UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE) | |
☒ |
|
For the quarterly periodended June 30, 2021 | |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from______________ to ______________ | |
For the quarterly period ended:Commission file number: June 30, 2020001-34294
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-34294
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(Exact name of registrantsmall business issuer as specified in its charter)
Nevada | 22-3962936 | |
(State or other jurisdiction of | incorporation or organization) | (IRS Employer Identification |
8880 Rio San Diego Dr, Suite 102
San Diego, CA 92108
3131 Camino Del Rio North, Suite 1400 SanDiego, CA | 92108 |
(Address of principal executive offices) | (Zip Code) |
(619)-631-8261
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) |
| Name of each exchange onwhich registered | |
| GBOX |
|
|
Indicate by check markCheck whether the registrantissuer (1) has filed all reports required to be filed by sectionSection 13 or 15(d) of the Securities Exchange Act of 1934 during the precedingpast 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 ☐ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
AsNumber of August 5, 2020, there were 181,050,238 shares outstanding of the registrant’sissuer’s classes of common stock.equity, as of August 6, 2021 was 43,343,091Shares of Common Stock (One Class)
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TABLE OF CONTENTS
Page | |||
PART | |||
Item 1. | 3 | ||
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3 | |||
4 | |||
5 | |||
7 | |||
Notes to | 8 | ||
Item 2. | Management’s Discussion and Analysis | 19 | |
Item 3. | |||
Item 4. | 25 | ||
PART IIOther Information | |||
| |||
Item 1. | |||
| |||
Item 2. | 26 | ||
Item 3. | 26 | ||
Item 4. | 26 | ||
Item 5. | 26 | ||
Item 6. | 26 | ||
27 | |||
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | ||||||||
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | - | $ | - | ||||
Restricted cash | 697,232 | 763,110 | ||||||
Accounts receivable, net of allowance for bad debt of $0 and $0, respectively | 10,000 | 70,257 | ||||||
Accounts receivables from fines and penalties from merchants, net of allowance for bad debt of $6,665,031 | 2,789,230 | 2,776,687 | ||||||
Cash due from gateways, net | 5,297,642 | 8,426,844 | ||||||
Prepaid and other current assets | 75,403 | 42,062 | ||||||
Total current assets | 8,869,507 | 12,078,960 | ||||||
Non-current Assets: | ||||||||
Property and equipment, net | 65,603 | 66,491 | ||||||
Operating lease right-of-use assets, net | 175,442 | 229,639 | ||||||
Total non-current assets | 241,045 | 296,130 | ||||||
Total assets | $ | 9,110,552 | $ | 12,375,090 | ||||
Current Liabilities: | ||||||||
Accounts payable | $ | 470,761 | $ | 504,505 | ||||
Other current liabilities | 29,454 | 15,100 | ||||||
Accrued interest | 84,000 | 368,071 | ||||||
Payment processing liabilities, net | 12,944,341 | 14,021,892 | ||||||
Short-term notes payable, net of debt discount of $78,000 and $32,418, respectively | 617,184 | 741,253 | ||||||
Convertible debt | 225,000 | 807,500 | ||||||
Derivative liability | - | 1,050,063 | ||||||
Current portion of operating lease liabilities | 58,898 | 113,935 | ||||||
Total current liabilities | 14,429,638 | 17,622,319 | ||||||
Operating lease liabilities, less current portion | 120,111 | 120,110 | ||||||
Total liabilities | 14,549,749 | 17,742,429 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Common stock, par value $0.001, 495,000,000 shares authorized, shares issued and outstanding of 181,050,238 and 169,862,933, respectively | 181,150 | 169,863 | ||||||
Common stock - issuable | - | 695 | ||||||
Additional paid-in capital | 1,396,360 | 1,179,272 | ||||||
Accumulated deficit | (7,016,707 | ) | (6,717,169 | ) | ||||
Total stockholders' equity | (5,439,197 | ) | (5,367,339 | ) | ||||
Total liabilities and stockholder's equity | $ | 9,110,552 | $ | 12,375,090 | ||||
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 29,796,748 | $ | 0 | ||||
Restricted cash | 0 | 1,832,735 | ||||||
Accounts receivable, net of allowance for bad debt of $0 and $0, respectively | 75,444 | 10,000 | ||||||
Accounts receivable from fines and penalties from merchants, net of allowance for bad debt of $6,665,031 and $6,665,031, respectively | 2,789,230 | 2,789,230 | ||||||
Cash due from gateways, net | 15,759,069 | 7,303,949 | ||||||
Prepaid and other current assets | 2,028,552 | 70,130 | ||||||
Total current assets | 50,449,043 | 12,006,044 | ||||||
Non-current Assets: | ||||||||
Property and equipment, net | 113,836 | 57,264 | ||||||
Other assets | 180,636 | 81,636 | ||||||
Goodwill | 2,305,394 | 0 | ||||||
Intangible Assets, net | 257,748 | 0 | ||||||
Operating lease right-of-use assets, net | 832,636 | 117,795 | ||||||
Total non-current assets | 3,690,250 | 256,695 | ||||||
Total assets | $ | 54,139,293 | $ | 12,262,739 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 520,478 | $ | 210,094 | ||||
Other current liabilities | 135,991 | 68,138 | ||||||
Payment processing liabilities, net | 4,295,519 | 10,199,956 | ||||||
Note payable, payroll protection plan loan | 272,713 | 272,713 | ||||||
Convertible debt, net of debt discount of $0 and $2,993,408, respectively | 0 | 856,592 | ||||||
Current portion of operating lease liabilities | 431,487 | 120,110 | ||||||
Total current liabilities | 5,656,188 | 11,727,603 | ||||||
Long term liabilities | 149,900 | 149,900 | ||||||
Operating lease liabilities, less current portion | 401,744 | 0 | ||||||
Total liabilities | 6,207,832 | 11,877,503 | ||||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Common stock, par value $0.001, 82,500,000 shares authorized, shares issued and | 42,327 | 30,711 | ||||||
Additional paid-in capital | 73,916,018 | 12,079,074 | ||||||
Accumulated deficit | (25,093,541 | ) | (11,724,549 | ) | ||||
Less: Treasury stock, at cost; 90,000 and 0 shares, respectively | (933,343 | ) | 0 | |||||
Total stockholders' equity | 47,931,461 | 385,236 | ||||||
Total liabilities and stockholder's equity | $ | 54,139,293 | $ | 12,262,739 | ||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 2,292,859 | $ | 3,309,747 | $ | 2,480,064 | $ | 4,277,745 | ||||||||
Cost of revenue | 1,411,683 | 3,041,064 | 1,658,988 | 3,768,355 | ||||||||||||
Gross profit | 881,176 | 268,683 | 821,076 | 509,390 | ||||||||||||
Operating expenses: | ||||||||||||||||
Advertising and marketing | 15,384 | 12,603 | 27,269 | 25,609 | ||||||||||||
Research and development | 267,686 | 600,264 | 554,234 | 704,186 | ||||||||||||
General and administrative | 113,653 | 119,685 | 246,422 | 199,252 | ||||||||||||
Payroll and payroll taxes | 428,758 | 310,858 | 842,958 | 547,047 | ||||||||||||
Professional fees | 293,622 | 127,473 | 507,593 | 307,018 | ||||||||||||
Depreciation and amortization | 5,716 | 3,615 | 11,092 | 6,455 | ||||||||||||
Total operating expenses | 1,124,819 | 1,174,498 | 2,189,568 | 1,789,567 | ||||||||||||
Loss from operations | (243,643 | ) | (905,815 | ) | (1,368,492 | ) | (1,280,177 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (30,659 | ) | (24,738 | ) | (319,249 | ) | (174,953 | ) | ||||||||
Interest expense - debt discount | (8,342 | ) | - | (38,418 | ) | (188,273 | ) | |||||||||
Derivative expense | (4,373 | ) | - | (4,373 | ) | (634,766 | ) | |||||||||
Changes in fair value of derivative liability | 2,619,250 | (412,158 | ) | (1,203,135 | ) | (365,370 | ) | |||||||||
Gain from extinguishment of convertible debt | 2,612,246 | - | 2,630,795 | - | ||||||||||||
Other income or expense | (2,177 | ) | 167 | 3,334 | - | |||||||||||
Total other expense, net | 5,185,945 | (436,729 | ) | 1,068,954 | (1,363,362 | ) | ||||||||||
Loss before provision for income taxes | 4,942,302 | (1,342,544 | ) | (299,538 | ) | (2,643,539 | ) | |||||||||
Income tax provision | - | - | - | - | ||||||||||||
Net loss | $ | 4,942,302 | $ | (1,342,544 | ) | $ | (299,538 | ) | $ | (2,643,539 | ) | |||||
Earnings (loss) per share: | ||||||||||||||||
Basic and diluted | $ | 0.03 | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | |||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic and diluted | 173,898,204 | 166,509,363 | 176,953,079 | 166,449,863 | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue | $ | 6,379,179 | $ | 2,292,859 | $ | 11,128,620 | $ | 2,480,064 | ||||||||
Cost of revenue | 1,323,480 | 1,411,683 | 2,917,251 | 1,658,988 | ||||||||||||
Gross profit | 5,055,699 | 881,176 | 8,211,369 | 821,076 | ||||||||||||
Operating expenses: | ||||||||||||||||
Advertising and marketing | 22,605 | 15,384 | 47,330 | 27,269 | ||||||||||||
Research and development | 808,210 | 267,686 | 1,461,591 | 554,234 | ||||||||||||
General and administrative | 298,030 | 101,523 | 864,225 | 234,292 | ||||||||||||
Payroll and payroll taxes | 1,061,929 | 428,758 | 1,621,130 | 842,958 | ||||||||||||
Professional fees | 867,472 | 293,622 | 1,325,224 | 507,593 | ||||||||||||
Stock compensation for employees | 1,291,887 | 12,130 | 2,089,500 | 12,130 | ||||||||||||
Stock compensation for services | 726,933 | 0 | 10,180,758 | 0 | ||||||||||||
Depreciation and amortization | 14,244 | 5,716 | 20,253 | 11,092 | ||||||||||||
Total operating expenses | 5,091,310 | 1,124,819 | 17,610,011 | 2,189,568 | ||||||||||||
Income (Loss) from operations | (35,611 | ) | (243,643 | ) | (9,398,642 | ) | (1,368,492 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense | 0 | (30,659 | ) | (594,258 | ) | (319,249 | ) | |||||||||
Interest expense - debt discount | 0 | (8,342 | ) | (2,993,408 | ) | (38,418 | ) | |||||||||
Derivative expense | 0 | (4,373 | ) | 0 | (4,373 | ) | ||||||||||
Changes in fair value of derivative liability | 0 | 2,619,250 | 0 | (1,203,135 | ) | |||||||||||
Gain from extinguishment of convertible debt | 0 | 2,612,246 | 0 | 2,630,795 | ||||||||||||
Merchant liability settlement | 0 | 0 | (364,124 | ) | 0 | |||||||||||
Other income or expense | (3,949 | ) | (2,177 | ) | (18,560 | ) | 3,334 | |||||||||
Total other expense, net | (3,949 | ) | 5,185,945 | (3,970,350 | ) | 1,068,954 | ||||||||||
Income (Loss) before provision for income taxes | (39,560 | ) | 4,942,302 | (13,368,992 | ) | (299,538 | ) | |||||||||
Income tax provision | 0 | 0 | 0 | 0 | ||||||||||||
Net income (loss) | $ | (39,560 | ) | $ | 4,942,302 | $ | (13,368,992 | ) | $ | (299,538 | ) | |||||
Earnings (loss) per share: | ||||||||||||||||
Basic and diluted | $ | (0.00 | ) | $ | 0.17 | $ | (0.43 | ) | $ | (0.01 | ) | |||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic and diluted | 31,078,605 | 28,983,034 | 31,208,102 | 29,492,180 | ||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS’ DEFICIT
(UNAUDITED)
Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | |||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance at March 31, 2020 | 175,921,933 | $ | 175,922 | - | $ | - | $ | 1,293,588 | $ | (11,959,009 | ) | (10,489,499 | ) | |||||||||||||||
Common stocks issued from conversion of convertible debt | 5,128,205 | 5,128 | - | - | 94,872 | - | 100,000 | |||||||||||||||||||||
Common stocks issued - donation | 100,000 | 100 | - | - | 7,900 | - | 8,000 | |||||||||||||||||||||
Net loss | - | - | - | - | - | 4,942,302 | 4,942,302 | |||||||||||||||||||||
Balance at June 30, 2020 | 181,150,138 | $ | 181,150 | - | $ | - | $ | 1,396,360 | $ | (7,016,707 | ) | $ | (5,439,197 | ) | ||||||||||||||
Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | at Cost | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at March 31, 2021 | 40,917,331 | $ | 40,918 | - | $ | - | $ | - | $ | 71,898,401 | $ | (25,053,981 | ) | $ | 46,885,338 | |||||||||||||||||
Issuance of stock | 1,171,849 | 1,172 | - | - | - | (1,172 | ) | - | - | |||||||||||||||||||||||
Common stock issued for services | 206,259 | 206 | - | - | - | 726,933 | - | 727,139 | ||||||||||||||||||||||||
Common stock issued for non-cash stock option exercise | 30,780 | 31 | - | - | - | (31 | ) | - | - | |||||||||||||||||||||||
Treasury stock | (90,000 | ) | - | - | - | (933,343 | ) | - | - | (933,343 | ) | |||||||||||||||||||||
Stock compensation expense | - | - | - | - | - | 1,291,887 | - | 1,291,887 | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (39,560 | ) | (39,560 | ) | ||||||||||||||||||||||
Balance at June 30, 2021 | 42,236,219 | $ | 42,327 | - | $ | - | $ | (933,343 | ) | $ | 73,916,018 | $ | (25,093,541 | ) | $ | 47,931,461 | ||||||||||||||||
Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | |||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance at March 31, 2019 | 166,390,363 | $ | 166,390 | 1,150,000 | $ | 5,500 | $ | 1,001,251 | $ | (3,333,590 | ) | (2,160,449 | ) | |||||||||||||||
Common stock and warrants issuable forfeited | - | - | (150,000 | ) | (4,500 | ) | (55,311 | ) | - | (59,811 | ) | |||||||||||||||||
Share issued to employees and vendor | 860,000 | 860 | - | - | 85,640 | - | 86,500 | |||||||||||||||||||||
Shares issuable from conversion of convertible debt | - | - | 2,307,692 | 2,308 | 147,692 | - | 150,000 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (1,342,544 | ) | (1,342,544 | ) | |||||||||||||||||||
Balance at June 30, 2019 | 167,250,363 | $ | 167,250 | 3,307,692 | $ | 3,308 | $ | 1,179,272 | $ | (4,676,134 | ) | $ | (3,326,304 | ) | ||||||||||||||
Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | at Cost | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at March 31, 2020 | 29,320,322 | $ | 29,320 | - | $ | - | $ | - | $ | 1,440,190 | $ | (11,959,009 | ) | $ | (10,489,499 | ) | ||||||||||||||||
Common stocks issued from conversion of convertible debt | 854,701 | 855 | - | - | - | 99,145 | - | 100,000 | ||||||||||||||||||||||||
Common stocks issued - donation | 16,667 | 17 | - | - | - | 7,983 | - | 8,000 | ||||||||||||||||||||||||
Net income | - | - | - | - | - | - | 4,942,302 | 4,942,302 | ||||||||||||||||||||||||
Balance at June 30, 2020 | 30,191,690 | $ | 30,192 | - | $ | - | $ | - | $ | 1,547,318 | $ | (7,016,707 | ) | $ | (5,439,197 | ) | ||||||||||||||||
Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | |||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance at December 31, 2019 | 169,862,933 | $ | 169,863 | 695,122 | $ | 695.00 | $ | 1,179,272 | $ | (6,717,169 | ) | $ | (5,367,339 | ) | ||||||||||||||
Shares issuable adjustment | - | - | (695,122 | ) | $ | (695 | ) | 695 | - | - | ||||||||||||||||||
Common stocks issued from conversion of convertible debt | 11,128,205 | 11,128 | - | - | 204,422 | - | 215,550 | |||||||||||||||||||||
Common stocks issued for professional fees | 59,000 | 59 | - | - | 4,071 | - | 4,130 | |||||||||||||||||||||
Common stocks - issued donation | 100,000 | 100 | - | - | 7,900 | - | 8,000 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (299,538 | ) | (299,538 | ) | |||||||||||||||||||
Balance at June 30, 2020 | 181,150,138 | $ | 181,150 | $ | - | $ | - | $ | 1,396,360 | $ | (7,016,707 | ) | $ | (5,439,197 | ) | |||||||||||||
Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | |||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance at December 31, 2018 | 166,390,363 | $ | 166,390 | 1,000,000 | $ | 1,000 | $ | 945,940 | $ | (2,032,595 | ) | (919,265 | ) | |||||||||||||||
Common stock issuable under convertible debt | - | - | 25,000 | 4,500 | - | - | 4,500 | |||||||||||||||||||||
Warrants issuable under convertible debt | - | - | 125,000 | - | 55,311 | - | 55,311 | |||||||||||||||||||||
Common stock and warrants issuable forfeited | - | - | (150,000 | ) | (4,500 | ) | (55,311 | ) | - | (59,811 | ) | |||||||||||||||||
Share issued to employees and vendor | 860,000 | 860 | - | - | 85,640 | - | 86,500 | |||||||||||||||||||||
Shares issuable from conversion of convertible debt | - | - | 2,307,692 | 2,308 | 147,692 | - | 150,000 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (2,643,539 | ) | (2,643,539 | ) | |||||||||||||||||||
Balance at June 30, 2019 | 167,250,363 | $ | 167,250 | 3,307,692 | $ | 3,308 | $ | 1,179,272 | $ | (4,676,134 | ) | $ | (3,326,304 | ) | ||||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
| Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | at Cost | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2020 | 30,710,645 | $ | 30,711 | - | $ | - | $ | - | $ | 12,079,074 | $ | (11,724,549 | ) | $ | 385,236 | |||||||||||||||||
Common stock issued for exercise of warrant | 1,777,778 | 1,778 | - | - | - | 3,518,222 | - | 3,520,000 | ||||||||||||||||||||||||
Common stock issued for conversion of convertible debt | 1,944,444 | 1,944 | - | - | - | 3,848,056 | - | 3,850,000 | ||||||||||||||||||||||||
Common shares issued for restricted shares to executive | 83,333 | 83 | - | - | - | (83 | ) | - | - | |||||||||||||||||||||||
Common stock issued for services | 990,118 | 990 | - | - | - | 10,179,974 | - | 10,180,964 | ||||||||||||||||||||||||
Common stock issued for interest for convertible debt | 96,664 | 97 | - | - | - | 594,258 | - | 594,355 | ||||||||||||||||||||||||
Common stock issued for non-cash stock option exercise | 70,112 | 70 | - | - | - | (70 | ) | - | - | |||||||||||||||||||||||
Common stock issued for stock options exercised | 5,500 | 6 | - | - | - | 2,244 | - | 2,250 | ||||||||||||||||||||||||
Issuances of common stock, net of issuance costs of $4,305,758 | 4,772,500 | 4,773 | - | - | - | 45,800,718 | - | 45,805,491 | ||||||||||||||||||||||||
Issuance of common stock | 1,171,849 | 1,172 | - | - | - | (1,172 | ) | - | - | |||||||||||||||||||||||
Payment for previous common stock repurchased under treasury method | - | - | - | - | - | (4,194,000 | ) | - | (4,194,000 | ) | ||||||||||||||||||||||
Issuances of common stock from previous unregistered shares | 703,276 | 703 | - | - | - | (703 | ) | - | - | |||||||||||||||||||||||
Stock compensation expense | - | - | - | - | - | 2,089,500 | - | 2,089,500 | ||||||||||||||||||||||||
Purchases of treasury stock | (90,000 | ) | - | - | - | (933,343 | ) | - | - | (933,343 | ) | |||||||||||||||||||||
Net loss | - | - | - | - | - | - | (13,368,992 | ) | (13,368,992 | ) | ||||||||||||||||||||||
Balance at June 30, 2021 | 42,236,219 | $ | 42,327 | - | $ | - | $ | (933,343 | ) | $ | 73,916,018 | $ | (25,093,541 | ) | $ | 47,931,461 | ||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||
Shares | Amount | To be Issued | Amount | at Cost | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance at December 31, 2019 | 28,310,489 | $ | 28,310 | 115,854 | $ | 116 | $ | - | $ | 1,321,404 | $ | (6,717,169 | ) | $ | (5,367,339 | ) | ||||||||||||||||
Shares issuable adjustment | - | - | (115,854 | ) | (116 | ) | - | 116 | - | - | ||||||||||||||||||||||
Common stock issued from conversion of convertible debt | 1,854,701 | 1,855 | - | - | - | 213,695 | - | 215,550 | ||||||||||||||||||||||||
Common stock issued for professional fees | 9,833 | 10 | - | - | - | 4,120 | - | 4,130 | ||||||||||||||||||||||||
Common stocks - issued donation | 16,667 | 17 | - | 7,983 | - | 8,000 | ||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (299,538 | ) | (299,538 | ) | ||||||||||||||||||||||
Balance at June 30, 2020 | 30,191,690 | $ | 30,192 | - | $ | - | $ | - | $ | 1,547,318 | $ | (7,016,707 | ) | $ | (5,439,197 | ) | ||||||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
UNUAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (299,538 | ) | $ | (2,643,539 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation expense | 11,092 | 6,456 | ||||||
Noncash lease expense | (839 | ) | 3,219 | |||||
Stock compensation expense | 12,130 | 85,640 | ||||||
Interest expense - debt discount | 38,418 | 188,273 | ||||||
Derivative expense | 4,373 | 634,766 | ||||||
Gain (loss) on extinguishment of debt | (2,630,795 | ) | - | |||||
Changes in fair value of derivative liability | 1,203,135 | 365,370 | ||||||
Changes in assets and liabilities: | ||||||||
Other receivable, net | 47,714 | - | ||||||
Prepaid and other current assets | (33,341 | ) | 35,110 | |||||
Cash due from gateways, net | 3,502,426 | (3,184,361 | ) | |||||
Accounts payable | (33,597 | ) | (39,054 | ) | ||||
Other current liabilities | 14,354 | 15,356 | ||||||
Accrued interest | (290,021 | ) | 9,442 | |||||
Payment processing liabilities, net | (1,077,551 | ) | 6,364,927 | |||||
Net cash provided by (used in) operating activities | 467,960 | 1,841,605 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (10,244 | ) | (41,634 | ) | ||||
Net cash used in investing activities | (10,244 | ) | (41,634 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings from convertible debt | - | 482,500 | ||||||
Repayments on convertible debt | (445,000 | ) | (496,500 | ) | ||||
Borrowigs from notes payable | 744,480 | - | ||||||
Principal payments on notes payable | (823,074 | ) | - | |||||
Repayment on long-term debt | - | (75,000 | ) | |||||
Net cash provided by (used in) financing activities | (523,594 | ) | (89,000 | ) | ||||
Net increase in cash, cash equivalents, and restricted cash | (65,878 | ) | 1,710,971 | |||||
Cash, cash equivalents, and restricted cash – beginning of period | 763,110 | 284,978 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 697,232 | $ | 1,995,949 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 525,270 | $ | 125,511 | ||||
Income taxes | $ | 800 | $ | 800 | ||||
Non-cash financing activities: | ||||||||
Convertible debt conversion to common stock | $ | 137,500 | $ | (150,000 | ) | |||
Interest accrual from convertible debt converted to common stock | $ | 78,050 | $ | - | ||||
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (13,368,992 | ) | $ | (299,538 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation expense | 13,338 | 11,092 | ||||||
Amortization expense | 6,915 | 0 | ||||||
Noncash lease expense | (1,720 | ) | (839 | ) | ||||
Stock compensation expense | 2,089,500 | 12,130 | ||||||
Common stocks issued for professional fees | 10,180,758 | 0 | ||||||
Stock compensation issued for interest | 594,258 | 0 | ||||||
Interest expense - debt discount | 2,993,408 | 38,418 | ||||||
Derivative expense | 0 | 4,373 | ||||||
Gain (loss) on extinguishment of debt | 0 | (2,630,795 | ) | |||||
Changes in fair value of derivative liability | 0 | 1,203,135 | ||||||
Changes in assets and liabilities: | ||||||||
Other receivable, net | (65,444 | ) | 47,714 | |||||
Prepaid and other current assets | (1,958,422 | ) | (33,341 | ) | ||||
Cash due from gateways, net | (8,455,120 | ) | 3,502,426 | |||||
Other assets | (99,000 | ) | 0 | |||||
Accounts payable | 239,131 | (33,597 | ) | |||||
Other current liabilities | 67,853 | 14,354 | ||||||
Accrued interest | 0 | (290,021 | ) | |||||
Payment processing liabilities, net | (5,904,437 | ) | (1,077,551 | ) | ||||
Net cash provided by (used in) operating activities | (13,667,974 | ) | 467,960 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (68,411 | ) | (10,244 | ) | ||||
Cash provided for acquisition | (2,500,000 | ) | 0 | |||||
Net cash used in investing activities | (2,568,411 | ) | (10,244 | ) | ||||
Cash flows from financing activities: | ||||||||
Treasury stock repurchase | (933,343 | ) | 0 | |||||
Proceeds from stock option exercises | 2,250 | 0 | ||||||
Repayments on convertible debt | 0 | (445,000 | ) | |||||
Borrowings from notes payable | 0 | 744,480 | ||||||
Principal payments on notes payable | 0 | (823,074 | ) | |||||
Proceeds from exercise of warrant | 3,520,000 | 0 | ||||||
Repurchase of common stock from stockholder | (4,194,000 | ) | 0 | |||||
Proceeds from issuance of common stock | 45,805,491 | 0 | ||||||
Net cash provided by (used in) financing activities | 44,200,398 | (523,594 | ) | |||||
Net increase in cash, cash equivalents, and restricted cash | 27,964,013 | (65,878 | ) | |||||
Cash, cash equivalents, and restricted cash – beginning of period | 1,832,735 | 763,110 | ||||||
Cash, cash equivalents, and restricted cash – end of period | $ | 29,796,748 | $ | 697,232 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 0 | $ | 525,270 | ||||
Income taxes | $ | 800 | $ | 800 | ||||
Non-cash financing activities: | ||||||||
Convertible debt conversion to common stock | $ | 3,850,000 | $ | 137,500 | ||||
Interest accrual from convertible debt converted to common stock | $ | 0 | $ | 78,050 | ||||
Short-term notes payable converted to common stock | $ | - | $ | - | ||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Organization
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 GreenBox POS,ASAP Expo, Inc (“ASAP”), whichand was incorporated in the state of Nevada on April 10, 2007 under the laws of the State of Nevada.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)Buyer) and PrivCo which was formed on August 10, 2017 (the seller)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, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the(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.”
Name Change
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.
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.
Unaudited Interim Financial Information
These unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2020.
The balance sheets and certain comparative information as of December 31, 2019 are derived from the audited financial statements and related notes for the year ended December 31, 2019 (“2019 Annual Financial Statements”), included in the Company’s 2019 Annual Report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the 2019 Annual Financial Statements.
Basis of Presentation and Consolidation
The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America.America (“GAAP”) for interim financial information. All intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements.
Unaudited Interim Financial Information
Certain information and footnote disclosures normally included in the Company’s annual audited financial statements and accompanying notes have been condensed or omitted in these accompanying interim consolidated financial statements and footnotes. Accordingly, the accompanying interim consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.
GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the combined accountsresults 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”).all interim periods reported herein.
Going ConcernCOVID-19 considerations
AsIn December 2019, a novel strain of June 30,coronavirus (“COVID-19”) was identified and the disease has since spread across the world. In March 2020, the Company had cashWorld Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and cash equivalents of $0, has incurred a net loss of $299,538 for the six months ended June 30, 2020,created significant volatility and has accumulated a deficit of $7,016,707. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Additionally, as the GreenBox ecosystem grows, substantially larger volumes of working capital financing will be required to support our platform’s growth.
The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Accordingly, the accompanying financial statements have been prepared in conformity with GAAP, which contemplate our continuation as a going concern, and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presenteddisruption in the financial statements do not necessarily purportand capital markets. The full extent to represent realizablewhich 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 settlement values. Thetreat 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 statements do not include any adjustment that might result fromcondition and cash flows may be materially adversely affected, particularly if the outcomepandemic persists for a significant period of this uncertainty.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 materially differ from those estimates.
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.
June 30, 2020 | December 31, 2019 | |||||||
Cash and cash equivalents | $ | - | $ | - | ||||
Restricted cash | 697,232 | 763,110 | ||||||
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows | $ | 697,232 | $ | 763,110 | ||||
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Cash Due from Gateways and Payment Processing Liabilities
The Company’s primary source of revenues continues to beis 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 20192021 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 areararrears strategy. While reserve and payment in areararrears restrictions are in effect for a merchant payout, the Company records gateway debt against these amounts until released.
Therefore, the total gateway balances reflected inCash due from gateways on the Company’s books representunaudited consolidated balance sheets represents the amount owed to the Company for processing – these are funds from transactions processed and not yet distributed.
Advertising and Marketing Costsprocessing.
Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $15,384 and $12,603 for the three months ended June 30, 2020 and 2019, respectively, and $27,269 and $25,609 for the six months ended June 30, 2020 and 2019, respectively.
Research and Development Costs
Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits for research and development personnel, outsourced contract services, and supplies and materials costs. Research and development expenses were $267,686 and $600,264 for the three months ended June 30, 2020 and 2019, respectively, and $554,234 and $704,186 for the six months ended June 30, 2020 and 2019, respectively.
Revenue Recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.
The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.
The Company generates revenue from payment processing services, licensing fees and equipment sales.
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GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Accounts Receivables from Fines and Fees from MerchantsRevenue Recognition
The fines and penalties chargedRevenue is recognized upon transfer of control of promised goods or services to the Company’s merchants is a normal course of business and historically,customers or when the Company has had more than 90% collections success rate. These fees and penalties represent certain chargebacks which are at fault by the Company’s merchants and are imposed as the merchant agreement between the Company and the merchant.satisfies any performance obligations under contract. The Company has legal rights under the merchant agreement to claim the chargeback. These chargebacks, fees, and fines are earned and delivered because the Company has been “chargebacked” by the Gateways and the Company has legal rights under the agreement to claim this against the merchants.
In end of Q3 2019, GreenBox received constructive notice of potential violations of its Terms of Service by a merchant, The Good People Farms (“TGPF”). An ongoing audit and investigation of this account resulted in the discovery of a number of violations GreenBox believes TGPF is responsible for, including but not limited to violations of VISA, Mastercard, and American Express’s rules.
This investigation is ongoing, but initial results indicate that excessively high chargeback percentages are connected with fraudulent activity and / or transaction laundering. These issues lead to the implementation of aggressive bank reserves, stunting GreenBox’s ability to conduct business and contributed to undetermined consequential damages. GreenBox promptly terminated the merchant account and placed all processed funds on reserve.
Although the investigation is ongoing, GreenBox estimates that the total amount of fees, fines, and chargebacks are currently $9,441,718. The Company has provided for an allowance for bad debt of $6,665,031 onrevenue reflects the gross balance of $9,441,718 bringing to net balance of $2,789,230 which is included as accounts receivables from fines and penalties from merchants. To date, GreenBox has successfully recouped $840,739.33 (collected in 2019). Theconsideration the Company expects to recoup at minimum approximately $2.8Mbe entitled to in fiscal year 2020. The Company may assess $100,000 per fraudulent transactionsexchange 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 Company used $5,000 per transaction to calculateobligation can be fully satisfied must be identified and recorded on the fees and fines.balance sheet until respective settlements have been met.
The Company recorded net balanceCompany’s primary revenue source is generated from payment processing services. Payment processing services revenue is based on a percentage of $2,776,687each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as other incomesuch transactions or services are performed, at a point in the statements of operations for the year ended December 31, 2019.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 utilizesassesses the fair value of financial instruments based on the provisions of ASC 820-10, 820, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fairs. ASC 820 defines fair value is defined as the exitexchange price or the amount that would be received to sellfor an asset or paid to transfer a liability (an exit price) in an orderly transactionthe principal or most advantageous market for the asset or liability between market participants as ofon the measurement date. The guidanceASC 820 also establishes a hierarchy for inputs used in measuring fair value that maximizeswhich requires an entity to maximize the use of observable inputs and minimizesminimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. measuring fair value.
The guidance establishesstandard describes three levels of inputs that may be used to measure fair value:
Level 1.1- Quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than Level 1 prices such as quoted prices in active markets;
Level 2. Inputs, other than thefor similar assets or liabilities, quoted prices in active markets that are not active, or other inputs that are observable either directly or indirectly; andcan be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3.3- Unobservable inputs in which there isthat are supported by little or no market data, which requireactivity and that are significant to the reporting entity to develop its own assumptions.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 discount rate. The change in this input could result in a change of fair value measurement:
Fair Value at May 21, 2021 | Valuation Technique | Unobservable Input | Range | ||||||||
Customer Relationship | $ | 264,663 | Multiple-period excess earnings method | Discount rate | 15.90 | % | |||||
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.
The Company’s financial instruments consistedGREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Impairment of cash, accounts payable and accrued liabilities, advances to due toLong-Lived Assets
Long-lived assets are reviewed for impairment whenever management believes that events or from affiliated companies, notes payable to officers. The estimated fair value of cash, accounts payable and accrued liabilities, due to or from affiliated companies, and notes payable approximates itschanges in circumstances indicate that the carrying amount dueof 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 short maturity of these instruments.Company does not believe that impairment indicators are present, and accordingly, based on this assessment, no further impairment analysis was performed.
The table below describes the Company’s valuation of financial instruments using guidance from ASC 820-10:Income Taxes
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December 31, 2019 | Level 1 | Level 2 | Level 3 | |||||||||
Derivative liability | $ | - | $ | - | $ | 1,050,063 | ||||||
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net of operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
Long-Lived Asset Impairments
The Company reviews long-lived assets, including property and equipment and intangible assets, for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, and at least annually. The Company considers assets to be impaired and writes them down to estimated fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows.
Earnings Per Share
A basic earnings per share is computed by dividing net income to common stockholders by the weighted average number of shares outstanding for the year. Dilutive earnings per share include the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive. The Company’s diluted earnings/loss per share is the same as the basic earnings/loss per share for the three and six months ended March 31,June 30, 2021 and 2020, and 2019, as there are no potential shares outstanding other than options that would have a dilutive effect.
LeasesReverse Common Stock Split (1 for 6)
Prior to January 1, 2019, the Company accounted for leases under Accounting Standards Codification (ASC) 840, Accounting for Leases. Effective from January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases
On February 25, 2016,17, 2021, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), to increase transparencyCompany effected a reverse stock split of the Company’s shares of common stock outstanding and comparability among organizations by recognizing lease assetsa 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). As a result, common shares information has been retrospectively restated accordingly in the financial statements as of and lease liabilities onfor the balance sheetthree 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.six months ended June 30, 2020.
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 FinancialRecently Adopted Accounting Standards Board (“FASB”) including ASC Topic 840, Leases.Updates
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 Issued Accounting Updates
In February 2016,August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with prior GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease. However, unlike prior GAAP—which required only finance (formerly capital) leases to be recognized on the balance sheet—the new ASU requires both types of leases to be recognized on the balance sheet. The ASU took effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This standard can be applied at the beginning of the earliest period presented using the modified retrospective approach, which includes certain practical expedients that an entity may elect to apply, including an election to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840.
The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of liabilities of $307,531 and $309,677, respectively as of March 31, 2019. The difference between the operating lease ROU assets and operating lease liabilities at transition represented tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. TheThis standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncementmeasurements, and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. While theThe Company is currently in the process of evaluating the effects of this standard on the consolidated financial statements, the Company plans to adoptadopted ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the adoption did not have any impact from this standard to be immaterial.the Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities2019, and can choose to adopt the new guidancebe adopted either prospectively or retrospectively. TheAccordingly, the Company plans to adoptadopted the updated disclosure requirements of ASU No. 2018-15 prospectively in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the adoption did not have any impact fromto the Company’s financial statements.
GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2019-12 in the first quarter of fiscal 2020 and the adoption did not have any impact to the Company’s financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard are elective and are effective upon issuance for all entities. The Company is evaluating the expedients and exceptions provided by the amendments in this standard to be immaterial.determine their impact.
Other recently issued accounting updates are not expected to have a material impact on the Company’s Interim Financial Statements.
3. | ACQUISITION |
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.
Preliminary 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 | 264,663 | |||
Goodwill | 2,305,394 | |||
| 2,570,057 | ||||
Total net assets acquired | $ | 2,500,000 |
The acquisition was funded through cash on hand, and there were no 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.
GREENBOX POS
NOTES TO UNAUDITED��CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. | SETTLEMENT PROCESSING |
The Company’s proprietary blockchain-based technology serves as the settlement engine for all transactions within the Company’s ecosystem. The blockchain ledger provides a robust and secure platform to log immense volumes of immutable transactional records in real time. Generally speaking, blockchain is a distributed ledger that uses digitally encrypted keys to verify, secure and record details of each transaction conducted within an ecosystem. Unlike general blockchain-based systems, GreenBox uses proprietary, private ledger technology to verify every transaction conducted within the GreenBox ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by us. GreenBox facilitates all financial elements of our closed-loop ecosystem and we act as the administrator for all related accounts. Using our TrustGateway technology, we seek authorization and settlement for each transaction from Gateways to the issuing bank responsible for the credit/debit card used in the transaction. When the Gateway settles the transaction, our TrustGateway technology composes a chain of blockchain instructions to our ledger manager system.
When consumers use credit/debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer purchasing tokens from us. The issuance of tokens is accomplished when we load a virtual wallet with a token, which then transfers credits to the merchant’s wallet on a dollar for dollar basis, after which the merchant releases its goods or services to the consumer. These transfers take place instantaneously and seamlessly, allowing the transaction experience to seem like any other ordinary credit/debit card transaction to the consumer and merchant. While our blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between us and the gateways we use, between us and our ISOs, and between us and/or our ISOs and merchants who use our services. In the case where we have received transaction funds, but not yet paid a merchant or an ISO, we hold funds in either a trust account or as cash deemed restricted within our operating accounts. We record the total of such funds as Cash held for Settlementsdue from gateways, net – a Current Asset. Of these funds, we record the sum balance due to Merchants and ISOs as Settlement Liabilities to Merchants and Settlement Liabilities to ISOs, respectively.
The table below shows the status of transaction settlements:
June 30, 2020 | December 31, 2019 | |||||||
Settlement Processing Assets: | ||||||||
Cash held for settlements | $ | 697,232 | $ | 755,395 | ||||
Cash due from gateways | 3,276,151 | 3,073,183 | ||||||
Amount due from gateways and merchants – hold and fees | 6,949,467 | 4,824,223 | ||||||
Chargeback allowances (1) | - | - | ||||||
Reserves (2) | 2,021,491 | 5,353,661 | ||||||
Total before allowance for uncollectable | 12,944,341 | 14,021,892 | ||||||
Allowance for uncollectable – hold and fees | (6,949,467 | ) | (4,824,223 | ) | ||||
Cash held for settlement | (697,232 | ) | (763,110 | ) | ||||
Total – settlement processing assets | $ | 5,297,642 | $ | 8,426,844 | ||||
Settlement Processing Liabilities: | ||||||||
Settlement liabilities to merchants | 12,944,341 | 14,021,892 | ||||||
Settlement liabilities to ISOs | - | - | ||||||
Refund allowances (3) | - | - | ||||||
Totals | $ | 12,944,341 | $ | 14,021,892 | ||||
(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.
(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.
(3) The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using the Company’s proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with allowances.
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Cash due from gateways consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
Cash due from Gateways | $ | 3,276,151 | $ | 3,073,183 | ||||
Amount due from gateways and merchants – hold and fees | 6,949,467 | 4,824,223 | ||||||
Reserves (2) | 2,021,491 | 5,353,661 | ||||||
Total cash due from gateways | 12,247,109 | 13,251,067 | ||||||
Chargeback Allowances (1) | - | - | ||||||
Allowance of uncollectable – hold and fees | (6,949,467 | ) | (4,824,223 | ) | ||||
Total cash due from gateways, net | $ | 5,297,642 | $ | 8,426,844 | ||||
(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.
(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.
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Property and equipment consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
Computers | $ | 46,200 | $ | 38,938 | ||||
Furniture | 40,320 | 37,339 | ||||||
Kiosks | 6,472 | 12,750 | ||||||
Vehicles | 4,578 | 4,578 | ||||||
Total property and equipment | 97,570 | 93,605 | ||||||
Less: Accumulated depreciation | (31,967 | ) | (27,114 | ) | ||||
Total property and equipment, net | $ | 65,603 | $ | 66,491 | ||||
Depreciation expense was $5,376 and $3,615 for the three months ended June 30, 2020 and 2019, respectively, and $11,092 and $6,455 for the six months ended June 30, 2020 and 2019, respectively.
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Payment processing liabilities, consisted of the following:net – a Current Liability.
June 30, 2020 | December 31, 2019 | |||||||
Settlement liabilities to merchants | $ | 12,944,341 | $ | 14,021,892 | ||||
Settlement liabilities to ISOs | - | - | ||||||
Total processing liabilities | 12,944,341 | 14,021,892 | ||||||
Refund allowances | - | - | ||||||
Total payment processing liabilities | $ | 12,944,341 | $ | 14,021,892 | ||||
The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using our proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with our allowance.
| CONVERTIBLE NOTES PAYABLE |
Convertible notes payable consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
March 11, 2019 ($500,000) – 8% one-time interest charge with outstanding principal and interest due October 6, 2019. | $ | 255,000 | $ | 500,000 | ||||
November 26, 2018 ($200,000) – 12% interest per annum with outstanding principal and interest due November 26, 2019. | - | 200,000 | ||||||
March 15, 2018 ($300,00) – 12% interest per annum with outstanding principal and interest due March 15, 2019. | - | 107,500 | ||||||
Total convertible notes payable | $ | 255,000 | $ | 807,500 | ||||
June 30, 2021 | December 31, 2020 | |||||||
October 27, 2020 ($3,850,000) – 10% one-time interest charge with outstanding principal and interest due July 27, 2021. | $ | - | $ | 3,850,000 | ||||
Total convertible notes payable | 0 | 3,850,000 | ||||||
Debt discount | 0 | (2,993,408 | ) | |||||
Total convertible notes payable, net of debt discount | $ | 0 | $ | 856,592 | ||||
VistaKingswood Capital Investments, LLC(Syndicate Convertible Note) - $500,000 (original received $375k)$3,850,000
On March 11, 2019, PubCoOctober 27, 2020, the Company issued a convertible promissory note for $500,000$3,850,000 to Vistavarious lenders through its placement agent, Kingswood Capital Investments, LLC (“Vista”) (the “VistaKingswood Note”), due October 6, 2019July 27, 2021 (the “Maturity Date”). with conversion price to common stock of $1.98 per share. The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon repayment of the Vista Note. The VistaKingswood Note included an original issue discount of $125,000,$350,000, netting the balance received by PubCothe Company from VistaKingswood Note at $375,000.$3,500,000. The Vista transaction included commitment fees, which took the formCompany also provided warrant of an obligation by PubCo1,944,444 with a fixed exercise price to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock inof $1.98 per share under the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”). The Vista Note’s principal and interest were due to be paid October 6, 2019.
Kingswood Note. The Company valued its warrant of 1,944,444 with fixed exercise price of $1.98 using Black-Scholes valuation method which amounted to $3,498,667 and Vista amendedrecorded as a debt discount at the time of issuance of warrant. The convertible debt agreement as follows:was converted in February 2021.
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GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. |
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On April 21, 2020, Vista converted $100,000 of convertible debt by receiving 5,128,205 common shares. On June 15,29, 2020, the Company obtained a $272,713, 2-year loan from a regional bank (the “Lender”) pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under Title 1 of the CARES Act. The loan bears interest of 1.00% per annum and Vista entered into a settlement agreement, whereby,no payments were due for the first six months. The Company certified in the Application that 100% of the loaned funds were utilized during the 24-week covered period commencing April 29, 2020 to pay for qualified payroll and payroll related costs, and as such, requested that the entire principal balance be forgiven. The Company expects the entire PPP loan to be forgiven and the Company will pay $225,000 on June 19, 2020 and $225,000 on July 19, 2020 and issuing 5,128,205 common sharesis awaiting SBA approval to settle all ofextinguish the outstanding balance including accrued interest. The Company has provided payment on those dates to fully settle the balance accordingly.loan.
RB Cap – $200,000
On November 26, 2018, PubCo issued a convertible promissory note for $200,000 to RB Cap (the “RB Cap $200K Note”). The note incurs interest at 12% per year and the outstanding principal and accrued interest are due November 26, 2019. RB Cap may elect to convert the note at any time from six months from the date of issuance at a fixed price per share of $4.50. This note became part of a claim/counter claim suit with RB Capital. The Company paid the loan with full settlement during the quarter ended March 31, 2020. As part of the payment settlement for all RB Cap convertible notes, the Company collectively provided 6,000,000 common shares.
RB Cap – $300,000
On or about March 15, 2018, PrivCo issued a twelve-month, $300,000 convertible promissory note to RB Capital Partners (“RB Cap”), with an interest rate of 12% per annum (“RB Cap 300K Note”). The note’s convertibility feature commenced six months after the note’s issuance, at a conversion rate of $0.001 per share of the Company’s common stock. Under the terms of the Agreement which memorialized the Verbal Agreement, we assumed the note, however, PrivCo agreed to pay $185,000 of the principal balance due on this note. On or about June 8, 2018, PrivCo transferred 440,476 restricted shares of Common Stock from the Control Block, with a market value of $185,000, to a purported designee of RB Cap, as a payment of principal of the note. Subsequently, RB Cap disputed the reduction in principal and subsequently, and we, along with PrivCo, disputed whether these shares should have been issued by PrivCo, and sought their return. On or about October 23, 2018, we issued 7,500,000 newly issued, restricted shares of our stock to RB Cap, in repayment of $7,500 of the RB Cap $300,000 Note. Subsequently, we disputed whether these shares should have been issued to RB Cap. As of December 31, 2018, our recorded principal balance for the note was $107,500 and accrued interest on the note was $15,880. On or about March 13, 2019, we issued a final cash payment towards the RB Cap 300K Note of approximately $126,092 (the “Payoff Funds”). However, RB Cap contested the amount of the Payoff Funds. The Company paid the loan of $50,000 during the quarter ended March 31, 2020 and settled the rest of the outstanding balance including interest with shares issuances. As part of the payment settlement for all RB Cap convertible notes, the Company collectively provided 6,000,000 common shares.
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Short-term notes payable consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
December 10, 2019 ($260,000) – Total interest charge of $106,000 with daily installments (5 days per week) of $4,073 for four months totaling $366,000. | $ | - | $ | 213,671 | ||||
December 9, 2019 ($200,000) – Total interest charge of $40,000 with 15 weekly installments of $16,000 totaling $240,000. | - | 160,000 | ||||||
November 12, 2019 ($400,000) – Total interest charge of $196,000 with daily installments (5 days per week) of $5,960 for four months totaling $596,000. | 124,000 | 400,000 | ||||||
June 3, 2020 ($300,000) – Total weekly payment of $13,714 for total of 28 payments. | 272,571 | - | ||||||
June 9, 2020 ($150,000) – Monthly payment of $731 after 12 months with maturity date of June 1, 2050 with interest rate at 3.75% per annum. | 149,900 | - | ||||||
April 29, 2020 ($272,713) – Paycheck protection program (“PPP”) loan provided by SBA under CARES Act with interest rate at 1.00% per annum with maturity date of April 29, 2022. | 272,713 | - | ||||||
Total short-term notes payable | $ | 695,184 | 773,671 | |||||
Debt discount | (78,000 | ) | (32,418 | ) | ||||
Total short-term notes payable, net of debt discount | $ | 617,184 | $ | 741,253 | ||||
Fox Capital Group, Inc. - $260,000
On or about December 5, 2019, PubCo entered into a Secured Merchant Agreement with Fox Capital Group, Inc. (“Fox”). Under the terms of the Secured Merchant Agreement, the Company agreed to sell Fox $366,000 of future incoming cashflow from the GreenBox Business, to be delivered to Fox in daily installments of $4,073, for $260,000, from which $26,000 in fees was deducted, providing the Company with net cash of $234,000. For accounting purposes, the Company recorded this transaction as a loan of $260,000, with interest of $106,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Secured Merchant Agreement.
Complete Business Solutions Group, Inc. - $200,000
On or about December 9, 2019, PubCo entered into an Agreement for the Purchase and Sale of Future Receivables (the “Purchase and Sale Agreement”) with Complete Business Solutions Group Inc, (“CBSG”). Under the terms of the Purchase and Sale Agreement, we agreed to sell CBSG $240,000 of future incoming cashflow from the GreenBox Business, to be delivered to CBSG in weekly installments of $16,000, for $200,000, from which $35 in fees was deducted, providing us with net cash of $199,965. For accounting purposes, we recorded this transaction as a loan of $200,000, with interest of $40,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase and Sale Agreement.
West Coast Business Capital, LLC - $400,000
On or about November 12, 2019, the Company entered into a Purchase Agreement with West Coast Business Capital, LLC (“West Coast”). Under the terms of the Purchase Agreement, the Company agreed to sell West Coast $596,000 of future incoming cashflow from the GreenBox Business, to be delivered to West Coast in daily installments of $5,960, for $400,000, from which $16,000 in fees was deducted, providing the Company with net cash of $384,000. For accounting purposes, the Company recorded this transaction as a loan of $400,000, with interest of $196,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.
Itria Ventures - $300,000
On June 3, 2020, the Company entered into a loan agreement with Itria Ventures in the amount of $300,000. The loan requires weekly payment of $13,714 for total of 28 payments until fully paid. The loan bears 4.09% interest per annum. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.
SBA CARES Act Loan - $150,000
On June 9, 2020, the Company entered into a 30 year loan agreement with the SBA under the CARES Act in the amount of $150,000. The loan requires monthly payment of $731 after 12 months with maturity date of June 1, 2050 with interest rate at 3.75% per annum. Both Nisan and Errez, individually, signed personal guarantees for this Purchase 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.$149,900. The loan bears interest of 1.00%at 3.75% per annum and matures on April 29, 2022.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.
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Derivative liability consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
Beneficial conversion feature – convertible debt | $ | - | $ | 1,050,063 | ||||
Total derivative liability | $ | - | $ | 1,050,063 | ||||
On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon payback of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”).
Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and valued the derivative using the Black-Scholes method. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated life and interest rates) that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s operating results will reflect the volatility in these estimate and assumption changes.
The Company performs valuation of derivative instruments atadopted the end of each reporting period. The fair value of derivative instruments is recorded and shown separately under current liabilities as these instruments can be converted anytime. Changes in fair value are recorded in the consolidated statement of income under other income (expenses).
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The Company did not have income tax provision (benefit) due to net loss and deferred tax assets having a full valuation allowances as of and for the three and six months ended June 30, 2020 and 2019.
The provision for income taxes differs from the amounts computed by applying the federal statutory tax rate of 21% to earnings before income taxes, as follows:
Three and Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Book income at statutory rate | 21.00 | % | 21.00 | % | ||||
Others | 0 | % | -0.80 | % | ||||
Change in Valuation Allowance | -21.00 | % | -20.14 | % | ||||
Effective income tax rate | 0 | % | 0.06 | % | ||||
Deferred tax assets and liabilities consist of the following tax-effected temporary differences:
June 30, 2020 | December 31, 2019 | |||||||
Deferred tax assets (liabilities): | ||||||||
Charitable contributions | $ | - | $ | - | ||||
Unearned revenue | - | - | ||||||
Depreciation | - | - | ||||||
Net operating loss carryforward | 725,000 | 498,888 | ||||||
Total deferred tax assets, net | 725,000 | 498,888 | ||||||
Valuation allowance | (725,000 | ) | (498,888 | ) | ||||
Net deferred tax assets (liabilities) | $ | - | $ | - | ||||
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 June 30, 2020, the Company had federal and California net operating loss carryforwards of approximately $3.5 million. The federal and California net operating loss carryforwards will expire at various dates from 2026 through 2028; however, $3.5 million of the Federal operating loss does not expire and will be carried forward indefinitely.
As of June 30, 2020 and December 31, 2019, the Company maintained full valuation allowance for net operating loss carryforward deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced.
The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statutes of limitations for its consolidated federal income tax returns are open for years 2016 and after, and state and local income tax returns are open for years 2015 and after.
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The Company issued the following common shares:
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On June 19, 2020, the Company adopted 2020 Incentive and Non-statutory Stock Option Plan (the “2020(“2020 Plan”) in June 2020, which provided for the grant of incentive stock options and nonqualified stock options to our 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 ten years and generally vest and become exercisable at various times from the option grant dates. The 2020 Plan provide for the grant of incentive stock options, non-qualified stock options and restricted stock to our employees, directors and independent contractors. These options will have such vesting or other provisions as may be established by making 10,000,000 shares available to be issued to employeesthe Board of Directors at the Company. time of each grant.
At its discretion,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 grants share option awards, nonvested share awards and nonvested share unit awards to certain employees, as defined by ASC 718, Compensation—Stock Compensation, under the Company’s 2020 Plan, and accounts for its stock compensation in accordance with ASC 718. The stockrecords compensation expense for all awards granted. Compensation costs will be recognized over the three months and six months ended June 30, 2020 was not material.
The Company granted stock options of total of 3,145,116 on June 22, 2020 and June 24, 2020 withperiod that an exercise price of $0.070 per shareemployee provides service in exchange for shares issued on June 22, 2020 and $0.065 per share for shares issued on June 24, 2020 with full vesting after six months from the grant date.
A summary of the status of the Company’s share option awards is presented below:
Weighted- | ||||||||||||||||
| Average | ||||||||||||||||
Weighted- | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Exercise | Life | Intrinsic | ||||||||||||||
Shares | Price | (In Years) | Value | |||||||||||||
Outstanding at December 31, 2019 | - | $ | - | |||||||||||||
Granted | 3,145,116 | 0.07 | ||||||||||||||
Forfeited or Expired | - | - | ||||||||||||||
Outstanding at June 30, 2020 | 3,145,116 | $ | 0.07 | 0.46 | $ | 220,158 | ||||||||||
Exercisable at June 30, 2020 | - | $ | - | - | $ | - | ||||||||||
Vested and Expected to Vest at June 30, 2020 | 112,835 | $ | 0.07 | - | $ | - | ||||||||||
The aggregate intrinsic value represents the total pretax intrinsic value, based upon the Company’s most recent closing stock price of $0.07 as of June 30, 2020, which would have been received by the option holders had all option holders exercised their option awards as of that date.award.
The fair value of each share option award on the date of grant iswas estimated using the Black-Scholes method based on the following weighted-average assumptions:
3 Months Ended | 6 Months Ended | |||||||||||||||
June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||||||||
Weighted average fair value of options granted | $ | 0.07 | $ | - | $ | 0.07 | $ | - | ||||||||
Risk-free interest rate | 0.29 | % | - | 0.29 | % | - | ||||||||||
Expected term | 5 years | - | 5 years | - | ||||||||||||
Expected volatility | 289.33 | % | - | 289.33 | % | - | ||||||||||
Expected dividend yield | - | - | - | - | ||||||||||||
June 30, 2021 | December 31, 2020 | |||||||
Risk-free interest rate | 0.29 | % | 0.29 | % | ||||
Expected term | 5 years | 5 years | ||||||
Expected volatility | 396.64 | % | 289.33% to 279.18 | % | ||||
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 current dividend rate.rate at the time fair value is measured and future expectations.
The Company recorded stock compensation expense of $2,089,500 and $12,130 for the six months ended June 30, 2021 and 2020, respectively, and $1,291,887 and $12,130 for the three months ended June 30, 2021 and 2020, respectively.
GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. | STOCK OPTION AWARDS (continued) |
A summary of the status of our stock options is presented below as of June 30, 2021:
Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (In Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at December 31, 2020 | 514,607 | $ | 2.30 | 0.00 | $ | 3,365,527 | ||||||||||
Granted | 230,122 | 10.59 | ||||||||||||||
Exercised | (100,802 | ) | 0.46 | |||||||||||||
Forfeited or expired | (68,428 | ) | 2.50 | |||||||||||||
Outstanding at June 30, 2021 | 575,499 | 7.06 | 0.21 | 6,865,703 | ||||||||||||
Exercisable as of June 30, 2021 | 446,295 | 5.37 | 0.21 | 5,324,299 | ||||||||||||
Vested and expected to Vest as of June 30, 2021 | 547,834 | 6.80 | 0.21 | 6,535,660 | ||||||||||||
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $11.93 as of June 30, 2021, which would have been received by the option holders had all option holders exercised their options as of that date. As of June 30, 2020,2021, there was $219,900unrecognized compensation cost related to non-vested stock options granted in the amount of total unrecognized compensation$329,599.
9. | GOODWILL AND OTHER INTANGIBLE ASSETS |
As of June 31, 2021 goodwill and intangible assets consists of the following:
June 30, 2021 | |||||||||||||
Amortization Period | Cost | Accumulated Amortization | Net | ||||||||||
Customer relationships | 5 years | $ | 264,663 | $ | 6,915 | $ | 257,748 | ||||||
Goodwill | $ | 2,305,394 | $ | 0 | $ | 2,305,394 | |||||||
Total goodwill and intangibles | $ | 2,563,142 | |||||||||||
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 June 30, 2021 was $6,915 and is included in depreciation and amortization expense in the unaudited condensed consolidated statement of operations and comprehensive loss. Amortization expense related to share option awards granted. That expenseintangible assets for each of the next five fiscal years and thereafter is expected to be recognized over a weighted-average period of six months.as follows:
Years Ending | ||||
December 31, | ||||
2021 | $ | 26,466 | ||
2022 | 52,932 | |||
2023 | 52,932 | |||
2024 | 52,932 | |||
2025 | 52,932 | |||
Thereafter | 19,554 | |||
| $ | 257,748 | |||
GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
| STOCK REPURCHASE PROGRAM |
On May 13, 2021, the Company announced a plan to repurchase a portion of its outstanding shares not to exceed a dollar maximum established by the Board. From May 13, 2021 to June 30, 2021, the Company has repurchased a total of 90,000 shares at an aggregate cost of $933,343.
11. | RELATED PARTY TRANSACTIONS |
The Company had the following related party transactions:
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Dan Nusinovich – The Company hired Dan Nusinovich on or about February 19, 2018 as the Company’s Development and Testing Manager. Dan is the brother of Fredi Nisan, our CEO and Director. Subsequently, the Company entered into a Referral Commission Agreement with Dan in November 2018, which expired November 2019, under which Dan is to receive 10% for new business resulting from his direct introductions. To date, no new business has been generated by Dan, thus Dan has not been paid under the Referral Agreement. On or about June 18, 2019, the Company issued 160,000 restricted shares to Dan, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $16,000 at closing, on the day of issuance. The Company currently pays Dan approximately $96,000 per year.
Liron Nusinovich – The Company hired Liron Nusinovich on or about July 16, 2018 as our Risk Analyst. Liron is the brother of Fredi Nisan, our CEO and Director. On or about June 18, 2019, the Company issued 110,000 restricted shares to Liron, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $11,000 at closing, on the day of issuance. The Company currently pays Liron approximately $92,000 per year.
Pop N Pay, LLC – In addition to his employment with the Company, Dan Nusinovich owns 100% of Pop N Pay, LLC (“PNP”), a Delaware registered limited liability company, that he formed on August 20, 2018. During the late summer of 2018, when both market opportunity and demand necessitated opening additional bank accounts to support our payment processing products and services, we turned to PNP to open new accounts, as a trustee, on our behalf. For his assistance, Dan, through his ownership of PNP, received approximately $3,000 (in addition to Dan’s salary) in early 2019, for services rendered in the fourth quarter of 2018.
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IPX Referral Payments, LLC – Pouya Moghavem, an employee since August 1, 2018, owns 25% of IPX Referral Payments, LLC (“IPX”). In addition to the $5,000 monthly salary we pay Moghavem, the Company entered into a Referral Agreement with IPX wherein the Company agreed to compensate IPX for referrals, which subsequently become the Company’s customer. For the three months ended March 31, 2019 and 2018, IPX did not earn any commissions. Additionally, in or about October 2018, IPX provided GreenBox with a merchant trust account in Mexico through Affinitas Bank, one of the Gateways that process payment transactions on the Company’s behalf. The Company did not pay IPX for this service, however, IPX reported that Affinitas paid IPX approximately $1,830.
RB Capital – Because PrivCo agreed to sell RB Cap 4% of PrivCo in January 2018, which currently purportedly gives RB Cap a claim to approximately six million PubCo shares, RB Cap is deemed an affiliated Party. In March 2018, PrivCo issued a $300,000 convertible promissory note to RB Cap, the balance of which PubCo assumed when we acquired the GreenBox Business from PrivCo. On November 26, 2018, we issued a $200,000 convertible promissory to RB Cap. Subsequently, RB Cap and GreenBox disputed the implications of the share purchase and promissory notes. The implications of this ownership and RB Cap’s claim to PubCo shares are in dispute, which became the subject of a lawsuit with RB Cap (see Legal Matters under Subsequent Events). This was settled on February 27, 2020.
America 2030 Capital Limited and Bentley Rothschild Capital Limited – On or about July 30, 2018, Nisan and Errez, the sole officers and directors of PubCo, and the majority owners of PrivCo, each entered into a separate Master Loan Agreement (each an "MLA"): Errez with America 2030 Capital Limited (“America 2030”) and Nisan with Bentley Rothschild Capital Limited ("Bentley"), a company affiliated with America 2030, both located in Nevis, West Indies. Each MLA was for a $5,700,000 loan, at 5.85% interest, maturing in ten years. Per the MLA’s terms, Nisan and Errez caused PrivCo to transfer 1,600,000 PubCo shares, valued at $2,144,000 at close of trading on the day of issuance, as "Transferred Collateral" from the Control Block (not a new issuance by PubCo) to Bentley (although both contracts acknowledge receipt of 1.6 million shares, there was only was transference of 1.6 million shares). The transfer occurred on or about August 1, 2018. To date, there has been no funding under either of the MLAs. Subsequently, both Nisan and Errez received constitutive notice, regarding arbitration of an alleged breach of their respective MLAs. As of March 31, 2020, both parties have abandoned the matter and no further action was required by either party.
● | 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, which the Company believes, are capable of processing $1 billion transactions annually (the “Haller Network”). The Haller Network is an amalgamation of the collective networks of Haller and three
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”), Charge Savvy, LLC, Cultivate, LLC (collectively, the “Haller Companies”), each of which has formalized business relationships with the Company, as well as with some of the Company’s partners, which the Company believes allows the Company to maximize and diversity the Company’s market penetration capabilities. Haller, through Sky, owns controlling interests in Charge Savvy, LLC and Cultivate, LLC, with whom we do business indirectly, through their respective business relationship with MTrac. We also do business directly with Cultivate LLC, through a three-party agreement, which includes us, MTrac and Cultivate.
The following are certain transactions between the Company and the Haller Companies:
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| 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. 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 |
■ |
| 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%). |
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The Company did not pay any commissions to Charge Savvy or Cultivatethe related parties mentioned above for the three and six months ended June 30, 20202021 and 2019.2020.
GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
| COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
The Company has the following legal proceedings:
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● | GreenBox POS v. A.M.P of |
● | America 2030 Capital Limited and Bentley Rothschild Capital Limited – On or about October 31, 2018, Nisan and Errez received constitutive notice, regarding arbitration against Nisan, Errez, PrivCo and possibly PubCo, from Bentley Rothschild Capital Limited ("Bentley") and America 2030 Capital Limited (“America 2030”), both located in Nevis, West Indies, and both claiming breach of contract by Nisan and Errez of Nisan and Errez’s respective individual Master Loan Agreements |
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| The Good People Farms, LLC (TGPF) – |
Operating Leases
The Company entered into the following operating facility lases:leases:
● | Hyundai Rio Vista – On October 4, 2018, the Company entered into an operating facility lease for its corporate office located in San Diego with 38 months term and with option to renew. The lease started on October 4, 2018 and expires on October 3, |
● | Camino Del Rio – On and effective April 2021, the Company entered into an operating facility lease for its corporate office located in San Diego with monthly lease payments of $33,135 per month. |
For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the incremental borrowing rate. The adoption of ASC 842 resulted in recording an adjustment toCompany has recorded operating lease right of use assetassets and operating lease liabilities of $175,442$832,636 and $179,009$833,231 respectively, as of June 30, 2020.2021. The difference between the operating lease ROU asset and operating lease liabilities at transition represented existing deferred rent expensesrepresents differences in the cash paid and tenant improvements, and indirect costs that was derecognized.straight-line lease expense recognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.
In accordance with ASC 842, the components
Three months ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Amortization of right-of-use assets, net of liability amortization | $ | 115 | $ | 1,073 | $ | 229 | $ | 2,146 | ||||||||
Operating lease expense | 32,904 | 31,945 | 65,807 | 63,890 | ||||||||||||
Total lease expense | $ | 33,018 | $ | 33,018 | $ | 66,036 | $ | 66,036 | ||||||||
GREENBOX POS
NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
| SUBSEQUENT EVENTS |
The Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Accordingly, the Company did not have any subsequent events that require disclosure other than the following:
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ITEM2. MANAGEMENT’MANAGEMENT’SS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOR PLAN OF OPERATIONS
Disclaimer Regarding Forward Looking Statements
Our Management’s Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview – Organization and New Name Changes
Organization – GreenBox POS (the “Company” or “PubCo”) 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, PrivCo and GreenBox POS, a Nevada corporation (“PubCo”) entered into the Agreement to memorialize the Verbal Agreement with PrivCo which was formed on August 10, 2017 (the seller). On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”). For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
New Name – Changes
Underwritten Public Offering and Nasdaq Listing
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 $50.11 million as the representative of the Underwriters exercised in full its over-allotment option, before deducting underwriting discounts and commissions and other offering expenses. 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.
Management Discussion and Analysis
This MD&A section was prepared by the management of GreenBox POS (OTC: GRBX) (“GreenBox”, “GRBX”, the “Company”), in conjunction with the discussion of the financial activity disclosed from the perspectives of on-going Q3/20 and plans and projections for the remainder of 2020.
Q1/20Q4/2020 signified the return of operations in full scale for the Company. InCompany, with processing volumes in December of 2020 increasing to $84M. The trend continues into Q2/2021, with monthly average processing volumes increasing to over $100M. During Q4/2020 the Company completed two capital raises – in October and in December of 2020, primarily directed towards the acceleration of the development and deployment of the Company’s newest technology, code name Gen3 (Generation 3, following its initial technology release in January 2019 – Gen1, and Q1/in April 2020 - Gen2). Two of the Company’s top executives, Chairman Mr. Errez and CEO Mr. Nisan, personally participated in the December 2020 raise. Gen3 technology is material to the Company plans and business performance and is projected to impact the industry as a whole, in particular with the launch of the GreenBox Smart Contract Token technology, which was initially released in end of Q2/2021. Throughout 2020 the Company continued to investincrease its investment in research and development, improving its acquiring platform and enabling safer, faster and significantly more scalable services. These technology improvements allow for major new capabilities, including Real Time Payments (RTP), a very sought-after payment feature. This change also reduces the Company COGS. Although the Company saw a decreaseCOGS, trend that continues to be observed in operations in Q4/2019, and was essentially flat for Q1/2020, theGen3 increased business efficiencies. Gen3 is an improved platform is performing better than its predecessor platform and increase total volumes while increasing profit margins and operating sustainability is observed and expected to persist through 2020.2021. The Company returned to ramping up commercial large-scale operations, on-boarding large number of clients, and increasing the Company operational bandwidth to accommodate the needs of its clients.
Q2/20 also symbolizes2021 continued to execute on these management directives. Covid-19 pandemic appears to have little impact on the transition into large scale operations with increased capacity of the payment processing platform,Company’s business, and with the addition of two new platforms, Crypto payouts and FOREX, allowing the Company to expand licensed operations in Europe and beyond. It is anticipated that European operation will match and could exceed USA operational volume for the Company. While the COVID-19 virus impacted the rate of increase in operational figures we observed in Q2/2020, Q3/2020 figures through August, 12, 2020 are asis expected and the projectionsto remain unimpacted for the rest of the year remains unchanged.2021.
Management is focused on the following KPI (Key Performance Indices):
KPI | Description |
Annual Transactional Processing Volume (ATPV) | The Company plans to process $1.85B in FY 2021, including previously increased processing volumes projections from $600M to $1.85B, and including the expected processing of the acquired ChargeSavvy portfolio, projected to add another $450M. The Company’s Book of Business exceeds the processing goals for the year. |
Annual Gross Profit Margin (AGPM) | This index matches the Company goals and remains at levels supporting the Company’s financial projections. |
Annual Gross Profit (AGP) | At the targeted Annual Transactional Processing Volume goal and targeted Annual Gross Profit Margin, projected Annual Gross Profit is $24-26M for FY2021. |
In order to process the targeted Annual Transactional Processing Volume (“ATPV”)ATPV goal, of $1B,$1.85B, the Company must be able to process close to $90M/over $100M/month or $3M/day, in a consistent fashion.fashion, as business performance in Q2/2021 demonstrated. The Company needed to investestimates the deployment for its Smart Contract Token technology in Q2/2021 will further in its core technologies to reach this capacity, a task it believe it has now completed. The Company believes it now hasimproving on volumes and efficiencies.
KPI | Description |
Average Monthly Transaction Count (AMTC) | The Company projects an AMTC of around 500,000 |
New Clients Backlog (NCB) | The Company will continue to invest in on-boarding technologies in order to expedite the process and reduce backlog. There are five client statuses: application, KYC, on-boarding, integration, processing. Current backlog of clients at application stage is greater than 2,000. Our goal is to bring the NCB down to 200. |
Client Attrition | Current attrition rates are under 5%. Company goal is to reduce it further and keep it under 3%. |
Based on the required bandwidthabove and technical capabilities to achieve this goal. The Company projects it will process transactions in volumes greater than $1M/day within Q3/2020 and will ramp up the targeted Average Daily Volumes in Q4/2020. We believe the current operational bandwidth fortraction in Q2/21, the Company is virtually unlimited. COVID-19 will push the ATPV forward, likely by a quarter or two, but the projected figures for daily processing are still anticipated to materialize during 2020. These projections are contingent on projected execution figures on opportunities made available to the company in the USA, Canada,comfortable with its volumes, gross revenues and Europe.
EBITDA projections. The Company owns all the IP rights for operations in its space: tokenizer, gateway, ledger manager and blockchain substrate. Other, supporting patents, such as fraud proofing, on-boarding accelerators, and an all new blockchain implementation, are pending.
With the visibility that management has into the Company’s operation management hasoperations in Q3/2020Q2/2021 and the Company plans onCompany’s uplisting to a senior exchange withinNASDAQ in Feb/2021, the next 18 months and, at this time, the Company does not plan on an artificial stock price increase, such as due to a reverse split. The current plan is to grow the Company organically to the size and value requiredafforded by the senior exchange.
The ATPV, Profitability and other major performance indicatorsKPIs remain sensitive to regulatory changes and global and national economic trends. These will impact and influence the Company’s product line, its potential mergers and acquisitions targets, its joint ventures and the Company’s technology emphasis.
RESULTS OF OPERATIONS
Three Months Ended June 30, 20202021 (Unaudited) Compared to Three Months Ended June 30, 20192020 (Unaudited):
Three Months Ended June 30, | ||||||||||||||||||||||||
2020 | 2019 | Changes | ||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
Revenue | $ | 2,292,859 | 100.0 | % | $ | 3,309,747 | 100.0 | % | $ | (1,016,888 | ) | -30.7 | % | |||||||||||
Cost of revenue | 1,411,683 | 61.6 | % | 3,042,022 | 91.9 | % | (1,630,339 | ) | -53.6 | % | ||||||||||||||
Gross profit | 881,176 | 38.4 | % | 267,725 | 8.1 | % | 613,451 | 229.1 | % | |||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Advertising and marketing | 15,384 | 0.7 | % | 12,603 | 0.4 | % | 2,781 | 22.1 | % | |||||||||||||||
Research and development | 267,686 | 11.7 | % | 600,264 | 18.1 | % | (332,578 | ) | -55.4 | % | ||||||||||||||
Payroll and payroll taxes | 428,758 | 18.7 | % | 309,719 | 9.4 | % | 119,039 | 38.4 | % | |||||||||||||||
Professional fees | 293,622 | 12.8 | % | 127,473 | 3.9 | % | 166,149 | 130.3 | % | |||||||||||||||
General and administrative | 113,653 | 5.0 | % | 119,699 | 3.6 | % | (6,046 | ) | -5.1 | % | ||||||||||||||
Depreciation and amortization | 5,716 | 0.2 | % | 3,615 | 0.1 | % | 2,101 | 58.1 | % | |||||||||||||||
Total operating expenses | 1,124,819 | 49.1 | % | 1,173,373 | 35.5 | % | (48,554 | ) | -4.1 | % | ||||||||||||||
Loss from operations | (243,643 | ) | -10.6 | % | (905,648 | ) | -27.4 | % | 662,005 | -73.1 | % | |||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest expense | (30,659 | ) | -1.3 | % | (24,738 | ) | -0.7 | % | (5,921 | ) | 23.9 | % | ||||||||||||
Interest expense - debt discount | (8,342 | ) | -0.4 | % | - | 0.0 | % | (8,342 | ) | n/a | ||||||||||||||
Derivative expense | (4,373 | ) | -0.2 | % | - | 0.0 | % | (4,373 | ) | n/a | ||||||||||||||
Changes in fair value of derivative liability | 2,619,250 | 114.2 | % | (412,158 | ) | -12.5 | % | 3,031,408 | -735.5 | % | ||||||||||||||
Gain from extinguishment of convertible debt | 2,612,246 | 113.9 | % | - | 0.0 | % | 2,612,246 | #DIV/0! | ||||||||||||||||
Other income or expense | (2,177 | ) | -0.1 | % | - | 0.0 | % | (2,177 | ) | n/a | ||||||||||||||
Total other income (expense) | 5,185,945 | 226.2 | % | (436,896 | ) | -13.2 | % | 5,622,841 | -1287.0 | % | ||||||||||||||
Loss before provision for income taxes | 4,942,302 | 215.6 | % | (1,342,544 | ) | -40.6 | % | 6,284,846 | -468.1 | % | ||||||||||||||
Provision for income taxes | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | |||||||||||||||
Net loss | $ | 4,942,302 | 215.6 | % | $ | (1,342,544 | ) | -40.6 | % | $ | 6,284,846 | -468.1 | % | |||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||||
2021 | 2020 | Changes | ||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
Revenue | $ | 6,379,179 | 100.0 | % | $ | 2,292,859 | 100.0 | % | $ | 4,086,320 | 178.2 | % | ||||||||||||
Cost of revenue | 1,323,480 | 20.7 | % | 1,411,683 | 61.6 | % | (88,203 | ) | -6.2 | % | ||||||||||||||
Gross profit | 5,055,699 | 79.3 | % | 881,176 | 38.4 | % | 4,174,523 | 473.7 | % | |||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Advertising and marketing | 22,605 | 0.4 | % | 15,384 | 0.7 | % | 7,221 | 46.9 | % | |||||||||||||||
Research and development | 808,210 | 12.7 | % | 267,686 | 11.7 | % | 540,524 | 201.9 | % | |||||||||||||||
General and administrative | 298,030 | 4.7 | % | 101,523 | 4.4 | % | 196,507 | 193.6 | % | |||||||||||||||
Payroll and payroll taxes | 1,061,929 | 16.6 | % | 428,758 | 18.7 | % | 633,171 | 147.7 | % | |||||||||||||||
Professional fees | 867,472 | 13.6 | % | 293,622 | 12.8 | % | 573,850 | 195.4 | % | |||||||||||||||
Stock compensation for employees | 1,291,887 | 20.3 | % | 12,130 | 0.5 | % | 1,279,757 | 10550.4 | % | |||||||||||||||
Stock compensation for services | 726,933 | 11.4 | % | - | 0.0 | % | 726,933 | n/a | ||||||||||||||||
Depreciation and amortization | 14,244 | 0.2 | % | 5,716 | 0.2 | % | 8,528 | 149.2 | % | |||||||||||||||
Total operating expenses | 5,091,310 | 79.8 | % | 1,124,819 | 49.0 | % | 3,966,491 | 352.6 | % | |||||||||||||||
Income (Loss) from operations | (35,611 | ) | -0.6 | % | (243,643 | ) | -10.6 | % | 208,032 | -85.4 | % | |||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest expense | - | 0.0 | % | (30,659 | ) | -1.3 | % | 30,659 | -100.0 | % | ||||||||||||||
Interest expense - debt discount | - | 0.0 | % | (8,342 | ) | -0.4 | % | 8,342 | -100.0 | % | ||||||||||||||
Derivative expense | - | 0.0 | % | (4,373 | ) | -0.2 | % | 4,373 | -100.0 | % | ||||||||||||||
Changes in fair value of derivative liability | - | 0.0 | % | 2,619,250 | 114.2 | % | (2,619,250 | ) | -100.0 | % | ||||||||||||||
Gain from extinguishment of convertible debt | - | 0.0 | % | 2,612,246 | 113.9 | % | (2,612,246 | ) | -100.0 | % | ||||||||||||||
Merchant liability settlement | - | 0.0 | % | - | 0.0 | % | - | n/a | ||||||||||||||||
Other income or expense | (3,949 | ) | -0.1 | % | (2,177 | ) | -0.1 | % | (1,772 | ) | 81.4 | % | ||||||||||||
Total other income (expense) | (3,949 | ) | -0.1 | % | 5,185,945 | 226.2 | % | (5,189,894 | ) | -100.1 | % | |||||||||||||
Income (Loss) before provision for income taxes | (39,560 | ) | -0.6 | % | 4,942,302 | 215.6 | % | (4,981,862 | ) | -100.8 | % | |||||||||||||
Provision for income taxes | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | |||||||||||||||
Net income (loss) | $ | (39,560 | ) | -0.6 | % | $ | 4,942,302 | 215.6 | % | $ | (4,981,862 | ) | -100.8 | % | ||||||||||
Gross Revenue
Revenue decreasedGross revenue increased by $1,016,888$4,086,320, or 30.7%178.2%, to $6,379,179 for the three months ended June 30, 2021, from $2,292,859 infor the second quarter of fiscal 2020 from $3,309,747 in the second quarter last year.three months ended June 30, 2020. The change in net salesrevenue reflected the following: Q2 revenues are a reflection of ramp up to operations following the upgrade and rerelease of the Company’s processing platform and the release of the two new platforms, Crypto payouts platform and FOREX platform. In Q1/20, operations slowed significantly due to the processing platform limitations. As such, Q/20 is better compared to Q1/19 in terms of operations following a product launch, as Q1/2019 followed the release and launch of the first generation of the GreenBox technology commercially.
● | Continued work on technology launch of new platforms in late 2020 which was fully effective in the three months ended June 30, 2021. |
● | Increase in processing volume in the three months ended June 30, 2021 compared to the three months ended June 30, 2020. |
Cost of Revenue
Cost of revenue decreased by $1,630,339,$88,203, or 53.6%-6.2%, to $1,323,480 for the three months ended June 30, 2021, from $1,411,683 infor the second quarter of fiscal 2020 from $3,042,022 in the second quarter last year.three months ended June 30, 2020. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Most orders are delivered directlyCost of revenues decreased due to the customer, without any handling, storage or processing by us. Q2/20 shows a reduction in COR as a result of increased processing efficiency and decreased cost to scale.following:
● | Increased automation by installation of two new platforms, FOREX and Crypto, that are much more streamlined and demand less manual work. |
● | Installation and integration of an advanced transactional routing technology. |
● | Revocations of the license agreement with MTrac and moving operations in-house for better efficiency and higher margins. |
● | Termination of service to problematic and low revenue producing clients. |
● | Onboarding of higher profitability clients. |
Operating Expenses
Operating expenses decreasedincreased by $48,554,$3,966,491, or 4.1%352.6%, to $1,124,819 in the second quarter of fiscal 2020 from $1,173,373 in the second quarter last year. The decrease was primarily due to decease in research and development of $332,578 and off-set by increase in payroll and professional fees.
Non-Operating Expenses
We incurred interest expense related to various debt in the amount of $30,659 and $24,738$5,091,310 for the three months ended June 30, 20202021, from $1,124,819 for the three months ended June 30, 2020. The increase was due to higher general administrative expenses and 2019, respectively.the following:
● | Increased R&D investment towards the completion and launch of the new technologies (Crypto and FOREX platforms, and advanced transactional routing technology). |
● | Stock compensation expense for employees and services |
● | Professional fees related to legal and audits. |
Non-Operating Income, net
Non-operating income decreased by $5,189,894, or -100.1%, to ($3,949) for the three months ended June 30, 2021, from $5,185,945 for the three months ended June 30, 2020. We incurred a gain from changes in fair value of derivative liability of $2,612,246 for the three months ended June 30, 2020$2,619,250 and derivative expense of $634,766 for the three months ended June 30, 2019. We incurred gain from extinguishment of convertible debt of $2,612,246 for the three months ended June 30, 2020.
Six Months Ended June 30, 20202021 (Unaudited) Compared to Six Months Ended June 30, 20192020 (Unaudited):
Six Months Ended June 30, | ||||||||||||||||||||||||
2020 | 2019 | Changes | ||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
Revenue | $ | 2,480,064 | 100.0 | % | $ | 4,277,745 | 100.0 | % | $ | (1,797,681 | ) | -42.0 | % | |||||||||||
Cost of revenue | 1,658,988 | 72.4 | % | 3,768,355 | 88.1 | % | (2,109,367 | ) | -56.0 | % | ||||||||||||||
Gross profit | 821,076 | 35.8 | % | 509,390 | 11.9 | % | 311,686 | 61.2 | % | |||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Advertising and marketing | 27,269 | 1.2 | % | 25,609 | 0.6 | % | 1,660 | 6.5 | % | |||||||||||||||
Research and development | 554,234 | 24.2 | % | 704,186 | 16.5 | % | (149,952 | ) | -21.3 | % | ||||||||||||||
Payroll and payroll taxes | 842,958 | 36.8 | % | 547,047 | 12.8 | % | 295,911 | 54.1 | % | |||||||||||||||
Professional fees | 507,593 | 22.1 | % | 307,018 | 7.2 | % | 200,575 | 65.3 | % | |||||||||||||||
General and administrative | 246,422 | 10.7 | % | 199,252 | 4.7 | % | 47,170 | 23.7 | % | |||||||||||||||
Depreciation and amortization | 11,092 | 0.5 | % | 6,455 | 0.2 | % | 4,637 | 71.8 | % | |||||||||||||||
Total operating expenses | 2,189,568 | 95.5 | % | 1,789,567 | 41.8 | % | 400,001 | 22.4 | % | |||||||||||||||
Loss from operations | (1,368,492 | ) | -59.7 | % | (1,280,177 | ) | -29.9 | % | (88,315 | ) | 6.9 | % | ||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest expense | (319,249 | ) | -13.9 | % | (174,953 | ) | -4.1 | % | (144,296 | ) | 82.5 | % | ||||||||||||
Interest expense - debt discount | (38,418 | ) | -1.7 | % | (188,273 | ) | -4.4 | % | 149,855 | -79.6 | % | |||||||||||||
Derivative expense | (4,373 | ) | -0.2 | % | (634,766 | ) | -14.8 | % | 630,393 | -99.3 | % | |||||||||||||
Changes in fair value of derivative liability | (1,203,135 | ) | -52.5 | % | (365,370 | ) | -8.5 | % | (837,765 | ) | 229.3 | % | ||||||||||||
Gain from extinguishment of convertible debt | 2,630,795 | 114.7 | % | - | 0.0 | % | 2,630,795 | #DIV/0! | ||||||||||||||||
Other income or expense | 3,334 | 0.1 | % | - | 0.0 | % | 3,334 | n/a | ||||||||||||||||
Total other income (expense) | 1,068,954 | 46.6 | % | (1,363,362 | ) | -31.9 | % | 2,432,316 | -178.4 | % | ||||||||||||||
Loss before provision for income taxes | (299,538 | ) | -13.1 | % | (2,643,539 | ) | -61.8 | % | 2,344,001 | -88.7 | % | |||||||||||||
Provision for income taxes | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | |||||||||||||||
Net loss | $ | (299,538 | ) | -13.1 | % | $ | (2,643,539 | ) | -61.8 | % | $ | 2,344,001 | -88.7 | % | ||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||
2021 | 2020 | Changes | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Amount | % | |||||||||||||||||||
Revenue | $ | 11,128,620 | 100.0 | % | $ | 2,480,064 | 100.0 | % | $ | 8,648,556 | 348.7 | % | ||||||||||||
Cost of revenue | 2,917,251 | 26.2 | % | 1,658,988 | 66.9 | % | 1,258,263 | 75.8 | % | |||||||||||||||
Gross profit | 8,211,369 | 128.7 | % | 821,076 | 33.1 | % | 7,390,293 | 900.1 | % | |||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Advertising and marketing | 47,330 | 0.4 | % | 27,269 | 1.1 | % | 20,061 | 73.6 | % | |||||||||||||||
Research and development | 1,461,591 | 13.1 | % | 554,234 | 22.3 | % | 907,357 | 163.7 | % | |||||||||||||||
Payroll and payroll taxes | 1,621,130 | 14.6 | % | 842,958 | 34.0 | % | 778,172 | 92.3 | % | |||||||||||||||
Professional fees | 1,325,224 | 11.9 | % | 507,593 | 20.5 | % | 817,631 | 161.1 | % | |||||||||||||||
General and administrative | 864,225 | 7.8 | % | 234,292 | 9.4 | % | 629,933 | 268.9 | % | |||||||||||||||
Stock compensation for employees | 2,089,500 | 18.8 | % | 12,130 | 0.5 | % | 2,077,370 | 17125.9 | % | |||||||||||||||
Stock compensation for services | 10,180,758 | 91.5 | % | - | 0.0 | % | 10,180,758 | n/a | ||||||||||||||||
Depreciation and amortization | 20,253 | 0.2 | % | 11,092 | 0.4 | % | 9,161 | 82.6 | % | |||||||||||||||
Total operating expenses | 17,610,011 | 158.2 | % | 2,189,568 | 88.3 | % | 15,420,443 | 704.3 | % | |||||||||||||||
Loss from operations | (9,398,642 | ) | -84.5 | % | (1,368,492 | ) | -55.2 | % | (8,030,150 | ) | 586.8 | % | ||||||||||||
| �� | ||||||||||||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest expense | (594,258 | ) | -5.3 | % | (319,249 | ) | -12.9 | % | (275,009 | ) | 86.1 | % | ||||||||||||
Interest expense - debt discount | (2,993,408 | ) | -26.9 | % | (38,418 | ) | -1.5 | % | (2,954,990 | ) | 7691.7 | % | ||||||||||||
Derivative expense | - | 0.0 | % | (4,373 | ) | -0.2 | % | 4,373 | -100.0 | % | ||||||||||||||
Changes in fair value of derivative liability | - | 0.0 | % | (1,203,135 | ) | -48.5 | % | 1,203,135 | -100.0 | % | ||||||||||||||
Gain from extinguishment of convertible debt | �� | - | 0.0 | % | 2,630,795 | 106.1 | % | (2,630,795 | ) | -100.0 | % | |||||||||||||
Merchant liability settlement | (364,124 | ) | -3.3 | % | - | 0.0 | % | (364,124 | ) | n/a | ||||||||||||||
Other income or expense | (18,560 | ) | -0.2 | % | 3,334 | 0.1 | % | (21,894 | ) | -656.7 | % | |||||||||||||
Total other income (expense) | (3,970,350 | ) | -35.7 | % | 1,068,954 | 43.1 | % | (5,039,304 | ) | -471.4 | % | |||||||||||||
Loss before provision for income taxes | (13,368,992 | ) | -120.1 | % | (299,538 | ) | -12.1 | % | (13,069,454 | ) | 4363.2 | % | ||||||||||||
Provision for income taxes | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | |||||||||||||||
Net loss | $ | (13,368,992 | ) | -120.1 | % | $ | (299,538 | ) | -12.1 | % | $ | (13,069,454 | ) | 4363.2 | % | |||||||||
Revenue
Gross Revenue decreased
Gross revenue increased by $1,797,681$8,648,556, or 42.0%348.7%, to $11,128,620 for the six months June 30, 2021, from $2,480,064 infor the six months ended June 30, 2020 from $4,277,745 in the six months ended June 30, 2019.2020. The change in net sales reflected the following: Q2 revenues area reflection of ramp up to operations following the upgrade and rerelease of the Company’s processing platform and the release of the two new platforms, Crypto payouts platform and FOREX platform. In Q1/20, operations slowed significantly due to the processing platform limitations. As such, Q/20 is better compared to Q1/19 in terms of operations following a product launch, as Q1/2019 followed the release and launch of the first generation of the GreenBox technology commercially.
● | Continued work on technology launch of new platforms, including Crypto, FOREX and transactional routing. Onboarding of existing merchants and new clients resumed in March 2020, with volume of revenues in April 2020 exceeding the first three months combined. |
● | Increase in processing volume. |
Cost of Revenue
Cost of revenue decreasedincreased by $2,109,367,$1,258,263, or 56.0%75.8%, to $1,658,988 in$2,917,251 for the six months ended June 30, 20202021, from $3,768,355 in$1,658,988 for the six months ended June 30, 2019.2020. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the ISOsIndependent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Most orders are delivered directlyCost of revenues increased due to the customer, without any handling, storage or processing by us. Q2/20 shows a reduction in COR as a result of increased processing efficiency and decreased cost to scale.following:
● | Increase in processing volume which resulted in higher commission payments to ISOs |
Operating Expenses
Operating expenses increased by $40,001,$15,420,443, or 22.4%704.3%, to $2,189,568 in$17,610,011 for the six months ended June 30, 20202021, from $1,789,567 in$2,189,568 for the six months ended June 30, 2019.2020. The increase was due to increase in payrollhigher general administrative expenses and professional fees.the following:
● | Increased R&D investment towards the completion and launch of the new technologies (Crypto and FOREX platforms, and advanced transactional routing technology). |
● | Settlement of legal disputes and associated payments. |
● | Stock compensation expense for employees and services |
● | Professional fees related to legal and audits. |
Non-Operating Expenses
We incurred interest expense related to various debt in the amount of $319,249$594,258 and $174,953debt discount of $2,993,408 for the six months ended June 30, 2020 and 2019, respectively.2021. We incurred a loss from changes in fair value of derivative liability of $1,203,135 for the six months ended June 30, 2020 and derivative expense of $634,766 for the six months ended June 30, 2019. We incurred gain from extinguishment of convertible debt of $2,630,795 for the threesix months ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity requirements are for working capital and capital expenditures. We fund our liquidity requirements primarily through cash on hand and cash flows from operations and borrowings from through debt.operations. We ended March 31, 2020June 30, 2021 with $306,479$29,796,748 of cash, cash equivalents, and restricted cash compared with $763,110$1,832,735 as of December 31, 2019.2020.
The following table summarizes our cash flows from operating, investing and financing activities:activities (unaudited):
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Net cash provided by (used in) operating activities | $ | 467,960 | $ | 1,841,605 | ||||
Net cash provided by (used in) investing activities | (10,244 | ) | (41,634 | ) | ||||
Net cash provided by (used in) financing activities | (523,594 | ) | (89,000 | ) | ||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (65,878 | ) | $ | 1,710,971 | |||
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Net cash provided by (used in) operating activities | $ | (13,667,974 | ) | $ | 467,960 | |||
Net cash provided by (used in) investing activities | (2,568,411 | ) | (10,244 | ) | ||||
Net cash provided by (used in) financing activities | 44,200,398 | (523,594 | ) | |||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 27,964,013 | $ | (65,878 | ) | |||
Operating Activities –For the six months ended June 30, 20202021 and 2019,2020, net cash provided by (used in) operating activities was $467,960$(13,667,974) and $1,841,605,$467,960, respectively. The cash provided by operating activities was primarily due to net loss and timing of settlement of assets and liabilities.liabilities including stock compensation expenses.
Investing Activities – Cash used in investing activities primarily consisted of purchases of property and equipment.equipment and cash provided for acquisition of Northeast for the six months ended June 30, 2021.
Financing Activities – Net cash provided by or used in financing activities primarily consisted of payments of convertible debt and short-term notes payable debt for the six months ended June 30, 2020 and borrowings and payments2020. Net cash provided by financing activities primarily consisted of convertible debtproceeds from the Offering of $45,805,491 for the threesix months ended June 30, 2019.2021.
CRITICAL ACCOUNTING POLICIES
Our critical accounting estimates are included in our significant accounting policies as described in Note 2 of the consolidated financial statements of this Form 10-Q. Those consolidated financial statements were prepared in accordance with GAAP. Critical accounting estimates are those that we believe are most important to the portrayal of our financial condition and results of operations. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense. Our estimates are evaluated on an ongoing basis and drawn from historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Actual results may differ from our estimates. Management believes that the following accounting estimatespolicies reflect the more significant judgments and estimates we use in preparing our consolidated financial statements.
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 (“ASC”) 606, “Revenue from Contracts with Customers outlines”, (“ASC 606”), contract assets or contract liabilities that arise from past performance but require a further performance before the basic criteria thatobligation can be fully satisfied must be met to recognizeidentified and recorded on the balance sheet until respective settlements have been met.
The Company’s primary revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.
The Company recognizes revenue when 1) itsource 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 revenuegenerated from payment processing services. Payment processing services licensing feesrevenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and equipment sales.is recognized as such transactions or services are performed, at a point in time.
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ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Executive Vice President, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management's evaluation, our Chief Executive Officer and Executive Vice President concluded that, as a result of the material weaknesses described below, as of June 30, 2020,2021, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Executive Vice President, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
a) | We did not have enough personnel in our accounting and financial reporting functions. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. |
Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Principal Financial Officer, a bookkeeper and external accounting consultants, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will eliminate or greatly decrease any control and procedure issues we may encounter in the future.
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
PART II - OTHER INFORMATION
Management currentlyThe information called for by this item is not aware of any legal matters or pending litigation that would have a significant effect onincorporated herein by reference to Note 12 under the Company’s financial statements as of June 30, 2020.heading “Legal Proceedings” included in Part I, Item 1, Financial Statements (unaudited) — Notes to Unaudited Condensed Consolidated Financial Statements.
ITEM 1A. RISK FACTORSWe face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.Our business will be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to our operations and sales activities. Our third-party vendors and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work or other travel or health-related restrictions. In addition, the Novel Coronavirus (COVID-19) or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect demand for our products and services and impact our operating results. There can be no assurance that any decrease in sales resulting from the Novel Coronavirus (COVID-19) will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued spread of the Novel Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2021 that were not previously reported in a Current Report on Form 8-K except as follows:
The Company issued 100,000 shares of common stock to executives of the Company in June 2021.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.None.
None.
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101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREENBOX POS (Registrant) | |||
Date: August | By: | /s/ Fredi Nisan | |
Fredi Nisan Chief Executive Officer (Principal Executive Officer) | |||
Date: August | By: | /s/ | |||
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