Nusinovich – The Company hired Dan Nusinovich on or about February 19, 2018 as the Company’s Development and Testing Manager. Dan is the brother of Fredi Nisan, our CEO and Director. Subsequently, the Company entered into a Referral Commission Agreement with Dan in November 2018, which expired November 2019, under which Dan is to receive 10% for new business resulting from his direct introductions. To date, no new business has been generated by Dan, thus Dan has not been paid under the Referral Agreement. On or about June 18, 2019, the Company issued 160,000 restricted shares to Dan, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $16,000 at closing, on the day of issuance. The Company currently pays Dan approximately $96,000 per year.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Liron Nusinovich – The Company hired Liron Nusinovich on or about July 16, 2018 as our Risk Analyst. Liron is the brother of Fredi Nisan, our CEO and Director. On or about June 18, 2019, the Company issued 110,000 restricted shares to Liron, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $11,000 at closing, on the day of issuance. The Company currently pays Liron approximately $92,000 per year.
Pop N Pay, LLC – In addition to his employment with the Company, Dan Nusinovich owns 100% of Pop N Pay, LLC (“PNP”), a Delaware registered limited liability company, that he formed on August 20, 2018. During the late summer of 2018, when both market opportunity and demand necessitated opening additional bank accounts to support our payment processing products and services, we turned to PNP to open new accounts, as a trustee, on our behalf. For his assistance, Dan, through his ownership of PNP, received approximately $3,000 (in addition to Dan’s salary) in early 2019, for services rendered in the fourth quarter of 2018.
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IPX Referral Payments, LLC – Pouya Moghavem, an employee since August 1, 2018, owns 25% of IPX Referral Payments, LLC (“IPX”). In addition to the $5,000 monthly salary we pay Moghavem, the Company entered into a Referral Agreement with IPX wherein the Company agreed to compensate IPX for referrals, which subsequently become the Company’s customer. For the three and nine months ended September 30, 2019 and 2018, IPX did not earn any commissions. Additionally, in or about October 2018, IPX provided GreenBox with a merchant trust account in Mexico through Affinitas Bank, one of the Gateways that process payment transactions on the Company’s behalf. The Company did not pay IPX for this service, however, IPX reported that Affinitas paid IPX approximately $1,830.
RB Capital – Because PrivCo agreed to sell RB Cap 4% of PrivCo in January 2018, which currently purportedly gives RB Cap a claim to approximately six million PubCo shares, RB Cap is deemed an affiliated Party. In March 2018, PrivCo issued a $300,000 convertible promissory note to RB Cap, the balance of which PubCo assumed when we acquired the GreenBox Business from PrivCo. On November 26, 2018, we issued a $200,000 convertible promissory to RB Cap. Subsequently, RB Cap and GreenBox disputed the implications of the share purchase and promissory notes. The implications of this ownership and RB Cap’s claim to PubCo shares are in dispute, which became the subject of a lawsuit with RB Cap (see Legal Matters under Subsequent Events). This was settled on February 27, 2020.
America 2030 Capital Limited and Bentley Rothschild Capital Limited – On or about July 30, 2018, Nisan and Errez, the sole officers and directors of PubCo, and the majority owners of PrivCo, each entered into a separate Master Loan Agreement (each an "MLA"): Errez with America 2030 Capital Limited (“America 2030”) and Nisan with Bentley Rothschild Capital Limited ("Bentley"), a company affiliated with America 2030, both located in Nevis, West Indies. Each MLA was for a $5,700,000 loan, at 5.85% interest, maturing in ten years. Per the MLA’s terms, Nisan and Errez caused PrivCo to transfer 1,600,000 PubCo shares, valued at $2,144,000 at close of trading on the day of issuance, as "Transferred Collateral" from the Control Block (not a new issuance by PubCo) to Bentley (although both contracts acknowledge receipt of 1.6 million shares, there was only was transference of 1.6 million shares). The transfer occurred on or about August 1, 2018. To date, there has been no funding under either of the MLAs. Subsequently, both Nisan and Errez received constitutive notice, regarding arbitration of an alleged breach of their respective MLAs. As of March 31, 2020, both parties have abandoned the matter and no further action was required by either party.
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Kenneth Haller (“Haller”) became the Company’s Senior Vice President of Payment Systems in November 2018. The Company began working indirectly with Haller earlier in 2018, both individually and through our relationship with MTrac Tech Corporation (“MTrac”), which in turn has business relationships with Haller. Haller brings considerable advantages to the Company’s platform development and business development efforts and capabilities, including transactional business relations and a large network of agents, which the Company believes, are capable of processing $1 billion transactions annually (the “Haller Network”). The Haller Network is an amalgamation of the collective networks of Haller and three companies owned or majority-owned by Haller, which are Sky Financial & Intelligence, LLC (“Sky”), Charge Savvy, LLC, Cultivate, LLC (collectively, the “Haller Companies”), each of which has formalized business relationships with the Company, as well as with some of the Company’s partners, which the Company believes allows the Company to maximize and diversity the Company’s market penetration capabilities. Haller, through Sky, owns controlling interests in Charge Savvy, LLC and Cultivate, LLC, with whom we do business indirectly, through their respective business relationship with MTrac. We also do business directly with Cultivate LLC, through a three-party agreement, which includes us, MTrac and Cultivate.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The following are certain transactions between the Company and the Haller Companies:
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GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The Company did not pay any commissions to Charge Savvy or Cultivate for the three and nine months ended September 30, 2019 and 2018.
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Exclusive Licensing Agreement: MTrac JV
On or about February 1st, 2018, we signed a joint venture agreement (“MTrac JV”), with MTrac Tech Corporation (“MTrac”), a wholly owned subsidiary of Global Payout, Inc. (OTC:GOHE), by which we gave exclusive rights to MTrac to use our technology for merchants, that we are not servicing. The initial term of this agreement was one year, with automatic renewals in one-year increments, until such time as the agreement is restructured or cancelled, for which MTrac would pay a total of $360,000 annually. Additionally, as part of the MTrac JV, MTrac was to acquire 4% in membership interests in the Company for $1,000,000, representing a post-money valuation for the Company of $25,000,000. We received $360,000 on or about March 15, 2018 from MTrac and were to receive $1,000,000 on or before May 15, 2018.
New Exclusive Licensing Agreement: MTrac 5 Year License
On or about June 12, 2018, we agreed with MTrac to cancel the MTrac JV and replace it with a new exclusive licensing agreement (the “MTrac 5 Year License”) which granted MTrac exclusive use of our technology for high risk industries for a period of 5 years, while cancelling MTrac’s planned equity investment. We applied $270,000 of the $360,000 MTrac had paid us on March 15, 2018 to this MTrac 5 Year License, with the remaining $90,000 paid by MTrac on or about November 6, 2018.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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New Exclusive Licensing Agreement: Unified Agreement
On or about October 2, 2018, we entered into a three-party agreement with MTrac and Cultivate Technologies, LLC (“Cultivate”) a Nevada Corporation, to redefine pricing and revenue sharing under a new agreement (the “Unified Agreement”). The Unified Agreement did not eliminate the licensing fees stated in the MTrac 5 Year License, but added and defined a profit sharing agreement on all accounts generated by the merchants and agents that MTrac procured for PubCo, as follows: 40% to MTrac, 40% to PubCo, and 20% to Cultivate, with profit defined as Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”), adjusted for non-cash long-term compensation, based upon publicly filed financial information. Under the terms of the Unified Agreement, MTrac was granted the exclusive right by Cultivate and us to market the GreenBox Business’ new blockchain ledger-based payment platform which combined our proprietary system with certain proprietary technologies owned by Cultivate, which in combination offer a payment platform that allows a much more user-friendly payment system (the “Current Platform”).
New Exclusive Licensing Agreement: Current Exclusive License
On or about December 17, 2018, all previous agreements with MTrac were revoked, at which point we entered into a new 5-year exclusive three-party Software License and Services Agreement with Exclusivity with MTrac and Cultivate (referred to as the “Current Exclusive License”). Under the terms of the Current Exclusive License, PubCo waived all future licensing fees for the remaining 4-year term (in recognition of MTrac’s introduction of Kenneth Haller to PubCo – see Section M. Kenneth Haller below) and gave MTrac the exclusive right to market the Current Platform to high risk cannabis merchants in North America and to license the Current Platform to non-high risk merchant on a nonexclusive basis. The parties’ revenue sharing agreement was newly defined as a split of revenue derived from the processing of the payments from merchants referred under the Current Exclusive License, distributed after deducting certain agreed upon costs, as follows: 50% to MTrac, 25% to PubCo and 25% to Cultivate.
In order for MTrac to maintain exclusivity rights under the Current Exclusive License, MTrac must meet certain merchant payment processing targets, subsequently modified under a verbal agreement, as follows: as of September 1, 2019, $10,000,000 in monthly processing volume (which MTrac achieved); as of January 1, 2020, $25,000,000; and as of June 1, 2020, $40,000,000 in monthly process volume.
Lawsuit
On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, MTrac, Global Payout, Inc. and Cultivate Technologies, LLC in the Superior Court of the State of California. The Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally (see Legal Matters under Subsequent Events below).
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Legal Proceedings
The Company has the following legal proceedings:
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GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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Legal Proceedings (continued)
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Operating Leases
The Company entered into the following operating facility lases:
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The Company entered into an operating lease for corporate location on October 4, 2018. Rent expense paid under the lease agreements for the year ended December 31, 2019 was $127,680 and for the year ended December 31, 2018 was $0.
For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the incremental borrowing rate. The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use asset and operating lease liabilities of $229,639 and $120,110 respectively, as of December 31, 2019. The difference between the operating lease ROU asset and operating lease liabilities at transition represented existing deferred rent expenses and tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.
In accordance with ASC 842, the components of lease expense were as follows:
December 31, | ||||||||
2019 | 2018 | |||||||
Operating lease expense – Hyundai Rio Vista | $ | 4,406 | $ | - | ||||
Total lease expense | $ | 4,406 | $ | - | ||||
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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In accordance with ASC 842, maturities and operating lease liabilities as of December 31, 2019 were as follows:
For the year ended | Hyundai Rio Vista, Inc. | |||
Undiscounted cash flows: | ||||
2019 | $ | - | ||
2020 | 110,948 | |||
2021 | 95,026 | |||
2022 | - | |||
2023 | - | |||
2024 | - | |||
Thereafter | - | |||
Total undiscounted cash flows | 205,974 | |||
Discounted cash flows: | ||||
Lease liabilities - current | 113,935 | |||
Lease liabilities - long-term | 120,110 | |||
Total discounted cash flows | 234,045 | |||
Difference between undiscounted and discounted cash flows | $ | (28,071 | ) | |
In accordance with ASC 842, future minimum lease payments as of December 31, 2019 were as follows:
For the year ended | Hyundai Rio Vista, Inc. | |||
2019 | $ | - | ||
2020 | 132,601 | |||
2021 | 124,944 | |||
2022 | - | |||
2023 | - | |||
Thereafter | - | |||
Total | $ | 257,545 | ||
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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The Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Accordingly, the Company did not have any subsequent events that require disclosure other than the following:
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GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
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