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, 2021
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.) | |
3131 Camino Del Rio North, Suite 1400 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 |
Common Stock, $0.001 par value | GBOX | The Nasdaq Stock Market LLC (Nasdaq Capital Market) |
Securities registered pursuant to Section 12(g) of the Act: None
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 21.2 million shares of voting common stock held by non-affiliates of the registrant as of June 30, 2021 was $226 million based on the closing price of $11.93 per share of the registrant’s common stock as quoted on the Nasdaq Capital Market on that date.
As of March 25, 2022, there were 43,289,572 shares of registrant's common stock outstanding.
Documents Incorporated by Reference: PortionsNone.
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 registrant’s proxy statementGreenBox 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 itsthe 2022 annual meeting of shareholdersstockholders 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 within 120 daysin 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 closedate of the registrant’s fiscal year (the “Proxy Statement”),Original Filing or modify or update those disclosures that may be affected by subsequent events. Such subsequent matters are incorporatedaddressed in subsequent reports filed by referenceus with the SEC.
Capitalized terms not defined in this Amendment have the meaning given to this report on Form 10-Kthem in the Original Filing.
TABLE OF CONTENTS
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PART III | ||||
Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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Item 14. |
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PART IV | ||||
Item 15. |
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Signatures | ||||
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CAUTIONARY 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.
You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Annual Report on Form 10-K identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
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The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the Securities and Exchange Commission (the “SEC”)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” beginning on page 9 of thisin 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 time of such statements and does not undertake or plan to update or revise such forward-looking statements as more information becomes available or to reflect changes in expectations, assumptions or results. 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 risk factors or risks and uncertainties referred to in thisthe Annual Report on Form 10-K amended hereby, could materially and adversely affect our results of operations, financial condition, and liquidity, and our future performance.
In this Annual Report on Form 10-K,Amendment, unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox 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.
On February 17, 2021, the Company effected a reverse stock split of the Company’s shares of common stock outstanding and a 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 per share information in this Annual Report on Form 10-KAmendment have been retroactively adjusted for all periods presented, unless otherwise indicated, to give effect to the Stock Split, including the financial statements and notes thereto.
PART I
Item 1 – Business
Organization
GreenBox POS is a financial technology company that develops, markets, and sells innovative blockchain-based payment solutions, which we believe offer significant improvements for the payment solutions marketplace. The Company’s core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
The Company was formerly known as ASAP Expo, Inc (“ASAP”), and was incorporated in the state of Nevada on April 10, 2007. 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 (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.
On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018.
On May 21, 2021, the Company acquired all of the outstanding stock of Northeast Merchant Systems, Inc. (“Northeast”) in a transaction treated as a business combination. Northeast is a merchant services company providing merchant credit card processing through their own Bank Identification Number (BIN) with the acquiring bank Merrick. This involves inside operations for new merchants that include sales assistance and applications processing, underwriting, and onboarding; inside operations for existing merchants include risk monitoring and customer service. Outside operations include: equipment service or replacement; sales calls and applications, site inspections and identity verification; security verification; and on-site customer service and technical support.
On July 13, 2021 (the “Closing Date”), GreenBox POS entered into and closed on a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Charge Savvy LLC, an Illinois limited liability company (“Charge Savvy”), and Charge Savvy’s three members (collectively, the “Sellers”). One of the Sellers, Ken Haller, was an employee of the Company on the Closing Date. As a result of the Purchase Agreement, the Company purchased all of Charge Savvy’s issued and outstanding membership interests from the Sellers and Charge Savvy became a wholly owned subsidiary of the Company. Although the Purchase Agreement is dated July 9th, it was entered into and closed on July 13th.The purchase price under the Purchase Agreement for the all- stock transaction consisted of 1,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) being issued and delivered to Sellers in proportion to the Sellers’ share of their membership interests in Charge Savvy. The share price at issuance was $12.14. Charge Savvy is a global Fintech company that specializes on developing software and providing payment processing and point of sale services to the merchant services industry. Charge Savvy also owns an approximately 64,000 square foot office building located in Chicago, Illinois where it is headquartered.
Our Business
Payment processing in the blockchain world only requires recording a ledger, there is no movement of money. Secure tokens are used where users need an immediate transaction, in a safe, private, and hack-free environment, and where traditional banks may not work effectively, like cross border transactions or in under-banked verticals.
We generate revenue from payment processing services, licensing fees and equipment sales.
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We have three main products that are utilized by our customers:
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Our proprietary blockchain-based technology serves as the settlement engine for all transactions within our 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, we use proprietary, private ledger technology to verify every transaction conducted within our ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by us.
We facilitate 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 tokens are purchased or granted directly from the merchant's terminals or mobile app, or from our website and are immediately available for transactions.
he 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 Independent Sales Organizations (“ISO”), 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 – this is 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.
Our primary revenue driver in fiscal year 2021 was the release and utilization of our Gen3 platform. We believe Gen3 is the most advanced technology released in the space to date. The latest installment of our technology, Gen3 features the following new properties: 1. Banking white label platform; 2. Payment Facilitation management platform; 3. Stablecoin platform support; 4. Payment platform; and 5. Ledger Secure Token Technology. We believe Gen3’s holistic end to end capabilities minimize user pain points in onboarding, transactions and offboarding.
In addition, Gen3 is the transactional foundation for the new Secure Token Technology described below.
Currency has two primary roles: it can be transactional, or it can be custodial (reserve). US dollars plays both roles. There are several disadvantages encapsulated within the existing cryptocurrency architectures available today. A decentralized approach makes the crypto assets available for viewing from anywhere and at any time, but they are extremely volatile, hackable, slow to settle, and have no intrinsic value. For the most part, they have a lot of transaction friction, in both time to settlement and transactional or conversion costs. As such, we believe these are not assets suitable as transactional currency, and are questionable as custodial currency. Centralized deployments can be stable (commonly called stablecoin), and are better as custodial media; however, none is attached to a transactional ecosystem, and exchange fees are still high. The USDC, a coin that is a USD digital equivalent, is an example of that.
We have introduced a new kind of media to the mix: Secure Token Technology, called Coyni, which has been available on a private basis since the end of 2021 and we expect will be fully available to the public before the end of 2022. This token is not minted nor mined, but rather it is the equivalent of a contract (an asset class called Smart Contract). As such, Secure Token Technology has many advantages over all other coins and token, and deliver on the features most sought after in the crypto and legacy payment space.
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We believe our Gen3 stabilized platform will be a top choice for banks, e-commerce, and consumers. As a stablecoin platform, it is also the only type of blockchain payment processing platform that the Office of the Comptroller of the Currency has authorized for use by banks in a similar fashion to ACH, Wire and Swift. Because Secure Token Technology is attached to the value of the US dollar, it is also very good as a custodial vehicle, fitting the needs of low-risk yield seekers, such as pension funds and retirement accounts. We believe our Gen3 stabilized platform, in its stabilized end-to-end deployment, is the obvious tool of choice, without any meaningful competition, for both transactional and custodial roles of currency, and will appeal to various stakeholders: consumers, merchants, banks, and the regulators.
The Company has a Payment Facilitator License. The license is necessary for us to facilitate card payments for our clients to process Visa , MasterCard, AmEx, and Discover Card purchases.
Competition
Although we believe there is currently no other company in the payment facilitator industry using, as we are, blockchain infrastructure, notable companies in the payment facilitator industry include PayPal, Stripe, and Square.
Customers
We currently process transactions for approximately 4,000 customers in over twenty-five (25) industries, including, but not limited to, foreign exchange (FX), retail, and e-commerce sectors. We do not rely on any one customer for more than 5% of our processing volume or revenue.
Employees and Human Capital
We currently have approximately 50 full-time employees. None of our employees are subject to collective bargaining agreements. We consider our relationship with our employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plan is to attract, retain and reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Recent Developments
Issuance of Note and Entry into Waiver
As previously disclosed, we sold and issued, in a registered direct offering, an 8% senior convertible note due November 3, 2023 in the aggregate original principal amount of $100 million (the "Note”). The Note had an original issue discount of sixteen percent (16%) resulting in gross proceeds to us of $84 million. The Note was sold pursuant to the terms of a Securities Purchase Agreement, dated November 2, 2021 (the “SPA”), between us and the investor in the Note (the "Investor”).
The Note was issued on November 8, 2021, pursuant to an indenture dated November 2, 2021 between us and Wilmington Savings Fund Society, FSB, as trustee (the “Base Indenture”), as supplemented by a first supplemental indenture thereto, dated November 2, 2021, relating to the Notes (the "First Supplemental Indenture” and, the Base Indenture as supplemented by the First Supplemental Indenture, the “First Indenture”). The terms of the Note include those provided in the First Indenture and those made part of the First Indenture by reference to the Trust Indenture Act.
Ranking
The Note is the senior unsecured obligations of the Company and not the financial obligations of our subsidiaries. Until such date as the principal amount of the Note is $5 million or less, all payments due under the Note will be senior to all other indebtedness of the Company and/or any of our subsidiaries.
Maturity Date
Unless earlier converted, or redeemed, the Note will mature on November 5, 2023, the second anniversary of their issuance date, which we refer to herein as the “Maturity Date”, subject to the right of the investors to extend the date:
(i) if an event of default under the Note has occurred and is continuing (or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an event of default under the Note) and
(ii) for a period of 20 business days after the consummation of a fundamental transaction if certain events occur.
We are required to pay, on the Maturity Date, all outstanding principal, accrued and unpaid interest and accrued and unpaid late charges on such principal and interest, if any.
Interest
The Note bears interest at the rate of 8% per annum (a) shall commence accruing on the date of issuance, (b) shall be computed on the basis of a 360-day year and twelve 30-day months and (c) shall be payable in cash quarterly in arrears on the first trading day of each calendar quarter or otherwise in accordance with the terms of the Note. If a holder elects to convert or redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being converted or redeemed will also be payable. If we elect to redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being redeemed will also be payable. The interest rate of the Note will automatically increase to 15% per annum upon the occurrence and continuance of an event of default (See “-- Events of Default” below).
Late Charges
We are required to pay a late charge of 15% on any amount of principal or other amounts that are not paid when due.
Conversion
Fixed Conversions at Option of Holder
The holder of the Note may convert all, or any part, of the outstanding principal and interest of the Note, at any time at such holder’s option, into shares of our common stock at an initial fixed conversion price, which is subject to:
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On January 28, 2022, we and the Investor, entered into an Agreement and Waiver (the “Waiver”) with regard to the Note that has the following major provisions:
(a) the Investor agreed to extend the “90 Day Eligibility Date” from February 3, 2022 to May 2, 2022 such that the Investor can no longer, if the closing price of the stock is less than $5.50, convert up to $30 million of the Note into shares of the Company’s common stock (with the conversion price being the lower of (i) the then in effect conversion price and (ii) the greater of (x) the Note’s $1.67 floor price or (y) 98% of the market price on the conversion date) (the “Alternate Optional Conversion Price”) prior to May 2, 2022;
(b) allows us to acquire, for cancellation, $6 million in in aggregate principal amount of the Note for a purchase price of $6.9 million such that the new principal amount of the Note is $94 million;
(c) lowers the initial fixed conversion price of the Note from $15 to $12; and
(d) if the trading volume of our common stock on any individual trading day is over $5 million (the “Alternate Conversion Company Waiver Measuring Date”), allows the Investor an opportunity to convert up to $5 million of the Note into shares of our common stock from the Alternate Conversion Company Waiver Measuring Date through and including 7:00 PM ET on the immediately following trading day. The conversion price would be the lower of (i) the then in effect conversion price and (ii) the greater of (x) the Note’s $1.67 floor price or (y) 98% of the market price on the conversion date.
The Company paid the investor $6.9 million on January 31, 2022.
1-Year Alternate Optional Conversion
At any time following the first anniversary of the issuance date of the Note, but only if the closing bid price of our common stock on the immediately prior trading day is less than $6.50, each holder of the Note shall have the option to convert, at such holder’s option, pro rata, up to $30 million of the principal amount of the Note (in $250,000 increments) at the Alternate Optional Conversion Price.
Alternate Event of Default Optional Conversion
If an event of default has occurred under the Note, each holder may alternatively elect to convert the Note (subject to an additional 15% redemption premium) at the “Alternate Event of Default Conversion Price” equal to the lesser of:
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the greater of:
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Beneficial Ownership Limitation
The Note may not be converted and shares of common stock may not be issued under the Note if, after giving effect to the conversion or issuance, the applicable holder of the Note (together with its affiliates, if any) would beneficially own in excess of 4.99% of our outstanding shares of common stock, which we refer to herein as the “Note Blocker”. The Note Blocker may be raised or lowered to any other percentage not in excess of 9.99% at the option of the applicable holder of Notes, except that any raise will only be effective upon 61-days’ prior notice to us.
Clarification to First Quarter Adjustment to Fixed Conversion Price
The Company wishes to clarify the possible first quarter adjustment to the Note’s initial fixed conversion price (which was originally $15 and is now, pursuant to the Waiver, $12).
If, during the fiscal quarter ending March 31, 2022, we (i) fail to process at least $750 million in transaction volume or (ii) have revenue that is less than $12 million, and, if the Note’s fixed conversion price then in effect is greater than the greater of (x) the Note’s $1.67 floor price floor and (y) 140% of the market price as of April 1, 2022 (the “Adjustment Measuring Price”) then, on April 1, 2022, the fixed conversion price will automatically adjust to the Adjustment Measuring Price.
Change of Control Redemption Right
In connection with a change of control of the Company, each holder may require us to redeem in cash all, or any portion, of the Notes at a 15% redemption premium to the greater of the face value, the equity value of our common stock underlying the Notes and the equity value of the change of control consideration payable to the holder of our common stock underlying the Notes.
The equity value of our common stock underlying the Notes is calculated using the greatest closing sale price of our common stock during the period immediately preceding the consummation or the public announcement of the change of control and ending the date the holder gives notice of such redemption.
The equity value of the change of control consideration payable to the holder of our common stock underlying the Notes is calculated using the aggregate cash consideration per share of our common stock to be paid to the holders of our common stock upon the change of control.
Events of Default
Under the terms of the first supplemental indenture, the events of default contained in the base indenture shall not apply to the Notes. Rather, the Notes contain standard and customary events of default including but not limited: (i) the suspension from trading or the failure to list our common stock within certain time periods; (ii) failure to make payments when due under the Notes; and (iii) bankruptcy or insolvency of the Company.
If an event of default occurs, each holder may require us to redeem all or any portion of the Notes (including all accrued and unpaid interest and late charges thereon), in cash, at a 15% redemption premium to the greater of the face value and the equity value of our common stock underlying the Notes
The equity value of our common stock underlying the Notes is calculated using the greatest closing sale price of our common stock on any trading day immediately preceding such event of default and the date we make the entire payment required.
Company Optional Redemption Rights
At any time no event of default exits, we may redeem all, but not less than all, the Notes outstanding in cash all, or any portion, of the Notes at a 5% redemption premium to the greater of the face value and the equity value of our common stock underlying the Notes
The equity value of our common stock underlying the Notes is calculated using the greatest closing sale price of our common stock on any trading day during the period commencing on the date immediately preceding such date we notify the applicable holder of such redemption election and the date we make the entire payment required.
Corporate Information
Our principal executive offices are located at 3131 Camino Del Rio North, Suite 1400, San Diego, CA 92108. Our telephone number is (619) 631-8261. The address of our website www.greenboxpos.com. The inclusion of our website address in this Annual Report on Form 10-K does not include or incorporate by reference the information on our website into this Annual Report.
Item 1A – Risk Factors
An investment in our Common Stock involves a high degree of risk. Investing in shares of our Common Stock involves risks. Before making a decision to invest in shares of our Common Stock, you should carefully consider the risks that are described in this section and in the other information that we file from time to time with the SEC. You should also read the sections entitled “Cautionary Note Regarding Forward-Looking Statements”. Additional risks not presently known or that we currently deem immaterial could also materially and adversely affect us. You should consult your own financial and legal advisors as to the risks entailed by an investment in shares of our Common Stock and the suitability of investing in our shares in light of your particular circumstances. If any of the risks contained in this Annual Report on Form 10-K develop into actual events, our assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, long-term performance goals, prospects, and/or results of operations could be materially and adversely affected, the trading price of our Common Stock could decline and you may lose all or part of your investment.
Risks Related to Our Company
The loss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adversely affect our business.
We depend on the leadership and experience of our relatively small number of key executive management personnel, particularly our Chairman of the Board of Directors (the “Board”), Executive Vice President, Ben Errez, our Director and Chief Executive Officer, Fredi Nisan and our Chief Financial Officer, Ben Chung. The loss of the services of any of these key executives or any of our executive management members could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. Furthermore, if we lose or terminate the services of one or more of our key employees or if one or more of our current or former executives or key employees joins a competitor or otherwise competes with us, it could impair our business and our ability to successfully implement our business plan. Additionally, if we are unable to hire qualified replacements for our executive and other key positions in a timely fashion, our ability to execute our business plan would be harmed. Even if we can quickly hire qualified replacements, we would expect to experience operational disruptions and inefficiencies during any transition. We believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in our industry. Our inability to meet our executive staffing requirements in the future could impair our growth and harm our business.
Our executive officers, directors, and principal shareholders maintain the ability to control substantially all matters submitted to shareholders for approval.
As of March 24, 2022, our executive officers, directors, and shareholders who owned more than 5% of our outstanding Common Stock, in the aggregate, beneficially owned 23,841,816 shares of Common Stock representing approximately 60% of our outstanding capital stock. As a result, if these shareholders were to choose to act together, they would be able to control substantially all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other shareholders may desire.
Our financial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experience in making critical accounting estimates.
Financial statements prepared in accordance with GAAP require the use of estimates, judgments, and assumptions that affect the reported amounts. Actual results may differ materially from these estimates under different assumptions or conditions. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required. In addition, because we have limited to no operating history and limited experience in making these estimates, judgments, and assumptions, the risk of future charges to income may be greater than if we had more experience in these areas. Any such charges could significantly harm our business, financial condition, results of operations, and the price of our securities.
We may require additional financing to sustain or grow our operations.
Our growth will be dependent on our ability to access additional equity and debt capital. Moreover, part of our business strategy may involve the use of debt financing to increase potential revenues. Our inability in the future to obtain additional equity capital or a corporate credit facility on attractive terms, or at all, could adversely impact our ability to execute our business strategy, which could adversely affect our growth prospects and future shareholder returns.
We may not realize the anticipated benefits of acquisitions or investments in joint ventures, or those benefits may be delayed or reduced in their realization.
Acquisitions and investments are likely to be a component of our growth and the development of our business, in the future. Acquisitions can broaden and diversify our product concepts. In reviewing potential acquisitions or investments, we target assets or companies that we believe offer attractive products or offerings, the ability for us to leverage our offerings, competencies, or other synergies.
The combination of two independent businesses is a complex, costly, and time-consuming process that will require significant management attention and resources. The integration process may disrupt the businesses and, if implemented ineffectively, would limit the expected benefits of the acquisition. The failure to meet the challenges involved in integrating businesses and realizing the anticipated benefits could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations. The overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer and other business relationships, and diversion of management’s attention. The difficulties of combining the operations of the companies include, among others:
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We cannot be certain that the products and offerings of companies we may acquire, or acquire an interest in, will achieve or maintain popularity with consumers in the future or that any such acquired companies or investments will allow us to more effectively market our products, develop our competencies or to grow our business. In some cases, we expect that the integration of the companies that we may acquire into our operations will create production, marketing and other operating, revenue or cost synergies which will produce greater revenue growth and profitability and, where applicable, cost savings, operating efficiencies and other advantages. However, we cannot be certain that these synergies, efficiencies and cost savings will be realized. Even if achieved, these benefits may be delayed or reduced in their realization. In other cases, we may acquire or invest in companies that we believe have strong and creative management, in which case we may plan to operate them more autonomously rather than fully integrating them into our operations. We cannot be certain that the key talented individuals at these companies would continue to work for us after the acquisition or that they would develop popular and profitable products, entertainment or services in the future. We cannot guarantee that any acquisition or investment we may make will be successful or beneficial, and acquisitions can consume significant amounts of management attention and other resources, which may negatively impact other aspects of our business.
Our operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control, which could cause fluctuations in the price of our securities.
We are subject to the following factors that may negatively affect our operating results:
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As a result of our lack of any operating history and the nature of the markets in which we compete, it is difficult for us to forecast our revenues or earnings accurately. As a strategic response to changes in the competitive environment, we may from time to time make certain decisions concerning expenditures, pricing, service, or marketing that could have a material and adverse effect on our business, results of operations, and financial condition. Due to the foregoing factors, our quarterly revenues and operating results are difficult to forecast.
Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact our performance and prospects for future growth.
Our competitive advantage is due in part to our ability to develop and introduce new products in a timely manner at favorable margins. The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis. Introduction of new technology may result in higher costs to us than that of the technology replaced. That increase in costs, which may continue indefinitely or until increased demand and greater availability in the sources of the new technology drive down its cost, could adversely affect our results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction in future years may not meet sales expectations due to various factors, such as the failure to accurately predict market demand, end-user preferences, evolving industry standards, or the emergence of new or disruptive technologies. Moreover, the ultimate success and profitability of the new products may depend on our ability to resolve technical and technological challenges in a timely and cost-effective manner. Our investments in productive capacity and commitments to fund advertising and product promotions in connection with these new products could erode profits if those expectations are not met.
We are increasingly dependent on information technology, and potential cyberattacks, security problems, or other disruption and expanding social media vehicles present new risks.
We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, billing, and operating data. We may purchase some of our information technology from vendors, on whom our systems will depend, and we rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential operator and other customer information. We depend upon the secure transmission of this information over public networks. Our networks and storage applications could be subject to unauthorized access by hackers or others through cyberattacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means, or may be breached due to operator error, malfeasance or other system disruptions. In some cases, it will be difficult to anticipate or immediately detect such incidents and the damage they cause. Any significant breakdown, invasion, destruction, interruption, or leakage of information from our systems could harm our business.
Further, in the normal course of our business, we collect, store and transmit proprietary and confidential information regarding our customers, employees, and others, including personally identifiable information. An operational failure or breach of security from increasingly sophisticated cyber threats could lead to loss, misuse or unauthorized disclosure of this information about our employees or customers, which may result in regulatory or other legal proceedings, and have a material adverse effect on our business. We also may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks. Any such attacks or precautionary measures taken to prevent anticipated attacks may result in increasing costs, including costs for additional technologies, training and third party consultants. The losses incurred from a breach of data security and operational failures as well as the precautionary measures required to address this evolving risk may adversely impact our financial condition, results of operations and cash flows.
Privacy regulation is an evolving area and compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to service our clients and market our products and services.
Because we store, process and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters. While we believe we are currently in compliance with applicable laws and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business.
Data privacy and security concerns relating to our technology and our practices could cause us to incur significant liability, and deter current and potential users from using our products and services. Software bugs or defects, security breaches, and attacks on our systems could result in the improper disclosure and use of user data and interference with our users’ ability to use our products and services, harming our business operations.
Concerns about our practices with regard to the collection, use, disclosure, or security of personal information or other data-privacy-related matters, even if unfounded, could harm our financial condition, and operating results. Our policies and practices may change over time as expectations regarding privacy and data change. Our products and services involve the storage and transmission of proprietary information, and bugs, theft, misuse, defects, vulnerabilities in our products and services, and security breaches expose us to a risk of loss of this information, improper use and disclosure of such information, litigation, and other potential liability. Systems and control failures, security breaches and/or inadvertent disclosure of user data could result in government and legal exposure, seriously harm our business, and impair our ability to attract and retain customers.
We may experience cyber-attacks and other attempts to gain unauthorized access to our systems. We may experience future security issues, whether due to employee error or malfeasance or system errors or vulnerabilities in our or other parties’ systems, which could result in significant legal and financial exposure. We may be unable to anticipate or detect attacks or vulnerabilities or implement adequate preventative measures. Attacks and security issues could also compromise trade secrets and other sensitive information, harming our business. As a result, we may suffer significant legal or financial exposure, which could harm our business, financial condition, and operating results.
Prolonged economic downturn, particularly in light of the COVID-19 pandemic, could adversely affect our business.
Uncertain global economic conditions, in particular in light of the COVID-19 pandemic, could adversely affect our business. The COVID-19 pandemic negatively impacted some of our clients as they saw reductions in revenues due to business closures which caused our processing volume to go down. Negative global and national economic trends, such as decreased consumer and business spending, high unemployment levels and declining consumer and business confidence, pose challenges to our business and could result in declining revenues, profitability and cash flow. Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively affect demand for our products.
We could face substantial competition, which could reduce our market share and negatively impact our net revenue.
Although we believe there is currently no other company in the payment facilitator industry using, as we are, blockchain infrastructure, notable companies in the payment facilitator industry include PayPal, Stripe, and Square. Many of our payment facilitator competitors are significantly larger than we are and have considerably greater financial, technical, marketing, and other resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available to us. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition, and results of operations.
Third-party claims of infringement against us could adversely affect our ability to market our products and require us to redesign our products or seek licenses from third parties.
We are susceptible to intellectual property lawsuits that could cause us to incur substantial costs, pay substantial damages, or prohibit us from distributing our products. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. In addition, because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which later may result in issued patents that our products may infringe. If any of our products infringe a valid patent, we could be prevented from distributing that product unless and until we can obtain a license or redesign it to avoid infringement. A license may not be available or may require us to pay substantial royalties. We also may not be successful in any attempt to redesign the product to avoid any infringement. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and we may not have the financial and human resources to defend ourselves against any infringement suits that may be brought against us.
We may employ individuals who were previously employed by companies that are developing blockchain or cryptocurrency products and technology, including our competitors or potential competitors. To the extent our employees are involved in research areas which are similar to those areas in which they were involved at their former employers, we may be subject to claims that such employees and/or we have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of the former employers. Litigation may be necessary to defend against such claims, which could result in substantial costs and be a distraction to management and which may have a material adverse effect on us, even if we are successful in defending such claims.
We also rely in our business on trade secrets, know-how and other proprietary information. We seek to protect this information, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. Nonetheless, we cannot assure you that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information and prevent their unauthorized use or disclosure. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our proposed products, disputes may arise as to the proprietary rights to such information which may not be resolved in our favor. Most of our consultants are employed by or have consulting agreements with third parties and any inventions discovered by such individuals generally will not become our property. There is a risk that other parties may breach confidentiality agreements or that our trade secrets become known or independently discovered by competitors, which could adversely affect us.
It may be illegal now, or in the future, to participate in blockchains or utilize similar digital assets in one or more countries, the ruling of which would adversely affect us.
Although currently cryptocurrencies and blockchain-based solutions generally are not regulated or are lightly regulated in most countries, one or more countries such as China and Russia may take regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use these digital assets or to exchange for fiat currency. Such restrictions may adversely affect us. Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations.
The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.
The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed ledgers altogether. This may adversely affect us and our exposure to various blockchain technologies and prevent us from realizing the anticipated profits from our investments. Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations.
Litigation may adversely affect our business, financial condition and results of operations.
From time to time in the normal course of our business operations, we may become subject to litigation involving intellectual property, data privacy and security, consumer protection, commercial disputes and other matters that may negatively affect our operating results if changes to our business operation are required. We may also be subject to a variety of claims including product warranty, product liability, and consumer protection claims related to product defects, among other litigation. We may also be subject to claims involving health and safety, other environmental impacts, or service disruptions or failures. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations. In addition, insurance may not cover existing or future claims, be sufficient to fully compensate us for one or more of such claims, or continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby adversely affecting our results of operations and resulting in a reduction in the trading price of our stock.
Item 1B – Unresolved Staff Comments
Not applicable.
Item 2 – Properties
We primarily operate from leased space. Our executive offices are located at 3131 Camino del Rio North, Suite 1400, San Diego, CA. We also lease office space in various locations for our subsidiaries.
In July 2021 we acquired a multi-tenant industrial building as part of the ChargeSavvy LLC transaction. This building consists of approximately 64,000 square feet and was assigned a value of $1,360,000.
Item 3 – Legal Proceedings
We are from time to time subject to claims and litigation arising in the ordinary course of business. We intend to defend vigorously against any future claims and litigation.
This is a summary of our current outstanding litigation:
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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
Through February 16, 2021, our Common Stock was quoted for trading on the OTCQB tier of the OTC Markets Group, under the symbol “GRBX.”
Starting on February 17, 2021, our Common Stock is listed on the Nasdaq Capital Market under the symbol GBOX
Holders
As of March 25, 2022, there were 43,289,572 shares of Common Stock outstanding held by approximately 191 holders of record (not including an indeterminate number of beneficial holders of stock held in street name).
Warrants
We had 60,000 warrants outstanding as of December 31, 2021.
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 following table sets forth information as of December 31, 2021 with respect to our compensation plans under which equity securities may be issued.
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders: | ||||||||||||
2020 Incentive and Non-statutory Stock Option Plan | 361,440 | $ | 4.49 | 2,514,180 | ||||||||
2021 Incentive and Non-statutory Stock Option Plan | 30,122 | $ | 12.10 | 4,869,878 | ||||||||
2021 Restricted Stock Plan | - | - | 4,640,774 | |||||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||||
Total | 391,562 | $ | 5.07 | 12,024,832 |
Issuer Repurchases of Common Stock
As approved by the Board of Directors on May 13,2021, we entered into a share repurchase program pursuant to which we may repurchase up to $5.0 million worth of our common stock under the program for approximately 12 months (the “Share Repurchase Program”). During the year ended December 31, 2021, we repurchased 714,841 shares of our common stock at a cost of $4,934,531.
Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The repurchases may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using the Company’s cash resources.
The Company made the following purchases of its equity securities during the fourth quarter of 2021:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs | ||||||||||||
October 1 to 31, 2021 | 0 | 0 | 2,320,367 | |||||||||||||
November 1 to 30, 2021 | 364,831 | $ | 5.49 | 364,831 | 316,219 | |||||||||||
December 1 to 31, 2021 | 50,000 | $ | 5.02 | 50,000 | 65,469 | |||||||||||
Total | 414,831 | 414,831 | $ | 65,469 |
Recent Issuance of Unregistered Securities
We had no sales of unregistered securities in 2021 that have not been previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q other than following:
We issued 2,139,994 unregistered shares in total for the year ended December 31, 2021. Of this amount, 999,996 shares were issued for a total investment of approximately $135,000, 946,881 were issued for services, 136,688 shares were issued as part of an asset purchase where the counterparty was a family member of an employee of the Company, and 56,429 shares were issued as payment of interest.
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The following results are for the years ended December 31, 2021 and 2020.
Years Ended December 31, | ||||||||||||||||||||||||
2021 | 2020 | Changes | ||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
Net revenue | $ | 26,304,502 | 100.0 | % | $ | 8,525,015 | 100.0 | % | $ | 17,779,487 | 208.6 | % | ||||||||||||
Cost of revenue | 9,412,254 | 35.8 | % | 4,825,587 | 56.6 | % | 4,586,667 | 95.0 | % | |||||||||||||||
Gross profit | 16,892,248 | 64.2 | % | 3,699,428 | 43.4 | % | 13,192,820 | 356.6 | % | |||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Advertising and marketing | 134,166 | 0.5 | % | 93,868 | 1.1 | % | 40,298 | 42.9 | % | |||||||||||||||
Research and development | 3,870,050 | 14.7 | % | 1,363,757 | 16.0 | % | 2,506,293 | 183.8 | % | |||||||||||||||
Payroll and payroll taxes | 4,502,605 | 17.1 | % | 1,796,160 | 21.1 | % | 2,706,445 | 150.7 | % | |||||||||||||||
Professional fees | 3,132,528 | 11.9 | % | 1,691,107 | 19.8 | % | 1,441,421 | 85.2 | % | |||||||||||||||
General and administrative | 9,114,370 | 34.6 | % | 800,111 | 9.4 | % | 8,314,259 | 1039.1 | % | |||||||||||||||
Stock compensation for employees | 3,704,008 | 14.1 | % | 3,036,009 | 35.6 | % | 667,999 | 22.0 | % | |||||||||||||||
Stock compensation for services | 12,306,365 | 46.8 | % | - | 0.0 | % | 12,306,365 | n/a | ||||||||||||||||
Depreciation and amortization | 912,677 | 3.5 | % | 22,742 | 0.3 | % | 889,935 | 3913.2 | % | |||||||||||||||
Total operating expenses | 37,676,769 | 143.2 | % | 8,803,754 | 103.3 | % | 28,873,015 | 328.0 | % | |||||||||||||||
Loss from operations | (20,784,521 | ) | -79.0 | % | (5,104,326 | ) | -59.9 | % | (15,680,195 | ) | 307.2 | % | ||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest expense | (1,931,713 | ) | -7.3 | % | (359,493 | ) | -4.2 | % | (1,572,220 | ) | 437.3 | % | ||||||||||||
Interest expense - debt discount | (2,993,408 | ) | -11.4 | % | (1,149,677 | ) | -13.5 | % | (1,843,731 | ) | 160.4 | % | ||||||||||||
Derivative expense | (3,435,178 | ) | -13.1 | % | (641,366 | ) | -7.5 | % | (2,793,812 | ) | 435.6 | % | ||||||||||||
Changes in fair value of derivative liability | 2,845,000 | 10.8 | % | (383,769 | ) | -4.5 | % | 3,228,769 | -841.3 | % | ||||||||||||||
Merchant liability settlement | (364,124 | ) | -1.4 | % | - | 0.0 | % | (364,124 | ) | n/a | ||||||||||||||
Merchant fines and penalty income | - | 0.0 | % | 2,630,796 | 30.9 | % | (2,630,796 | ) | -100.0 | % | ||||||||||||||
Other income or expense | 215,338 | 0.8 | % | 455 | 0.0 | % | 214,883 | 47227.0 | % | |||||||||||||||
Total other income (expense) | (5,664,085 | ) | -21.5 | % | 96,946 | 1.1 | % | (5,761,931 | ) | -5943.4 | % | |||||||||||||
Loss before provision for income taxes | (26,448,606 | ) | 100.5 | % | (5,007,380 | ) | -58.7 | % | (21,441,226 | ) | 428.2 | % | ||||||||||||
Provision for income taxes | 4,906 | 0.0 | % | - | 0.0 | % | 4,906 | 0.0 | % | |||||||||||||||
Net loss | $ | (26,453,512 | ) | -100.6 | % | $ | (5,007,380 | ) | -58.7 | % | $ | (21,446,132 | ) | 428.3 | % |
Net Revenue
Net revenue increased by $17.8 million or 208.6%, to $26.3 million in the current year from $8.5 million in the previous year. The increase was primarily due to an increase in processing volume from $202 million for the year ended December 31, 2020 to $1.95 billion for the year ended December 31, 2021. The increase in processing volume was due to a number of factors, including: growth of our customer/merchant base as the result of expanded sales and marketing efforts; an increase in average merchant transaction volume as a result of a greater strategic focus on larger merchants; the expansion and growth of our advanced blockchain ledger-based payment solutions product offering, combined with an expanding ISO and partnership network; and our strategic acquisition strategy.
Cost of Revenue
Cost of revenue increased by $4.6 million, or 95.0%, to $9.4 million for the year ended December 31, 2021 from $4.8 million in the prior year. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Most orders are delivered directly to the customer, without any handling, storage or processing by us. The increase in cost of revenue was primarily due to the increase in transaction volume. Cost of revenue decreased as a percentage of revenue from 56.6% for the year ended December 31, 2020 to 35.8% for the year ended December 31, 2021 as a result of increased processing efficiency; greater utilization of lower cost gateways; and decreased cost to scale.
Operating Expenses
Operating expenses increased by $28.9 million, or 328.0%, to $37.7 million for the year ended December 31, 2021 from $8.8 million in the prior year. The increase was primarily due to the following:
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Non-Operating Expenses
The Company incurred interest expense of $1.9 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively. This increase was primarily due to the increase in average outstanding debt due to the issuance of the $100 million convertible notes in November 2021. Interest expense from the amortization of debt discount increased to $3.0 million from $1.1 million for the years ended December 31, 2021 and 2020, respectively. This increase was primarily due to amortization related the $16.0 million discount on to the $100 million convertible note issued in November 2021. Derivative expense from convertible debt increased to $3.4 million from $0.6 million for the years ended December 31, 2021 and 2020, respectively. The increase was primarily due to the derivative expense related to the issuance of the $100 million convertible notes in November 2021. The Company recorded a gain from the changes in the fair value of derivative liability of $2.8 million for the year ended December 31,2021 and recorded a loss in the changes in the fair value of derivative liability of $0.4 million for the year ended December 31,2020. The gain recorded for 2021 was the result of the changes in the fair value of the derivative liability related to the $100 million convertible notes in November 2021. The decrease in merchant fines and penalty income to $0 for the year ended December 31, 2021 from $2.6 million for the year ended December 31, 2020 resulted from us not charging this type of fee in 2021.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital for the periods presented is summarized as follows:
Our primary sources of liquidity have historically been derived from raising capital by issuing debt or common stock. Our cash flow from operations is not yet able to cover our cash needs. We believe our current cash balances will be sufficient to cover our operating needs for the next twelve months. Our $100 million convertible note matures November 2023. There are covenants associated with the note that accelerates the conversion of tranches of the note should certain targets be met.
We may, in the future, seek to raise additional capital to fund growth, operations and other business activities, but such additional capital may not be available to us on acceptable terms, on a timely basis, or at all.
Cash Flow
The following table shows cash flows for the periods presented:
Years Ended December 31, | ||||||||
2021 | 2020 | |||||||
Net cash used in operating activities | $ | (27,165,885 | ) | $ | (4,160,678 | ) | ||
Net cash provided by (used in) investing activities | (2,658,858 | ) | (6,649 | ) | ||||
Net cash provided by financing activities | 116,060,635 | 5,236,952 | ||||||
Net cash acquired from acquisitions | 1,491,068 | 0 | ||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 87,726,960 | $ | 1,069,625 |
Operating Activities – For the years ended December 31, 2021 and 2020, net cash used in operating activities was $27,191,885 and $4,160,678, respectively. The increase was primarily due to the increase net loss associated with the acceleration of the growth and expansion of the business.
Investing Activities– For the years ended December 31, 2021 and 2020, net cash used in investing activities was $2,658,858 and $6,649, respectively. The increase was primarily due to the $2,500,000 paid for Northeast Merchant Systems, Inc. in May 2021.
Financing Activities– For the years ended December 31, 2021 and 2020, net provided by financing activities was $116,060,635 and $5,236,952, respectively, primarily due to borrowings and repayments of long-term and short-term borrowings, convertible debt, and proceeds from issuances of common stock.
A convertible note in the amount of $100,000,000 was issued November 5, 2021. The note had an original issue discount of 16% and costs of $7,174,000 associated with issuing the debt, resulting in net proceeds of $76,826,000. The convertible note has a term of 2 years and has an interest rate of 8%. Up to 69,461,078 shares of common stock are issuable from time to time upon conversion of the convertible note, including shares that may be issued as payment for interest due on the convertible note. The convertible note has covenants associated with it including revenue thresholds and stock price targets that must be met to avoid early conversion of portions of the convertible note. On January 31, 2022, in order to avoid an early conversion, an agreement was reached with the lender to extend certain conversion triggers from February 3, 2022 to May 2, 2022. A payment of $6,900,000 was made which reduced the outstanding principal of the note by $6,000,000.
On February 16, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with EF Hutton, formerly known as Kingswood Capital Markets, division of Benchmark Investments, LLC (“Hutton”), as representative of the underwriters listed therein (the “Underwriters”), pursuant to which the Company agreed to sell to the Underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 4,150,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a public offering price of $10.50 per share. In addition, the Underwriters were granted an over-allotment option (the “Over-allotment Option”) for a period of 45 days to purchase up to an additional 622,500 shares of Common Stock. The Common Stock began trading on the Nasdaq Capital Market under the symbol GBOX on February 17, 2021. The gross proceeds from the Offering were approximately $50.1 million as the representative of the Underwriters exercised in full its over-allotment option, before deducting underwriting discounts and commissions and other offering expenses. Net proceeds after expenses were approximately $45.8 million. Pursuant to the Underwriting Agreement, the Company also granted Hutton a right of first refusal, for a period of 12 months from the commencement of the Offering, to act as sole investment banker, sole book-runner, and/or sole placement agent, at Hutton’s sole discretion, for each and every future public and private equity, equity-linked or debt offering, including all equity linked financings undertaken during such period by the Company, or any of the Company’s successors or subsidiaries.
At the time of the public stock offering the previously existing convertible debt was converted to 1,408,305 shares of common stock. The warrants associated with this debt were exercised resulting in the issuance of 1,884,445 shares and net proceeds of $3,731,200
A share buyback program was initiated in May 2021. Cash outflows of $4,934,531 associated with the buyback program occurred through December 31, 2021.
CRITICAL ACCOUNTING ESTIMATES
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 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.
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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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 2021 and 2020 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 arrears 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.
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 has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of December 31, 2021, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to our management, including our principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act or in other factors that materially affected or are reasonably likely to materially affect our internal controls and procedures over financial reporting during the fourth quarter of the year ended December 31, 2021.
Item 9B – Other Information
None.
PART III
Item 10 –- Directors, Executive Officers and Corporate Governance
The informationfollowing table sets forth the name, age, and position of each of the Company’s executive officers and directors.
Name | Age | Position(s) | ||
Executive Officers | ||||
Fredi Nisan | 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 Accounting Officer) | ||
Jacqueline Dollar | 56 | Chief Marketing Officer | ||
Lindsey-Shannon Lee | 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 |
Business Experience of Executive Officers
Ben Errez has acted as Chairman of our Board of Directors (the “Board”), Executive Vice President, Principal Financial Officer and 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 has been a principal of the GreenBox Business. From August 2004 until August 2015, Errez formed 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. 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.
Fredi Nisan has served as a Director and our Chief Executive Office since July 2017, and has been a principal of the Company since August 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 immigration issues. The QuickCitizen software significantly reduced law firm’s onboarding processing time from more than three hours to 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 offered a secure login for each employee, as well as including advanced inventory management and reporting, plus powerful functionality for its end users.
Benjamin 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.
Jacqueline Dollar has served 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 Fortune 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 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 $195,000 and $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.
Corporate Governance Overview
Director Independence
The Board has reviewed the independence of our directors based on the listing standards of the Nasdaq Capital Market. Based on this review, the Board has determined that each of Ms. Baer and Messrs. Caragol, James, and Laniado are independent within the meaning of the Nasdaq rules. In making this determination, our Board 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 sessions at which only independent directors are present.
Board Committees
The Board has established the following three standing committees: audit committee; compensation committee; and nominating and governance committee, or nominating committee. Each of our independent 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 time.
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 this Itemus 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 hereby incorporated by referenceresponsible for overseeing the management of risks relating to our Proxy Statement.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 independence of our Board.
Code of Business Conduct and Ethics
Our Board adopted a code of business conduct and ethics 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 Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.
Delinquent Section 16(A) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, 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 and executive officers who also held such positions during the 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.
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 requiredconcerning the compensation awarded to, earned by, this Item is hereby incorporated by referenceor paid to, our Proxy Statement.Chief Executive Officer (Principal Executive Officer) and our two most highly compensated executive officers other than the Principal Executive Officer (collectively, the “Named Executive Officers”) 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, Benjamin Chung, and Vanessa Luna. In addition, we are disclosing Mr. Errez’s compensation for 2021 because he is a member of the Board of Directors.
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 $40,005 in stock awards. |
3. | Mr. Chung joined the Company in May 2021 | |
4. | Ms. Luna joined the Company in 2021 and left in March 2022. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding equity awards held by Mr. Nisan and Ms. Luna (two of our Named Executive Officers for 2021) as of December 31, 2021. Mr. Chung did not hold any equity awards as of that date:
Option Awards(1) | Stock Awards | ||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options, Exercisable (#) | Number of Securities Underlying Unexercised Options, Not Exercisable (#) | Option Exercise Price ($) | 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 ($) | |||||||||||||||
Fredi Nisan | 83,333 | 6.06 | 06/01/2026 | 482 | 10.37 | ||||||||||||||||
3,005 | 13.31 | 06/02/2026 | 647 | 7.73 | |||||||||||||||||
496 | 10.09 | ||||||||||||||||||||
659 | 7.59 | ||||||||||||||||||||
Vanessa Luna | 3,306 | 12.10 | 06/02/2031 | 50,000 | 11.79 | ||||||||||||||||
41,667 | 8.91 | ||||||||||||||||||||
125,000 | 4.95 |
Employment/Consulting Contracts, Termination of Employment, Change-in-Control Arrangements
The Company has not entered into employment agreements or other compensation agreements with its executive officers. All employee contracts are “at will.” There are no potential payments payable to the Named Executive Officers upon a termination of employment in connection with a change in control.
Director Compensation
The following table sets forth compensation earned by each non-employee Director who served during the year ended December 31, 2021.
Name | Fees Earned or | Stock Awards | Total ($) | |||||||||
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 may 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 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 requiredwith 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 this Itemthe Company itself which are nonvoting treasury shares) shares of Common Stock outstanding as of April 27, 2022. A person is hereby incorporatedconsidered 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 3131 Camino Del Rio North, Suite 1400, San Diego, California.
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 20,455,875 shares of the Company’s issued and outstanding stock. PrivCo is managed by reference toits two managing members, Ben Errez and Fredi Nisan, both of whom serve as our Proxy Statement.sole officers and directors. Messrs. Errez and Nisan each own 50% of PrivCo.
(2) Mr. Errez owns 50% of PrivCo and therefore owns 10,227,938 shares held by PrivCo. As one of two 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 50% 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. Of the 20,455,875 shares held in the name of PrivCo, Mr. Nisan has pledged 136,987 shares as security for a loan (based on a price per share of $3.65).
(5) Includes 5,923 fully vested options.
Item 13 –- Certain Relationships and Related Transactions and Director Independence
The information required by this Item is hereby incorporated by referencefollowing includes a summary of transactions since January 1, 2020 to which we have been a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our Proxy Statement.knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Executive Compensation.” We also describe below certain other transactions with our directors, executive officers, and stockholders.
Item 14 – Principal Accounting Fees and ServicesMr. Nisan
The information required by this ItemCompany hired Dan Nusinovich on or about February 19, 2018 as our Development and Testing Manager and he was promoted to Vice President of Development on or about January 12, 2022. Dan is hereby incorporated by reference tothe brother of Fredi Nisan, our Proxy Statement. Our Independent Registered Public Accounting Firm is BF Borgers CPA, PC.
PART IV
Item 15 – ExhibitsCEO and Financial Statement SchedulesDirector.
The following documents are filedCompany hired Liron Nusinovich on or about July 16, 2018 as parta Risk Analyst and he was promoted to Junior Product Owner on or about February 16, 2022. Liron is the brother of this Annual Report on Form 10-K:
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Our financial statementsFredi Nisan, our CEO 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-1.
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+ Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
SIGNATURESDirector.
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.
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Mr. Haller
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, 2021 and 2020, 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, 2021 and 2020, 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
/S/ BF Borgers CPA PC
We have served as the Company's auditor since 2019
Lakewood, CO
March 31, 2022
GREENBOX POS
CONSOLIDATED BALANCE SHEETS
As of December 31, | ||||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 89,559,695 | $ | - | ||||
Restricted cash | - | 1,832,735 | ||||||
Accounts receivable, net of allowance for bad debt of $54,795 and $0, respectively | 481,668 | 10,000 | ||||||
Accounts receivable from fines and penalties from merchants, net of allowance for bad debt of $9,454,261 and $6,665,031, respectively | - | 2,789,230 | ||||||
Inventory, net of inventory reserve of $3,127 and $0, respectively | 286,360 | - | ||||||
Cash due from gateways, net of allowance of $3,904,952 and $0, respectively | 18,941,761 | 7,303,949 | ||||||
Prepaid and other current assets | 6,420,696 | 70,130 | ||||||
Total current assets | 115,690,180 | 12,006,044 | ||||||
Non-current Assets: | ||||||||
Property and equipment, net | 1,674,884 | 57,264 | ||||||
Other assets | 190,636 | 81,636 | ||||||
Goodwill | 6,048,034 | - | ||||||
Intangible Assets, net | 7,578,935 | - | ||||||
Operating lease right-of-use assets, net | 1,490,159 | 117,795 | ||||||
Total non-current assets | 16,982,648 | 256,695 | ||||||
Total assets | $ | 132,672,828 | $ | 12,262,739 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 871,037 | $ | 210,094 | ||||
Other current liabilities | 501,167 | 68,138 | ||||||
Accrued interest | 1,226,287 | - | ||||||
Payment processing liabilities, net | 4,997,807 | 10,199,956 | ||||||
Current portion of long term debt | - | 272,713 | ||||||
Convertible debt, net of debt discount of $0 and $2,993,408, respectively | - | 856,592 | ||||||
Derivative liability | 18,735,000 | - | ||||||
Current portion of operating lease liabilities | 495,134 | 120,110 | ||||||
Total current liabilities | 26,826,432 | 11,727,603 | ||||||
Long term debt, net of debt discount of $41,344,822 and $0, respectively | 59,305,078 | 149,900 | ||||||
Operating lease liabilities, less current portion | 1,035,895 | - | ||||||
Total liabilities | 87,167,405 | 11,877,503 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Common stock, par value $0.001, 82,500,000 shares authorized, shares issued and | 42,831 | 30,711 | ||||||
Additional paid-in capital | 88,574,469 | 12,079,074 | ||||||
Accumulated deficit | (38,178,061 | ) | (11,724,549 | ) | ||||
Less: Treasury stock, at cost; 714,831 and 0 shares, respectively | (4,933,816 | ) | - | |||||
Total stockholders' equity | 45,505,423 | 385,236 | ||||||
Total liabilities and stockholder's equity | $ | 132,672,828 | $ | 12,262,739 |
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
Net Revenue | $ | 26,304,502 | $ | 8,525,015 | ||||
Cost of revenue | 9,412,254 | 4,825,587 | ||||||
Gross profit | 16,892,248 | 3,699,428 | ||||||
Operating expenses: | ||||||||
Advertising and marketing | 134,166 | 93,868 | ||||||
Research and development | 3,870,050 | 1,363,757 | ||||||
General and administrative | 9,114,370 | 800,111 | ||||||
Payroll and payroll taxes | 4,502,605 | 1,796,160 | ||||||
Professional fees | 3,132,528 | 1,691,107 | ||||||
Stock compensation for employees | 3,704,008 | 3,036,009 | ||||||
Stock compensation for services | 12,306,365 | - | ||||||
Depreciation and amortization | 912,677 | 22,742 | ||||||
Total operating expenses | 37,676,769 | 8,803,754 | ||||||
Income (Loss) from operations | (20,784,521 | ) | (5,104,326 | ) | ||||
Other income (expense): | ||||||||
Interest expense | (1,931,713 | ) | (359,493 | ) | ||||
Interest expense - debt discount | (2,993,408 | ) | (1,149,677 | ) | ||||
Derivative expense | (3,435,178 | ) | (641,366 | ) | ||||
Changes in fair value of derivative liability | 2,845,000 | (383,769 | ) | |||||
Merchant liability settlement | (364,124 | ) | - | |||||
Merchant fines and penalty income | - | 2,630,796 | ||||||
Other income or expense | 215,338 | 455 | ||||||
Total other income (expense), net | (5,664,085 | ) | 96,946 | |||||
Loss before provision for income taxes | (26,448,606 | ) | (5,007,380 | ) | ||||
Income tax provision | 4,906 | - | ||||||
Net loss | $ | (26,453,512 | ) | $ | (5,007,380 | ) | ||
Net loss per share: | ||||||||
Basic and diluted | $ | (0.65 | ) | $ | (0.17 | ) | ||
Weighted average number of common shares outstanding: | ||||||||
Basic and diluted | 40,708,304 | 29,868,955 |
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Common Stock | Additional | Total | ||||||||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | Treasury Stock at Cost | Paid-In Capital | Accumulated Deficit | Stockholders' Equity (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2019 | 28,310,488 | $ | 28,311 | 115,854 | $ | 2,872 | $ | - | $ | 1,318,647 | $ | (6,717,169 | ) | $ | (5,367,339 | ) | ||||||||||||||||
Shares issuable adjustment | - | - | (115,854 | ) | (2,872 | ) | - | - | - | (2,872 | ) | |||||||||||||||||||||
Other adjustments | (299,595 | ) | (300 | ) | - | - | - | 300 | - | - | ||||||||||||||||||||||
Warrant issued under convertible debt | - | - | - | - | - | 3,498,667 | 3,498,667 | |||||||||||||||||||||||||
Common stock issued on conversion of convertible debt accrued interest | 854,701 | 855 | - | - | - | 69,145 | - | 70,000 | ||||||||||||||||||||||||
Common stock issued for warrant conversion | 696,907 | 697 | - | - | - | (697 | ) | - | - | |||||||||||||||||||||||
Common stock issued for services and others | 299,536 | 300 | - | - | - | 1,262,341 | - | 1,262,641 | ||||||||||||||||||||||||
Common stock issued for stock options exercised | 297,326 | 298 | - | - | - | 35,212 | - | 35,510 | ||||||||||||||||||||||||
Common stock repurchased from common stock issued | (1,000,000 | ) | (1,000 | ) | - | - | - | (809,000 | ) | - | (810,000 | ) | ||||||||||||||||||||
Common stock issued for settlement of note payable | 1,000,000 | 1,000 | - | - | - | 809,000 | - | 810,000 | ||||||||||||||||||||||||
Issuances of common stock | 551,282 | 550 | - | - | - | 2,859,450 | - | 2,860,000 | ||||||||||||||||||||||||
Stock compensation expense | - | - | - | - | - | 3,036,009 | - | 3,036,009 | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (5,007,380 | ) | (5,007,380 | ) | ||||||||||||||||||||||
Balance at December 31, 2020 | 30,710,645 | 30,711 | - | - | - | 12,079,074 | (11,724,549 | ) | 385,236 | |||||||||||||||||||||||
Issuances of common stock, net of issuance costs of $4,305,758 | 4,772,500 | 4,773 | - | - | 45,800,718 | - | 45,805,491 | |||||||||||||||||||||||||
Common stock issued for conversion of convertible debt | 1,944,416 | 1,944 | - | - | 3,848,056 | - | 3,850,000 | |||||||||||||||||||||||||
Common stock issued for exercise of warrant | 1,884,418 | 1,884 | - | - | 3,729,316 | - | 3,731,200 | |||||||||||||||||||||||||
Restricted Stock | 639,144 | 639 | - | - | 4,768,341 | - | 4,768,980 | |||||||||||||||||||||||||
Common stock issued for services | 826,394 | 826 | - | - | 10,228,066 | - | 10,228,892 | |||||||||||||||||||||||||
Investor Issuance | 999,996 | 1,000 | - | - | (1,000 | ) | - | - | ||||||||||||||||||||||||
Common stock issued for interest for convertible debt | 56,249 | 56 | - | - | 653,411 | - | 653,467 | |||||||||||||||||||||||||
Issuances of common stock from previous unregistered shares | 600,000 | 600 | - | - | (600 | ) | - | - | ||||||||||||||||||||||||
Issuances of common stock for acquisition of ChargeSavvy | 1,000,000 | 1,000 | - | - | 12,139,000 | - | 12,140,000 | |||||||||||||||||||||||||
Common stock issued for stock options exercised | 112,885 | 113 | - | - | 2,225 | - | 2,338 | |||||||||||||||||||||||||
Stock compensation expense | - | - | 1,021,725 | - | 1,021,725 | |||||||||||||||||||||||||||
Purchases of treasury share | (714,831 | ) | (715 | ) | - | - | (4,933,816 | ) | - | - | (4,934,531 | ) | ||||||||||||||||||||
Payment for previous common stock repurchased under treasury method | - | - | - | (4,194,000 | ) | - | (4,194,000 | ) | ||||||||||||||||||||||||
Share repurchase from previous shareholder | - | - | - | (1,499,863 | ) | - | (1,499,863 | ) | ||||||||||||||||||||||||
Net loss | - | - | - | (26,453,512 | ) | (26,453,512 | ) | |||||||||||||||||||||||||
Balance at December 31, 2021 | 42,831,816 | $ | 42,831 | - | $ | - | $ | (4,933,816 | ) | $ | 88,574,469 | $ | (38,178,061 | ) | $ | 45,505,423 |
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (26,453,512 | ) | $ | (5,007,380 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation expense | 912,677 | 15,876 | ||||||
Forgiveness of PPP Loan | (272,713 | ) | - | |||||
Noncash lease expense | 38,555 | - | ||||||
Stock compensation expense | 3,704,008 | 3,036,009 | ||||||
Restricted stock issued for services | 4,768,980 | - | ||||||
Common stocks issued for professional fees | 7,537,385 | 1,262,641 | ||||||
Stock compensation issued for interest | 653,467 | - | ||||||
Interest expense - debt discount | 2,993,408 | 1,102,706 | ||||||
Derivative expense | 3,435,178 | - | ||||||
Changes in fair value of derivative liability | (2,845,000 | ) | (1,050,063 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | - | 60,257 | ||||||
Accounts receivables from fines and fees from merchant, net | - | (12,543 | ) | |||||
Lease liability, net of asset | - | (2,091 | ) | |||||
Other receivable, net | 2,382,352 | - | ||||||
Inventory | (161,859 | ) | - | |||||
Prepaid and other current assets | (6,343,905 | ) | (28,068 | ) | ||||
Cash due from gateways, net | (11,637,812 | ) | 1,122,895 | |||||
Other assets | 686,876 | (81,636 | ) | |||||
Accounts payable | 443,263 | (295,181 | ) | |||||
Other current liabilities | 301,469 | 53,038 | ||||||
Accrued interest | 1,226,287 | (515,202 | ) | |||||
Payment processing liabilities, net | (8,534,989 | ) | (3,821,936 | ) | ||||
Net cash provided by (used in) operating activities | (27,165,885 | ) | (4,160,678 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (158,858 | ) | (6,649 | ) | ||||
Acquisition of Northeast | (2,500,000 | ) | - | |||||
Net cash used in investing activities | (2,658,858 | ) | (6,649 | ) | ||||
Cash flows from financing activities: | ||||||||
Treasury stock repurchase | (4,934,531 | ) | - | |||||
Proceeds from stock option exercises | 2,338 | 35,510 | ||||||
Borrowings from convertible debt | 76,800,000 | 3,678,000 | ||||||
Repayments on convertible debt | - | (985,500 | ) | |||||
Repayment on long-term debt | - | 149,900 | ||||||
Repayments on short-term notes payable | - | (2,305,538 | ) | |||||
Borrowings from short-term notes payable | - | 1,531,867 | ||||||
Borrowings from notes payable | 350,000 | 272,713 | ||||||
Proceeds from exercise of warrant | 3,731,200 | - | ||||||
Repurchase of common stock from stockholder | (5,693,863 | ) | - | |||||
Proceeds from issuance of common stock | 45,805,491 | 2,860,000 | ||||||
Net cash provided by (used in) financing activities | 116,060,635 | 5,236,952 | ||||||
Cash acquired from acquisition of Northeast and ChargeSavvy | 1,491,068 | - | ||||||
Net increase in cash, cash equivalents, and restricted cash | 87,726,960 | 1,069,625 | ||||||
Cash, cash equivalents, and restricted cash – beginning of period | 1,832,735 | 763,110 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 89,559,695 | $ | 1,832,735 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 2,504,533 | $ | 727,564 | ||||
Income taxes | $ | 800 | $ | 800 | ||||
Non-cash financing and investing activities: | ||||||||
Convertible debt conversion to common stock | $ | 3,850,000 | $ | 137,500 | ||||
Common stock issued for acquisition of ChargeSavvy | $ | 12,140,000 | $ | - | ||||
Interest accrual from convertible debt converted to common stock | $ | 653,467 | $ | 78,050 | ||||
Short-term notes payable converted to common stock | $ | - | $ | 810,000 |
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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.”
On May 21,25, 2021, the Company acquired all of the outstanding stock of Northeast Merchant Systems, Inc. (“Northeast”) inissued a transaction treated as a business combination. Northeast is a merchant services company providing merchant credit card processing through their own Bank Identification Number (BIN) with the acquiring bank Merrick. This involves inside operations for new merchants that include sales assistance and applications processing, underwriting, and onboarding; inside operations for existing merchants include risk monitoring and customer service. Outside operations include: equipment service or replacement; sales calls and applications, site inspections and identity verification; security verification; and on-site customer service and technical support.
On July 13, 2021 (the “Closing Date”), GreenBox POS (the “Company”)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 closed on a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Charge Savvy LLC, an Illinois limited liability company (“Charge Savvy”), and Charge Savvy’s three members (collectively, the “Sellers”). As a resultPOS systems, for total consideration of the Purchase Agreement, the Company purchased all of Charge Savvy’s issued and outstanding membership interests from the Sellers and Charge Savvy became a wholly owned subsidiary of the Company. Although the Purchase Agreement is dated July 9th, it was entered into and closed on July 13th.The purchase price under the Purchase Agreement for the all- stock transaction consisted of 1,000,000up to $52 million in restricted shares of the Company’s common stock par value $0.001 per share (the “Common Stock”) being issued and delivered to Sellers in proportion to the Sellers’ share of their membership interests in Charge Savvy. The share price at issuance was $12.14. Charge Savvy is a global Fintech company that specializes on developing software and providing payment processing and point of sale services to the merchant services industry. Charge Savvy also owns an office building located in Chicago, Illinois where it is headquartered.
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”).
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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COVID-19 considerations
In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the world. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets. The full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning COVID-19 and the actions to contain or treat its impact and the economic impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows may be materially adversely affected, particularly if the pandemic persists for a significant period of time.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. These provisions are not expected to have a material effect on the Company’s unaudited consolidated financial statements.
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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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, | ||||||||
2021 | 2020 | |||||||
Cash and cash equivalents | $ | 89,559,695 | $ | - | ||||
Restricted cash | - | 1,832,735 | ||||||
Total cash, cash equivalents and restricted cash | $ | 89,559,695 | $ | 1,832,735 |
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2021 and 2020 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 arrears 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.
Revenue Recognition
Revenue is recognized upon transfer of control of promised goods or services to the Company’s customers or when the Company satisfies any performance obligations under contract. The amount of revenue reflects the consideration the Company expects to be entitled to in exchange for the respective goods or services provided. Further, under Accounting Standards Codification 606, “Revenue from Contracts with Customers”, (“ASC 606”), contract assets or contract liabilities that arise from past performance but require a further performance before the obligation can be fully satisfied must be identified and recorded on the balance sheet until respective settlements have been met.
The Company’s primary revenue source is generated from payment processing services. Payment processing services revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed, at a point in time.
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.
Fair Value of Financial Instruments
The Company assesses the fair value of financial instruments based on the provisions of ASC 820, Fair Value Measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability between market participants on the measurement date. ASC 820 also establishes a hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The standard describes three levels of inputs that may be used to measure fair value:
Level 1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table describes the valuation techniques used to calculate the fair value for assets in Level 3. The significant unobservable input used in the fair value measurement of the Company’s identifiable intangible assets is the discount rate. The change in this input could result in a change of fair value measurement:
The table below describes the Company’s valuation of financial instruments using guidance from ASC 820-10:
Fair Value at Acquisition | Accumulated Amortization | Net Fair Value as of December 31, 2021 | Valuation Technique | Unobservable Input | Range | ||||||||||||||
Northeast Merchant Systems, Inc. acquisition: | |||||||||||||||||||
Customer Relationships | $ | 276,583 | $ | (36,878 | ) | $ | 239,705 | Multiple-period excess earnings method | Discount rate | 15.90 | % | ||||||||
Charge Savvy LLC acquisition: | |||||||||||||||||||
Customer Relationships | 5,543,612 | (554,362 | ) | 4,989,250 | Multiple-period excess earnings method | Discount rate | 55.70 | % | |||||||||||
Business Technology/IP | 2,611,088 | (261,108 | ) | 2,349,980 | Royalty relief method | Discount rate | 55.70 | % | |||||||||||
Total | $ | 8,431,283 | $ | (852,348 | ) | $ | 7,578,935 |
Goodwill and Other Intangible Assets
The Company accounts for acquisitions of businesses in accordance with the acquisition method. Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable assets acquired and liabilities assumed. Acquisition costs are expensed as incurred.
Goodwill and other intangible assets acquired in a business combination determined to have an indefinite useful life are generally not amortized, but instead are tested for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
Other intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever management believes that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent that the carrying value is determined to be unrecoverable, an impairment loss is recognized through a charge to expense. As of December 31, 2020, the Company does not believe that impairment indicators are present, and accordingly, based on this assessment, no further impairment analysis was performed.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As of December 31, 2021, we have no material unrecognized tax benefits.
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 loss per share is the same as the basic loss per share for the years ended December 31, 2021 and 2020, as there are no potential shares outstanding that would have a dilutive effect.
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.
Recently Adopted Accounting Updates
In December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12 “Simplifying the Accounting for Income Taxes (Topic 740)” as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The Company adopted this standard on January 1, 2021 and determined there was no material impact on the Company's financial position, results of operations and liquidity.
In May 2020, the SEC issued Final Rule Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” (“SEC Rule 33-10786”), which amends the disclosure requirements applicable to acquisitions and dispositions of businesses. Amendments within SEC Rule 33-10786 primarily impact (1) the tests and thresholds used to determine the significance of acquisitions and dispositions; (2) the form and content of pro forma information required to be disclosed in connection with significant acquisitions and dispositions; (3) acquiree financial statement requirements; and (4) thresholds used to determine the significance of acquisitions and dispositions of real estate operations, and related financial statement requirements, among others. The Company adopted this standard on January 1, 2021 and determined there was no material impact on the Company's consolidated financial statements.
In November 2020, the SEC issued final rules 33-10890 and 34-90459 “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information,” which modernizes and simplifies certain disclosure requirements of Regulation S-K. Certain key rule amendments eliminate the requirement to disclose Selected Financial Data; Selected Quarterly Financial Data, with certain exceptions; the impact of inflation and changing prices, provided the impact is not material; off-balance sheet arrangements in tabular form; and the aggregate amount of contractual obligations in tabular form. The final rules also amended various aspects of Item 303, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others. The Company adopted the final rules as part of this Annual Report on Form 10-K.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Northeast Merchant Systems, Inc.
On May 21, 2021, the Company acquired all the outstanding stock of Northeast Merchant Systems, Inc. (“Northeast”). Northeast is a merchant services company providing merchant credit card processing through their own Bank Identification Number (BIN) with the acquiring bank Merrick. This involves inside operations for new merchants that include sales assistance and applications processing, underwriting, and onboarding; inside operations for existing merchants include risk monitoring and customer service. Outside operations include: equipment service or replacement; sales calls and applications; site inspections and identity verification; security verification; and on-site customer service and technical support.
Purchase Price Allocation
The acquisition qualified as a business combination and was accounted for using the acquisition method. Accordingly, the total fair value of consideration transferred of $2,500,000 for the acquisition was allocated to the net tangible, intangible and liabilities acquired using fair value estimates at the date of acquisition. The excess of the purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill, which is taxable.
The following summarizes the estimated fair values of the net assets acquired:
Tangible assets (liabilities): | ||||
Net assets and liabilities | $ | (70,057 | ) | |
Intangible assets: | ||||
Customer relationships | 276,583 | |||
Goodwill | 2,293,474 | |||
2,570,057 | ||||
Total net assets acquired | $ | 2,500,000 |
The acquisition was funded through cash on hand, and there were no transaction costs associated with the acquisition. The agreement also provides for a future additional contingent purchase price payment (earn-out) of $500,000, which is derived using the performance of Northeast and is based on a predetermined formula. The Company believes that is unlikely that the targets will be achieved and, accordingly, has not adjusted the purchase price or provided an accrual for this contingency.
Charge Savvy LLC
On July 13, 2021 (the “Closing Date”), GreenBox POS (the “Company”) entered into and closed on a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Charge Savvy LLC, an Illinois limited liability company (“Charge Savvy”), and Charge Savvy’s three members (collectively, the “Sellers”). As a result of the Purchase Agreement, the Company purchased all of Charge Savvy’s issued and outstanding membership interests from the Sellers and Charge Savvy became a wholly owned subsidiary of the Company. Although the Purchase Agreement is dated July 9th, it was entered into and closed on July 13th.The purchase price under the Purchase Agreement for the all- stock transaction consisted of 1,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) being issued and delivered to Sellers in proportion to the Sellers’ share of their membership interests in Charge Savvy. The share price at issuance was $12.14. Charge Savvy is a global Fintech company that specializes on developing software and providing payment processing and point of sale services to the merchant services industry. Charge Savvy also owns an office building located in Chicago, Illinois where it is headquartered.
Purchase Price Allocation
The acquisition qualified as a business combination and was accounted for using the acquisition method. Accordingly, the total fair value of consideration transferred of $12,140,000 for the acquisition was allocated to the net tangible, intangible and liabilities acquired using fair value estimates at the date of acquisition. The excess of the purchase price over the fair value of the net tangible and intangible assets acquired was allocated to goodwill, which is taxable.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the estimated fair values of the net assets acquired:
Tangible assets (liabilities): | ||||
Land/building | $ | 1,360,000 | ||
Other net assets | (1,129,259 | ) | ||
230,741 | ||||
Intangible assets: | ||||
Customer relationships | 5,543,612 | |||
Business technology | 2,611,088 | |||
Goodwill | 3,754,559 | |||
11,909,259 | ||||
Total net assets acquired | $ | 12,140,000 |
The acquisition was funded by issuing 1,000,000 shares of common stock.
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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 due from gateways, net – a Current Asset. Of these funds, we record the sum balance due to Merchants and ISOs as Payment processing liabilities, net – a Current Liability.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Property and equipment consisted of the following:
December 31, | ||||||||
2021 | 2020 | |||||||
Buildings, machinery and equipment | $ | 1,301,405 | $ | - | ||||
Computers | 122,284 | 48,884 | ||||||
Furniture and fixtures | 102,243 | 40,320 | ||||||
Improvements | 140,300 | - | ||||||
Kiosks | 6,472 | 6,472 | ||||||
Vehicles | 9,812 | 4,578 | ||||||
Land | 75,000 | - | ||||||
Total property and equipment | 1,757,516 | 100,254 | ||||||
Less: accumulated depreciation | (82,632 | ) | (42,990 | ) | ||||
Net property and equipment | $ | 1,674,884 | $ | 57,264 |
Depreciation expense was $123,805 and $22,742 for the years ended December 31, 2021 and 2020, respectively.
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As of December 31, 2021 intangible assets consisted of the following:
As of December 31, 2021 | |||||||||||||
Amortization Period | Cost | Accumulated Amortization | Net | ||||||||||
Customer relationships | 5 years | $ | 5,820,195 | $ | (591,239 | ) | $ | 5,228,956 | |||||
Business technology/IP | 5 years | $ | 2,611,088 | $ | (261,109 | ) | $ | 2,349,979 | |||||
Total intangible assets | $ | 8,431,283 | $ | (852,348 | ) | $ | 7,578,935 |
Intangible assets with finite lives are amortized over the estimated periods benefitted on a straight- line basis. Amortization expense on intangible assets with finite lives for the period from May 21, 2021 (the acquisition date of Northeast) to December 31, 2021 was $852,348 and is included in depreciation and amortization expense condensed consolidated statement of operations and comprehensive loss. Amortization expense related to intangible assets for each of the next five fiscal years and thereafter is expected as follows:
Year Ending December 31, | Amount | |||
2022 | $ | 1,686,257 | ||
2023 | 1,686,257 | |||
2024 | 1,686,257 | |||
2025 | 1,686,257 | |||
Thereafter | 833,907 | |||
$ | 7,578,935 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The Company performs its goodwill impairment test annually and evaluates goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The Company performs the annual impairment testing of goodwill using October 1 as the measurement date. As all of the balance of goodwill was added in the year ended December 31, 2021, the Company has not yet performed its initial goodwill impairment test.
The Company anticipates that the majority of total goodwill recognized will be fully deductible for tax purposes as of December 31, 2021.
As of December 31, 2021 goodwill consisted of the following:
As of December 31, 2021 | ||||
Acquisition of Northeast | $ | 2,293,474 | ||
Acquisition of ChargeSavvy | 3,754,560 | |||
Total goodwill | $ | 6,048,034 |
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Debt consists of the following:
As of December 31, | ||||||||
2021 | 2020 | |||||||
$100,000,000 8% Senior convertible note due November 3, 2023, (see below) | $ | 58,655,178 | $ | - | ||||
$3,850,000 Convertible promissory note due July 27, 2021, with one time 10% interest charge, net of original issue discount of 10%, or $350,000, and net of warrants for 1,944,444 shares, valued at $3,500,000, net of debt discount of $2,993,408 | - | 856,592 | ||||||
1% Paycheck Protection Program loan, due April 29, 2022 | - | 272,713 | ||||||
$149,900 Economic Injury Disaster Loan (EIDL), interest rate of 3.75%, due June 1, 2050 | 149,900 | 149,900 | ||||||
$500,000 EIDL, interest rate of 3.75%, due May 8, 2050 | 500,000 | - | ||||||
Total debt | 59,305,078 | 1,279,205 | ||||||
Current portion | - | (1,129,305 | ) | |||||
Net long term debt | $ | 59,305,078 | $ | 149,900 |
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Senior Convertible Note
A continuity of the Notes for the year ended December 31, 2021 is summarized as follows:
Senior Convertible Notes | ||||
Balance, December 31, 2020 | $ | - | ||
Convertible debentures issued | 100,000,000 | |||
Derivative liability | (21,580,000 | ) | ||
Original Issue Discount of 16% | (16,000,000 | ) | ||
Placement fees and issuance costs | (7,200,000 | ) | ||
Accretion expense | 3,435,178 | |||
Balance, December 31, 2021 | $ | 58,655,178 |
Derivative liability
The Notes contain embedded derivatives representing the conversion features, redemption rights, and certain events of default. The Company determined that these embedded derivative required bifurcation and separate valuation.
The Company utilizes a binomial lattice model to value its bifurcated derivatives included in the Notes. ASC 815 does not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be combined together and fair valued as a single, compound embedded derivative. The Company selected a binomial lattice model to value the compound embedded derivative because it believes this technique is reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the Notes. Such assumptions include, among other inputs, stock price volatility, risk-free rates, credit risk assumptions, early redemption and conversion assumptions, and the potential for future adjustment of the conversion price due to triggering events. Additionally, there are other embedded features of the Notes requiring bifurcation, other than the conversion features, which had no value at December 31, 2021 due to management’s estimates of the likelihood of certain events, but that may have value in the future should those estimates change.
A continuity of derivative liability for the year ended December 31, 2021 is summarized as follows:
Total | ||||
Balance, December 1, 2020 | $ | - | ||
Derivative liability on convertible debentures | 21,580,000 | |||
Change in fair value | (2,845,000 | ) | ||
Balance, December 31, 2021 | $ | 18,735,000 |
The Company sold and issued, in a registered direct offering, an 8% senior convertible note due November 3, 2023 in the aggregate original principal amount of $100 million (the “Note”). The Note had an original issue discount of sixteen percent (16%) resulting in gross proceeds of $84$31 million. The Note was sold pursuant to the terms of a Securities Purchase Agreement, dated November 2, 2021 (the “SPA”), between The Company and the investor in the Note (the “Investor”).
The Note was issued on November 8, 2021, pursuant to an indenture dated November 2, 2021 between the Company and Wilmington Savings Fund Society, FSB, as trustee (the “Base Indenture”), as supplemented by a first supplemental indenture thereto, dated November 2, 2021, relating to the Notes (the “First Supplemental Indenture” and, the Base Indenture as supplemented by the First Supplemental Indenture, the “First Indenture”). The terms of the Note include those provided in the First Indenture and those made part of the First Indenture by reference to the Trust Indenture Act.
Ranking
The Note is the senior unsecured obligations of the Company and not the financial obligations of our subsidiaries. Until such date as the principal amount of the Note is $5 million or less, all payments due under the Note will be senior to all other indebtedness of the Company and/or any of our subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturity Date
Unless earlier converted, or redeemed, the Note will mature on November 5, 2023, the second anniversary of their issuance date, which we refer to herein as the “Maturity Date”, subject to the right of the investors to extend the date:
(i) if an event of default under the Note has occurred and is continuing (or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an event of default under the Note) and
(ii) for a period of 20 business days after the consummation of a fundamental transaction if certain events occur.
We are required to pay, on the Maturity Date, all outstanding principal, accrued and unpaid interest and accrued and unpaid late charges on such principal and interest, if any.
Interest
The Note bears interest at the rate of 8% per annum (a) shall commence accruing on the date of issuance, (b) shall be computed on the basis of a 360-day year and twelve 30-day months and (c) shall be payable in cash quarterly in arrears on the first trading day of each calendar quarter or otherwise in accordance with the terms of the Note. If a holder elects to convert or redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being converted or redeemed will also be payable. If we elect to redeem all or any portion of a Note prior to the Maturity Date, all accrued and unpaid interest on the amount being redeemed will also be payable. The interest rate of the Note will automatically increase to 15% per annum upon the occurrence and continuance of an event of default (See “-- Events of Default” below).
Late Charges
We are required to pay a late charge of 15% on any amount of principal or other amounts that are not paid when due.
Conversion
Fixed Conversions at Option of Holder
The holder of the Note may convert all, or any part, of the outstanding principal and interest of the Note, at any time at such holder’s option, into shares of our common stock at an initial fixed conversion price, which is subject to:
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On January 28, 2022, we and the Investor, entered into an Agreement and Waiver (the “Waiver”) with regard to the Note that has the following major provisions:
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GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company paid the investor $6.9 million on January 31, 2022.
The foregoing description of the Waiver does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Waiver, a copy of which is attached hereto as Exhibit 10.9, and incorporated herein by reference.
1-Year Alternate Optional Conversion
At any time following the first anniversary of the issuance date of the Note, but only if the closing bid price of our common stock on the immediately prior trading day is less than $6.50, each holder of the Note shall have the option to convert, at such holder’s option, pro rata, up to $30 million of the principal amount of the Note (in $250,000 increments) at the Alternate Optional Conversion Price.
Alternate Event of Default Optional Conversion
If an event of default has occurred under the Note, each holder may alternatively elect to convert the Note (subject to an additional 15% redemption premium) at the “Alternate Event of Default Conversion Price” equal to the lesser of:
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the greater of:
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Beneficial Ownership Limitation
The Note may not be converted and shares of common stock may not be issued under the Note if, after giving effect to the conversion or issuance, the applicable holder of the Note (together with its affiliates, if any) would beneficially own in excess of 4.99% of the Company’s outstanding shares of common stock, which is referred to herein as the “Note Blocker”. The Note Blocker may be raised or lowered to any other percentage not in excess of 9.99% at the option of the applicable holder of Notes, except that any raise will only be effective upon 61-days’ prior notice to us.
Clarification to First Quarter Adjustment to Fixed Conversion Price
The Company wishes to clarify the possible first quarter adjustment to the Note’s initial fixed conversion price (which was originally $15 and is now, pursuant to the Waiver, $12).
If, during the fiscal quarter ending March 31, 2022, the Company (i) fails to process at least $750 million in transaction volume or (ii) has revenue that is less than $12 million, and, if the Note’s fixed conversion price then in effect is greater than the greater of (x) the Note’s $1.67 floor price floor and (y) 140% of the market price as of April 1, 2022 (the "Adjustment Measuring Price”) then, on April 1, 2022, the fixed conversion price will automatically adjust to the Adjustment Measuring Price.
Change of Control Redemption Right
In connection with a change of control of the Company, each holder may require us to redeem in cash all, or any portion, of the Notes at a 15% redemption premium to the greater of the face value, the equity value of our common stock underlying the Notes and the equity value of the change of control consideration payable to the holder of our common stock underlying the Notes.
The equity value of our common stock underlying the Notes is calculated using the greatest closing sale price of our common stock during the period immediately preceding the consummation or the public announcement of the change of control and ending the date the holder gives notice of such redemption.
The equity value of the change of control consideration payable to the holder of our common stock underlying the Notes is calculated using the aggregate cash consideration per share of our common stock to be paid to the holders of our common stock upon the change of control.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Events of Default
Under the terms of the first supplemental indenture, the events of default contained in the base indenture shall not apply to the Notes. Rather, the Notes contain standard and customary events of default including but not limited: (i) the suspension from trading or the failure to list our common stock within certain time periods; (ii) failure to make payments when due under the Notes; and (iii) bankruptcy or insolvency of the Company.
If an event of default occurs, each holder may require us to redeem all or any portion of the Notes (including all accrued and unpaid interest and late charges thereon), in cash, at a 15% redemption premium to the greater of the face value and the equity value of our common stock underlying the Notes
The equity value of our common stock underlying the Notes is calculated using the greatest closing sale price of our common stock on any trading day immediately preceding such event of default and the date we make the entire payment required.
Company Optional Redemption Rights
At any time no event of default exits, we may redeem all, but not less than all, the Notes outstanding in cash all, or any portion, of the Notes at a 5% redemption premium to the greater of the face value and the equity value of our common stock underlying the Notes
The equity value of the Company’s common stock underlying the Notes is calculated using the greatest closing sale price of our common stock on any trading day during the period commencing on the date immediately preceding such date we notify the applicable holder of such redemption election and the date we make the entire payment required.
The foregoing description of the Note does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Note, a copy of which is attached hereto as Exhibit 4.3, and incorporated herein by reference.
Kingswood Capital (Syndicate Convertible Note) - $3,850,000
On October 27, 2020, the Company issued a convertible promissory note for $3,850,000 to various lenders through its placement agent, Kingswood Capital (“Kingswood Note”), due July 27, 2021 (the “Maturity Date”) with conversion price to common stock of $1.98 per share. The Kingswood Note included an original issue discount of $350,000, netting the balance received by the Company from Kingswood Note at $3,500,000. The Company also issued warrants for 1,944,444 shares with a fixed exercise price to common stock of $1.98 per share under the Kingswood Note. The Company valued the warrants using the Black-Scholes valuation method which amounted to $3,498,667 and recorded as a debt discount at the time of issuance of warrant.
The Kingswood Note was settled in the first quarter of 2021. The Company issued 1,944,416 shares to settle the debt and another 1,884,418 shares to settle the warrants. The Company received $3.7 million upon the settlement of the warrants.
SBA CARES Act Loans - $649,900
On June 9, 2020, the Company entered into a 30 year loan agreement with the SBA under the CARES Act in the amount of $149,900. The loan bears interest at 3.75% per annum and requires monthly principal and interest payments of $731 beginning June 9, 2021. Both the Chief Executive Officer and Chairman of the Company signed personal guarantees under this loan.
On May 8, 2020, Charge Savvy executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the TNB’s business. As of December 31, 2020, the loan payable, Emergency Injury Disaster Loan noted above is not in default.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), Charge Savvy borrowed an aggregate principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 8, 2021 (twelve months from the date of the SBA Loan) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Loan. In connection therewith, the Company also received a $10,000 grant, which does not have to be repaid. During the year ended December 31, 2020, $10,000 was recorded in Economy injury disaster loan (EIDL) grant income in the Statements of Operations. On Aug 24, 2021, Charge Savvy was granted an increase in loan principal in the amount of $350,000 on identical terms.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection therewith, Charge Savvy executed (i) loans for the benefit of the SBA (the “SBA Loan”), which contains customary events of default and (ii) Security Agreements, granting the SBA a security interest in all tangible and intangible personal property of Charge Savvy, which also contains customary events of default (the “SBA Security Agreement”).
Preferred Bank - Paycheck Protection Program – CARES Act - $272,713
On April 29, 2020, the Company entered into a loan agreement with Preferred Bank under Paycheck Protection Program administered by SBA in the amount of $272,713. Under this loan program, the loan may be forgiven if utilized for specific purpose specified under the CARES Act and PPP guideline. The loan bears interest of 1.00% per annum and matures on April 29, 2022.The loan was forgiven on November 8, 2021.
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The components of the provision for income taxes are as follows:
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Taxes on income vary from the statutory federal income tax rate applied to earnings before tax on income as follows:
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GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income tax assets and liabilities arising from differences between accounting for financial statement purposes and tax purposes, less valuation reserves at year end are as follows:
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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, 2021, the Company had federal and California net operating loss carryforwards of approximately $19.1 million and $8.8 million, respectively. Under the new tax law, the Federal net operating loss arising in tax years ending after December 31, 2017 will be carried forward indefinitely. The Company does not have pre-tax reform federal net operating loss carryforwards as of December 31, 2021. Net operating loss carryforwards arising tax years ending after December 31, 2017 is approximately $19.1 million. The California net operating loss carryforwards will begin to expire in 2038.
As of December 31, 2021 and 2020, 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 2018 and after, and state and local income tax returns are open for years 2017 and after.
NOL | |||||||||
FED | 19,100,072 | Pre 2017 | - | ||||||
CA | 8,783,525 | NOL after | 19,100,073 |
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The Company applies the provisions of ASC 718, “Compensation - Stock Compensation,” using a modified prospective application, and the Black-Scholes model to value stock options. Under this application, the Company records compensation expense for all awards granted. Compensation costs will be recognized over the period that an employee provides service in exchange for the award.
The Company adopted the 2020 Incentive and Non-statutory Stock Option Plan (“2020 Plan”) in June 2020, which provides for the grant of incentive stock options and nonqualified stock options to employees and directors. The 2020 Plan provides for up to 3.3 million shares of common stock. Options granted under the 2020 Plan generally have a term of five years and generally vest and become exercisable at various times from the option grant dates. These options will have such vesting or other provisions as may be established by the Board of Directors at the time of each grant.
The Company adopted the 2021 Incentive and Non-statutory Stock Option Plan (“2021 Plan”) in April 2021, which provides for the grant of incentive stock options and nonqualified stock options to employees, directors and consultants. The 2021 Plan provides for up to 5.0 million shares of common stock. Options granted under the 2021 Plan shall have a term of five to ten years and generally vest and become exercisable at various times from the option grant dates. These options will have such vesting or other provisions as may be established by the Board of Directors at the time of each grant.
The fair value of each share option award on the date of grant was estimated using the Black-Scholes method based on the following weighted-average assumptions:
Year Ended December 31, | ||||||||
2020 | 2021 | |||||||
Risk free interest rate | 0.29 | % | 0.29 | % | ||||
Expected term | 5 years | 5 years | ||||||
Expected volatility | 289.3% to 279.2 | % | 555.8 | % | ||||
Expected dividend yield | 0 | % | 0 | % |
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option award; the expected term represents the weighted-average period of time that option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based upon the Company’s dividend rate at the time fair value is measured and future expectations.
The Company recorded $1,021,725 and $1,759,164 of stock compensation expense for the years ended December 31, 2021 and 2020, respectively, related to the 2020 Plan.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the employee stock option activity during the years ended December 31, 2021 and 2020.
Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||||
Outstanding at December 31, 2019 | - | $ | - | |||||||||
Granted | 816,987 | 2.23 | ||||||||||
Exercised | (324,750 | ) | 0.39 | |||||||||
Forfeited or Expired | (14,808 | ) | 0.39 | |||||||||
Outstanding at December 31, 2020 | 477,430 | $ | 3.53 | $ | 1,437,114 | |||||||
Exercisable at December 31, 2020 | 467,247 | $ | 3.47 | $ | 1,432,226 | |||||||
Vested and Expected to Vest at December 31, 2020 | 477,430 | $ | 3.53 | $ | 1,437,114 | |||||||
Outstanding at December 31, 2020 | 477,430 | $ | 3.53 | |||||||||
Granted | 132,288 | 6.87 | ||||||||||
Exercised | (117,297 | ) | 0.50 | |||||||||
Forfeited or Expired | (100,858 | ) | 7.62 | |||||||||
Outstanding at December 31, 2021 | 391,562 | $ | 5.07 | $ | - | |||||||
Exercisable at December 31, 2021 | 377,039 | $ | 4.80 | $ | - | |||||||
Vested and Expected to Vest at December 31, 2021 | 391,562 | $ | 5.07 | $ | - |
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $4.20 and $6.54 as of December 31, 2021 and 20, respectively, which would have been received by the option holders had all option holders exercised their options as of that date. As of December 31, 2021 and 2020, there was unrecognized compensation cost related to non-vested stock options granted in the amount of $173,433 and $40,797, respectively.
The Company adopted the 2021 Restricted Stock Plan (“2021 Plan”) in November 2021, which provides for the grant of restricted stock awards and performance stock awards to executive officers, non-employee directors and other key employees of the Company. The 2021 Plan provides for up to 5.0 million shares of common stock. the 2020 Plan generally have a term of five years and generally vest and become exercisable at various times from the option grant dates. These award will have such vesting or other provisions as may be established by the Board of Directors at the time of each award.
A summary of the status of the Company’s non-vested restricted stock awards as of December 31, 2021 is presented below:
Non-vested Restricted Stock Awards | Weighted Average Grant Date Fair Value | |||||||
Non-vested at January 1, 2021 | - | |||||||
Granted | 359,226 | $ | 4.95 | |||||
Vested | (359,226 | ) | $ | 4.95 | ||||
Forfeited | - | $ | - | |||||
Non-vested at December 31, 2021 | - | $ | - |
Total stock-based compensation expense recognized for the Company’s 2021 Plan was $1,776,750 for the year ended December 31, 2021.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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, in accordance with ASC 842, Leases.
The Company leases office space at three locations in California, Florida and Massachusetts
The components of lease expense are as follows: | ||||||||
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
Operating lease expense | $ | 433,025 | $ | 32,904 | ||||
Amortization of right-of-use assets | 39,757 | 241 | ||||||
Total lease expense | $ | 472,782 | $ | 33,145 |
Future minimum lease payments for all leases as of December 31, 2021 are as follows: | ||||
Year | Amount | |||
2022 | $ | 627,689 | ||
2023 | 463,532 | |||
2024 | 234,354 | |||
2025 | 241,373 | |||
2026 | 248,605 | |||
Thereafter | 42,463 | |||
Total lease payments | 1,858,016 | |||
Less: present value adjustment | (326,987 | ) | ||
Present value of total lease liabilities | 1,531,029 | |||
Less: current lease liabilities | (495,134 | ) | ||
Long-term lease liabilities | $ | 1,035,895 |
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the lease commencement date. As of December 31, 2021, the weighted average remaining lease term is 3.8 years and the weighted average discount rate used to determine the operating lease liabilities is 10.0%.
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The Company had the following related party transactions:
● Kenneth Haller and the Haller Companies
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 (the “Haller Network”). The Haller Network is an amalgamation of the collective networks of Haller and two companies owned or majority-owned by Haller, which are Sky Financial & Intelligence, LLC (“Sky”), and Charge Savvy, 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 with whom the Company does business through their respective business relationship with MTrac.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are certain transactions between the Company and the Haller Companies:
Sky Financial & Intelligence, LLC – Haller owns 100% of Sky Financial & Intelligence LLC (“Sky”), a Wyoming limited liability company, and serves as its sole Managing Member. Sky is a strategic merchant services company that focuses on high risk merchants and international credit card processing solutions. In 2018, Sky was using GreenBox’s QuickCard payment system as its main payment processing infrastructure, through Sky’s relationship with MTrac. It was through this successful relationship, that we came to know Haller and the Haller Network. Realizing that the Haller Network and Haller’s unique skill set was highly complementary to our business objectives, we commenced discussions to retain Haller through his consulting 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 Payment Systems, for a monthly consulting fee of $10,000, paid to Sky (“Haller Consulting Fee”). The Company did not pay any commissions to the related parties mentioned above for the years ended December 31, 2021 and 2020.
The Company recognized net revenue of $13,130,482 from outside third-party merchants through independent sales organization (ISO), Sky, for the year ended December 31, 2012. The Company had accounts receivables of $6,540,027 from outside third-party merchants through Sky.Sky as of December 31, 2021 which have since been received. Net revenue through Sky for the year 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 certain 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 Company.
Charge Savvy, LLC – Sky owns 68.4% of Charge 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 and 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. Since January 1, 2021, the Company has paid $907,897 in legal fees to Lucosky Brookman.
Item 14 - Principal Accounting Fees and Services
The following fees were paid to BF Borgers CPA, PC for services rendered in years ended December 31, 2020 and 2021. 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 | - |
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(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 to render audit or non-audit services, the engagement is approved by our Audit Committee. Our Audit Committee approved all of the fees referred to in the rows titled “Audit Fees,” and “All Other Fees” in the table above.
Legal Proceedings
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GREENBOX POSPART IV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 15 - Exhibits and Financial Statement Schedules
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The following is a list of all exhibits filed or furnished as part of this report.
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:
Exhibit |
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31.3 |
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31.4 | Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a), As adopted Pursuant to Section 302 of the | X | ||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | X |
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 2, 2022 | By: | /s/ Benjamin Chung | |
Benjamin Chung | |||
Chief Financial Officer | |||