424B4 1 greenbox20210217b_424b4.htm FORM 424B4 greenbox20210127_s1.htm

 

Filed pursuant to Rule 424(b)(4)

Registration Nos. 333-252576 and 333-253183

 

PROSPECTUS

 

GreenBox POS

 

4,150,000 Shares of Common Stock 

 


 

 

We are offering 4,150,000 shares of Common Stock, par value $0.001 (“Common Stock”, and each a “Share” and collectively, the “Shares”) of GreenBox POS (the “Company,” “GreenBox,” “PubCo,” “we,” “our” or “us”) at a public offering price of $10.50 per share of Common Stock. Our Common Stock was previously traded on the OTCQB under the symbol GRBX. Our Common Stock has been approved for listing on the Nasdaq Capital Market under the symbol “GBOX” and will begin trading there on February 17, 2021.

 

Unless otherwise noted and other than in our historical financial statements and the notes thereto, the share and per share information in this prospectus reflects the reverse stock split of the outstanding Common Stock and treasury stock of the Company at a 1-for-6 ratio which was implemented on February 16, 2021 and will be effective at the commencement of trading of our Common Stock on February 17, 2021.

 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus. You should carefully consider these risk factors, as well as the information contained in this prospectus, before purchasing any of the securities offered by this prospectus.

 

   

Per Share

   

Total

 

Offering price

  $ 10.50     $ 43,575,000  

Underwriter’s discounts and commissions (1)

  $ 0.7875     $ 3,268,125  

Proceeds to our company before expenses

  $ 9.7125     $ 40,306,875  

 

(1)

See “Underwriting” beginning on page 53 for additional information regarding underwriting compensation.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

We have granted a 45-day option to the representative of the underwriters, exercisable one or more times in whole or in part, to purchase up to 622,500 additional shares of Common Stock to cover over-allotments, at the public offering price per share of Common Stock, less, in each case, the underwriting discounts payable by us. The securities issuable upon exercise of this overallotment option are identical to those offered by this prospectus and have been registered under the registration statement of which this prospectus forms a part.

 

The underwriters expect to deliver the securities against payment in New York, New York on or about February 19, 2021.

 

Sole Book-Running Manager

 

Kingswood Capital Markets

division of Benchmark Investments, Inc.

 

The date of this prospectus is February 16, 2021.

 

 

 

 

TABLE OF CONTENTS

 

 

Page

 

 

Summary of Offering

3

Summary of Consolidated Financial Information

4

Risk Factors

8
Cautionary Note Regarding Forward-Looking Statements 19

Use of Proceeds

20

Dividend Policy

21

Capitalization

21

Dilution

22

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

24

Business

32

Management

37

Executive and Director Compensation

41

Certain Relationships and Related Person Transactions

42

Principal Shareholders

43

Description of our Securities

44

Shares Eligible for Future Sale

47

Material U.S. Federal Income Tax Considerations

48

Underwriting

53

Legal Matters

58

Experts

58

Where You Can Find Additional Information

58

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares of Common Stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

You should rely only on the information contained in this prospectus. Neither we nor the placement agent have authorized anyone to provide any information or to make any representations other than those contained in this prospectus we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. You should also read this prospectus together with the additional information described under “Additional Information.”

 

Unless the context otherwise requires, we use the terms “we,” “us,” “the Company”, “GreenBox,“PubCo,” and “our” to refer to GreenBox POS and its consolidated subsidiaries.

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our Common Stock. You should read the entire prospectus carefully, including the “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our combined financial statements and the related notes thereto that are included elsewhere in this prospectus, before making an investment decision. Unless otherwise noted and other than in our historical financial statements and the notes thereto, the share and per share information in this prospectus reflects the reverse stock split of the outstanding Common Stock and treasury stock of the Company at a 1-for-6 ratio which was implemented on February 16, 2021 and will be effective at the commencement of trading of our Common Stock on February 17, 2021.

 

Our Business

 

GreenBox POS is a technology company that develops, markets and sells innovative blockchain-based payment solutions, which we believe will lead to major developments and advances 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.

 

In March 2018, we formally announced the launch of our five products:

 

 

a)

DEL (Delivery App), which provides APIs (Application Programming Interfaces) to POS and PAY.

 

 

b)

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

 

 

c)

QuickCard Payment System 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 Software Solution is a mobile delivery service operations management solution with automated dispatch functionality.

 

We have one pending U.S. patent application, USSN 16/212,627, which was filed on December 6, 2018, and which claims priority to five provisional applications filed between December 6 and December 11, 2017.

 

Recent Developments

 

October 2020 Debenture Offering

 

On October 27, 2020, the Company consummated the initial closing of a private placement offering (the “Offering”) whereby pursuant to the Securities Purchase Agreements (the “Purchase Agreements”) entered into by the Company with thirteen (13) accredited investors (the “Investors”), the Company issued certain Convertible Debentures for an aggregate purchase price of $3,019,550 (each a “Debenture”, collectively, the “Debentures”) and five (5) year warrants (the “Warrants”) to purchase shares of the Company’s Common Stock. The second closing occurred on October 28, 2020 for an aggregate purchase price of $480,450 for a total purchase price of $3,500,000. The total principal of the Debentures is $3,850,000.

 

The Debentures include a 10% original issuance discount, carry an interest rate of 10% per annum and mature on July 27, 2021 (the “Maturity Date”). The Debentures contain a voluntary conversion mechanism whereby the holders may convert, in whole or in part, the outstanding balance of the Debentures into shares of the Common Stock at a conversion price of $1.98 per share, subject to adjustment as provided therein. Additionally, the Debentures contain a mandatory conversion mechanism whereby any principal and accrued interest on the Debentures converts into shares of the Company’s Common Stock on the date in which the Company’s Common Stock is listed for trading on a senior national exchange. The mandatory conversion mechanism shall take effect only if (i) the shares of Common Stock underlying the Debentures are registered on an effective registration statement, (ii) the average closing bid price of the Common Stock over the preceding five trading days is above $4.80 per share and (iii) the average trading volume of Common Stock over the preceding five trading days is at least $200,000. The mandatory conversion mechanism contains a conversion price of $1.98 per share, subject to adjustment as provided therein. The Debentures contain customary events of default (each an “Event of Default”). If an Event of Default occurs, interest under the Debentures will accrue at a rate of eighteen percent (18%) per annum and the outstanding principal amount of the Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the Debentures will become, at the Debenture holder’s election, immediately due and payable in cash.

 

 

Pursuant to the Purchase Agreements, each investor received a Warrant in an amount equal to 100% of the shares of Common Stock initially issuable to each Investor pursuant to such Investor’s Debenture. The Warrants have an exercise price of $1.98 per share, subject to adjustment as provided therein. In connection with the closing of the Offering, Warrants were issued to purchase an aggregate of 1,944,695 shares of Common Stock.

 

Kingswood Capital Markets, division of Benchmark Investments, Inc. (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent received cash compensation of $280,000 (8% of the gross proceeds to the Company). Kingswood is acting as the representative of the underwriters for the offering being registered on the registration statement of which this prospectus forms a part.

 

In connection with the Offering, the Company’s subsidiary, Moltopay Financial Ltd. (the “Subsidiary”), signed a Subsidiary Guarantee to guarantee the Company’s payment of the Debentures (the “Subsidiary Guarantee”). The Company and the Subsidiary also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company and the Subsidiary each granted a security interest in and to all of their respective assets, as security for the obligations owing to the investors under the Debentures and the other transaction documents executed in connection therewith.

 

As of February 16, 2021, the Company has issued 989,619 shares of Common Stock following the conversion of Debentures in the principal amount of $1,959,500. In addition, the Company has issued 14,097 shares in connection with the conversion of interest owed pursuant to the Debentures.

 

December 2020 Sale of Shares of Common Stock

 

On December 18, 2020, we closed a private placement offering whereby pursuant to the Securities Purchase Agreements entered into by the Company with two investors, the Company issued 333,333 shares at a price per share of $4.80 for total proceeds of $1,600,000 and GreenBox POS LLC, an entity that owns 62.91% of our shares and is controlled by our sole officers and directors, sold 300,000  GreenBox shares at a price per share of $4.20 to one of the two investors who bought shares directly from the Company. One of the two investors who bought shares directly from the Company invested in the October 2020 Offering.

 

ChargeSavvy Non-Binding MOU

 

On January 25, 2021, the Company issued a press release announcing it had entered into a non-binding Memorandum of Understanding to acquire ChargeSavvy LLC, a financial technology company specializing in payment processing and POS systems, for total consideration of $31.2 million in restricted shares of the Company’s common stock. The transaction assumes a per share price of $12.00. The all-stock transaction is subject to the negotiation and signing of definitive transaction documents, the completion of an audit of ChargeSavvy’s financial statements, and customary closing conditions. Kenneth Haller, the Company’s Senior Vice President of Payment Systems and the owner, following this offering, of 7.79% of the Company’s shares of Common Stock, owns 68.8% of ChargeSavvy.

 

Simultaneous Reverse Stock Split and Reduction in Authorized Shares of Common Stock

 

On February 16, 2021, the Company filed a Certificate of Change pursuant to Nevada Revised Statutes (“NRS”) 78.209 with the Nevada Secretary of State to effect a reverse stock split of the Common Stock, and the proportional decrease of the Company’s authorized shares of Common Stock at a ratio of one-for-six (the “Stock Split”).

 

The Stock Split was authorized by the Board of Directors of the Company pursuant to Section 78.207 of the NRS on February 4, 2021 and, pursuant to the Certificate of Change, became effective as of 12:00 a.m., Eastern Time, on February 17, 2021 (the “Effective Time”). No fractional shares will be issued in connection with the Stock Split and all such fractional interests will be rounded up to the nearest whole number of shares of Common Stock. The Company now has 82,500,000 shares of Common Stock authorized (the number of authorized shares of Preferred Stock remains 5,000,000). The conversion or exercise prices of our issued and outstanding convertible securities, stock options and warrants will be adjusted accordingly.

 

Corporate Information 

 

Our principal executive offices are located at 8880 Rio San Diego Drive, Suite 102, San Diego, CA 92108. Our telephone number is (619) 631-8261. The address of our website www.greenboxpos.com. The inclusion of our website address in this Registration Statement of which this Prospectus forms a part does not include or incorporate by reference the information on our website into this prospectus.

 

 

SUMMARY OF THE OFFERING

 

Issuer:

 

GreenBox POS

 

 

 

Securities Offered:

 

4,150,000 shares of Common Stock, at a public offering price of $10.50 per share of Common Stock.

 

 

 

Over-allotment option

 

We have granted to the representative of the underwriters a 45-day option to purchase up to 622,500 additional shares of our Common Stock at a public offering price of $10.50 per share, less the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any.

 

 

 

Common stock outstanding before this offering (1)

 

33,459,006 Shares (1)

 

 

 

Common stock outstanding after the offering

 

37,609,006 Shares. 

 

 

 

Use of proceeds

 

We estimate that the net proceeds to us from this offering will be approximately $40.0 million, or approximately $46.1 million if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.     

 

We intend to use the net proceeds of this offering primarily for general corporate purposes, including working capital which includes potential acquisitions (unrelated to the ChargeSavvy MOU), expanded sales and marketing activities, increased research and development expenditures, and licensing and banking activities. See “Use of Proceeds” for additional information.

 

 

 

Nasdaq Capital Market Trading Symbol and Listing

 

Our Common Stock has been approved for listing on Nasdaq under the symbol “GBOX”, and will begin trading there on February 17, 2021. 

 

 

 

Risk Factors

 

See “Risk Factors” beginning on page 8 and the other information contained in this prospectus for a discussion of factors you should carefully consider before investing in our securities.

 

 

 

Lock-up

 

We, our directors, executive officers, and shareholders who own 5% or more of our outstanding Common Stock have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Common Stock or securities convertible into Common Stock for a period of 180 days, commencing on the date of this prospectus. See “Underwriting” for additional information.

 

 

(1)

The total number of shares of Common Stock that will be outstanding after this offering is based on 33,459,006 shares of Common Stock outstanding as of February 16, 2021. Unless otherwise indicated, the Shares outstanding after this offering excludes the following:

 

 

568,296 shares of Common Stock issuable upon exercise of outstanding stock options as of February 16, 2021, with a weighted-average exercise price of $2.46 per share;

 

 

 

 

1,944,695 shares of Common Stock issuable upon exercise of outstanding warrants as of February 16, 2021, with a weighted-average exercise price of $1.98 per share;

 

 

 

 

2,765,038 shares of Common Stock reserved for future issuance under our 2020 Incentive and Non-statutory Stock Option Plan (the “2020 Plan”) as of February 16, 2021;

 

 

954,826 shares of Common Stock issuable upon conversion of the convertible debentures issued in October 2020 (the “Debentures”); and

 

 

622,500 securities issuable upon exercise of the underwriter’s over-allotment option.

 

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

 

The following summary consolidated statements of operations and balance sheet data for the fiscal years ended December 31, 2019 and 2018, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Additionally, the three and nine months ended September 30, 2020 and 2019 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of September 30, 2020 are derived from our consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the three and nine months ended September 30, 2020 is not necessarily indicative of our operating results to be expected for the full fiscal year ending December 31, 2020 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods. 

 

Consolidated Balance Sheets – As of December 31, 2019 and 2018: 

           

(Restated) (1)

 

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  

 

 

1.

We restated our financial statements for the year ended December 31, 2018 to properly account for the March 23, 2018 Share Purchase Agreement pursuant to which GreenBox POS LLC, a Washington limited liability company (“PrivCo”), acquired 144,445,000 shares of the Company’s common stock, and subsequently, the verbal agreement between PubCo and PrivCo, under which PubCo acquired PrivCo’s assets on April 12, 2018. See Note 1 to our audited financial statements, which are included elsewhere in this prospectus.

 

 

Consolidated Statements of Operations – Years Ended December 31, 2019 and 2018:

 

Years Ended December 31,

 

2019

   

(Restated)(1)

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

)

 

 

1.

We restated our financial statements for the year ended December 31, 2018 to properly account for the March 23, 2018 Share Purchase Agreement pursuant to which GreenBox POS LLC, a Washington limited liability company (“PrivCo”), acquired 144,445,000 shares of the Company’s common stock, and subsequently, the verbal agreement between PubCo and PrivCo, under which PubCo acquired PrivCo’s assets on April 12, 2018. See Note 1 to our audited financial statements, which are included elsewhere in this prospectus.

 

 

Consolidated Balance Sheets – As of September 30, 2020 and December 31, 2019:

 

   

(Unaudited)

         
   

September 30,

   

December 31,

 
   

2020

   

2019

 
                 

ASSETS

               
                 

Current Assets:

               

Cash and cash equivalents

  $ -     $ -  

Restricted cash

    124,834       763,110  

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

    10,000       70,257  

Accounts receivables from fines and penalties from merchants, net of allowance for bad debt of $6,665,031

    2,789,230       2,776,687  

Cash due from gateways, net

    5,680,356       8,426,844  

Prepaid and other current assets

    59,766       24,888  

Total current assets

    8,664,186       12,061,786  
                 

Non-current Assets:

               

Property and equipment, net

    62,555       66,491  

Other assets

    87,174       17,174  

Operating lease right-of-use assets, net

    146,984       229,639  

Total non-current assets

    296,713       313,304  
                 

Total assets

  $ 8,960,899     $ 12,375,090  
                 
                 
                 

Current Liabilities:

               

Accounts payable

  $ 725,558     $ 504,505  

Other current liabilities

    47,207       15,100  

Accrued interest

    87,560       368,071  

Payment processing liabilities, net

    12,624,082       14,021,892  

Short-term notes payable, net of debt discount of $39,000 and $32,418, respectively

    731,232       741,253  

Convertible debt, net of debt discount of $133,500 and $0, respectively

    44,500       807,500  

Derivative liability

    284,210       1,050,063  

Current portion of operating lease liabilities

    30,314       113,935  

Total current liabilities

    14,574,663       17,622,319  

Operating lease liabilities, less current portion

    120,110       120,110  
                 

Total liabilities

    14,694,773       17,742,429  
                 

Commitments and contingencies

               
                 

Stockholders' Equity:

               

Common stock, par value $0.001, 495,000,000 shares authorized, shares issued and outstanding of 181,6550,138 and 169,862,933, respectively

    181,650       169,863  

Common stock - issuable

    -       695  

Additional paid-in capital

    1,590,993       1,179,272  

Accumulated deficit

    (7,506,517

)

    (6,717,169

)

Total stockholders' equity

    (5,733,874

)

    (5,367,339

)

                 

Total liabilities and stockholder's equity

  $ 8,960,899     $ 12,375,090  

 

 

Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2020 and 2019:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Revenue

  $ 3,056,271     $ 14,793,117     $ 5,536,335     $ 19,070,861  
                                 

Cost of revenue

    1,845,295       6,834,198       3,504,283       10,602,555  
                                 

Gross profit

    1,210,976       7,958,919       2,032,052       8,468,306  
                                 

Operating expenses:

                               

Advertising and marketing

    59,099       10,319       86,368       35,928  

Research and development

    243,923       381,112       798,157       1,085,298  

Cash due from gateway reserve expense

    -       5,665,031       -       5,665,031  

General and administrative

    366,734       176,120       613,156       375,373  

Payroll and payroll taxes

    436,216       420,074       1,279,174       967,121  

Professional fees

    344,641       281,659       852,234       588,677  

Depreciation and amortization

    5,764       4,897       16,856       11,352  

Total operating expenses

    1,456,377       6,939,212       3,645,945       8,728,780  
                                 

Loss from operations

    (245,401

)

    1,019,707       (1,613,893

)

    (260,474

)

                                 

Other income (expense):

                               

Interest expense

    (48,931

)

    3,837       (372,553

)

    (171,193

)

Interest expense - debt discount

    (83,500

)

    -       (121,918

)

    (188,273

)

Derivative expense

    (925,576

)

    -       (925,576

)

    (634,689

)

Changes in fair value of derivative liability

    819,366       236,184       (383,769

)

    (129,186

)

Gain from extinguishment of convertible debt

    -       -       2,630,795       -  

Other income or expense

    (5,768

)

    -       (2,434

)

    -  

Total other expense, net

    (244,409

)

    240,021       824,545       (1,123,341

)

                                 

Loss before provision for income taxes

    (489,810

)

    1,259,728       (789,348

)

    (1,383,815

)

                                 

Income tax provision

    -       -       -       -  
                                 

Net loss

  $ (489,810

)

  $ 1,259,728     $ (789,348

)

  $ (1,383,815

)

 

 

RISK FACTORS

 

An investment in our Common Stock involves a high degree of risk. Investing in shares of our Common Stock involves risks. Before making a decision to invest in shares of our Common Stock, you should carefully consider the risks that are described in this section, in our most recent Annual Report on Form 10-K and in the other information that we file from time to time with the SEC . You should also read the sections entitled “Cautionary Note Regarding Forward-Looking Statements” on page 19 of this prospectus. Additional risks not presently known or that we currently deem immaterial could also materially and adversely affect us. You should consult your own financial and legal advisors as to the risks entailed by an investment in shares of our Common Stock and the suitability of investing in our shares in light of your particular circumstances. If any of the risks contained in this prospectus develop into actual events, our assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, long-term performance goals, prospects, and/or results of operations could be materially and adversely affected, the trading price of our Common Stock could decline and you may lose all or part of your investment. Some statements in this prospectus, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

 

Risks Related to Our Company

 

We have a limited operating history and may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our shareholders. As a result, our management has identified and our auditors agreed that there is a substantial doubt about our ability to continue as a going concern.

 

We became a public company and changed our business model in April 2018, and our current business has a relatively limited operating history. Historical results are not indicative of, and may be substantially different than, the results we achieve in the future. We cannot assure you that we will be able to operate our business successfully or implement our operating policies and strategies. The results of our operations depend on several factors, our success in attracting and retaining motivated and qualified personnel, the availability of adequate short and long-term financing, conditions in the financial markets, and general economic conditions. In addition, our future operating results and financial data may vary materially from the historical operating results and financial data as well as the pro forma operating results and financial data because of a number of factors, including costs and expenses associated with being a public company.

 

Our independent registered public accounting firm, in its report on our financial statements for the year ended December 31, 2019, has raised substantial doubt about our ability to continue as a going concern.

 

We have limited capital resources and we will need to raise additional capital through additional funding raises. Such funding, if obtained, could result in substantial dilution or significant debt service obligations. We may not be able to obtain additional capital on commercially reasonable terms in a timely manner, which could adversely affect our liquidity, financial position, and ability to continue operations.

 

At September 30, 2020, we had a cash balance of approximately $124,834 and negative working capital of approximately $5,910,477. We thus have limited capital resources and require the funds from this offering to continue our business. Even if we substantially increase revenue and reduce operating expenses, we will need to raise additional capital. In order to continue operating, we may need to obtain additional financing, either through borrowings, private offerings, public offerings, or some type of business combination, such as a merger, or buyout, and there can be no assurance that we will be successful in such pursuits. We may be unable to acquire the additional funding necessary to continue operating. Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our investors losing all of their investment in our company.

 

If we are able to raise additional capital, we do not know what the terms of any such capital raising would be. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inability to raise capital could require us to significantly curtail or terminate our operations. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity and ability to pay dividends. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional funds on favorable terms could have a material adverse effect on our liquidity and financial condition.

 

 

The loss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adversely affect our business.

 

We depend on the leadership and experience of our relatively small number of key executive management personnel, particularly our Chairman of the Board of Directors (the “Board”), Executive Vice President, Principal Financial Officer and Principal Accounting Officer, Ben Errez, and our Director and Chief Executive Officer, Fredi Nisan. The loss of the services of any of these key executives or any of our executive management members could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. Furthermore, if we lose or terminate the services of one or more of our key employees or if one or more of our current or former executives or key employees joins a competitor or otherwise competes with us, it could impair our business and our ability to successfully implement our business plan. Additionally, if we are unable to hire qualified replacements for our executive and other key positions in a timely fashion, our ability to execute our business plan would be harmed. Even if we can quickly hire qualified replacements, we would expect to experience operational disruptions and inefficiencies during any transition. We believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in our industry. Our inability to meet our executive staffing requirements in the future could impair our growth and harm our business.

 

Our financial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experience in making critical accounting estimates.

 

Financial statements prepared in accordance with GAAP require the use of estimates, judgments, and assumptions that affect the reported amounts. Actual results may differ materially from these estimates under different assumptions or conditions. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required. In addition, because we have limited to no operating history and limited experience in making these estimates, judgments, and assumptions, the risk of future charges to income may be greater than if we had more experience in these areas. Any such charges could significantly harm our business, financial condition, results of operations, and the price of our securities.

 

We may require additional financing to sustain or grow our operations.

 

Our growth will be dependent on our ability to access additional equity and debt capital. Moreover, part of our business strategy may involve the use of debt financing to increase potential revenues. Our inability in the future to obtain additional equity capital or a corporate credit facility on attractive terms, or at all, could adversely impact our ability to execute our business strategy, which could adversely affect our growth prospects and future shareholder returns.

 

We may not realize the anticipated benefits of acquisitions or investments in joint ventures, or those benefits may be delayed or reduced in their realization.

 

Acquisitions and investments have been a component of our growth and the development of our business, and that is likely to continue in the future. Acquisitions can broaden and diversify our brand holdings and product concepts, and allow us to build additional capabilities and competencies around our brands. In reviewing potential acquisitions or investments, we target brands, assets or companies that we believe offer attractive products or offerings, the ability for us to leverage our offerings, opportunities to drive our brands, competencies, or other synergies.

 

The combination of two independent businesses is a complex, costly, and time-consuming process that will require significant management attention and resources. The integration process may disrupt the businesses and, if implemented ineffectively, would limit the expected benefits of the acquisition. The failure to meet the challenges involved in integrating businesses and realizing the anticipated benefits could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations. The overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer and other business relationships, and diversion of management’s attention. The difficulties of combining the operations of the companies include, among others:

 

 

the diversion of management’s attention to integration matters;

 

difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from the combination;

 

difficulties in the integration of operations and systems; and

 

conforming standards, controls, procedures, accounting and other policies, business cultures, and compensation structures between the two companies.

 

 

We cannot be certain that the products and offerings of companies we may acquire, or acquire an interest in, will achieve or maintain popularity with consumers in the future or that any such acquired companies or investments will allow us to more effectively market our products, develop our competencies or to grow our business. In some cases, we expect that the integration of the companies that we may acquire into our operations will create production, marketing and other operating, revenue or cost synergies which will produce greater revenue growth and profitability and, where applicable, cost savings, operating efficiencies and other advantages. However, we cannot be certain that these synergies, efficiencies and cost savings will be realized. Even if achieved, these benefits may be delayed or reduced in their realization. In other cases, we may acquire or invest in companies that we believe have strong and creative management, in which case we may plan to operate them more autonomously rather than fully integrating them into our operations. We cannot be certain that the key talented individuals at these companies would continue to work for us after the acquisition or that they would develop popular and profitable products, entertainment or services in the future. We cannot guarantee that any acquisition or investment we may make will be successful or beneficial, and acquisitions can consume significant amounts of management attention and other resources, which may negatively impact other aspects of our business.

 

We have debt financing arrangements, which could have a material adverse effect on our financial health and our ability to obtain financing in the future and may impair our ability to react quickly to changes in our business.

 

Our exposure to debt financing could limit our ability to satisfy our obligations, limit our ability to operate our business, and impair our competitive position. For example, it could:

 

 

increase our vulnerability to adverse economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings are at variable rates of interest;

 

 

require us to dedicate future cash flows to the repayment of debt, thereby reducing the availability of cash to fund working capital, capital expenditures or other general corporate purposes;

 

 

limit our flexibility in planning for, or reacting to, changes in our business and industry; and

 

 

limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants contained in our debt agreements.

 

We may also incur additional indebtedness in the future, which could materially increase the impact of these risks on our financial condition and results of operations.

 

Our ability to repay our debt depends on many factors beyond our control. If we elect to raise equity capital in the future, our current shareholders could be subjected to significant dilution. If we are unable to raise capital in the future, we may seek other avenues to fund the business, including sale/leaseback arrangements or seeking to sell assets of all, or a portion of, our operations.

 

Payments on our debt will depend on our ability to generate cash or secure additional financing in the future. This ability, to an extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond our control. If our business does not generate sufficient cash flow from operations and sufficient future financing is not available to us, we may not be able to repay our debt, operate our business or fund our other liquidity needs. If we cannot meet or refinance our obligations when they become due, we may be required to attempt to raise capital, reduce expenditures, or take other actions which we may be unable to successfully complete or, even if successful, could have a material adverse effect on us. If such sources of capital are not available or not available on sufficiently favorable terms, we may seek other avenues to fund the business, including sale/leaseback arrangements or seeking to sell assets of all or a portion of our operations. If we decide to raise capital in the equity markets or take other actions, our shareholders could incur significant dilution or diminished valuations, or if we are unable to raise capital, our ability to effectively operate our business could be impaired. In addition, if we are successful in raising capital in the equity markets to repay our indebtedness or for any other purpose in the future, our shareholders could incur significant dilution.

 

 

Our operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control, which could cause fluctuations in the price of our securities.

 

We are subject to the following factors that may negatively affect our operating results:

 

 

the announcement or introduction of new products by our competitors;

 

 

our ability to upgrade and develop our systems and infrastructure to accommodate growth;

 

 

our ability to attract and retain key personnel in a timely and cost-effective manner;

 

 

technical difficulties;

 

 

the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations, and infrastructure;

 

 

our ability to identify and enter into relationships with appropriate and qualified third-party providers for necessary development and manufacturing services;

 

 

regulation by federal, state, or local governments;

 

 

general economic conditions, as well as economic conditions specific to the entertainment, theme park, party items, arts and crafts, and packaging industries; and

 

 

various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.

 

As a result of our lack of any operating history and the nature of the markets in which we compete, it is difficult for us to forecast our revenues or earnings accurately. As a strategic response to changes in the competitive environment, we may from time to time make certain decisions concerning expenditures, pricing, service, or marketing that could have a material and adverse effect on our business, results of operations, and financial condition. Due to the foregoing factors, our quarterly revenues and operating results are difficult to forecast.

 

Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact our performance and prospects for future growth.

 

Our competitive advantage is due in part to our ability to develop and introduce new products in a timely manner at favorable margins. The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis. Introduction of new technology may result in higher costs to us than that of the technology replaced. That increase in costs, which may continue indefinitely or until increased demand and greater availability in the sources of the new technology drive down its cost, could adversely affect our results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction in future years may not meet sales expectations due to various factors, such as the failure to accurately predict market demand, end-user preferences, evolving industry standards, or the emergence of new or disruptive technologies. Moreover, the ultimate success and profitability of the new products may depend on our ability to resolve technical and technological challenges in a timely and cost-effective manner. Our investments in productive capacity and commitments to fund advertising and product promotions in connection with these new products could erode profits if those expectations are not met.

 

 

We are increasingly dependent on information technology, and potential cyberattacks, security problems, or other disruption and expanding social media vehicles present new risks.

 

We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, billing, and operating data. We may purchase some of our information technology from vendors, on whom our systems will depend, and we rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential operator and other customer information. We depend upon the secure transmission of this information over public networks. Our networks and storage applications could be subject to unauthorized access by hackers or others through cyberattacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means, or may be breached due to operator error, malfeasance or other system disruptions. In some cases, it will be difficult to anticipate or immediately detect such incidents and the damage they cause. Any significant breakdown, invasion, destruction, interruption, or leakage of information from our systems could harm our reputation and business.

 

Further, in the normal course of our business, we collect, store and transmit proprietary and confidential information regarding our customers, employees, suppliers and others, including personally identifiable information. An operational failure or breach of security from increasingly sophisticated cyber threats could lead to loss, misuse or unauthorized disclosure of this information about our employees or customers, which may result in regulatory or other legal proceedings, and have a material adverse effect on our business and reputation. We also may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks. Any such attacks or precautionary measures taken to prevent anticipated attacks may result in increasing costs, including costs for additional technologies, training and third party consultants. The losses incurred from a breach of data security and operational failures as well as the precautionary measures required to address this evolving risk may adversely impact our financial condition, results of operations and cash flows.

 

Privacy regulation is an evolving area and compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to service our clients and market our products and services.

 

Because we store, process and use data, some of which contains personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters. While we believe we are currently in compliance with applicable laws and regulations, many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could seriously harm our business.

 

Data privacy and security concerns relating to our technology and our practices could damage our reputation, cause us to incur significant liability, and deter current and potential users or customers from using our products and services. Software bugs or defects, security breaches, and attacks on our systems could result in the improper disclosure and use of user data and interference with our users and customers’ ability to use our products and services, harming our business operations and reputation.

 

Concerns about our practices with regard to the collection, use, disclosure, or security of personal information or other data-privacy-related matters, even if unfounded, could harm our reputation, financial condition, and operating results. Our policies and practices may change over time as expectations regarding privacy and data change. Our products and services involve the storage and transmission of proprietary information, and bugs, theft, misuse, defects, vulnerabilities in our products and services, and security breaches expose us to a risk of loss of this information, improper use and disclosure of such information, litigation, and other potential liability. Systems and control failures, security breaches and/or inadvertent disclosure of user data could result in government and legal exposure, seriously harm our reputation and brand and, therefore, our business, and impair our ability to attract and retain customers.

 

We may experience cyber-attacks and other attempts to gain unauthorized access to our systems. We may experience future security issues, whether due to employee error or malfeasance or system errors or vulnerabilities in our or other parties’ systems, which could result in significant legal and financial exposure. We may be unable to anticipate or detect attacks or vulnerabilities or implement adequate preventative measures. Attacks and security issues could also compromise trade secrets and other sensitive information, harming our business. As a result, we may suffer significant legal, reputational, or financial exposure, which could harm our business, financial condition, and operating results.

 

 

Prolonged economic downturn, particularly in light of the COVID-19 pandemic, could adversely affect our business.

 

Uncertain global economic conditions, in particular in light of the COVID-19 pandemic, could adversely affect our business. Negative global and national economic trends, such as decreased consumer and business spending, high unemployment levels and declining consumer and business confidence, pose challenges to our business and could result in declining revenues, profitability and cash flow. Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively affect demand for our products.

 

We could face substantial competition, which could reduce our market share and negatively impact our net revenue.

 

Although we believe there is currently no other company in the payment facilitator industry using, as we are, blockchain infrastructure, notable companies in the payment facilitator industry include PayPal, Stripe, and Square. Many of our payment facilitator competitors are significantly larger than we are and have considerably greater financial, technical, marketing, and other resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available to us. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition, and results of operations.

 

If we fail to protect our intellectual property rights, competitors may be able to use our technology, which could weaken our competitive position, reduce our net revenue, and increase our costs.

 

Our long-term success will depend to some degree on our ability to protect the proprietary technology that we have developed or may develop or acquire in the future, including our ability to obtain and maintain patent protection. Patent applications can take many years to issue, and we can provide no assurance that our current pending patent application, or any future patent applications, will be granted. If we are unable to obtain patent grants for our current or future applications, we may not be able to successfully prevent our competitors from imitating, or copying our products or using some or all of the processes that are the subject of such patent application(s). Such imitation, or copying, may lead to increased competition within the finite market for products such as ours. Even if our pending application was granted, our intellectual property rights may not be sufficiently comprehensive to prevent our competitors from developing similar competitive products.

 

There are multiple risks inherent in patent litigation. In patent litigation in the U.S., defendant counterclaims alleging invalidity and/or unenforceability are commonplace, as are validity challenges by the defendant against the subject patent or other patents before the United States Patent and Trademark Office (or USPTO). Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement, failure to meet the written description requirement, indefiniteness, and/or failure to claim patent eligible subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent intentionally withheld material information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before the USPTO even outside the context of litigation, in for example, post-grant review proceedings and inter partes review proceedings. The outcome is unpredictable following any legal assertions of invalidity and unenforceability. With respect to the validity question, for example, we cannot be certain that no invalidating prior art existed of which we and the patent examiner were unaware during prosecution. These assertions may also be based on information known to us or the USPTO. If a defendant or third party were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the claims of the challenged patent. Such a loss of patent protection would or could have a material adverse impact on our business.

 

Even if the validity of our patent rights is upheld by a court, a court may not prevent the alleged infringement of our patent rights on the grounds that such activity is not covered by our patent claims. Although we may aggressively pursue anyone whom we reasonably believe is infringing upon our intellectual property rights, initiating and maintaining suits against third parties that may infringe upon our intellectual property rights will require substantial financial resources. We may not have the financial resources to bring such suits, and if we do bring such suits, we may not prevail. Regardless of our success in any such actions, we could incur significant expenses in connection with such suits.

 

In addition to patents, we also rely on trade secrets, know-how, and proprietary knowledge that we seek to protect, in part, through confidentiality agreements with employees, consultants and others. We cannot assure you that our proprietary information will not be shared, our confidentiality agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors.

 

 

Third-party claims of infringement against us could adversely affect our ability to market our products and require us to redesign our products or seek licenses from third parties.

 

We are susceptible to intellectual property lawsuits that could cause us to incur substantial costs, pay substantial damages, or prohibit us from distributing our products. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. In addition, because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which later may result in issued patents that our products may infringe. If any of our products infringe a valid patent, we could be prevented from distributing that product unless and until we can obtain a license or redesign it to avoid infringement. A license may not be available or may require us to pay substantial royalties. We also may not be successful in any attempt to redesign the product to avoid any infringement. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and we may not have the financial and human resources to defend ourselves against any infringement suits that may be brought against us.

 

We may employ individuals who were previously employed by companies that are developing blockchain or cryptocurrency products and technology, including our competitors or potential competitors. To the extent our employees are involved in research areas which are similar to those areas in which they were involved at their former employers, we may be subject to claims that such employees and/or we have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of the former employers. Litigation may be necessary to defend against such claims, which could result in substantial costs and be a distraction to management and which may have a material adverse effect on us, even if we are successful in defending such claims.

 

We also rely in our business on trade secrets, know-how and other proprietary information. We seek to protect this information, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. Nonetheless, we cannot assure you that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information and prevent their unauthorized use or disclosure. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our proposed products, disputes may arise as to the proprietary rights to such information which may not be resolved in our favor. Most of our consultants are employed by or have consulting agreements with third parties and any inventions discovered by such individuals generally will not become our property. There is a risk that other parties may breach confidentiality agreements or that our trade secrets become known or independently discovered by competitors, which could adversely affect us.

 

We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.

 

Our business will be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to our operations and sales activities. Our third-party vendors, third-party distributors, and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our activities or the operations of our third-party vendors and third-party distributors, the supply of our products will be delayed, which could adversely affect our business, operations and customer relationships. In addition, the Novel Coronavirus (COVID-19) or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect demand for our products and services and impact our operating results. There can be no assurance that any decrease in sales resulting from the Novel Coronavirus (COVID-19) will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued spread of the Novel Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.

 

 

It may be illegal now, or in the future, to participate in blockchains or utilize similar digital assets in one or more countries, the ruling of which would adversely affect us.

 

Although currently cryptocurrencies and blockchain-based solutions generally are not regulated or are lightly regulated in most countries, one or more countries such as China and Russia may take regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use these digital assets or to exchange for fiat currency. Such restrictions may adversely affect us. Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations.

 

The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.

 

The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed ledgers altogether. This may adversely affect us and our exposure to various blockchain technologies and prevent us from realizing the anticipated profits from our investments. Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations.

 

Litigation may adversely affect our business, financial condition and results of operations.

 

From time to time in the normal course of our business operations, we may become subject to litigation involving intellectual property, data privacy and security, consumer protection, commercial disputes and other matters that may negatively affect our operating results if changes to our business operation are required. We may also be subject to a variety of claims including product warranty, product liability, and consumer protection claims related to product defects, among other litigation. We may also be subject to claims involving health and safety, other environmental impacts, or service disruptions or failures. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations. In addition, insurance may not cover existing or future claims, be sufficient to fully compensate us for one or more of such claims, or continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby adversely affecting our results of operations and resulting in a reduction in the trading price of our stock.

 

Risks Related to this Offering

 

Our executive officers, directors, and principal shareholders maintain the ability to control substantially all matters submitted to shareholders for approval.

   

As of February 16, 2021, our executive officers, directors, and shareholders who owned more than 5% of our outstanding Common Stock, in the aggregate, beneficially owned 24,066,932 shares of Common Stock representing approximately 63.15% of our outstanding capital stock after giving effect to the shares sold in this offering or 62.14% if the underwriters exercise their overallotment option in full. As a result, if these shareholders were to choose to act together, they would be able to control substantially all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other shareholders may desire.  

 

Shares eligible for future sale may have adverse effects on our share price.

 

Sales of substantial amounts of shares or the perception that such sales could occur may adversely affect the prevailing market price for our shares. We may issue additional shares in subsequent public offerings or private placements to make new investments or for other purposes. We are not required to offer any such shares to existing shareholders on a preemptive basis. Therefore, it may not be possible for existing shareholders to participate in such future share issuances, which may dilute the existing shareholders’ interests in us.

 

 

If we fail to comply with the rules and regulations under the Sarbanes-Oxley Act, our operating results, our ability to operate our business and investors’ views of us may be harmed.

 

Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. As of December 31, 2019, the Company’s Principal Executive Officer and Principal Financial and Accounting Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information that it is required to disclose in reports that the Company files with the SEC is recorded, processed, summarized, and reported within the time periods specified by the Exchange Act rules and regulations. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our Common Stock. In addition, our efforts to comply with the rules and regulations under the Sarbanes-Oxley or new or changed laws, regulations, and standards may differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice. Regulatory authorities may investigate transactions disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and if legal proceedings are initiated against us, it may harm our business.

 

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future.

 

We currently intend to retain all of our future earnings to finance the growth and development of our business, and therefore, we do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We believe it is likely that our Board will continue to conclude, that it is in the best interests of the Company and its shareholders to retain all earnings (if any) for the development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.

  

Investors in this offering will experience immediate and substantial dilution in net tangible book value.

 

The public offering price per share is substantially higher than the net tangible book value per share of our outstanding shares of Common Stock. As a result, investors in this offering will incur immediate dilution of $9.50 per share, based on the public offering price of $10.50 per share. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of this offering.

 

Although our shares have been approved for listing on the Nasdaq Capital Market, we can provide no assurance that our shares will continue to meet the listing requirements of the Nasdaq Capital Market. If we fail to comply with these listing requirements, we will be subject to potential delisting from the Nasdaq Capital Market.

 

Our Common Stock has been approved for listing on the Nasdaq Capital Market, or Nasdaq, under the symbol “GBOX,” however, if we fail to comply with Nasdaq’s rules for continued listing, including, without limitation, minimum market capitalization and other requirements, Nasdaq may take steps to delist our shares. Failure to maintain our listing (i.e., being de-listed from Nasdaq), would make it more difficult for shareholders to sell our Common Stock and more difficult to obtain accurate price quotations on our Common Stock. This could have an adverse effect on the price of our Common Stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our Common Stock is not traded on a national securities exchange.

 

 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

 

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds will be used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We currently intend to use the net proceeds of this offering primarily for general corporate purposes, including working capital, expanded sales and marketing activities, increased research and development expenditures and funding our growth strategies.

 

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the commercial success of our systems and the costs of our research and development activities, as well as the amount of cash used in our operations. As a result, our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering.

 

The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

If our shares of Common Stock become subject to the penny stock rules, it would become more difficult to trade our shares.

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq and if the price of our Common Stock is less than $5.00, our Common Stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.

 

 

The financial and operational projections that we may make from time to time are subject to inherent risks.

 

The projections that our management may provide from time to time reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections themselves, will prove inaccurate. There will be differences between actual and projected results, and actual results may be materially different from those contained in the projections. The inclusion of the projections in this prospectus should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such.

 

If we were to dissolve, the holders of our securities may lose all or substantial amounts of their investments.

 

If we were to dissolve as a corporation, as part of ceasing to do business or otherwise, we may be required to pay all amounts owed to any creditors before distributing any assets to the investors. There is a risk that in the event of such a dissolution, there will be insufficient funds to repay amounts owed to holders of any of our indebtedness and insufficient assets to distribute to our other investors, in which case investors could lose their entire investment.

 

Because the risk factors referred to above, as well as other risks not mentioned above, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which ones will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events including, without limitation, the terms, timing and closing of our proposed acquisitions or our future financial performance. We have attempted to identify forward-looking statements by using terminology such as “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should,” “will,” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels or activity, performance, or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Our expectations are as of the date this prospectus is filed, and we do not intend to update any of the forward-looking statements after the date this prospectus is filed to confirm these statements to actual results, unless required by law.

 

You should not place undue reliance on forward looking statements. The cautionary statements set forth in this prospectus identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

 

 

Our ability to effectively execute our business plan;

 

 

Our ability to manage our expansion, growth and operating expenses;

 

 

Our ability to protect our brands and reputation;

 

 

Our ability to repay our debts;

 

 

Our ability to comply with new regulations that affect our business;

 

 

Our ability to evaluate and measure our business, prospects and performance metrics;

 

 

Our ability to compete and succeed in a highly competitive and evolving industry;

 

 

Our ability to respond and adapt to changes in technology and customer behavior;

 

 

Risks in connection with completed or potential acquisitions, dispositions and other strategic growth opportunities and initiatives;

 

 

Risks related to the anticipated timing of the closing of any potential acquisitions;

 

 

Risks related to the integration with regards to potential or completed acquisitions;

 

 

Various risks related to health epidemics, pandemics and similar outbreaks, such as the coronavirus disease 2019 (“COVID-19”) pandemic, which may have material adverse effects on our business, financial position, results of operations and/or cash flows;

 

 

Risks related to the blockchain and cryptocurrency industry;

 

 

Our ability to obtain, maintain and defend patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively; and

     

 

We depend on our proprietary technology which we may not be able to protect.

 

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the SEC or in our press releases) for other factors that may cause actual results to differ materially from those projected by the Company. For additional information regarding risk factors that could affect the Company’s results, see “Risk Factors” beginning on page 8 of this prospectus, and as may be included from time-to-time in our reports filed with the SEC.

 

 

The Company intends the forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise such forward-looking statements as more information becomes available or to reflect changes in expectations, assumptions or results. The Company can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this prospectus, could materially and adversely affect our results of operations, financial condition, and liquidity, and our future performance.

 

Industry Data and Forecasts

 

This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this prospectus. In addition, projections, assumptions, and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including, but not limited to, the possibility that we may fail to preserve our expertise in consumer product development; that existing and potential distribution partners may opt to work with, or favor the products of, competitors if our competitors offer more favorable products or pricing terms; that we may be unable to maintain or grow sources of revenue; that we may be unable maintain profitability; that we may be unable to attract and retain key personnel; or that we may not be able to effectively manage, or to increase, our relationships with customers; and that we may have unexpected increases in costs and expenses. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

USE OF PROCEEDS

 

The net proceeds from the sale of the Common Stock in the offering will be approximately $40,061,875 based on the public offering price of $10.50 per share of Common Stock after deducting the underwriting discounts and commissions and estimated offering expenses, or approximately $46,107,906 if the underwriters exercise the over-allotment option in full.

 

We plan to use the net proceeds we receive from this offering for the following purposes:

 

   

Use of
Net
Proceeds

 

Working Capital, including potential acquisitions

  $ 28,061,875  

Sales and Marketing

  $ 1,000,000  

Research and Development

  $ 4,000,000  

Licensing and Banking Activities

  $ 7,000,000  

 

Other than the ChargeSavvy transaction, which, if completed, will be an all-stock transaction, we do not have any agreements at this time to potentially acquire other entities. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

 

 

DIVIDEND POLICY

 

We have not historically declared dividends on our Common Stock, and we do not currently intend to pay dividends on our Common Stock. The declaration, amount, and payment of any future dividends on shares of our Common Stock, if any, will be at the sole discretion of our Board, out of funds legally available for dividends. As a Nevada corporation, we are not permitted to pay dividends if, after giving effect to such payment, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus any amounts needed to satisfy any preferential rights if we were dissolving.

 

Our ability to pay dividends to our shareholders in the future will depend upon our liquidity and capital requirements, as well as our earnings and financial condition, the general economic climate, contractual restrictions, our ability to service any equity or debt obligations senior to our Common Stock, and other factors deemed relevant by our Board.

 

CAPITALIZATION

 

Set forth below is our cash and capitalization as of September 30, 2020:

 

 

on an actual basis;

 

 

on a pro forma basis to reflect: (i) the issuance of 1,846,934 shares of Common Stock; (ii) the sale of 333,333 shares of Common Stock on December 18, 2020 for a price per share of $4.80 for total proceeds of $1,600,000; (iii) on October 27, 2020, the sale of Debentures in the principal amount of $3,850,000 for net proceeds of $3,486,000; (iv) on October 27, 2020, payment of $722,290 which includes principal balance, interest and fees to payoff previous outstanding debts of $525,619; and (v) as of February 16, 2021, the issuance of 989,619 shares of Common Stock following the conversion of Debentures in the principal amount of $1,959,500. In addition, the Company has issued 14,097 shares in connection with the conversion of interest owed pursuant to the Debentures.

 

 

on a pro forma as adjusted basis to reflect the issuance and sale of the shares by us in this offering at the public offering price of $10.50 per share, after deducting the estimated underwriting discounts and the estimated offering expenses payable by us.

 

You should read the information in the below table together with our consolidated financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this prospectus.

 

   

As of September 30, 2020

 
   

Actual
(unaudited) (1)

   

Pro Forma
(unaudited) (2)

   

Pro Forma As
Adjusted

(unaudited)

 

Cash and restricted cash

  $ 124,834     $ 4,488,544     $ 44,550,419  

Total debt at face value

    948,232       1,949,113       1,949,113  

Total stockholders’ equity:

                       

Common stock, $0.001 par value, 495,000,000 shares authorized 181,650,138 issued and outstanding at September 30, 2020; 82,500,000 shares authorized and 33,459,006 issued and outstanding on a pro forma basis after giving effect to the Stock Split; 82,500,000 shares authorized and 37,609,006 issued and outstanding on a pro forma as adjusted basis after giving effect to the Stock Split

    181,650       33,459       37,609  

Additional paid-in capital

    1,590,993       5,421,331       45,479,056  

Accumulated (deficit)

    (7,506,517

)

    (7,825,835

)

    (7,825,835

)

Total stockholders’ equity

    (5,733,874

)

    (2,371,045

)

    37,690,830  

Capitalization

  $ (4,785,642

)

  $ (421,932

)

  $ 39,639,943  

 

(1)

The actual September 30, 2020 numbers in the Capitalization table are presented without giving effect to the Stock Split. 

 

 

(2)

The Pro Forma and Pro Forma As Adjusted numbers in the Capitalization table give effect to the Stock Split.

 

 

 

Based on 30,275,023 shares of Common Stock outstanding as of September 30, 2020 and excludes the following as of that date:

 

 

524,186 shares of Common Stock issuable upon exercise of outstanding stock options, with a weighted-average exercise price of $0.42 per share;

     
 

20,833 shares of Common Stock issuable upon exercise of outstanding warrants, with an exercise price of equal to 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion per share (which would have been $0.66 at September 30, 2020 if exercised);

     
 

2,809,147 shares of Common Stock reserved for future issuance under our 2020 Plan as of September 30, 2020; and

     
 

622,500 shares issuable upon exercise of the Underwriter’s over-allotment option.

 

DILUTION

 

If you invest in our Shares in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of Common Stock and the as adjusted net tangible book value per share of Common Stock immediately after this offering.

 

Our historical net tangible book value (deficit) as of September 30, 2020 was ($5,733,874), or $(0.19) per share of Common Stock based upon 30,275,023 shares of common stock outstanding on such date. Our historical net tangible book value is the amount of our total tangible assets less our liabilities. Historical net tangible book value per share of Common Stock is our historical net tangible book value divided by the number of outstanding shares of Common Stock as of September 30, 2020.

 

Following this offering, our adjusted net tangible book value (deficit) of our common stock will be $37,690,830 or $1.00 per share. Adjusted net tangible book value (deficit) per share represents adjusted net tangible book value divided by the total number of shares outstanding after giving effect to the sale of the shares in this offering at the public offering price of $10.50 per share, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. This represents an immediate increase in as adjusted net tangible book value of $1.19 per share to existing stockholders and an immediate dilution of $9.50 per share to investors purchasing shares of common stock in this offering.

 

The following table illustrates this dilution:

 

Public offering price per share

  $ 10.50  

Net tangible book value per Common Stock as of September 30, 2020                             

  $ (0.19

)

Increase in pro forma net tangible book value per share attributable to this offering

  $ 1.19  
         

Pro forma as adjusted net tangible book value per share, after this offering

  $ 1.00  

Dilution per share to new investors in this offering

  $ 9.50  

 

The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding warrants having a per share exercise or conversion price less than the per share offering price to the public in this offering.

 

 

If the underwriters exercise in full their option to purchase additional Common Stock in this offering, the pro forma as adjusted net tangible book value after the offering would be $1.14 per share, the increase in net tangible book value to existing shareholders would be $0.16 per share, and the dilution to new investors would be $9.34 per share.

 

The number of shares of common stock that will be outstanding after this offering is based on 30,275,023 shares of Common Stock outstanding as of September 30, 2020 and excludes the following as of that date:

 

 

524,186 shares of Common Stock issuable upon exercise of outstanding stock options, with a weighted-average exercise price of $0.42 per share;

     
 

20,833 shares of Common Stock issuable upon exercise of outstanding warrants, with an exercise price of equal to 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion per share (which would have been $0.66 at September 30, 2020 if exercised);

     
 

2,809,147 shares of Common Stock reserved for future issuance under our 2020 Plan as of September 30, 2020; and

     
 

622,500 shares issuable upon exercise of the Underwriter’s over-allotment option.

 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2020 and 2019 and years ended December 31, 2019 and 2018 should be read in conjunction with the information included under “Business,” “Selected Consolidated Financial Data” and our consolidated financial statements and the accompanying notes included elsewhere in this registration statement. The discussion and analysis below are based on comparisons between our historical financial data for different periods and include certain forward-looking statements about our business, operations and financial performance. These forward-looking statements are subject to risks, uncertainties, assumptions and other factors described in “Risk Factors.” Our actual results may differ materially from those expressed in, or implied by, those forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”

 

Organization

 

GreenBox POS is a technology company that develops, markets and sells innovative blockchain-based payment solutions, which the Company believes will develop significant advances 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 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, 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.”

 

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 “PrivCo” or the “Private Company” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.

 

Management Discussion and Analysis

 

Throughout 2020, we continued to invest in research and development, improving our acquiring platform and enabling safer, faster and significantly more scalable services. With the upcoming release of our Generation 3 technology, we believe barriers to scalability, in particular around technology, strategic relationships, banking bandwidth, and execution capital, are decreasing significantly. These technology improvements have resulted in major new capabilities, including Real Time Payments (“RTP”), a very sought-after payment feature. This change also reduces our Cost of Goods Sold (“COGS”).

 

In the second quarter of 2020, we transitioned into large scale operations with increased capacity of the payment processing platform, and with the addition of two new platforms, Crypto payouts and FOREX, allowed us to expand licensed operations in Europe and beyond. It is anticipated that European operation will match and could exceed USA operational volume for the Company.

 

Our targeted Transactional Processing Volume (“TPV”) goal is $1 billion per year ($3 million per day). The main driver to achieve this goal is projected to be the release of Generation 3 of the Company’s technology, with modules expected throughout the first quarter of 2021 and, we believe, completion and stabilization by the end of the quarter. Our TPV in the fourth quarter of 2020 was greater than $1 million per day. While we cannot predict the exact timing of the consistent achievement of $3 million per day in TPV, the Company believes it now has the required bandwidth and technical capabilities to achieve this goal in the second half of 2021. These projections are contingent on projected execution figures on opportunities made available to the Company in the USA, Canada, and Europe.

 

 

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.

 

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

 

RESULTS OF OPERATIONS

 

Three Months Ended September 30, 2020 (Unaudited) Compared to Three Months Ended September 30, 2019 (Unaudited):

  

   

Three Months Ended September 30,

                 
   

2020

   

2019

   

Changes

 
           

% of

           

% of

                 
   

Amount

   

Revenue

   

Amount

   

Revenue

   

Amount

   

%

 
                                                 

Revenue

  $ 3,056,271       100.0

%

  $ 14,793,117       100.0

%

  $ (11,736,846

)

    -79.3

%

Cost of revenue

    1,845,295       60.4

%

    6,834,198       46.2

%

    (4,988,903

)

    -73.0

%

Gross profit

    1,210,976       39.6

%

    7,958,919       53.8

%

    (6,747,943

)

    -84.8

%

                                                 

Operating expenses:

                                               

Advertising and marketing

    59,099       1.9

%

    10,319       0.1

%

    48,780       472.7

%

Research and development

    243,923       8.0

%

    381,112       2.6

%

    (137,189

)

    -36.0

%

Cash due from gateway reserve expense

    -       0.0

%

    5,665,031       38.3

%

    (5,665,031

)

    -100.0

%

General and administrative

    436,216       14.3

%

    176,120       1.2

%

    260,096       147.7

%

Payroll and payroll taxes

    344,641       11.3

%

    420,074       2.8

%

    (75,433

)

    -18.0

%

Professional fees

    366,734       12.0

%

    281,659       1.9

%

    85,075       30.2

%

Depreciation and amortization

    5,764       0.2

%

    4,897       0.0

%

    867       17.7

%

Total operating expenses

    1,456,377       47.7

%

    6,939,212       46.9

%

    (5,482,835

)

    -79.0

%

                                                 

Loss from operations

    (245,401

)

    -8.0

%

    1,019,707       6.9

%

    (1,265,108

)

    -124.1

%

                                                 

Other Income (Expense):

                                               

Interest expense

    (48,931

)

    -1.6

%

    3,837       0.0

%

    (52,768

)

    -1375.2

%

Interest expense - debt discount

    (83,500

)

    -2.7

%

    -       0.0

%

    (83,500

)

    n/a  

Derivative expense

    (925,576

)

    -30.3

%

    -       0.0

%

    (925,576

)

    n/a  

Changes in fair value of derivative liability

    819,366       26.8

%

    236,184       1.6

%

    583,182       246.9

%

Gain from extinguishment of convertible debt

    -       0.0

%

    -       0.0

%

    -          

Other income or expense

    (5,768

)

    -0.2

%

    -       0.0

%

    (5,768

)

    n/a  

Total other income (expense)

    (244,409

)

    -8.0

%

    240,021       1.6

%

    (484,430

)

    -201.8

%

                                                 

Loss before provision for income taxes

    (489,810

)

    -16.0

%

    1,259,728       8.5

%

    (1,749,538

)

    -138.9

%

                                                 

Provision for income taxes

    -       0.0

%

    -       0.0

%

    -       0.0

%

                                                 

Net loss

  $ (489,810

)

    -16.0

%

  $ 1,259,728       8.5

%

  $ (1,749,538

)

    -138.9

%

 

 

Revenue

 

Revenue decreased by $11,736,846 or 79.3%, to $3,056,271 in the third quarter of 2020 from $14,793,117 in the third quarter of the previous year. The decrease in net sales reflected the following: the third quarter of 2020 revenues reflects one of our large ISOs exiting our ecosystem. That volume was transferred to an alternative ISO and processing gateway. In addition, we placed a high priority towards completion of compliance and integration with Fiserv, one of its largest accounts, and pushed to expedite the development and future release of its third-generation technology, Gen3. We raised capital in October to support these two initiatives.

 

Cost of Revenue

 

Cost of revenue decreased by $4,988,903, or 73.0%, to $1,845,295 in the third quarter of 2020 from $6,834,198 in the third quarter of 2019. Payment processing consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Most orders are delivered directly to the customer, without any handling, storage or processing by us. The third quarter of 2020 shows a reduction in cost of revenue as a result of increased processing efficiency and decreased cost to scale. Upcoming release of the Company’s next generation technology, Gen3, is further designed to impact the Company’s Cost of Revenues and is projected to materially increase the Company’s operating margins.

 

Operating Expenses

 

Operating expenses decreased by $5,482,835, or 79.0%, to $1,456,377 in the third quarter of 2020 from $6,939,212 in the third quarter of 2019. The decrease was primarily due to a decrease in research and development of $137,189, cash due from gateway reserve expenses of $5,665,031 in the third quarter of 2019, and an off-set by an increase in payroll and professional fees.

 

Non-Operating Expenses

 

We incurred interest expense related to various debt in the amount of $132,431 and $391,431 for the three months ended September 30, 2020 and 2019, respectively. We incurred a gain from changes in fair value of derivative liability of $819,366 and $236,184 for the three months ended September 30, 2020 and 2019, respectively, and derivative expense of $925,576 for the three months ended September 30, 2020.

 

 

Nine Months Ended September 30, 2020 (Unaudited) Compared to Nine Months Ended September 30, 2019 (Unaudited):

 

   

Nine Months Ended September 30,

                 
   

2020

   

2019

   

Changes

 
           

% of

           

% of

                 
   

Amount

   

Revenue

   

Amount

   

Revenue

   

Amount

   

%

 
                                                 

Revenue

  $ 5,536,335       100.0

%

  $ 19,070,861       100.0

%

  $ (13,534,526

)

    -71.0

%

Cost of revenue

    3,504,283       114.7

%

    10,602,555       55.6

%

    (7,098,272

)

    -66.9

%

Gross profit

    2,032,052       66.5

%

    8,468,306       44.4

%

    (6,436,254

)

    -76.0

%

                                                 

Operating expenses:

                                               

Advertising and marketing

    86,368       2.8

%

    35,928       0.2

%

    50,440       140.4

%

Research and development

    798,157       26.1

%

    1,085,298       5.7

%

    (287,141

)

    -26.5

%

Cash due from gateway reserve expense

    -       0.0

%

    5,665,031       29.7

%

    (5,665,031

)

    -100.0

%

Payroll and payroll taxes

    1,279,174       41.9

%

    967,121       5.1

%

    312,053       32.3

%

Professional fees

    852,234       27.9

%

    588,677       3.1

%

    263,557       44.8

%

General and administrative

    613,156       20.1

%

    375,373       2.0

%

    237,783       63.3

%

Depreciation and amortization

    16,856       0.6

%

    11,352       0.1

%

    5,504       48.5

%

Total operating expenses

    3,645,945       119.3

%

    8,728,780       45.8

%

    (5,082,835

)

    -58.2

%

                                                 

Loss from operations

    (1,613,893

)

    -52.8

%

    (260,474

)

    -1.4

%

    (1,353,419

)

    519.6

%

                                                 

Other Income (Expense):

                                               

Interest expense

    (372,553

)

    -12.2

%

    (171,193

)

    -0.9

%

    (201,360

)

    117.6

%

Interest expense - debt discount

    (121,918

)

    -4.0

%

    (188,273

)

    -1.0

%

    66,355       -35.2

%

Derivative expense

    (925,576

)

    -30.3

%

    (634,689

)

    -3.3

%

    (290,887

)

    45.8

%

Changes in fair value of derivative liability

    (383,769

)

    -12.6

%

    (129,186

)

    -0.7

%

    (254,583

)

    197.1

%

Gain from extinguishment of convertible debt

    2,630,795       86.1

%

    -       0.0

%

    2,630,795          

Other income or expense

    (2,434

)

    -0.1

%

    -       0.0

%

    (2,434

)

    n/a  

Total other income (expense)

    824,545       27.0

%

    (1,123,341

)

    -5.9

%

    1,947,886       -173.4

%

                                                 

Loss before provision for income taxes

    (789,348

)

    -25.8

%

    (1,383,815

)

    -7.3

%

    594,467       -43.0

%

                                                 

Provision for income taxes

    -       0.0

%

    -       0.0

%

    -       0.0

%

                                                 

Net loss

  $ (789,348

)

    -25.8

%

  $ (1,383,815

)

    -7.3

%

  $ 594,467       -43.0

%

 

Revenue

 

Revenue decreased by $13,534,526 or 71.0%, to $5,536,335 in the nine months ended September 30, 2020 from $19,070,861 in the nine months ended September 30, 2019. The change in net sales reflected the following: the third quarter of 2019 revenues reflects the ramp up to operations following the upgrade and rerelease of the Company’s processing platform and the release of the two new platforms, Crypto payouts platform and FOREX platform. In the first quarter of 2020, operations slowed significantly due to the processing platform limitations. As such, the first quarter of 2020 is better compared to the first quarter of 2019 in terms of operations following a product launch. The third quarter of 2020 revenues reflects one of our large Independent Sales Organizations (“ISO”) exiting our ecosystem. That volume has now been transferred to an alternative ISO and processing gateway. In addition, we placed a high priority towards completion of compliance and integration with Fiserv, one of our largest accounts, and pushed to expedite the development and future release of our third-generation technology, Gen3. The Company raised capital in October to support these two directions specifically.

 

 

Cost of Revenue

 

Cost of revenue decreased by $7,098,272, or 66.9%, to $3,504,283 in the nine months ended September 30, 2020 from $10,602,555 in the nine months ended September 30, 2019. Payment processing consists of various processing fees paid to gateways, as well as commission payments to the ISO responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Most orders are delivered directly to the customer, without any handling, storage or processing by us. The third quarter of 2020 shows a reduction in cost of revenue as a result of increased processing efficiency and decreased cost to scale. Upcoming release of the Company’s next generation technology, Gen3, is further designed to impact the Company’s Cost of Revenues and is projected to increase the Company’s operating margins.

 

Operating Expenses

 

Operating expenses decreased by $5,082,835, or 58.2%, to $3,645,945 in the nine months ended September 30, 2020 from $8,728,780 in the nine months ended September 30, 2019. The decrease was due to decrease from research and development and cash due from gateway reserve expense and off-set by an increase in payroll and professional fees.

 

Non-Operating Expenses

 

We incurred interest expense related to various debt in the amount of $494,471 and $359,466 for the nine months ended September 30, 2020 and 2019, respectively. We incurred a loss from changes in fair value of derivative liability of $383,769 for the nine months ended September 30, 2020 and derivative expense of $925,576 for the nine months ended September 30, 2020. We incurred gain from extinguishment of convertible debt of $2,630,795 for the nine months ended September 30, 2020.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our principal liquidity requirements are for working capital and capital expenditures. We fund our liquidity requirements primarily through cash on hand, cash flows from operations and borrowings. We ended September 30, 2020 with $124,834 of cash, cash equivalents, and restricted cash compared with $763,110 as of December 31, 2019.

 

The following table summarizes our cash flows from operating, investing and financing activities:

 

   

Nine Months Ended September 30,

 
   

2020

   

2019

 
                 

Net cash provided by (used in) operating activities

  $ (130,505

)

  $ 1,841,605  

Net cash provided by (used in) investing activities

    (12,332

)

    (41,634

)

Net cash provided by (used in) financing activities

    (495,439

)

    (89,000

)

                 

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

  $ (638,276

)

  $ 1,710,971  

 

Operating ActivitiesFor the nine months ended September 30, 2020 and 2019, net cash provided by operating activities was $130,505 and $1,841,605, respectively. The cash provided by operating activities was primarily due to timing of settlement of assets and liabilities and net loss.

 

Investing Activities – Cash used in investing activities primarily consisted of purchases of property and equipment.

 

Financing Activities – Net cash provided by or used in financing activities primarily consisted of payments of short-term notes payable debt for the nine months ended September 30, 2020 and borrowings and payments of convertible debt for the three months ended September 30, 2019.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.

 

 

CRITICAL ACCOUNTING POLICIES

 

Our critical accounting estimates are included in our significant accounting policies as described in Note 2 of the consolidated financial statements included in this prospectus. Those consolidated financial statements were prepared in accordance with GAAP.  Critical accounting estimates are those that we believe are most important to the portrayal of our financial condition and results of operations. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense. Our estimates are evaluated on an ongoing basis and drawn from historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Actual results may differ from our estimates.  Management believes that the following accounting estimates reflect the more significant judgments and estimates we use in preparing our consolidated 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.

 

 

Results of Operations for Year Ended December 31, 2019 Compared to Year Ended December 31, 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 years ended December 31, 2019 and 2018, we recognized revenue of $10,002,857 and $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 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

 

COGS for payment processing consists of various processing fees paid to gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. For the years 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 to 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 years 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. 

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.

 

 

BUSINESS 

 

Business

 

GreenBox POS is a technology company that develops, markets and sells innovative blockchain-based payment solutions, which the Company believes will develop significant advances 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 have one pending U.S. patent application, USSN 16/212,627, which was filed on December 6, 2018, and which claims priority to five provisional applications filed between December 6 and December 11, 2017.

 

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

 

 

a)

DEL (Delivery App), which provides APIs (Application Programming Interfaces) to POS and PAY.

 

 

b)

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

 

 

c)

QuickCard Payment System 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 Software Solution 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 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.

 

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

 

In December 2019, the Company received PCI (Payment Card Industry) Level 1 certification for its technology, its security, privacy, reliability and other aspects of its payment infrastructure. The PCI Security Standards is a global organization, that maintains, evolves and promotes Payment Card Industry standards for the safety of cardholder data across the globe. PCI Compliance Level 1 is one of four PCI merchant compliance levels and two service provider levels established in effort to protect the security of credit card data and cardholder data, in e-commerce transactions as well as those conducted in-store. PCI Compliance Level 1is the highest, and most stringent, of the PCI DSS levels. 

 

 

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 24,074,167 restricted shares of PubCo’s 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 24,074,167  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 101,626  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 January 4, 2020, PrivCo and 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.

 

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.

 

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”). 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.

 

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. The inclusion of our website address in this Registration Statement of which this Prospectus forms a part does not include or incorporate by reference the information on our website into this prospectus.

 

Recent Developments

 

October 2020 Debenture Offering

 

On October 27, 2020, the Company consummated the initial closing of a private placement offering (the “Offering”) whereby pursuant to the Securities Purchase Agreements (the “Purchase Agreements”) entered into by the Company with thirteen (13) accredited investors (the “Investors”), the Company issued certain Convertible Debentures for an aggregate purchase price of $3,019,550 (each a “Debenture”, collectively, the “Debentures”) and five (5) year warrants (the “Warrants”) to purchase shares of the Company’s Common Stock. The second closing occurred on October 28, 2020 for an aggregate purchase price of $480,450 for a total purchase price of $3,500,000. The total principal of the Debentures is $3,850,000.

 

The Debentures include a 10% original issuance discount, carry an interest rate of 10% per annum and mature on July 27, 2021 (the “Maturity Date”). The Debentures contain a voluntary conversion mechanism whereby the holders may convert, in whole or in part, the outstanding balance of the Debentures into shares of the Common Stock at a conversion price of $1.98 per share, subject to adjustment as provided therein. Additionally, the Debentures contain a mandatory conversion mechanism whereby any principal and accrued interest on the Debentures converts into shares of the Company’s Common Stock on the date in which the Company’s Common Stock is listed for trading on a senior national exchange. The mandatory conversion mechanism shall take effect only if (i) the shares of Common Stock underlying the Debentures are registered on an effective registration statement, (ii) the average closing bid price of the Common Stock over the preceding five trading days is above $4.80 per share and (iii) the average trading volume of Common Stock over the preceding five trading days is at least $200,000. The mandatory conversion mechanism contains a conversion price of $1.98 per share, subject to adjustment as provided therein. The Debentures contain customary events of default (each an “Event of Default”). If an Event of Default occurs, interest under the Debentures will accrue at a rate of eighteen percent (18%) per annum and the outstanding principal amount of the Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the Debentures will become, at the Debenture holder’s election, immediately due and payable in cash.

 

Pursuant to the Purchase Agreements, each investor received a Warrant in an amount equal to 100% of the shares of Common Stock initially issuable to each Investor pursuant to such Investor’s Debenture. The Warrants have an exercise price of $1.98 per share, subject to adjustment as provided therein. In connection with the closing of the Offering, Warrants were issued to purchase an aggregate of 1,944,695 shares of Common Stock.

 

Kingswood Capital Markets, division of Benchmark Investments, Inc. (the “Placement Agent”) acted as placement agent for the Offering. The Placement Agent received cash compensation of $280,000 (8% of the gross proceeds to the Company). Kingswood is acting as the representative of the underwriters for the offering being registered on the registration statement of which this prospectus forms a part.

 

In connection with the Offering, the Company’s subsidiary, Moltopay Financial Ltd. (the “Subsidiary”), signed a Subsidiary Guarantee to guarantee the Company’s payment of the Debentures (the “Subsidiary Guarantee”). The Company and the Subsidiary also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company and the Subsidiary each granted a security interest in and to all of their respective assets, as security for the obligations owing to the investors under the Debentures and the other transaction documents executed in connection therewith.

 

As of February 16, 2021, the Company has issued 989,619 shares of Common Stock following the conversion of Debentures in the principal amount of $1,959,500. In addition, the Company has issued 14,097 shares in connection with the conversion of interest owed pursuant to the Debentures.

 

 

December 2020 Sale of Shares of Common Stock

 

On December 18, 2020, we closed a private placement offering whereby pursuant to the Securities Purchase Agreements entered into by the Company with two investors, the Company issued 333,333 shares at a price per share of $4.80 for total proceeds of $1,600,000 and PrivCo, an entity that owns 62.91% of our shares and is controlled by our sole officers and directors, sold 300,000 GreenBox shares at a price per share of $4.20 to one of the two investors who bought shares directly from the Company. One of the two investors who bought shares directly from the Company invested in the October 2020 Offering.

 

ChargeSavvy Non-Binding MOU

 

On January 25, 2021, the Company issued a press release announcing it had entered into a non-binding Memorandum of Understanding to acquire ChargeSavvy LLC, a financial technology company specializing in payment processing and POS systems, for total consideration of $31.2 million in restricted shares of the Company’s common stock. The transaction assumes a per share price of $12.00. The all-stock transaction is subject to the negotiation and signing of definitive transaction documents, the completion of an audit of ChargeSavvy’s financial statements, and customary closing conditions. Kenneth Haller, the Company’s Senior Vice President of Payment Systems and the owner, following this offering, of 7.79% of the Company’s shares of Common Stock, owns 68.8% of ChargeSavvy.

 

Seasonality

 

None.

 

Intellectual Property

 

We rely on a combination of patent, trade secret, including federal, state and common law rights in the United States and other countries, nondisclosure agreements, and other measures to protect our intellectual property. We require our employees, consultants, and advisors to execute confidentiality agreements and to agree to disclose and assign to us all inventions conceived under their respective employment, consultant, or advisor agreement, using our property, or which relate to our business. Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Our business is affected by our ability to protect against misappropriation and infringement of our intellectual property, including our patents, domain names, and other proprietary rights.

 

Patents

 

We have one pending U.S. patent application, USSN 16/212,627, which was filed on December 6, 2018, and which claims priority to five provisional applications filed between December 6 and December 11, 2017.

 

Employees and Human Capital

 

The Company currently has 18 full-time employees. None of our employees are subject to collective bargaining agreements. We consider our relationship with our employees to be good.

 

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plan is to attract, retain and reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

  

Competition

 

Although we believe there is currently no other company in the payment facilitator industry using, as we are, blockchain infrastructure, notable companies in the payment facilitator industry include PayPal, Stripe, and Square.

 

 

Research and Development

 

In the nine months ended September 30, 2020, the Company spent $798,157 on research and development in connection with improvements and updates to its technology and releases of new models of its technology. The Company’s current research and development efforts are focused on developing its new crypto payout platform, foreign exchange platform, and SaaS platform.

 

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 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.

 

Monthly lease rates during 2020 are shown in the table below:

 

   

Start Date

 

End Date

 

Monthly Rent

 
                 

Historical Decatur Road

 

October 31, 2019

 

October 31, 2022

  $ 696  
                 

Rio Vista

 

January 15, 2019

 

January 15, 2022

  $ 10,729  

 

Legal Proceedings

 

From time to time, we may be subject to various legal proceedings and claims that are routine and incidental to our business. While the Company is not currently subject to any material litigation proceedings, on November 25, 2019, four companies (the “Plaintiffs”) filed a complaint against PrivCo, the Company, Global Payout, Inc., MTrac Tech Corporation and Cultivate Technologies, LLC (collectively the “Defendants”) 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. The parties discussed arbitration and the Plaintiffs later dismissed the case with prejudice. The Plaintiffs refiled on February 28, 2020.   The parties attended mediation on November 12, 2020, came to an agreement, and subsequently executed a Settlement Agreement and Release on or around November 23, 2020, whereby GreenBox is to pay $3.8 million to the Plaintiffs by March 15, 2021. On December 14, 2020, the Plaintiffs filed a Request for Dismissal with prejudice. The court has now dismissed the case.

 

 

MANAGEMENT

 

Directors and Executive Officers

 

The following table sets forth information about our directors and executive officers. We intend to appoint three independent directors upon the consummation of this offering.

 

 

Name

 

Age

 

Position(s)

Executive Officers

       

Ben Errez

  59  

Chairman of the Board of Directors and

Executive Vice President (Principal Financial Officer and Principal Accounting Officer)

Fredi Nisan

  38  

Director and Chief Executive Officer

 

Directors

       

Genevieve Baer

  43  

Director 

William J. Caragol

  53  

Director

Ezra Laniado

  37  

Director

 

Executive Officers

 

Ben Errez has acted as Chairman of our Board, Executive Vice President, Principal Financial Officer and Principal Accounting Officer since July 2017. He has brought this expertise to the Company to lead the Company into the forefront of the blockchain-based financial software, services and hardware market. Since 2017, Errez has been a principal of the GreenBox Business. From August 2004 until August 2015, Errez formed the start-up IHC Capital, where he held the position of Principal Consultant from founding to the present date, through which he advises clients in the South Pacific region with market capitalizations ranging from $50M to $150M on matters such as commerce, security, reliability and privacy. From January 1991 to August 2004, he served as Software Development Lead for the Microsoft International Product Group. He led the International Microsoft Office Components team (Word, Excel, PowerPoint) in design, engineering, development and successful deployment. He also served as Executive Representative of Microsoft Office and was a founding member of the Microsoft Trustworthy Computing Forum, both within the company, and internationally. Errez co-authored the first Microsoft Trustworthy Computing Paper on Reliability. At Microsoft, Mr. Errez was responsible for the development of the first Microsoft software translation Software Development Kit (“SDK”) in Hebrew, Arabic, Thai and Simplified Chinese, as well as the development of the first bidirectional extensions to Rich Text Format (“RTF”) file format, all bidirectional extensions in text converters for Microsoft Office, and contributed to the development of the international extensions to the Unicode standard to include bidirectional requirements under the World Wide Web Consortium (“W3C”). He received his Bachelor Degree in Mathematics and Computer Science from the Hebrew University.

 

Fredi Nisan has served as a Director and our Chief Executive Office since July 2017, and has been a principal of the Company since August 2017. In May 2016, Nisan founded Firmness, LLC. Through Firmness, Nisan created “QuickCitizen,” a software program that 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. In January 2010, Nisan launched Brava POS, where he served as President until 2015. Brava POS provided point of sale (“POS”) systems for specialty retail companies. Nisan developed software to provide clients with solutions for issues ranging from inventory management to payroll to processing high volume transactions in the form of a cloud-based POS system. This system had the capability to manage multiple stores with centralized inventory and process sales without an internet connection, and offered a secure login for each employee, as well as including advanced inventory management and reporting, plus powerful functionality for its end users.

 

From January 2007 until November 2017, Nisan 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.

 

 

From March 2005 until December 2006, Nisan opened and operated a computer hardware store before becoming the Inventory Operations Manager for Zicon Israel, 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.

 

Director Nominees

 

Genevieve Baer has served as a Director since February 12, 2021 and has been chief executive officer of JKH Consulting since 2009. JKH Consulting is a real estate finance consulting firm that has advised on transactions with a collective value of over $10 billion. Prior to her work with JKH Consulting, Ms. Baer worked at Magnet Industrial Bank for 6 years at the end of which tenure she was a Senior Vice President. Ms. Baer also worked at US Bancorp Piper Jaffray for 9 years as a Vice President working on equity and debt real estate financings. Ms. Baer earned a B.S. in chemistry from the University of Utah.

 

William J. Caragol has served as a Director since February 12, 2021 and has, since April 2020, been Executive Vice President and Chief Financial Officer of Hawaiian Springs LLC, a natural artesian bottled water company. From 2018 to the present, Mr. Caragol has also been Managing Director of Quidem LLC, a corporate advisory firm. Since 2015, Mr. Caragol has been Chairman of the Board of Thermomedics, Inc., a medical diagnostic equipment company. From 2012 to 2018, Mr. Caragol was Chairman and CEO of PositiveID, a holding company that was publicly traded that had a portfolio of products in the fields of bio detection systems, molecular diagnostics, and diabetes management products. Mr. Caragol earned a B.S. in business administration and accounting from Washington & Lee University.

 

Ezra Laniado has served as a Director since February 12, 2021 and has, since 2018, been Executive Director of the San Diego chapter of Friends of Israel Defence Forces and, since 2017, been Regional Director of the San Diego chapter of the Israeli-American Council, two American charitable organizations providing support and funds for Israel and the Israeli community in America. In such capacity, Mr. Laniado has raised over $5 million in donations and managed over 30 volunteers. From 2014 to 2017, Mr. Laniado was Co-Founder and Business Director of Shonglulu Group, a fashion brand. As Business Director, Mr. Laniado raised capital, coordinated the company’s marketing strategy, and implemented its business plan. Prior to 2014, Mr. Laniado was an attorney in Israel for 4 years. Mr. Laniado received a B.A. and an L.L.B. from the Interdisciplinary Center Herzliya.

 

Family Relationships

 

The Company employs two of our CEO’s brothers, Dan and Liron Nusonivich, who are paid approximately $96,000 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. 

 

Corporate Governance Overview

 

Director Independence

 

The Board has reviewed the independence of our directors based on the listing standards of Nasdaq. Based on this review, the Board has determined that each of Ms. Baer and Messrs. Caragol and Laniado are independent within the meaning of the Nasdaq rules. In making this determination, our Board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our Board deemed relevant in determining their independence. As required under applicable Nasdaq rules, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present.

 

Board Committees

 

The Board has established the following three standing committees: audit committee; compensation committee; and nominating and governance committee, or nominating committee. Each of our independent directors, Ms. Baer and Messrs. Caragol and Laniado, serves on each committee. Our Board has adopted written charters for each of these committees. Copies of the charters are available on our website. Our Board may establish other committees as it deems necessary or appropriate from time to time.

 

 

Audit Committee

 

The audit committee is responsible for, among other matters:

 

•     appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;

 

•     discussing with our independent registered public accounting firm the independence of its members from its management;

 

•        reviewing with our independent registered public accounting firm the scope and results of their audit;

 

•     approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;

 

•       overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;

 

•      reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements;

 

•         coordinating the oversight by our Board of our code of business conduct and our disclosure controls and procedures

 

•        establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and

 

•         reviewing and approving related-person transactions.

 

Mr. Caragol serves as chairman of our audit committee. The Board has reviewed the independence of our directors based on the listing standards of Nasdaq. Based on this review, the Board has determined that that each of Ms. Baer and Messrs. Caragol and Laniado meet the definition of “independent director” for purposes of serving on an audit committee under Rule 10A-3 and NASDAQ rules. The Board has determine that Mr. Caragol qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.

 

Compensation Committee

 

The compensation committee is responsible for, among other matters:

 

•          reviewing key employee compensation goals, policies, plans and programs;

 

•          reviewing and approving the compensation of our directors and executive officers;

 

•       reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and

 

•          appointing and overseeing any compensation consultants or advisors.

 

William J. Caragol serves as chairman of our compensation committee.

 

Nominating Committee

 

The purpose of the nominating committee is to assist the board in identifying qualified individuals to become board members, in determining the composition of the board and in monitoring the process to assess board effectiveness. William J. Caragol serves as chairman of our nominating committee.

 

Board Leadership Structure

 

Currently, Mr. Nisan is our principal executive officer and Mr. Errez is chairman of the board.

 

 

Risk Oversight

 

Our Board will oversee a company-wide approach to risk management. Our Board will determine the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our Board will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.

 

Specifically, our compensation committee will be responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our audit committee will oversee management of enterprise risks and financial risks, as well as potential conflicts of interests. Our board of directors will be responsible for overseeing the management of risks associated with the independence of our Board.

 

Code of Business Conduct and Ethics

 

Our Board adopted a code of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.

 

 

 

EXECUTIVE COMPENSATION

Summary Compensation Table

 

The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our Chief Executive Officer (Principal Executive Officer) and our two most highly compensated executive officers other than the Principal Executive Officer during fiscal years 2020 and 2019 (collectively, the “Named Executive Officers”).

 

Name and Principal Position

 

Year

 

Salary
($)

   

Bonus
($)

   

Stock 
Awards 
($)(1)

   

Options
Awards
($)

   

All Other
Compensation 

($)

   

Total
($)

 

Ben Errez

 

2020

    200,100                         26,176 (1)     226,276  

Chairman/EVP

 

2019

    200,000                               200,000  
                                                     

Fredi Nisan

 

2020

    200,100                         13,572 (2)     213,672