10-K 1 greenbox20191231_10k.htm FORM 10-K greenbox20191231_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-K

 


 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2019

 

Commission File Number: 001-34294

 

GREENBOX POS

(Exact name of registrant as specified in its charter)

 

Nevada

 

22-3962936

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

8880 Rio San Diego Drive, Suite 102

San Diego, CA

 

92108 

(Address of principal executive office)

 

(Zip Code) 

 

Registrant’s telephone number, including area code: (619) 631-8261

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered

N/A

N/A

N/A

 

Securities registered pursuant to Section 12(g) of the Act:

 

 

Title of class

 

 

Common Stock, par value $0.001 per share

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐  No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐  No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ☒

 

The aggregate market value of the 21,216,372 voting common stock held by non-affiliates of the registrant as of June 28, 2019 was $2,758,128 based on the closing price of $0.13 per share of the registrant’s common stock as quoted on the OTC Pink Current Information marketplace on that date.

 

As of May 10, 2020, there were 175,921,933 shares of registrant's common stock outstanding.

 

Documents Incorporated by Reference: None.

 

EXPLANATORY NOTE

 

On March 25, 2020, the Securities and Exchange Commission (“SEC”) issued an order and guidance (collectively, the “Order”) providing regulatory relief to public companies whose operations may be affected by the novel coronavirus disease (“COVID-19”). The Order provided public companies with a 45-day extension to file certain disclosure reports, including their Annual Report on 10-K (“Annual Report”), that would otherwise have been due between March 1, 2020 and July 1, 2020.

 

Due to its operations being impacted by COVID-19, GreenBox POS (the “Company”) was unable to meet its filing deadline with respect to its Annual Report and on April 10, 2020 submitted a Current Report on Form 8-K in reliance upon the Order.

 

Due to the outbreak of coronavirus disease 2019 (COVID-19), starting from early March 2020, the Company’s employees and external auditors have been asked to work remotely. As a result, the Company’s books and records have not been easily accessible and communication among internal financial staff and external auditors has been challenging, resulting in delay in preparation and completion of its consolidated financial statements. Based on the foregoing, on April 10, 2020, the Company filed a Current Report on Form 8-K to avail itself of a 45-day extension to file this Form 10-K relying on the exemptions provided by the SEC Order. This Form 10-K is being filed in reliance on the SEC Order.

 

 

 

TABLE OF CONTENTS

 

 

 

 

PAGE

PART I

 

Item 1.

Business

 

5

Item 1A.

Risk Factors

 

8

tem 1B.

Unresolved Staff Comments

 

8

Item 2.

Properties

 

9

Item 3.

Legal Proceedings

 

10

Item 4.

Mine Safety Disclosures

 

10

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

11

Item 6.

Selected Financial Data

 

12

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

12

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

 

15

Item 8.

Financial Statements and Supplementary Data

 

15

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

15

Item 9A.

Controls and Procedures

 

16

Item 9B.

Other Information

 

16

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

17

Item 11.

Executive Compensation

 

19

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

20

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

20

Item 14.

Principal Accounting Fees and Services

 

22

 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

 

23

 

 

 

 

Signatures

 

25

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. 

 

In this Annual Report on Form 10-K, the terms “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS.

 

 

 

PART I

 

Item 1 – Business

 

Organization

 

On January 4, 2020, PrivCo and GreenBox POS, a Nevada corporation (“PubCo”) entered into an Asset Purchase Agreement (the “Agreement”), to memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and between PubCo and PrivCo.

 

On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (the “GreenBox Acquisition”).

 

For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”

 

On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018. Prior to the name changes, PubCo was known as ASAP Expo, Inc (“ASAP”). ASAP was incorporated April 10, 2007 under the laws of the State of Nevada (collectively, “PubCo”).

 

Our primary office is in San Diego, California. Our website is www.greenboxpos.com.

 

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.

 

Significant Transactions

 

On March 23, 2018, the then controlling shareholder and then sole officer and sole director of PubCo, Frank Yuan, along with his wife, Vicky PMW Yuan (collectively, the “Yuans”), entered into a Purchase Agreement with PrivCo (the “Yuan SPA”).

 

Pursuant to the Yuan SPA, the Yuans agreed to sell 144,445,000 restricted shares of PubCo’s common stock, par value $0.001 per share (the “Common Stock”), to PrivCo for a consideration of $500,000: $250,000 in cash, paid at closing, and $250,000 in restricted shares of Common Stock (the “Shares Due”) to be issued within 30 days of the close of the Yuan SPA.

 

On or about March 29, 2018, Frank Yuan converted a portion of a line of credit that he had previously issued to PubCo, in exchange for 144,445,000 restricted shares of Common Stock, representing approximately 90% of PubCo’s issued and outstanding shares of Common Stock (the “Control Block”). Subsequently, on or about June 8, 2018, PrivCo paid the Shares Due, by transferring 609,756 restricted shares of Common Stock from the Control Block to the Yuan’s designees, Frank Yuan and his son, Jerome Yuan.

 

 

Pursuant to the Yuan SPA, on April 12, 2018, Frank Yuan caused the Control Block to be transferred to PrivCo.

 

On April 12, 2018, all business being conducted at that time by PubCo (the “ASAP Business”) was transferred from PubCo to ASAP Property Holdings Inc., a company owned and operated by Frank Yuan (“Holdings”). In consideration for the ASAP Business, Holdings assumed all liabilities related to the ASAP Business. On April 12, 2018, following the consummation of the Yuan SPA and the transfer of the ASAP Business to Holdings, Ben Errez (“Errez”) and Fredi Nisan (“Nisan”) became the sole acting officers and sole acting directors of PubCo.

 

On May 3, 2018, Frank Yuan formally resigned, and Errez and Nisan were formally appointed the sole officers and sole directors of PubCo.

 

On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired the GreenBox Business and assumed PrivCo’s liabilities per the terms of the Agreement. The value of the assets acquired on April 12, 2018 was $843,694, which excluded the Control Shares, which remain a PrivCo asset. The value of PrivCo’s assumed liabilities on April 12 was $589,078. The difference between assets and liabilities was $254,616, which PubCo booked as a “Gain on Bargain Purchase.” However, because we are using Reverse Acquisition accounting, PubCo subsequently recorded the gain as Paid in Capital.

 

From April 12, 2018 through January 4, 2020 (the “In Between Period”), because there was ambiguity regarding the validity of the Verbal Agreement, PubCo filed required quarterly and annual reports with the Securities and Exchange Commission as if there had not been a Reverse Acquisition. During the In Between Period, PrivCo continued to operate as if it still owned the GreenBox Business, which included maintaining records of GreenBox Business financial transactions on PrivCo’s accounting software, and entering into contracts and agreements as PrivCo, while PubCo paid all expenses, including expenses related to PrivCo contracts entered into prior to and after April 12, 2018, as well as expenses incurred as a result of litigation resulting from disagreements between PrivCo and other parties. During the In Between Period, PubCo represented itself in press releases, as being the owner/operator of the GreenBox Business. Additionally, from April 12, 2018 through approximately December 31, 2018, PubCo and PrivCo shared control of PrivCo’s bank accounts, and on or about January 1, 2019, PubCo assumed control of PrivCo’s bank accounts.

 

By virtue of the payment of PrivCo’s litigation expenses by PubCo, by virtue of PubCo representing itself in press releases, as being the owner/operator of the GreenBox Business, and by virtue of the shared control of PrivCo’s bank accounts starting on April 12, 2018, both PubCo and PrivCo concluded that the Verbal Agreement was valid and the GreenBox Business Acquisition took place on April 12, 2018.

 

Reverse Acquisition Reporting Requirements

 

In accordance with SEC Financial Reporting Manual, Topic 12 - Reverse Acquisitions and Reverse Recapitalizations, Section 12200 - Reporting Issues, Sub-section 12210.2 - Reverse Acquisition with a domestic registrant that is not a shell company, PubCo is required to file two years of audited Financials for PrivCo. However, since PrivCo was formed in August 2017, only the period from August 2017 through December 31, 2018 was audited. PubCo is also required to file on a combined basis with PrivCo starting with PubCo’s 10-Q filing for the period ending June 30, 2018.

 

Given these considerations, PubCo:

 

 

a)

Executed the Agreement memorializing the Verbal Agreement, and filed a Form 8-K on January 7, 2020 (the “January 8-K”) to disclose the Agreement and to file audited financials for PrivCo for the year ending December 31, 2017;

 

 

b)

Restated PubCo’s 2018 financials, to include amended Form 10-Qs for the periods ending June 30 and September 30, and an amended Form 10-K for the year ending December 31, 2018; and

 

 

c)

Filed Form 10-Qs for 2019, for the periods ended March 31, June 30 and September 30, and is filing this Form 10-K for the year ending December 31, 2019.

 

Our Business

 

GreenBox POS is a tech company formed with the intent of developing, marketing and selling innovative blockchain-based payment solutions, which we believe will cause favorable disruption in the payment solutions marketplace. Our core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. Our proprietary, blockchain-based ecosystem is designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.

 

 

We’ve been awarded five provisional patents for our technology, each directly related to our core business focus. Subsequently, we filed non-provisional patent application 16/212,627 on December 6, 2018, under which we claimed the benefit of the five provisional patents.

 

In March 2018, we formally announced DEL, PAY, QuickCard, POS and Loopz to an international audience, during a presentation at the Israel International Innovation Expo, in Tijuana, Mexico.

 

 

a)

DEL is our Delivery App, which provides APIs to POS and PAY.

 

 

b)

PAY is our Payment App, which provides financial APIs to all our other software components.

 

 

c)

QuickCard is QuickCard Payment System, which is a comprehensive physical and virtual cash management system, including software that facilitates deposits, cash and e-wallet management.

 

 

d)

POS Solutions is our complete end-to-end Point of Sale solution, comprising both software and hardware.

 

 

e)

Loopz is Loopz Software Solution, which is a mobile delivery service operations management solution with automated dispatch functionality.

 

In March 2018, our QuickCard Payment System was comprised of PAY, proprietary kiosks and e-wallet management.

 

In June 2018, we commenced a soft launch of our system, onboarded our initial customers and began generating revenue.

 

In July 2018, we introduced TrustGateway, a new fraud prevention component for our QuickCard payment system.

 

Throughout the remainder of 2018, we continued to build, expand and improve our system, which allowed for an escalation in merchants using our system, as well as increasing revenues.

 

On or about October 4, 2018, we entered into a lease agreement with Hyundai Rio Vista, Inc. for our current office space at 8880 Rio San Diego Drive, Suite 102, San Diego, CA 92108.

 

In March and April of 2020, we added new features to our ecosystem, including RTP (Real Time Payments), same day ACH capabilities, and SEPA payments options.

 

In December 2019, the company received PCI (Payment Card Industry) Level 1 certificate for its technology, its security, privacy, reliability and other aspects of its payment infrastructure.

 

In March of 2020, we added two platforms to our technology spectrum: we are now able to complete payouts in crypto currency, and we are also able to process same day international FOREX transactions.

 

Q1/20 signified the return of operations in full scale for the Company. In Q4/2019, the Company invested in research and development, improving its acquiring platform and enabling safer, faster and significantly more scalable services. These technology improvements allow for major new capabilities, including Real Time Payments (RTP), a very sought-after payment feature. This change also reduces the Company COGS. Although the Company saw a decrease in operations in Q4/2019, the improved platform is expected to perform better than its predecessor platform and increase total volumes while increasing profit margins and operating sustainability. The Company returned to ramping up commercial large-scale operations, on-boarding large number of clients, and increasing the Company operational bandwidth to accommodate the needs of its clients. To date in 2020, we continue to execute on these management directives.

 

 

Management is focused on the following KPI (Key Performance Indices):

 

KPI

Description

Annual Transactional Processing Volume (ATPV)

The Company plans on processing an amount greater than $1B in FY2020. The Company’s Book of Business exceeds the processing goals for the year. By Q4/2020, the Company projects daily volumes to reach multimillion USD.

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 $18-20M for FY2020.

Annual EBITDA

The Company objective is to stay at or above 3% of Total Transactional Volume. At the targeted Annual Transactional Processing Volume goal, the Annual EBITDA equals $12-14M.

[Table 1]

 

In order to process the targeted ATPV goal, $1B, the Company must be able to process close to $90M/month, or $3M/day, in a consistent fashion. The Company needed to invest further in its core technologies to reach this capacity, a task now completed. The Company now has the required bandwidth and technical capabilities to achieve this goal. The Company projects it will process transactions in volumes greater than $1M/day within Q2/2020 and will ramp up the targeted Average Daily Volumes in Q4/2020. We believe the current operational bandwidth for the Company is virtually unlimited.

 

KPI

Description

Average Monthly Transaction Count (AMTC)

The Company projects an AMTC of more than 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. Since January 1, 2020, the Company has moved to cater to fewer clients who are larger . We have met our goal 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%.

[Table 2]

 

Based on the above and the current traction in Q2/20, the Company is comfortable projecting approximately $12-14M EBITDA in FY20. 

 

The Company owns all the IP rights for operations in its space: tokenizer, gateway, ledger manager and blockchain substrate. Other, supporting patents, such as fraud proofing, on-boarding accelerators, and an all new blockchain implementation, are pending.

 

With the visibility into the Company’s operation management has at the end of Q1/2020 the Company plans on uplisting to a senior exchange by Q1 of FY21 and does not plan on an artificial stock price increase, such as a reverse split. The current plan is to grow the company organically to the size and value required by the exchange.

 

The ATPV, Profitability and other major KPIs remain sensitive to regulatory changes global and national economic trends. These will impact and influence the Company’s product line, its potential mergers and acquisitions targets, its joint ventures and the Company’s technology emphasis.

 

Item 1A – Risk Factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are not required to provide the information under this item.

 

Item 1B – Unresolved Staff Comments

 

Not applicable.

 

 

Item 2 – Properties

 

We do not own any real estate or other physical properties material to our operations. We operate from leased space. Our executive offices are located within the Rio Vista Tower, at 8880 Rio San Diego Drive, Suite 102, San Diego, CA 92108, and our telephone number is (619) 631-8261. 

 

In October 2017, we secured our first office in San Diego, California. During the first six months of 2018, we entered into additional, separate lease agreements for additional offices in San Diego. In October 2018, we executed a lease agreement with Hyundai Rio Vista, Inc. within the Rio Vista Tower, which we moved into on or about December 1, 2018. Our lease agreement with Hyundai Rio Vista is through January 15, 2022, with monthly rent starting at $10,648 and increasing to $11,636 over the period of the lease.

 

On or about February 20, 2018, we secured a virtual Canadian office, located at 885 West Georgia Street Suite 1500, Vancouver, British Columbia, V6C 3E8, under an Office Agreement with Regus Canada. Subsequently, on or around May 3, 2018 we added a physical office at the same location, on a month-to-month basis. We vacated the office in or about July 2019.

 

Monthly lease rates during 2019 are shown in the table below:

 

 

 

Start Date

 

 

End Date

 

 

Monthly Rent

 

Residential Lease (1)

 

Feb 23, 2018

 

 

Feb 22, 2019

 

 

 

2,040

 

Historic Decatur Road (2)

 

Mar 1, 2018

 

 

Oct 31, 2022

 

 

 

696

 

Virtual Office – Canada (3)

 

Mar 1, 2018

 

 

Feb 28, 2019

 

 

 

278

 

Canada Office (3)

 

May 3, 2018

 

 

July 31, 2019

 

 

 

1,372

 

Rio Vista

 

Dec 1, 2018

 

 

Jan 15, 2022

 

 

$

10,729

 

 

(1) The Company leases residential space to house visiting consultants and prospective employees.

 

 

Item 3 – Legal Proceedings

 

 

MTrac, Global Payout, Inc. and Cultivate Technologies, LLC – On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, MTrac, Global Payout, Inc. and Cultivate Technologies, LLC in the Superior Court of the State of California. The Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally. This was dismissed by both parties as of September 30, 2019.

 

 

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 (see Note 7 – Related Party Transactions above) and seeking forfeiture of 1,600,000 PubCo shares that PrivCo had transferred, on or about August 1, 2018, from PrivCo’s Control Shares under the terms of the MLAs. To date, only informal conversational proceedings have ensued.

 

 

RB Capital Partners, Inc. – On April 24, 2019, RB Cap and related parties (the “RB Cap Parties”) filed a complaint in the San Diego Superior Court against PrivCo, PubCo, Ben Errez and Fredi Nisan (collectively, the “GreenBox Parties”); and on October 1, 2019, the RB Cap Parties filed an amended complaint against the GreenBox Parties alleging claims of fraud, breach of fiduciary duty, breach of contract and other, related claims in the Superior Court for the State of California, County of San Diego. The GreenBox Parties filed a cross-complaint against the RB Capital Parties, alleging claims of fraud, breach of contract, tortious interference, and other, related claims. On or about December 15, 2019, the GreenBox Parties and RB Cap Parties resolved to negotiate a settlement and agreed in principal to settlements terms. The documentation of the settlement terms was underway as of February 3, 2020. This was dismissed by both parties on February 27, 2020.

 

 

Dahan – Yoram Dahan, Melissa Dahan, Forty8 Ltd., and Trustees of the Melissa H. Dahan Living Trust (collectively, “the Dahan Parties”) were also named by RB Capital in the suit listed in the previous paragraph. On October 31, 2019, the GreenBox Parties filed a cross-complaint against the Dahan Parties, alleging claims of fraud, securities fraud, misrepresentation, promissory estoppel, and other related claims, in the Superior Court for the State of California, County of San Diego. On or about December 15, 2019, the GreenBox Parties and the Dahan Parties resolved to negotiate a settlement and agreed in principal to settlements terms. The documentation of the settlement terms was underway as of February 3, 2020. This was dismissed by both parties on February 27, 2020.

 

 

Withholding Suit – On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, Global Payout, Inc., MTrac Tech Corporation and Cultivate Technologies, LLC (collectively the “Defendants”) in the Superior Court of the State of California. Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally (collectively, the “Withholding Suit”). Pursuant to a mandatory arbitration clause in the controlling agreement, the parties to the Withholding Suit have agreed to arbitrate their claims. We do not dispute the funds owed; however, we do believe it’s within our rights to hold the funds, per the terms of agreements signed by Plaintiffs. We disagree with any allegations of any wrongdoing and will aggressively defend ourselves against the Withholding Suit. Ideally, we will settle this claim in the near term. While the results of this matter cannot be predicted with certainty, especially at this early stage, we believe that losses, if any, resulting from resolution of this matter will not have a materially adverse effect on operations or cash flow. This was dismissed by both parties as of March 30, 2020.

 

Item 4 – Mine Safety Disclosures

 

Not applicable.

 

 

PART II

 

Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is currently quoted for trading on OTC Markets, OTC Pink Sheets tier, under the symbol “GRBX.”

   

Holders

 

As of May 6, 2020, there were 181,330,260 shares of common stock outstanding held by approximately 163 holders of record (not including an indeterminate number of beneficial holders of stock held in street name). 

 

Warrants

 

There were no warrants issued nor outstanding as of December 31, 2019.

 

Dividends

 

There have been no cash dividends declared on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. Dividends are declared at the sole discretion of our Board of Directors.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The Company has never had an equity compensation plan.

 

Recent Issuance of Unregistered Securities

 

During the year ended December 31, 2019, we issued the following securities that were not registered under the Securities Act. Except where noted, all the securities discussed in this Item 5 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.

 

 

a)

On or about May 10, 2019, we issued 10,000 shares to a non-affiliated legal consultant for services rendered.

 

 

b)

On or about June 18, 2019, we issued a total of 850,000 shares to nine employees as performance bonuses. The shares were fully vested upon issuance and worth $0.10 per share, at closing, on the day of issuance.

 

The following three share transactions summarized below, totaling 1,085,000 shares, were each inadvertently transferred from PrivCo’s Control Block rather than PubCo issuing new shares. Subsequently, on or about August 14, 2019, PubCo issued 1,085,000 shares to PrivCo, as reimbursement of the shares inadvertently transferred by PrivCo.

 

 

a)

On or about December 27, 2018, PrivCo inadvertently transferred 1,000,000 restricted shares of Common Stock from the Control Block, with a market value of $150,000, which money was deposited into PrivCo’s bank accounts (control of which, were shared by PubCo and PrivCo from April 12, 2018 through approximately December 31, 2018).

 

 

b)

On or about January 4, 2019, PrivCo inadvertently transferred 50,000 restricted shares of Common Stock from the Control Block to a non-affiliated service provider to PubCo for services rendered to PubCo.

 

 

c)

On or about January 4, 2019, PrivCo inadvertently transferred 35,000 restricted shares of Common Stock from the Control Block to a non-affiliated service provider to PubCo for services rendered to PubCo.

 

 

Item 6 – Selected Financial Data 

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are not required to provide the information under this item.

 

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Managements Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as may will, expect, anticipate, believe, estimate and continue, or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company's services, fluctuations in pricing for materials, and competition.

 

Organization

 

GreenBox POS (the “Company” or “PubCo”) was formerly known as ASAP Expo, Inc (“ASAP”), which was incorporated on April 10, 2007 under the laws of the State of Nevada.

 

On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (the “GreenBox Acquisition”).

 

 On January 4, 2020, PrivCo and GreenBox POS, a Nevada corporation (“PubCo”) entered into the Agreement to memorialize the Verbal Agreement with PrivCo which was formed on August 10, 2017 (the seller).

 

For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”

 

New Name

 

On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018.

 

 

 RESULTS OF OPERATIONS

 

The following results are for the years ended December 31, 2019 and 2018.

 

   

Years Ended December 31,

                 
   

2019

   

2018

   

Changes

 
           

% of 

           

% of 

                 
   

Amount

   

Revenue

   

Amount

   

Revenue

   

Amount

   

%

 
                                                 

Net revenue

  $ 10,002,857       100.0 %   $ 910,808       100.0 %   $ 9,092,049       998.2 %

Cost of revenue

    11,091,140       110.9 %     670,539       73.6 %     10,420,601       1554.1 %

Gross profit

    (1,088,283 )     -10.9 %     240,269       26.4 %     (1,328,552 )     -552.9 %
                                                 

Operating expenses:

                                               

Advertising and marketing

    45,928       0.5 %     166,149       18.2 %     (120,221 )     -72.4 %

Research and development

    1,255,296       12.5 %     376,871       41.4 %     878,425       233.1 %

Cash due from gateway reserve expense

    -       0.0 %     -       0.0 %     -       1000.0 %

Payroll and payroll taxes

    1,429,136       14.3 %     331,894       36.4 %     1,097,242       330.6 %

Professional fees

    1,026,556       10.3 %     767,869       84.3 %     258,687       33.7 %

General and administrative 

    750,078       7.5 %     302,333       33.2 %     447,745       148.1 %

Depreciation and amortization

    16,216       0.2 %     6,608       0.7 %     9,608       145.4 %

Total operating expenses

    4,523,210       45.2 %     1,951,724       214.3 %     2,571,486       131.8 %
                                                 

Loss from operations

    (5,611,493 )     -56.1 %     (1,711,455 )     -187.9 %     (3,900,038 )     227.9 %
                                                 

Other Income (Expense):

                                               

Interest (expense) income

    (604,504 )     -6.0 %     (106,821 )     -11.7 %     (497,683 )     465.9 %

Interest expense - debt discount

    (195,201 )     -2.0 %     -       0.0 %     (195,201 )     0.0 %

Derivative expense

    (634,766 )     -6.3 %     -       0.0 %     (634,766 )     0.0 %

Changes in fair value of derivative liability

    (415,297 )     -4.2 %     -       0.0 %     (415,297 )     -100.0 %

Merchant fines and penalty income

    2,776,687       27.8 %     -       0.0 %     2,776,687       -100.0 %

Asset impairment

    -       0.0 %     (75,000 )     -8.2 %     75,000       -100.0 %

Total other income (expense)

    926,919       9.3 %     (181,821 )     -20.0 %     1,108,740       -609.8 %
                                                 

Loss before provision for income taxes

    (4,684,574 )     -46.8 %     (1,893,276 )     -207.9 %     (2,791,298 )     147.4 %
                                                 

Provision for income taxes

    -       0.0 %     -       0.0 %     -       0.0 %
                                                 

Net loss

  $ (4,684,574 )     -46.8 %   $ (1,893,276 )     -207.9 %   $ (2,791,298 )     147.4 %

 

Revenue

 

For the year ended December 31, 2019 and 2018, we recognized revenue of $10,002,857and $910,808, respectively. Throughout 2018, we conducted numerous tests of our products and services, and began to sign up our initial customers. After a soft launch of the GreenBox Network during the last few days of June 2018, when we began processing transactions, we processed approximately $5,100,000 in completed transactions on behalf of merchants. We believe this accomplishment to be indicative of the validity of our proprietary blockchain-based systems, which are the foundation of the GreenBox Network, and indicative of our future potential.

 

Cost of Goods Sold

 

Our Cost of Goods Sold (“COGS”) for payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. For the year ended December 31, 2019 and 2018, our COGS associated with payment processing was $11,091,140 and $670,539, respectively, which included the absorption by us, of chargebacks, which was limited to 2018, as a promotional tool. As regards Licensing Revenue, we do not incur any direct costs of services or products, thus we did not record COGS for Licensing Revenue.

 

 

Operating Expenses

 

Overall, operating expenses increased during 2019 as the Company ramped up operations. For the year ended December 31, 2019 and 2018, our general and administrative expense was $10,188,241 and $1,951,724, respectively; our legal and professional expenses, most of which were outsourced, were $1,026,556 and $767,869, respectively; and our R&D expense was $1,255,296 and $376,871, respectively. We incurred $5,665,031 of cash due from gateway reserve expense for the year ended December 31, 2019 and none in the prior year.

 

Non-Operating Expenses

 

For the year ended December 31, 2019 and 2018, we recorded non-operating expenses of $1,849,768 and $181,821, respectively, of which $604,504 and $106,821, respectively, were for interest, $634,766 represented derivative expense for the year ended December 31, 2019. We also recorded $75,000 as asset impairment for the year ended December 31, 2019.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our working capital for the periods presented is summarized as follows:

 

Cash Requirements

 

We incurred a working capital deficit of $4,429,424 as of December 31, 2019. For December 31, 2018, our working capital was $874,980. Based on our revenues, operational expenses, cash on hand and future operational needs, we will need to continue procuring capital from external sources, which may include equity, debt or hybrid financing, in order to fund operations.

 

Cash Flow

 

The following table shows cash flows for the periods presented:

 

   

Years Ended December 31,

 
   

2019

   

2018

 
                 

Net cash provided by (used in) operating activities

  $ (165,556 )   $ (1,601,851 )

Net cash provided by (used in) investing activities

    (49,795 )     (31,254 )

Net cash provided by (used in) financing activities

    684,671       1,834,730  
                 

Net increase (decrease) in cash, cash equivalents, and restricted cash

  $ 469,320     $ 201,625  

 

Operating Activities – For the years ended December 31, 2019 and 2018, net cash provided by (used in) operating activities was $(165,556) and $(1,601,851), respectively, was primarily due to net loss and timing of settlement of assets and liabilities.

 

Investing Activities – For the years ended December 31, 2019 and 2018, net cash used in investing activities was $(49,795) and $(31,254), respectively, primarily due to cash used for purchases of property and equipment.

 

Financing Activities – For the years ended December 31, 2019 and 2018, net provided by financing activities was $684,671 and $1,834,730, respectively, primarily due to borrowings and repayments of convertible debt and proceeds from issuances of common stock.

 

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the our financial statements and the accompanying notes. The amounts of assets and liabilities reported on our balance sheet and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, stock based compensation and the valuation of deferred taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements:

 

Revenue Recognition

 

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.

 

The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.

 

The Company generates revenue from payment processing services, licensing fees and equipment sales.

 

 

Payment processing revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed.

 

Licensing revenue is paid in advance and is recorded as unearned income, which is amortized monthly over the period of the licensing agreement.

 

Equipment revenue is generated from the sale of POS products, which is recognized when goods are shipped.

 

Income Taxes

 

The Company accounts for income taxes under ASC 740, “Income Taxes.” Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management provides a valuation allowance for significant deferred tax assets when it is more likely than not that such asset will not be recovered.

 

Item 7A – Quantitative and Qualitative Disclosures About Market Risk

  

Not applicable.

 

Item 8 – Financial Statements and Supplementary Data

 

The consolidated financial statements required by this item begin on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.  

 

Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

 

 

Item 9A – Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Executive Vice President, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management's evaluation, our Chief Executive Officer and Executive Vice President concluded that, as a result of the material weaknesses described below, as of December 31, 2019, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Executive Vice President, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are: 

 

 

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.

 

 

b)

Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the year ended December 31, 2018 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

c)

Management's report on internal control over financial reporting.

 

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2019 for the reasons discussed above.

 

Item 9B – Other Information

 

None.

 

 

PART III

 

Item 10 – Directors, Executive Officers and Corporate Governance

 

The names of our executive officers and directors and their age, title, and biography as of May ___, 2020, are set forth below:

 

Name

 

Age

 

Positions

Ben Errez

 

59

 

Chairman of the Board of Directors

Executive Vice President 

Principal Financial Officer

Fredi Nisan

 

38

 

Director

Chief Executive Officer

 

Ben Errez, Chairman of the Board of Directors, Executive Vice President, Principal Financial Officer

 

Ben Errez’s (“Errez”) past positions have included positions at large companies like Microsoft and Intel. He has brought this expertise to the Company to lead the Company into the forefront of the blockchain-based financial software, services and hardware market.

 

Errez was one of the early managers of Microsoft in 1991. From 1991 to 2004, he served as Software Development Lead for the Microsoft International Product Group. He led the International Microsoft Office Components team (Word, Excel, PowerPoint) in design, engineering, development and successful deployment. He also served as Executive Representative of Microsoft Office and was a founding member of the Microsoft Trustworthy Computing Forum, both within the company, and internationally. Errez co-authored the first Microsoft Trustworthy Computing Paper on Reliability. At Microsoft, Mr. Errez was responsible for the development of the first Microsoft software translation Software Development Kit (“SDK”) in Hebrew, Arabic, Thai and Simplified Chinese, as well as the development of the first bidirectional extensions to Rich Text Format (“RTF”) file format, all bidirectional extensions in text converters for Microsoft Office, and contributed to the development of the international extensions to the Unicode standard to include bidirectional requirements under the World Wide Web Consortium (“W3C”).

 

In 2004, Errez transitioned into the world of consulting, forming the start-up IHC Capital, where he held the position of Principal Consultant from founding to the present date, through which he advises clients in the South Pacific region with market capitalizations ranging from $50M to $150M on matters such as commerce, security, reliability and privacy.

 

In 2017, immediately before partnering with Fredi Nisan to launch the GreenBox Business, Errez was asked to take over the Microsoft Alumni Network for the Southern California region as a regional director. Errez has been a principal of the GreenBox Business since its inception in 2017.

 

Fredi Nisan, Director, Chief Executive Officer

 

Fredi Nisan (“Nisan”)’s career in tech began during his years of service in the Israeli Defense Forces, where he served as IT Manager for all of Israel’s Northern Bases. After serving in the military, Nisan opened and operated a computer hardware store before becoming the Inventory Operations Manager for Zicon Israel in 2005, a hardware and software producer. At Zicon, he supervised inventory operations, worked on quality controls for motherboards and chips, and educated customers on software and hardware product functionality. Subsequently, Nisan moved to the United States, where he worked for One Coach, in San Diego, CA, as a business coach. One Coach specializes in customized growth solutions for small business owners, including the latest strategies for sales, internet marketing, branding and ROI. Nisan was consistently ranked as the top salesperson for small business coaching while working with One Coach.

 

In 2010, Nisan launched Brava POS, where he served as President until 2015. Brava POS provided point of sale (“POS”) systems for specialty retail companies. Nisan developed software to provide clients with solutions for issues ranging from inventory management to payroll to processing high volume transactions in the form of a cloud-based POS system. This system had the capability to manage multiple stores with centralized inventory and process sales without an internet connection, and offered a secure login for each employee, as well as including advanced inventory management and reporting, plus powerful functionality for its end users.

 

In 2016, Nisan founded Firmness, LLC. Through Firmness, Nisan created “QuickCitizen,” a software program that simplifies the onboarding process for new clients of law firms specializing in immigration issues. The QuickCitizen software significantly reduced law firm’s onboarding processing time from more than three hours to approximately fifteen minutes. Nisan has been a principal of the GreenBox Business since its August 2017 inception. In January 2018, Firmness sold QuickCitizen to GreenBox (See QuickCitizen Acquisition, included in Item 13 - Certain Relationships and Related Transactions below).

 

 

Employment Agreements

 

The Company has not entered into employment agreements or other compensation agreements with its executive officers. The Company’s agreement with existing employees are all “at will” agreements.

 

Family Relationships

 

The Company employs two of our CEO’s brothers, Dan and Liron Nusonivich, who are paid approximately $96,000 and $92,000 per year, respectively. There are no family relationships between any of other directors or executive officers and any other employees or directors or executive officers. The Company made charitable donations to a 501(c)(3) no-profit organizations in which Nate Errez, the son of Ben Errez, is a member, and may be seen as the primary beneficiary of the donations.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors and executive officers and persons who own more than 10% of a registered class of our equity securities to file various reports with the Securities and Exchange Commission concerning their holdings of, and transactions in, securities we issued. Each such person is required to provide us with copies of the reports filed. Our two executive officers and directors have not yet filed any Forms 3, 4 or 5.

 

Code of Ethics

 

We have not previously adopted a Code of Ethics due to the small number of officers and employees and the size of our operations. It is anticipated that during 2020 we will adopt a Code of Ethics that applies to the Company’s directors and executive officers serving in any capacity, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.

 

Board Composition, Committees, and Independence

 

We are not required to have any independent members of the Board of Directors. As we do not have any board committees nor any “independent directors,” the board carries out all functions that might otherwise be delegated to board committees. of committees, and such has been made pursuant to the committee independence standards.

 

Involvement in Certain Legal Proceedings

 

Our two executive officers and directors have not been involved in any of the following events during the past ten years:

 

 

a)

Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

 

b)

Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

 

c)

Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;

 

 

d)

Being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

e)

Being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

f)

Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

 

Item 11 – Executive Compensation

 

The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our Chief Executive Officer (Principal Executive Officer) and our two most highly compensated executive officers other than the Principal Executive Officer during fiscal years 2019 and 2018 (collectively, the “Named Executive Officers”)

 

Summary Compensation Table

 

Name and  Principal Position

 

Fiscal

Year

 

 

Salary*

($)

 

 

Bonus

($)

 

 

Stock
Awards

($)

 

 

Option Awards

($)

 

 

Non-Equity Incentive Plan Compensation

($)

 

 

Non-Qualified Deferred Compensation

($)

 

 

All Other

Compensation

($)

 

 

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ben Errez

Chairman / EVP

 

2019

 

 

$

200,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$

200,000

 

 

 

2018

 

 

$

206,655

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$

206,655

 

Fredi Nisan

CEO / Director

 

2019

 

 

$

200,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$

200,000

 

 

 

2018

 

 

$

206,157

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$

206,157

 

   *Both Errez and Nisan were paid as consultants in 2018 and as employees in 2019.

 

Option/Stock Appreciation Grants in Fiscal Year Ended December 31, 2019

 

The Company has never had an equity compensation plan.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

The Company has no outstanding equity awards as of December 31, 2019.

 

Employment/Consulting Contracts, Termination of Employment, Change-in-Control Arrangements

 

The Company has not entered into employment agreements or other compensation agreements with its executive officers. All employee contracts are “at will.”

 

Director Compensation

 

Our two current directors are executive officers and majority shareholders through their shared majority ownership of PrivCo, which held approximately 85% of our issued and outstanding shares as of December 31, 2019. During 2019, we did not separately compensate our directors for their service on the Board of Directors.

 

 

Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

 

The following table sets forth certain information, based on the 181,330,260 shares of our common stock outstanding as of May 5, 2020 date hereof with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at 8880 Rio San Diego Drive, Suite 102, San Diego, California.

 

Name and Address of Owner

 

Shares of Common

Stock Owned Beneficially

   

Percent

of Class 

 
                 

Investors

               

GreenBox POS LLC (1) (2)

    141,735,244       78.1

%

                 

Officers, Directors & Related Persons

               

Ben Errez (3)

    70,867,622       39.0

%

Fredi Nisan (4)

    70,867,622       39.0

%

Total

    141,735,244       78.1

%

 

(1) GreenBox POS LLC (“PrivCo”) holds 141,735,244 shares of the Company’s issued and outstanding stock. PrivCo is managed by its two managing members, Ben Errez and Fredi Nisan, both of whom serve as our sole officers and directors. Errez and Nisan have equal ownership of PrivCo.

 

(2) A corporate investor, RB Capital Partners (“RB Cap”), has a disputed claim to approximately six million shares, and possibly more, currently held by PrivCo. The numbers in the table above assume RB Cap will not receive any of PrivCo’s shares. It is possible that the dispute will be settled, in part, by PubCo issuing six million new shares to RB Cap, however, as of February 3, 2020 a settlement between the parties has not been finalized. In a matter related to the RB Capital claim, the GreenBox Parties are negotiating a return of a previous transfer of 440,476 shares by PrivCo to a third party. Likewise, these shares are excluded from the table (see Section C. Legal Matters under Note 11 – Subsequent Events).

 

(3) Ben Errez is Chairman of the Board of Directors and Executive Vice President of the Company. Through his shared majority ownership of PrivCo, Errez owns 70,867,622 shares of the Company’s issued and outstanding stock. As one of two managing members of PrivCo, Errez has influence over PrivCo’s entire holding of 141,735,244 shares of the Company’s issued and outstanding stock.

 

(4) Fredi Nisan is a Director serving on our Board of Directors and is the Company’s Chief Executive Officer. Through his shared majority ownership of PrivCo, Nisan owns 70,867,622 shares of the Company’s issued and outstanding stock. As one of two managing members of PrivCo, Nisan has influence over PrivCo’s entire holding of 141,735,244 shares of the Company’s issued and outstanding stock. Additionally, relatives of Nisan, who may be influenced by Nisan, hold 270,000 shares of the Company’s issued and outstanding stock.

 

There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.

 

Item 13 – Certain Relationships and Related Transactions and Director Independence

 

QuickCitizen Acquisition

 

On or about January 18, 2018, we purchased QuickCitizen, a client interfacing charge card platform, from Firmness, LLC (“Firmness”), an affiliated company, which was 50% owned by Fredi Nisan our CEO and co-owner of PrivCo, our controlling shareholder, for $75,000. Nisan believed there to be great long-term value in his involvement with GreenBox, therefore, Nisan and Firmness’s other owner, Marlena Chang Sharvit, agreed that Nisan would forgo any compensation contemplated or realized by the transaction, and that Sharvit would receive the entire consideration paid to Firmness.

 

 

America 2030 Capital Limited and Bentley Rothschild Capital 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 (see Item 3 – Legal Proceedings above).

 

Charitable Contributions

 

During 2018, PrivCo made $13,355 in charitable donations to organizations in which Nate Errez (“Nate”) is a member, including sponsorship of the San Diego Kayak Team (a 501(c)(3) no-profit organization). Nate, the son of Ben Errez, is a competitive athlete and races Surf Skis for the US National Team.

 

Brothers

 

We hired Dan Nusinovich on or about February 19, 2018 as our Development and Testing Manager. Dan is the brother of Fredi Nisan, our CEO and Director. Subsequently, we entered into a Referral Commission Agreement with Dan in November 2018, which expired November 2019, under which Dan is to receive 10% for new business resulting from his direct introductions. To date, no new business has been generated by Dan, thus Dan has not been paid under the Referral Agreement. On or about June 18, 2019, the Company issued 160,000 restricted shares to Dan, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $16,000 at closing, on the day of issuance. We pay Dan approximately $96,000 per year.

 

We 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. We pay 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 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.

 

Inadvertent Share Transfers

 

On or about December 27, 2018 and January 4, 2019, 1,085,000 shares, worth approximately $325,500 as of the close of trading on the days of issuance, were inadvertently transferred from PrivCo instead of being issued by the Company. Subsequently, on or about August 14, 2019, the Company issued 1,085,000 shares to PrivCo, as repayment of the shares that had been previously inadvertently transferred.

 

 

Item 14 – Principal Accounting Fees and Services

 

The aggregate fees billed for the two most recently completed fiscal periods ended December 31, 2019 and December 31, 2018 for professional services rendered by our independent registered public accounting firm auditors for the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by independent accountants in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

 

   

Year Ended December 31,

 
   

2019

   

2018

 

Audit Fees (audit for original filings)

  $ 58,000     $ 12,000  

Audit Fees (audit for amended filings)

  $ -     $ 34,560  

Tax Fees

  $ -     $ 20,750  

Total

  $ 58,000     $ 67,310  

 

In the above table, Audit Fees are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year. “Tax fees” are fees billed for professional services rendered for tax compliance, tax advice and tax planning. The audit fees include review of our interim financial statements and year-end audit. The aggregate fees billed collectively by BF Borgers CPA PC (“Borgers”), for professional services rendered for the audit of our amended annual financial statements for the years ended December 31, 2018, including review of our interim amended financial statements.

 

 

PART IV

 

Item 15 – Exhibits and Financial Statement Schedules

 

The following documents are filed as part of this Annual Report on Form 10-K: 

 

 

a)

Financial Statements:

 

Our financial statements and the Report of Independent Registered Public Accounting Firm are included herein on page F-1.

 

 

b)

Financial Statement Schedules:

 

The financial statement schedules are omitted as they are either not applicable or the information required is presented in the financial statements and notes thereto on page F-6.

 

 

c)

Exhibits:

 

 

 

 

 

Incorporated by

 

 

Exhibit

 

 

 

Reference

 

Filed or Furnished

Number

 

Exhibit Description

 

Form  

 

Exhibit

 

Filing Date

 

Herewith

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Articles of Incorporation, filed August 29, 2007

 

S-1

 

3.1

 

02/12/2008

 

 

 

 

 

 

 

 

 

 

 

 

 

3.2

 

Certificate of Amendment to Articles of Incorporation, filed October 18, 2017

 

10-K

 

3.2

 

04/16/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

3.3

 

Certificate of Amendment to Articles of Incorporation, filed May 3, 2018

 

10-K

 

3.3

 

04/16/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

3.4

 

Certificate of Amendment to Articles of Incorporation, filed December 13, 2018

 

10-K

 

3.4

 

04/16/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

3.5

 

Bylaws of GreenBox POS

 

S-1 

 

 3.2

 

02/12/2008

 

 

 

 

 

 

 

 

 

 

 

 

 

4.1

 

Convertible Promissory Note issued March 15, 2018, to RB Capital Partners, Inc.

 

10-K/A

 

4.1

 

 02/07/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

4.2

 

Convertible Promissory Note issued August 6, 2018, to Power Up Lending Group Ltd.

 

8-K 

 

10.2

 

11/14/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

4.3

 

Convertible Promissory Note issued September 27, 2018, to Power Up Lending Group Ltd.

 

8-K 

 

10.3

 

11/14/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

4.4

 

Convertible Promissory Note issued November 26, 2018, to RB Capital Partners, Inc.

 

10-K/A

 

4.4

 

 02/07/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

4.5

 

Convertible Promissory Note issued December 27, 2018, to 102065761 SASKATCHEWAN LTD.

 

10-K/A

 

4.5

 

 02/07/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

10.1

 

Purchase Agreement, effective March 23, 2018, by and among Frank Yuan and Vicky PMW Yuan (together, “Seller”), and GreenBox POS, LLC

 

8-K 

 

10.1

 

05/17/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

10.2 

 

Asset Purchase Agreement dated April 11, 2018, by and between ASAP Expo, Inc. and ASAP Property Holdings Inc.

 

8-K 

 

99.1

 

09/06/2018 

 

 

 

 

10.3

 

Securities Purchase Agreement dated August 6, 2018, by and between GreenBox Pos LLC, and Power Up Lending Group Ltd

 

8-K

 

10.1

 

11/14/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

10.4

 

Asset Purchase Agreement, dated January 4, 2020, by and between GreenBox POS and GreenBox POS LLC

 

8-K

 

10.1

 

01/07/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

10.5

 

Software License and Services Agreement, dated December 17, 2018, by and among GreenBox POS, Cultivate Technologies, LLC and MTrac Tech Corp.

 

10-K/A

 

10.5

 

 02/07/2020

 

 
                     

21.1

 

Subsidiaries of the Registrant - None.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.1*

 

Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.2*

 

Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

X

 

 * In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

GreenBox POS

 

 

Date: May 15, 2020

By:

/s/ Fredi Nisan

 

 

 

Fredi Nisan

 

 

 

Chief Executive Officer and Director

 

 

 

 

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

Date: May 15, 2020

By:

/s/ Fredi Nisan

 

 

 

Fredi Nisan

 

 

 

Chief Executive Officer and Director

 

 

 

(Principal Executive Officer)

 

 

 

 

 

Date: May 15, 2020

By:

/s/ Ben Errez

 

 

 

Ben Errez

 

 

 

Chairman of the Board and Executive Vice President (Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

GREENBOX POS

Index to Financial Statements

 

 

Page

Report of Independent Registered Public Accounting Firm 

F-1

Audited Consolidated Balance Sheets as of December 31, 2019 and 2018

F-2

Audited Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018

F-3

Audited Statement of Consolidated Changes in Stockholders’ Equity for the Years Ended December 31, 2019 and 2018

F-4

Audited Statements of Cash Flows for the Years Ended December 31, 2019 and 2018

F-5

Notes to Financial Statements 

F-6

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the shareholders and the board of directors of GreenBox POS

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of GreenBox POS as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

/S/ BF Borgers CPA PC

BF Borgers CPA PC

 

We have served as the Company's auditor since 2019

Lakewood, CO

May 15, 2020

 

 

GREENBOX POS

CONSOLIDATED BALANCE SHEETS

 

           

(Restated)

 

December 31,

 

2019

   

2018

 
                 

ASSETS

               
                 

Current Assets:

               

Cash and cash equivalents

  $ -     $ 45,854  

Restricted cash

    763,110       239,124  

Accounts receivable, net of allowance for bad debt of $5,665,031 and $0, respectively

    70,257       49,998  

Accounts receivables from fines and fees from merchant, net of allowance for bad debt of $6,665,031 and $0, respectively.

    2,776,687       -  

Cash due from gateways, net

    8,426,844       630,699  

Prepaid and other current assets

    42,062       37,232  

Total current assets

    12,078,960       1,002,907  
                 

Non-current Assets:

               

Property and equipment, net

    66,491       30,715  

Operating lease right-of-use assets, net

    229,639       -  

Total non-current assets

    296,130       30,715  
                 

Total assets

  $ 12,375,090     $ 1,033,622  
                 
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current Liabilities:

               

Accounts payable

  $ 504,505     $ 127,029  

Other current liabilities

    15,100       9,401  

Accrued interest

    368,071       29,871  

Payment processing liabilities, net

    14,021,892       865,086  

Short-term notes payable, net of debt discount of $32,418 and $0, respectively

    741,253       -  

Convertible debt

    807,500       846,500  

Derivative liability

    1,050,063       -  

Current portion of operating lease liabilities

    113,935       -  
                 

Total current liabilities

    17,622,319       1,877,887  

Operating lease liabilities, less current portion

    120,110       -  

Long-term debt

    -       75,000  
                 

Total liabilities

    17,742,429       1,952,887  
                 

Commitments and contingencies

               
                 

Stockholders' Deficit:

               

Common stock, par value $0.001, 495,000,000 shares authorized, shares issued and
      outstanding of 169,862,933 and 166,390,363, respectively

    169,863       166,390  

Common stock - issuable

    695       1,000  

Additional paid-in capital

    1,179,272       945,940  

Accumulated deficit

    (6,717,169 )     (2,032,595 )

Total stockholders' deficit

    (5,367,339 )     (919,265 )
                 

Total liabilities and stockholder's deficit

  $ 12,375,090     $ 1,033,622  

 

The accompanying notes are an integral part of these audited financial statements.

 

 

GREENBOX POS

CONSOLIDATED STATEMENTS OF OPERATIONS

 

Years Ended December 31,

 

2019

   

2018

 
                 

Net revenue

  $ 10,002,857     $ 910,808  

Cost of revenue

    11,091,140       670,539  
                 

Gross profit

    (1,088,283 )     240,269  
                 

Operating expenses:

               

Advertising and marketing

    45,928       166,149  

Research and development

    1,255,296       376,871  

Cash due from gateway reserve expense

    -       -  

Payroll and payroll taxes

    1,429,136       331,894  

Professional fees

    1,026,556       767,869  

General and administrative

    750,078       302,333  

Depreciation and amortization

    16,216       6,608  

Total operating expenses

    4,523,210       1,951,724  
                 

Loss from operations

    (5,611,493 )     (1,711,455 )
                 

Other income (expense):

               

Interest expense - debt discount

    (195,201 )     -  

Interest (expense) income

    (604,504 )     (106,821 )

Derivative expense

    (634,766 )     -  

Changes in fair value of derivative liability

    (415,297 )     -  

Merchant fines and penalty income

    2,776,687       -  

Asset impairment

    -       (75,000 )

Total other expense, net

    926,919       (181,821 )
                 

Loss before provision for income taxes

    (4,684,574 )     (1,893,276 )
                 

Income tax provision

    -       -  
                 

Net loss

  $ (4,684,574 )   $ (1,893,276 )
                 
                 

Earnings (loss) per share:

               

Basic and diluted

  $ (0.03 )   $ (0.02 )
                 

Weighted average number of common shares outstanding:

               

Basic and diluted

    167,818,209       88,662,960  

 

The accompanying notes are an integral part of these audited financial statements.

 

 

GREENBOX POS

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

   

Common Stock

   

Additional Paid-In

   

Accumulated

   

Total Stockholders' Equity

 
   

Shares

   

Amount

   

To be Issued

   

Amount

   

Capital

   

Deficit

   

(Deficit)

 
                                                         

Balance at December 31, 2017

    14,445,363     $ 14,445       -     $ -     $ 185,655     $ (139,319 )   $ 60,781  
                                                         

Common stock issued

    144,445,000       144,445       -       -       611,285       -       755,730  
                                                         

Shares issued

    7,500,000       7,500       -       -       -       -       7,500  
                                                         

Shares to be issued

    -       -       1,000,000       1,000       149,000       -       150,000  
                                                         

Net loss

    -       -       -       -       -       (1,893,276 )     (1,893,276 )
                                                         

Balance at December 31, 2018

    166,390,363     $ 166,390       1,000,000     $ 1,000     $ 945,940     $ (2,032,595 )   $ (919,265 )
                                                         

Common stock issuable under convertible debt

    -       -       25,000       4,500       -       -       4,500  
                                                         

Warrants issuable under convertible debt

    -       -       125,000       -       55,311       -       55,311  
                                                         

Common stock and warrants issuable forfeited

    -       -       (150,000 )     (4,500 )     (55,311 )     -       (59,811 )
                                                         

Share issued to employees and vendor

    860,000       860       -       -       85,640       -       86,500  
                                                         

Shares issuable from conversion of convertible debt

    -       -       2,307,692       2,308       147,692       -       150,000  
                                                         

Shares issued from conversion of convertible debt

    2,307,692       2,308       (2,307,692 )     (2,308 )     -       -       -  
                                                         

Shares issued from issuable shares

    304,878       305       (304,878 )     (305 )     -       -       -  
                                                         

Net loss

    -       -       -       -       -       (4,684,574 )     (4,684,574 )
                                                         

Balance at December 31, 2019

    169,862,933     $ 169,863       695,122     $ 695     $ 1,179,272     $ (6,717,169 )   $ (5,367,339 )

 

The accompanying notes are an integral part of these audited financial statements.

 

 

GREENBOX POS

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Years Ended December 31,

 

2019

   

2018

 
                 

Cash flows from operating activities:

               

Net loss

  $ (4,684,574 )   $ (1,893,276 )
                 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

               

Depreciation expense

    14,019       6,608  

Interest expense - debt discount

    195,201       -  

Stock compensation expense

    86,500       -  

Derivative expense

    634,766       -  

Changes in fair value of derivative liability

    415,297       -  

Noncash lease expense

    (4,406 )     -  

Changes in assets and liabilities:

               

Accounts receivable

    (20,259 )     (49,998 )
Accounts receivables from fines and fees from merchant, net     (2,776,687 )     -  

Prepaid and other current assets

    (4,830 )     (33,893 )

Cash due from gateways, net

    (7,796,145 )     (630,699 )

Accounts payable

    377,476       95,049  

Other current liabilities

    5,699       9,401  

Accrued interest

    235,581       29,871  

Payment processing liabilities, net

    13,156,806       865,086  

Deferred income

    -       -  

Net cash provided by (used in) operating activities

    (165,556 )     (1,601,851 )
                 

Cash flows from investing activities:

               

Purchases of property and equipment

    (49,795 )     (31,254 )

Net cash used in investing activities

    (49,795 )     (31,254 )
                 

Cash flows from financing activities:

               

Borrowings from convertible debt

    482,500       921,500  

Repayments on convertible debt

    (496,500 )     -  

Repayment on long-term debt

    (75,000 )     -  

Borrowings from short-term notes payable

    1,132,975          

Repayments on short-term notes payable

    (359,304 )        

Proceeds from issuances of common stock

    -       913,230  

Net cash provided by financing activities

    684,671       1,834,730  
                 

Net increase (decrease) in cash, cash equivalents, and restricted cash

    469,320       201,625  
                 

Cash, cash equivalents, and restricted cash – beginning of year

    284,978       83,353  
                 

Cash, cash equivalents, and restricted cash – end of year

  $ 763,110     $ 284,978  
                 
                 

Supplemental disclosures of cash flow information

               

Cash paid during the year for:

               

Interest

  $ 266,304     $ 152,868  

Income taxes

  $ 800     $ 800  
                 

Non-cash financing activities:

               

Convertible debt conversion to common stock

  $ (150,000 )   $ -  

 

The accompanying notes are an integral part of these audited financial statements. 

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

 

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Organization

 

GreenBox POS (the “Company” or “PubCo”) is a tech company formed with the intent of developing, marketing and selling innovative blockchain-based payment solutions, which the Company believes will cause favorable disruption in the payment solutions marketplace. The Company’s core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.

 

The Company was formerly known as ASAP Expo, Inc (“ASAP”), which was incorporated April 10, 2007 under the laws of the State of Nevada. On January 4, 2020, PubCo and GreenBox POS LLC, a Washington limited liability company (“PrivCo”), entered into an Asset Purchase Agreement (the “Agreement”), to memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and among PubCo (the buyer) and PrivCo, which was formed on August 10, 2017 (the seller). On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (the “GreenBox Acquisition”).

 

For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”

 

Significant Transactions

 

On March 23, 2018, the then controlling shareholder and then sole officer and sole director of PubCo, Frank Yuan, along with his wife, Vicky PMW Yuan, entered into a Purchase Agreement with PrivCo (the “SPA”).

 

Pursuant to the SPA, Frank Yuan agreed to convert a portion of a line of credit that he had previously issued to PubCo, in exchange for 144,445,000 shares of PubCo’s common stock, par value $0.001 per share (the “Control Block”). The Yuans agreed to sell the Control Block to PrivCo for a consideration of $500,000: $250,000 in cash and $250,000 in PubCo shares to be issued within 30 days of the completion of the SPA (the “Shares Due”), which were subsequently paid by PrivCo.

 

On April 12, 2018, all business being conducted at that time by PubCo (the “ASAP Business”) was transferred from PubCo to ASAP Property Holdings Inc., a company owned and operated by Frank Yuan (“Holdings”). In consideration for the ASAP Business, Holdings assumed all liabilities related to the ASAP Business.

 

On April 12, 2018, following the SPA being entered into and the ASAP Business being transferred to Holdings, Errez and Nisan were the sole acting officers and sole acting directors of PubCo.

 

On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018 PubCo assumed nearly all PrivCo’s liabilities (the “Assumed Liabilities”) that had been incurred in the normal course of GreenBox Business (collectively, the “GreenBox Acquisition”).

 

The value of the GreenBox Business assets on April 12, 2018 was $843,694, which excluded the Control Shares, which remained with PrivCo. The value of the Assumed Liabilities on April 12 was $589,078, which excluded $185,000 of a $300,000 convertible promissory note issued by PrivCo to RB Capital Partners. The difference between assets and liabilities was $254,616, which PubCo booked as a “Gain on Bargain Purchase.” However, because we are using Reverse Acquisition accounting, we recorded the gain as Paid in Capital.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

 

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)

 

Name Change

 

On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018. Unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS. Unless the context otherwise requires, all references to “PrivCo” or the “Private Company” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.

 

Basis of Presentation and Consolidation

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial statements include the combined accounts of PubCo and PrivCo. All amounts are presented in U.S. Dollars unless otherwise stated. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”).

 

Going Concern

 

As of December 31, 2019, the Company had cash, cash equivalents, and restricted cash of $254,617, has incurred a net loss of $1,425,058 for the nine months ended September 30, 2019, and has accumulated a deficit of $3,457,653 as of September 30, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Additionally, as the GreenBox ecosystem grows, substantially larger volumes of working capital financing will be required to support our platform’s growth. The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

 

Accordingly, the accompanying financial statements have been prepared in conformity with GAAP, which contemplate our continuation as a going concern, and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

Restatement

 

On April 12, 2018, pursuant to a verbal agreement (the “Verbal Agreement”), PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”).

 

From April 12, 2018 through January 4, 2020 (the “In Between Period”), because there was ambiguity regarding the validity of the Verbal Agreement, PubCo filed required quarterly and annual reports with the Securities and Exchange Commission as if there had not been a Reverse Acquisition. During the In Between Period, PrivCo continued to operate as if it still owned the GreenBox Business, which included maintaining records of GreenBox Business financial transactions on PrivCo’s accounting software, and entering into contracts and agreements as PrivCo, while PubCo paid all expenses, including expenses related to PrivCo contracts entered into prior to April 12, 2018 and after April 12, 2018, as well as expenses incurred as a result of litigation resulting from disagreements between PrivCo and other parties. During the In Between Period, PubCo represented itself in press releases, as being the owner/operator of the GreenBox Business. Additionally, from April 12, 2018 through approximately December 31, 2018, PubCo and PrivCo shared control of PrivCo’s bank accounts, and on approximately January 1, 2019, PubCo assumed control of PrivCo’s bank accounts.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)

 

By virtue of the payment of PrivCo’s litigation expenses by PubCo, by virtue of PubCo representing itself in press releases, as being the owner/operator of the GreenBox Business, and by virtue of the shared control of PrivCo’s bank accounts starting on April 12, 2018, both PubCo and PrivCo concluded that the Verbal Agreement was valid and the GreenBox Business asset acquisition took place on April 12, 2018.

 

On January 4, 2020, PubCo and PrivCo entered into an Asset Purchase Agreement (the “Agreement”), to memorialize the Verbal Agreement. For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”

 

Because PubCo previously filed quarterly and annual reports for 2018 with the Securities and Exchange Commission as if there had not been a Reverse Acquisition, PubCo was required to file amended Form 10-Qs for the periods ending June 30, 2018 and September 30, 2018, and an amended Form 10-K for the year ending December 31, 2018 (collectively the “Amended Reports”). These Amended Reports differ substantially from previously filed reports in that PubCo’s financials are presented on a combined basis with PrivCo. Additionally, the previous business operations of PubCo prior to April 12, 2018 are disregarded.

 

The Company therefore filed, on February 7, 2020, an amended 10-K (“Amended 10-K”) to the Company’s audited financial statements for the year ended December 31, 2018, contained in the Company’s Annual Report on Form 10-K, originally filed with the SEC on April 16, 2019 (the “2018 Report”) to restate the Company’s financial statements and revise related disclosures. As a substantial part of the Amended 10-K was amended and/or restated, the Company presented the entire text of the 2018 Report, as amended and/or restated by the Amended 10-K. Readers should therefore read and rely only on the Amended 10-K in lieu of the original 2018 Report.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with the GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassification

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flows.

 

Cash, Cash Equivalents and Restricted Cash

 

The Company’s cash, cash equivalent and Restricted cash represents the following:

 

 

Cash and cash equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with a maturity of three months or less when purchased. The Company has cash equivalents of $0 and $45,854, excluding cash held for settlement liabilities, as of December 31, 2019 and December 31, 2018, respectively.

 

 

Restricted Cash – The Company’s technology enables transactional blockchain ledger to instantly reflect all transactions details. The final cash settlement of each transaction is subject to the gateway policies. This final disposition takes days to weeks to complete in accordance with these policies. Each policy is an integral part of the transactional contracts between the Company, its Independent Sales Organizations (ISOs), its agents, and the merchant clients. While the ledger reflects a held balance for the merchant, in reserve or payment in arears, the Company holds funds in a trust account as cash deemed restricted. The Company’s books reflect such restricted cash as a restricted cash and trust accounts, and the sum balance due to merchants and ISOs as settlement liabilities.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.

 

   

December 31, 2019

   

December 31, 2018

 
                 

Cash and cash equivalents

  $ -     $ 45,854  

Restricted cash

    763,110       239,124  
                 

Total cash, cash equivalents, and restricted cash shown in the statements of cash flows

  $ 763,110     $ 284,978  

 

Cash Due from Gateways and Payment Processing Liabilities

 

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

 

In 2019 the Company utilized several gateways. The gateways have strict guidelines pertaining to scheduling of the release of funds to merchants based on several criteria, such as return and chargeback history, associated risk for the specific business vertical, average transaction amount and so on. In order to mitigate processing risks, these policies determine reserve requirements and payment in arear strategy. While reserve and payment in arear restrictions are in effect for a merchant payout, the Company records gateway debt against these amounts until released.

 

Therefore, the total gateway balances reflected in the Company’s books represent the amount owed to the Company for processing – these are funds from transactions processed and not yet distributed.

 

Advertising and Marketing Costs

 

Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $45,928 and $166,149 for the years ended December 31, 2019 and 2018, respectively.

 

Research and Development Costs

 

Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits for research and development personnel, outsourced contract services, and supplies and materials costs. Research and development expenses were $1,255,296 and $376,871 for the years ended December 31, 2019 and 2018, respectively.

 

Revenue Recognition

 

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.

 

The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The Company generates revenue from payment processing services, licensing fees and equipment sales.

 

 

Payment processing revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed.

 

Licensing revenue is paid in advance and is recorded as unearned income, which is amortized monthly over the period of the licensing agreement.

 

Equipment revenue is generated from the sale of POS products, which is recognized when goods are shipped.

 

Accounts Receivables from Fines and Fees from Merchants

 

The fines and penalties charged to the Company’s merchants is a normal course of business and historically, the Company has had more than 90% collections success rate.   These fees and penalties represent certain chargebacks which are at fault by the Company’s merchants and are imposed as the merchant agreement between the Company and the merchant.  The Company has legal rights under the merchant agreement to claim the chargeback.  These chargebacks, fees, and fines are earned and delivered because the Company has been “chargebacked” by the Gateways and the Company has legal rights under the agreement to claim this against the merchants.

 

In end of Q3 2019, GreenBox received constructive notice of potential violations of its Terms of Service by a merchant, The Good People Farms (“TGPF”).   An ongoing audit and investigation of this account resulted in the discovery of a number of violations GreenBox believes TGPF is responsible for, including but not limited to violations of VISA, Mastercard, and American Express’s rules.

 

This investigation is ongoing, but initial results indicate that excessively high chargeback percentages are connected with fraudulent activity and / or transaction laundering. These issues lead to the implementation of aggressive bank reserves, stunting GreenBox’s ability to conduct business and contributed to undetermined consequential damages. GreenBox promptly terminated the merchant account and placed all processed funds on reserve.

 

Although the investigation is ongoing, GreenBox estimates that the total amount of fees, fines, and chargebacks are currently $9,441,718.  The Company has provided for an allowance for bad debt of $6,665,031 on the gross balance of $9,441,718 bringing to net balance of $2,776,687.   To date, GreenBox has successfully recouped $840,739.33 (collected in 2019).  The Company expects to recoup at minimum approximately $2.8M in fiscal year 2020.   The Company may assess $100,000 per fraudulent transactions but the Company used $5,000 per transaction to calculate the fees and fines.

 

The Company recorded net balance of $2,776,687 as other income in the statements of operations for the year ended December 31, 2019.

 

Accounts Receivable and Allowance for Bad Debt

 

The Company maintains an allowance for doubtful accounts for estimated losses from the inability of customers to make required payments. The allowance for doubtful accounts is evaluated periodically based on the aging of accounts receivable, the financial condition of customers and their payment history, historical write-off experience and other assumptions, such as current assessment of economic conditions.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, which range from three to eight years. Leasehold improvements are amortized over the shorter of the useful life of the related assets or the lease term. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair Value of Financial Instruments

 

The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The Company’s financial instruments consisted of cash, accounts payable and accrued liabilities, advances to due to or from affiliated companies, notes payable to officers.  The estimated fair value of cash, accounts payable and accrued liabilities, due to or from affiliated companies, and notes payable approximates its carrying amount due to the short maturity of these instruments.

 

The table below describes the Company’s valuation of financial instruments using guidance from ASC 820-10:

 

December 31, 2019

 

Level 1

   

Level 2

   

Level 3

 
                         

Derivative liability

  $ -     $ -     $ 1,050,063  

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net of operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.  Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

 

Long-Lived Asset Impairments

 

The Company reviews long-lived assets, including property and equipment and intangible assets, for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, and at least annually. The Company considers assets to be impaired and writes them down to estimated fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows.

 

Earnings Per Share

 

A basic earnings per share is computed by dividing net income to common stockholders by the weighted average number of shares outstanding for the year. Dilutive earnings per share include the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive. The Company’s diluted earnings/loss per share is the same as the basic earnings/loss per share for the years ended December 31, 2019 and 2018, as there are no potential shares outstanding that would have a dilutive effect.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Leases

 

Prior to January 1, 2019, the Company accounted for leases under Accounting Standards Codification (ASC) 840, Accounting for Leases. Effective from January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases.

 

On February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. ASC 842 requires that lessees recognize right of use assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months.

 

ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows. ASC 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the Financial Accounting Standards Board (“FASB”) including ASC Topic 840, Leases.

 

For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the IBR as of that date.

 

The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of liabilities of $229,639 and $234,045, respectively as of December 31, 2019. The difference between the operating lease ROU assets and operating lease liabilities at transition represented tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.

 

Recently Adopted Accounting Updates

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with prior GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease. However, unlike prior GAAP—which required only finance (formerly capital) leases to be recognized on the balance sheet—the new ASU requires both types of leases to be recognized on the balance sheet. The ASU took effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This standard can be applied at the beginning of the earliest period presented using the modified retrospective approach, which includes certain practical expedients that an entity may elect to apply, including an election to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840.

 

The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of liabilities of $229,639 and $234,045, respectively as of December 31, 2019. The difference between the operating lease ROU assets and operating lease liabilities at transition represented tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. While the Company is currently in the process of evaluating the effects of this standard on the consolidated financial statements, the Company plans to adopt ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company plans to adopt the updated disclosure requirements of ASU No. 2018-15 prospectively in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.

 

Other recently issued accounting updates are not expected to have a material impact on the Company’s financial statements.

 

3.

REVERSE ACQUISITION

 

On January 4, 2020, PubCo and PrivCo entered into the Agreement to memorialize the Verbal Agreement. On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”).

 

For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”

 

The value of the assets acquired and liabilities assumed was $843,694 and $589,078, respectively, on April 12, 208. Exclusions from the Agreement included shares in PubCo held by PrivCo, which remain a PrivCo asset, and $185,000 of a $300,000 convertible promissory note issued by PrivCo.

 

The following is the purchase price allocation on April 12, 2018: 

 

   

April 12, 2018

 
         

Cash and Cash Equivalents

  $ 752,393  

Customer Accounts

    83  

Inventory

    56,988  

Security Deposits

    3,990  

Fixed Assets, net

    17,697  

Prepaid Expense

    12,543  
         

Assets Acquired

    843,694  
         

Total Consideration – Liabilities Assumed

    589,078  
         

Gain on Bargain Purchase

  $ 254,616  

 

This acquisition resulted in a “Gain on Bargain Purchase” for PubCo because the fair value of assets we acquired exceeded the total of the fair value of consideration we paid by $254,616. However, as we deemed the acquisition a Reverse Acquisition for accounting purposes, the $254,616 gain was rerecorded and presented as Paid in Capital within our Consolidated Balance Sheet on the date of acquisition. The operating results of the GreenBox Business for the period from April 12, 2018 going forward have been included in the Company’s Consolidated Statements of Operations. The Company did not incur a significant amount in transaction costs in connection with the acquisition, but any and all costs were expensed as incurred and are included within the Consolidated Statement of Operations.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

 

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 Settlements – a Current Asset. Of these funds, we record the sum balance due to Merchants and ISOs as Settlement Liabilities to Merchants and Settlement Liabilities to ISOs, respectively.

 

The table below shows the status of transaction settlements:

 

   

December 31, 2019

   

December 31, 2018

 

Settlement Processing Assets:

               

Cash held for settlements

  $ 763,110     $ 239,124  

Cash due from gateways

    3,073,183       291,112  

Amount due from gateways and merchants – hold and fees

    4,824,223       -  

Chargeback allowances (1)

    -       (139,374 )

Reserves (2)

    5,353,661       474,224  

Total before allowance for uncollectable

    14,014,177       865,086  

Allowance for uncollectable – hold and fees

    (5,587,333 )     -  

Total – settlement processing assets

  $ 8,426,844     $ 865,086  
                 

Settlement Processing Liabilities:

               

Settlement liabilities to merchants

    14,014,177       786,425  

Settlement liabilities to ISOs

    -       107,342  

Refund allowances (3)

    -       (28,681 )

Totals

  $ 14,014,177     $ 865,086  

 

(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.

 

(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.

 

(3) The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using our proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with our allowance.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

 

5.

CASH DUE FROM GATEWAYS

 

Cash due from gateways consisted of the following:

 

   

December 31, 2019

   

December 31, 2018

 
                 

Cash due from Gateways

  $ 3,073,183     $ 291,112  

Amount due from gateways and merchants – hold and fees

    4,824,223       -  

Reserves (2)

    5,353,661       474,224  
                 

Total cash due from gateways

    13,251,067       765,336  

Chargeback Allowances (1)

    -       (134,637 )

Allowance of uncollectable – hold and fees

    (4,824,223 )     -  
                 

Total cash due from gateways, net

  $ 8,426,844     $ 630,699  

 

(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.

 

(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.

 

6.

PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   

December 31, 2019

   

December 31, 2018

 
                 

Computers

  $ 38,938     $ 15,285  

Furniture

    37,339       4,919  

Kiosks

    12,750       12,750  

Vehicles

    4,578       4,578  
                 

Total property and equipment

    93,605       37,532  

Less: Accumulated depreciation

    (27,114 )     (6,817 )
                 

Total property and equipment, net

  $ 66,491     $ 30,715  

 

Depreciation expense was $16,530 and $6,608 for the years ended December 31, 2019 and 2018, respectively.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

 

7.

PAYMENT PROCESSING LIABILITIES, NET

 

Payment processing liabilities consisted of the following:

 

   

December 31, 2019

   

December 31, 2018

 
                 

Settlement liabilities to merchants

  $ 14,014,177     $ 786,425  

Settlement liabilities to ISOs

    -       107,342  
                 

Total processing liabilities

    14,014,177       893,767  

Refund allowances

    -       (28,681 )
                 

Total payment processing liabilities

  $ 14,014,177     $ 865,086  

 

The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using our proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with our allowance.

 

8.

CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consisted of the following:

   

December 31, 2019

   

December 31, 2018

 
                 

March 11, 2019 ($500,000) – 8% one-time interest charge with outstanding principal and interest due October 6, 2019.

  $ 500,000     $ -  

December 27, 2018 ($150,000) – 12% interest per annum paid quarterly with outstanding principal and remaining interest due December 12, 2019.

    -       150,000  

December 13, 2018 ($83,000) – 10% interest per annum with outstanding principal and interest due December 13, 2019.

    -       83,000  

November 26, 2018 ($200,000) – 12% interest per annum with outstanding principal and interest due November 26, 2019.

    200,000       200,000  

September 27, 2018 ($53,000) – 10% interest per annum with outstanding principal and interest due September 27, 2019.

    -       53,000  

August 6, 2018 ($253,000) – 10% interest per annum with outstanding principal and interest due August 6, 2019.

    -       253,000  

March 15, 2018 ($300,00) – 12% interest per annum with outstanding principal and interest due March 15, 2019.

    107,500       107,500  
                 

Total convertible notes payable

  $ 807,500     $ 846,500  

 

Vista Capital Investments, LLC - $500,000 (original received $375k)

 

On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon repayment of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”). The Vista Note’s principal and interest were due to be paid October 6, 2019.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

8.

CONVERTIBLE NOTES PAYABLE (continued)

  

The Company and Vista amended the convertible debt agreement as follows:

  

 

First Amendment – On or about October 16, 2019, the parties amended the Vista Note to extend the Maturity Date to November 6, 2019, reduce the principal and interest due to $464,625 and cancel the Commitment Shares.

 

Second Amendment – On or about December 11, 2019, the parties agreed to a second amendment of the Vista Note, which extended the Maturity Date to January 15, 2020, required the Company to make a one-time payment of $10,000, changed the principal and interest balance due to $487,858, and waived Vista’s default rights through January 15, 2020. On January 22, 2020, Vista issued a default notice to the Company, which included an increase in the balance due to $634,213.

 

Third Amendment – On or about January 28, 2020, the parties agreed upon a third amendment to the Vista Note, which extended the Maturity Date to February 29, 2020, reduced the principal and interest due to $482,856 and required the Company to make a one-time $20,000 payment on or before January 29, 2020, of which $5,000 is to be applied to principal due. All other terms of the note remain in full force and effect.

 

The Vista Note has matured as of September 30, 2019. The Company has defaulted on the Vista Note and subsequently the Vista Note has not been extended. The Company is currently negotiating with Vista on extension of the Vista Note.

 

Saskatchewan Ltd – $150,000

 

On December 27, 2018, PubCo issued a convertible promissory note for $150,000 to Saskatchewan Ltd (“Sask”) (the “Sask Note”). The note incurs interest at 12% per year, paid quarterly, in advance. The outstanding principal and any remaining interest are due December 12, 2019. The note includes a conversion feature where, beginning six months after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and any accrued interest balance into shares of PubCo’s common stock at a discounted rate of 50%. This note holder issued a notice of conversion to the Company on June 27, 2019 to convert the outstanding principal into 2,307,692 shares of the Company’s stock. The shares were subsequently issued to Sask on August 14, 2019.

 

Power Up Lending Ltd

 

On August 6, 2018, the Company entered into a Securities Purchase Agreement with Power Up Lending Up Ltd (“PULG”) under which PULG agreed to issue notes of up to $1,500,000 in aggregate over twelve months at the discretion of PULG (the “PULG SPA”). Under this agreement, the Company issued the following convertible notes:

 

 

PULG – $253,000

On August 6, 2018, the Company issued a convertible note for $253,000 to PULG, with a net $250,000 received by the Company. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due August 6, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the Company’s common stock at a discounted rate of 65%. The Company incurred $3,000 in financing fees associated with the loan. The Company paid this note on January 30, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $93,333, which was recorded as interest expense.

 

PULG – $53,000

On September 27, 2018, the Company issued a convertible note for $53,000 to PULG, with a net $50,000 received by the Company. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due September 27, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the Company’s common stock at a discounted rate of 65%. The Company incurred $3,000 in financing fees associated with the loan. The Company paid this note on March 13, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $19,378, which was recorded as interest expense.

 

PULG – $83,000

On December 13, 2018, PubCo issued a convertible note for $83,000 to PULG, with a net $80,000 received by PubCo. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due December 13, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the PubCo’s common stock at a discounted rate of 65%. PubCo incurred $3,000 in financing fees associated with the loan. The Company paid this note on March 13, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $17,005, which was recorded as interest expense.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

 

8.

CONVERTIBLE NOTES PAYABLE (continued)

  

RB Cap – $200,000

 

On November 26, 2018, PubCo issued a convertible promissory note for $200,000 to RB Cap (the “RB Cap $200K Note”). The note incurs interest at 12% per year and the outstanding principal and accrued interest are due November 26, 2019. RB Cap may elect to convert the note at any time from six months from the date of issuance at a fixed price per share of $4.50. This note became part of a claim/counter claim suit with RB Capital (See Section C. Legal Matters below.)

 

RB Cap – $300,000

 

On or about March 15, 2018, PrivCo issued a twelve-month, $300,000 convertible promissory note to RB Capital Partners (“RB Cap”), with an interest rate of 12% per annum (“RB Cap 300K Note”). The note’s convertibility feature commenced six months after the note’s issuance, at a conversion rate of $0.001 per share of the Company’s common stock. Under the terms of the Agreement which memorialized the Verbal Agreement, we assumed the note, however, PrivCo agreed to pay $185,000 of the principal balance due on this note. On or about June 8, 2018, PrivCo transferred 440,476 restricted shares of Common Stock from the Control Block, with a market value of $185,000, to a purported designee of RB Cap, as a payment of principal of the note. Subsequently, RB Cap disputed the reduction in principal and subsequently, and we, along with PrivCo, disputed whether these shares should have been issued by PrivCo, and sought their return. On or about October 23, 2018, we issued 7,500,000 newly issued, restricted shares of our stock to RB Cap, in repayment of $7,500 of the RB Cap $300,000 Note. Subsequently, we disputed whether these shares should have been issued to RB Cap. As of December 31, 2018, our recorded principal balance for the note was $107,500 and accrued interest on the note was $15,880. On or about March 13, 2019, we issued a final cash payment towards the RB Cap 300K Note of approximately $126,092 (the “Payoff Funds”). However, RB Cap contested the amount of the Payoff Funds. (See Section C. Legal Matters below, under Note 12 – Subsequent Events)

 

9.

SHORT-TERM NOTES PAYABLE

 

Short-term notes payable consisted of the following:

   

December 31, 2019

   

December 31, 2018

 
                 

December 10, 2019 ($260,000) – Total interest charge of $106,000 with daily installments (5 days per week) of $4,073 for four months totaling $366,000.

  $ 213,671     $ -  

December 9, 2019 ($200,000) – Total interest charge of $40,000 with 15 weekly installments of $16,000 totaling $240,000.

    160,000       -  

November 12, 2019 ($400,000) – Total interest charge of $196,000 with daily installments (5 days per week) of $5,960 for four months totaling $596,000.

    400,000       -  
                 

Total short-term notes payable

  $ 773,671       -  
                 

Debt discount

    (32,418 )        
                 

Total short-term notes payable, net of debt discount

  $ 741,253          

 

Fox Capital Group, Inc. - $260,000

 

On or about December 5, 2019, PubCo entered into a Secured Merchant Agreement with Fox Capital Group, Inc. (“Fox”). Under the terms of the Secured Merchant Agreement, the Company agreed to sell Fox $366,000 of future incoming cashflow from the GreenBox Business, to be delivered to Fox in daily installments of $4,073, for $260,000, from which $26,000 in fees was deducted, providing the Company with net cash of $234,000. For accounting purposes, the Company recorded this transaction as a loan of $260,000, with interest of $106,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Secured Merchant Agreement.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

9.

SHORT-TERM NOTES PAYABLE (continued)

 

Complete Business Solutions Group, Inc. - $200,000

 

On or about December 9, 2019, PubCo entered into an Agreement for the Purchase and Sale of Future Receivables (the “Purchase and Sale Agreement”) with Complete Business Solutions Group Inc, (“CBSG”). Under the terms of the Purchase and Sale Agreement, we agreed to sell CBSG $240,000 of future incoming cashflow from the GreenBox Business, to be delivered to CBSG in weekly installments of $16,000, for $200,000, from which $35 in fees was deducted, providing us with net cash of $199,965. For accounting purposes, we recorded this transaction as a loan of $200,000, with interest of $40,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase and Sale Agreement.

 

West Coast Business Capital, LLC - $400,000

 

On or about November 12, 2019, the Company entered into a Purchase Agreement with West Coast Business Capital, LLC (“West Coast”). Under the terms of the Purchase Agreement, the Company agreed to sell West Coast $596,000 of future incoming cashflow from the GreenBox Business, to be delivered to West Coast in daily installments of $5,960, for $400,000, from which $16,000 in fees was deducted, providing the Company with net cash of $384,000. For accounting purposes, the Company recorded this transaction as a loan of $400,000, with interest of $196,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.

 

MTrac - $200,000

 

On or about September 10, 2019, the Company entered into a loan agreement of $200,000 including fixed interest of $72,975. The loan was fully paid off on September 23, 2019.

 

10.

DERIVATIVE LIABILITY

 

Derivative liability consisted of the following:

 

   

December 31, 2019

   

December 31, 2018

 
                 

Beneficial conversion feature – convertible debt

  $ 1,050,063     $ -  
                 

Total derivative liability

  $ 1,050,063     $ -  

 

On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon payback of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”).

 

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

 

GREENBOX POS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 and 2018

 

10.

DERIVATIVE LIABILITY (continued)

 

The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.

 

Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and valued the derivative using the Black-Scholes method. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated life and interest rates) that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s operating results will reflect the volatility in these estimate and assumption changes.

 

The Company performs valuation of derivative instruments at the end of each reporting period. The fair value of derivative instruments is recorded and shown separately under current liabilities as these instruments can be converted anytime. Changes in fair value are recorded in the consolidated statement of income under other income (expenses).

 

11.

INCOME TAXES