RTB Digital, Inc 10-K/A for FY2018
RTB Digital, Inc. (RTB)
About this 10-K/A
RTB Digital, Inc filed this 10-K/A on February 7, 2020, covering the fiscal year ended December 31, 2018 (FY2018).
Headline figures
Fiscal year ended December 31, 2018, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $910.81K
- compared with $0 a year earlier
- Net loss
- $1.89M
- compared with a net loss of $139.32K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No.1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
Commission File Number: 001-34294
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GREENBOX POS |
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(Exact name of registrant as specified in its charter) |
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Nevada |
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22-3962936 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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8880 Rio San Diego Drive, Suite 102 San Diego, CA |
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92108 |
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(Address of principal executive office) |
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(Zip Code) |
Registrant’s telephone number, including area code: (619) 631-8261
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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N/A |
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N/A |
Securities registered pursuant to Section 12(g) of the Act:
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Title of class |
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Common Stock, par value $0.001 per share |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No ☒
The aggregate market value of the 7,992,169 voting common stock held by non-affiliates of the registrant as of June 30, 2018 was $1,598,433 based on the closing price of $0.20 per share of the registrant’s common stock as quoted on the OTC Pink Current Information marketplace on that date.
As of April 12, 2019, there were 166,390,363 shares of registrant's common stock outstanding.
Documents Incorporated by Reference: None.
EXPLANATORY NOTE
As disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on June 28, 2019, on June 27, 2019, the sole officers and directors, Ben Errez and Fredi Nisan (the “Management”) of GreenBox POS (the “Company”), concluded that the following previously filed financial statements of the Company (along with other previously filed financial statements) should not be relied upon:
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The Company’s audited financial statements for the year ended December 31, 2018, contained in the Company’s Annual Report on Form 10-K, originally filed with the SEC on April 16, 2019 (the “2018 Report”). |
The conclusion to prevent future reliance on the 2018 Report resulted from the determination by the Management that the Reports failed to properly account for the March 23, 2018 Share Purchase Agreement (the “Yuan SPA”) pursuant to which GreenBox POS LLC, a Washington limited liability company (“PrivCo”), majority owned and entirely controlled by the Management, 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 (the “Verbal Agreement”). The Verbal Agreement was formally recognized and memorialized in an Asset Purchase Agreement between PubCo and PrivCo, signed January 4, 2020.
Specifically, the Company determined that:
In accordance with FASB ASC 805, the consolidated financial results of both the Company and PrivCo, should have been recorded in the 2018 Report, based on the fact that i) as of April 12, 2018, the Company’s controlling shareholder is PrivCo, ii) PrivCo is majority owned and entirely controlled by Management, iii) PrivCo’s owners are our sole officers and directors, and iv) that the Company did acquire the operations of PrivCo on April 12, 2018. As a result, the Q2, Q3 and the 2018 Reports should have reflected the combined balance sheets, income statements and cash flow statements of PrivCo and the Company from April 12, 2018 forward.
We are therefore filing this amended 10-K (“Amended 10-K”) to the “2018 Report,” to restate our financial statements and revise related disclosures.
As a substantial part of the Amended 10-K is amended and/or restated, we have presented the entire text of the 2018 Report, as amended and/or restated by this Amended 10-K. Readers should therefore read and rely only on this Amended 10-K in lieu of the original 2018 Report.
TABLE OF CONTENTS
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PART I |
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Item 1. |
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6 |
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Item 1A. |
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8 |
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Item 1B. |
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8 |
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Item 2. |
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8 |
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Item 3. |
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9 |
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Item 4. |
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9 |
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PART II |
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Item 5. |
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10 |
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Item 6. |
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10 |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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11 |
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Item 7A. |
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16 |
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Item 8. |
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17 |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
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17 |
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Item 9A. |
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Item 9B. |
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17 |
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PART III |
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Item 10. |
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18 |
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Item 11. |
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19 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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20 |
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
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Item 14. |
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PART IV |
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Item 15. |
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23 |
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Signatures |
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25 |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Amended Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, including those discussed in the section titled “Risk Factors”, set forth in Part I, Item 1A of this Annual Report on Form 10-K and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
In this Annual Report on Form 10-K, the terms “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS.
PART I
Item 1 – Business
Organization
On January 4, 2020, PrivCo and GreenBox POS, a Nevada corporation 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 and PrivCo.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, 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.”
On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018. Prior to the name changes, PubCo was known as ASAP Expo, Inc (“ASAP”). ASAP was incorporated April 10, 2007 under the laws of the State of Nevada (collectively, “PubCo”).
Our primary office is in San Diego, California. Our website is www.greenboxpos.com.
Unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS.
Unless the context otherwise requires, all references to “PrivCo” or the “Private Company” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.
Significant Transactions
On March 23, 2018, the then controlling shareholder and then sole officer and sole director of PubCo, Frank Yuan, along with his wife, Vicky PMW Yuan (collectively, the “Yuans”), entered into a Purchase Agreement with PrivCo (the “Yuan SPA”).
Pursuant to the Yuan SPA, the Yuans agreed to sell 144,445,000 restricted shares of PubCo’s common stock, par value $0.001 per share (the “Common Stock”), to PrivCo for a consideration of $500,000: $250,000 in cash, paid at closing, and $250,000 in restricted shares of Common Stock (the “Shares Due”) to be issued within 30 days of the close of the Yuan SPA. Subsequently, on or about June 8, 2018, PrivCo paid the Shares Due, by transferring 609,756 restricted shares of Common Stock from the Control Block to the Yuan’s designees, Frank Yuan and his son, Jerome Yuan.
On or about March 29, 2018, Frank Yuan converted a portion of a line of credit that he had previously issued to PubCo, in exchange for 144,445,000 restricted shares of Common Stock, representing approximately 90% of PubCo’s issued and outstanding shares of Common Stock (the “Control Block”).
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 Yuan SPA being entered into and the ASAP Business being transferred to Holdings, Ben Errez (“Errez”) and Nisan (“Nisan”) became the sole acting officers and sole acting directors of PubCo.
On May 3, 2018, Frank Yuan formally resigned, and Errez and Nisan were formally appointed the sole officers and sole directors of PubCo.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired the GreenBox Business and assumed PrivCo’s liabilities per the terms of the Agreement. The value of the assets acquired on April 12, 2018 was $843,694, which excluded the Control Shares, which remain a PrivCo asset. The value of PrivCo’s assumed liabilities on April 12 was $589,078. The difference between assets and liabilities was $254,616, which PubCo booked as a “Gain on Bargain Purchase.” However, because we are using Reverse Acquisition accounting, PubCo subsequently recorded the gain as Paid in Capital.
From April 12, 2018 through January 4, 2020 (the “In Between Period”), because there was ambiguity regarding the validity of the Verbal Agreement, PubCo filed required quarterly and annual reports with the Securities and Exchange Commission as if there had not been a Reverse Acquisition. During the In Between Period, PrivCo continued to operate as if it still owned the GreenBox Business, which included maintaining records of GreenBox Business financial transactions on PrivCo’s accounting software, and entering into contracts and agreements as PrivCo, while PubCo paid all expenses, including expenses related to PrivCo contracts entered into prior to April 12, 2018 and after April 12, 2018, as well as expenses incurred as a result of litigation resulting from disagreements between PrivCo and other parties. During the In Between Period, PubCo represented itself in press releases, as being the owner/operator of the GreenBox Business. Additionally, from April 12, 2018 through approximately December 31, 2018, PubCo and PrivCo shared control of PrivCo’s bank accounts, and on or about January 1, 2019, PubCo assumed control of PrivCo’s bank accounts.
By virtue of the payment of PrivCo’s litigation expenses by PubCo, by virtue of PubCo representing itself in press releases, as being the owner/operator of the GreenBox Business, and by virtue of the shared control of PrivCo’s bank accounts starting on April 12, 2018, both PubCo and PrivCo concluded that the Verbal Agreement was valid and the GreenBox Business Acquisition took place on April 12, 2018.
Reverse Acquisition Reporting Requirements
In accordance with SEC Financial Reporting Manual, Topic 12 - Reverse Acquisitions and Reverse Recapitalizations, Section 12200 - Reporting Issues, Sub-section 12210.2 - Reverse Acquisition with a domestic registrant that is not a shell company, PubCo is required to file two years of audited Financials for PrivCo. However, since PrivCo was formed in August 2017, only the period from August 2017 through December 31, 2018 was audited. PubCo is also required to file on a combined basis with PrivCo starting with PubCo’s 10-Q filing for the period ending June 30, 2018.
Given these considerations, PubCo:
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Executed the Agreement memorializing the Verbal Agreement, and filed a Form 8-K on January 7, 2020 (the “January 8-K”) to disclose the Agreement and to file audited financials for PrivCo for the year ending December 31, 2017; |
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is restating PubCo’s 2018 financials, to include amended Form 10-Qs for the periods ending June 30 and September 30, and an amended Form 10-K for the year ending December 31, 2018; and |
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is proceeding to file Form 10-Qs for 2019, for the periods ended March 31, June 30 and September 30, and file Form 10-K for the year ending December 31, 2019; which we ideally wish to accomplish upon or prior to March 30, 2020. |
Our Business
GreenBox POS is a tech company formed with the intent of developing, marketing and selling innovative blockchain-based payment solutions, which we believe will cause favorable disruption in the payment solutions marketplace. Our core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. Our proprietary, blockchain-based ecosystem is designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
We’ve been awarded five provisional patents for our technology, each directly related to our core business focus. Subsequently, we filed non-provisional patent application 16/212,627 on December 6, 2018, under which we claimed the benefit of the five provisional patents.
In March 2018, we formally announced DEL, PAY, QuickCard, POS and Loopz to an international audience, during a presentation at the Israel International Innovation Expo, in Tijuana, Mexico.
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DEL is our Delivery App, which provides APIs to POS and PAY. |
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b) |
PAY is our Payment App, which provides financial APIs to all our other software components. |
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QuickCard is QuickCard Payment System, which is a comprehensive physical and virtual cash management system, including software that facilitates deposits, cash and e-wallet management. |
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POS Solutions is our complete end-to-end Point of Sale solution, comprising both software and hardware. |
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Loopz is Loopz Software Solution, which is a mobile delivery service operations management solution with automated dispatch functionality. |
In March 2018, our QuickCard Payment System was comprised of PAY, proprietary kiosks and e-wallet management.
In June 2018, we commenced a soft launch of our system, onboarded our initial customers and began generating revenue.
In July 2018, we introduced TrustGateway, a new fraud prevention component for our QuickCard payment system.
Throughout the remainder of 2018, we continued to build, expand and improve our system, which allowed for an escalation in merchants using our system, as well as increasing revenues.
On or about October 4, 2018, we entered into a lease agreement with Hyundai Rio Vista, Inc. for our current office space at 8880 Rio San Diego Drive, Suite 102, San Diego, CA 92108.
Item 1A – Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are not required to provide the information under this item.
Item 1B – Unresolved Staff Comments
Not applicable.
Item 2 – Properties
We do not own any real estate or other physical properties material to our operations. We operate from leased space. Our executive offices are located within the Rio Vista Tower, at 8880 Rio San Diego Drive, Suite 102, San Diego, CA 92108, and our telephone number is (619) 631-8261.
In October 2017, we secured our first office in San Diego, California. During the first six months of 2018, we entered into additional, separate lease agreements for additional offices in San Diego. In October 2018, we executed a lease agreement with Hyundai Rio Vista, Inc. within the Rio Vista Tower, which we moved into on or about December 1, 2018. Our lease agreement with Hyundai Rio Vista is through January 15, 2022, with monthly rent starting at $10,648 and increasing to $11,636 over the period of the lease.
On or about February 20, 2018, we secured a virtual Canadian office, located at 885 West Georgia Street Suite 1500, Vancouver, British Columbia, V6C 3E8, under an Office Agreement with Regus Canada. Subsequently, on or around May 3, 2018 we added a physical office at the same location, on a month-to-month basis. We vacated the office in or about July 2019.
Monthly lease rates during 2018 are shown in the table below:
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Start Date |
End Date |
Monthly Rent |
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Historic Decatur Road |
Nov 1, 2017 | Oct 31, 2018 | $ | 789 | ||||||
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Residential Lease (1) |
Feb 23, 2018 |
Feb 22, 2019 |
2,040 | |||||||
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Historic Decatur Road |
Mar 1, 2018 |
Oct 31, 2018 |
789 | |||||||
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Historic Decatur Road (2) |
Mar 1, 2018 |
Oct 31, 2022 |
696 | |||||||
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Virtual Office – Canada (3) |
Mar 1, 2018 |
Feb 28, 2019 |
278 | |||||||
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Historic Decatur Road |
Apr 1, 2018 |
Oct 31, 2018 |
1,102 | |||||||
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Canada Office (3) |
May 3, 2018 |
Month to Month |
1,372 | |||||||
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Rio Vista |
Dec 1, 2018 |
Jan 15, 2022 |
$ | 10,648 | ||||||
(1) The Company leases residential space to house visiting consultants and prospective employees.
(2) In December, the Company paid an exit fee of $840 to end the lease earlier than scheduled.
(3) Canadian Leases are stated in Canadian Dollars but paid in US Dollars. Thus, the actual total expense for Canadian leases may vary from what is shown in the chart above.
Item 3 – Legal Proceedings
America 2030 Capital Limited and Bentley Rothschild Capital Limited
On or about October 31, 2018, Nisan and Errez received constitutive notice, regarding arbitration against Nisan, Errez, PrivCo and possibly PubCo, from Bentley Rothschild Capital Limited ("Bentley") and America 2030 Capital Limited (“America 2030”), both located in Nevis, West Indies, and both claiming breach of contract by Nisan and Errez of Nisan and Errez’s respective individual Master Loan Agreements (see America 2030 Capital Limited and Bentley Rothschild Capital Limited below in Item 13: Certain Relationships and Related Transactions) and seeking forfeiture of 1,600,000 PubCo shares that PrivCo had transferred, on or about August 1, 2018, from PrivCo’s Control Shares under the terms of the MLAs. To date, only informal conversational proceedings have ensued.
Item 4 – Mine Safety Disclosures
Not applicable.
PART II
Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted for trading on OTC Markets, OTC Pink Sheets tier, under the symbol “GRBX.”
Holders
As of February 3, 2020, there were 170,643,055 shares of common stock outstanding held by approximately 163 holders of record (not including an indeterminate number of beneficial holders of stock held in street name).
Warrants
There were no warrants issued nor outstanding as of December 31, 2018.
Dividends
There have been no cash dividends declared on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. Dividends are declared at the sole discretion of our Board of Directors.
Securities Authorized for Issuance Under Equity Compensation Plans
The Company has never had an equity compensation plan.
Recent Issuance of Unregistered Securities
During the year ended December 31, 2018, we issued the following securities that were not registered under the Securities Act. Except where noted, all the securities discussed in this Item 5 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
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On or about March 29, 2018, PubCo issued 144,445,000 shares to Frank Yuan (“Yuan”), when Yuan converted $14,445 of a line of credit Yuan had issued to PubCo. Yuan was the former sole officer and director of PubCo. |
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On or about October 23, 2018, PubCo issued 7,500,000 shares to RB Capital Partners (“RB Cap”), in repayment of $7,500 of a $300,000 note issued by PrivCo, and subsequently assumed by us. |
The following three share transactions summarized below, totaling 1,085,000 shares, were each inadvertently transferred from PrivCo’s Control Block rather than PubCo issuing new shares. Subsequently, on or about August 14, 2019, PubCo issued 1,085,000 shares to PrivCo, as reimbursement of the shares inadvertently transferred by PrivCo.
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On or about December 27, 2018, PrivCo inadvertently transferred 1,000,000 restricted shares of Common Stock from the Control Block, with a market value of $150,000, which money was deposited into PrivCo’s bank accounts (control of which, were shared by PubCo and PrivCo from April 12, 2018 through approximately December 31, 2018). |
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On or about January 4, 2019, PrivCo inadvertently transferred 50,000 restricted shares of Common Stock from the Control Block to a non-affiliated service provider to PubCo for services rendered to PubCo. |
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On or about January 4, 2019, PrivCo inadvertently transferred 35,000 restricted shares of Common Stock from the Control Block to a non-affiliated service provider to PubCo for services rendered to PubCo. |
Item 6 – Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are not required to provide the information under this item.
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company's services, fluctuations in pricing for materials, and competition.
Organization
GreenBox POS (the “Company” or “PubCo”) was formerly known as ASAP Expo, Inc (“ASAP”), which was incorporated April 10, 2007 under the laws of the State of Nevada.
On January 4, 2020, PrivCo and GreenBox POS, a Nevada corporation (“PubCo”) entered into the Agreement to memorialize the Verbal Agreement with PrivCo which was formed on August 10, 2017 (the seller).
On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”).
For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
New Name
On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018.
RESULTS OF OPERATIONS
The following results are for the years ended December 31, 2018 and 2017.
Tests and First Sales
Throughout 2018, we conducted numerous tests of our products and services, and began to sign up our initial customers. After a soft launch of the GreenBox Network during the last few days of June 2018, when we began processing transactions, we processed approximately $5,100,000 in completed transactions on behalf of merchants. We believe this accomplishment to be indicative of the validity of our proprietary blockchain-based systems, which are the foundation of the GreenBox Network, and indicative of our future potential.
Revenue
For the year ended December 31, 2018, we recognized $393,665 in revenue from activities related to payment processing, $67,143 in revenues from Equipment Sales and $450,000 in revenues from Licensing Fees. We did not generate revenue in 2017.
Cost of Goods Sold
Our Cost of Goods Sold (“COGS”) for payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. For the year ended December 31, 2018, our COGS associated with payment processing was $612,037, which included the absorption by us, of chargebacks, which was limited to 2018, as a promotional tool. We incurred approximately $58,502 in expenses in support of Equipment Sales. Our pricing for equipment sold is essentially a passthrough with minimal markup. Most orders are delivered directly to the customer, without any handling, storage or processing by us. As regards Licensing Revenue, we do not incur any direct costs of services or products, thus we did not record COGS for Licensing Revenue. For the year ended December 31, 2017, we did not record any COGS.
Operating Expenses
Overall, operating expenses increased during 2018 as the Company ramped up operations. For the year ended December 31, 2018 and 2017, our general and administrative expense was $740,933 and $9,259 respectively; our legal and professional expenses, most of which were outsourced, were $767,867 and $83,621, respectively; and our R&D expense was $376,871 and $46,229, respectively.
Non-Operating Expenses
For the year ended December 31, 2018 and 2017, we recorded non-operating expenses of $110,873 and $209, respectively, of which $30,067 and $0, respectively, were for interest, $6,608 and $209, respectively, were for depreciation, and $75,000 and $0, respectively, were for asset impairment.
Net Income
The Company recorded a net loss of $1,893,276 for the year ended December 31, 2018, and a net loss of $139,319 for the year ended December 31, 2017. Management believes the net loss to be reasonable and proportional for a startup, which entered its second year of operations in August 2018, and became a publicly traded company, through a reverse acquisition in April 2018.
SETTLEMENT PROCECESSING
Our proprietary blockchain-based technology serves as the settlement engine for all transactions within our ecosystem. Our blockchain ledger provides a robust and secure platform to log immense volumes of immutable transactional records in real time. Generally speaking, blockchain is a distributed ledger that uses digitally encrypted keys to verify, secure and record details of each transaction conducted within an ecosystem. Unlike general blockchain-based systems, GreenBox uses proprietary, private ledger technology to verify every transaction conducted within the GreenBox ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by us.
GreenBox facilitates all financial elements of our closed-loop ecosystem and we act as the administrator for all related accounts. Using our TrustGateway technology, we seek authorization and settlement for each transaction from Gateways to the issuing bank responsible for the credit/debit card used in the transaction. When the Gateway settles the transaction, our TrustGateway technology composes a chain of blockchain instructions to our ledger manager system.
When consumers use credit/debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer purchasing tokens from us. The issuance of tokens is accomplished when we load a virtual wallet with a token, which then transfers credits to the merchant’s wallet on a dollar for dollar basis, after which the merchant releases its goods or services to the consumer. These transfers take place instantaneously and seamlessly, allowing the transaction experience to seem like any other ordinary credit/debit card transaction to the consumer and merchant.
While our blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between us and the gateways we use, between us and our ISOs, and between us and/or our ISOs and merchants who use our services. In the case where we have received transaction funds, but not yet paid a merchant or an ISO, we hold funds in either a trust account or as cash deemed restricted within our operating accounts. We record the total of such funds as Cash held for Settlements – a Current Asset. Of these funds, we record the sum balance due to Merchants and ISOs as Settlement Liabilities to Merchants and Settlement Liabilities to ISOs, respectively.
The table below shows the status of transaction settlements as of December 31, 2018.
|
December 31, 2018 |
||||
|
Settlement Processing Assets |
||||
|
Cash held for Settlements |
$ | 239,124 | ||
|
Cash due from Gateways |
291,112 | |||
|
Chargeback Allowances (1) |
(134,638 | ) | ||
|
Reserves (2) |
474,224 | |||
|
Totals |
$ | 869,822 | ||
|
Settlement Processing Liabilities |
||||
|
Settlement Liabilities to Merchants |
$ | 786,425 | ||
|
Settlement Liabilities to ISOs |
107,342 | |||
|
Refund Allowance (3) |
(23,946 | ) | ||
|
Totals |
$ | 869,822 | ||
(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.
(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.
(3) The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using our proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with our allowance.
SHAREHOLDERS’ DEFICIT
Common Stock
On July 29, 2017, the Board of Directors of the Company approved an increase to the authorized shares of the Company to 500,000,000, with 495,000,000 shares being Common Stock and 5,000,000 shares being preferred stock.
At December 31, 2018 and December 31, 2017, the Company had 166,390,363 and 14,445,363 shares, respectively, issued and outstanding at par value $0.001 per share.
Paid in Capital
At December 31, 2018 and December 31, 2017, the Company’s Paid in Capital was $945,940 and $185,655, respectively.
Retained Earnings
At December 31, 2018 and December 31, 2017, the Company’s Retained Earnings was $(2,032,595) and $139,319, respectively.
Shareholders’ Deficit
As a sum of the above, the Company’s Equity at December 31, 2018 was a deficit of $912,265 and at December 31, 2017, a surplus of $60,781.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
Our working capital for the periods presented is summarized as follows:
Cash Requirements
We incurred a working capital deficit of $874,980 as of December 31, 2018. For December 31, 2017, our working capital was $54,712. 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:
|
Year Ended December 31, |
||||||||
|
2018 |
2017 |
|||||||
|
Net cash provided by (used in) operating activities |
$ | (1,601,851 |
) |
$ | (110,469 |
) |
||
|
Net cash provided by (used in) investing activities |
(31,254 |
) |
(6,278 |
) |
||||
|
Net cash provided by (used in) financing activities |
1,834,730 | 200,100 | ||||||
|
Net increase (decrease) in cash |
$ | 201,624 | $ | 83,353 | ||||
Operating Activities
For the years ended December 31, 2018 and 2017, net cash used in operating activities was $1,601,851 and $110,469, respectively.
Investing Activities
For the years ended December 31, 2018 and 2017, net cash used in investing activities was $31,254 and $6,278, respectively.
Financing Activities
For the years ended December 31, 2018 and 2017, net provided by financing activities was $1,834,730 and $200,100, respectively.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The preparation of financial statements and related disclosures are prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America, which requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and the accompanying notes. The amounts of assets and liabilities reported on our balance sheet and the amounts of expenses reported for each of our fiscal periods are affected by estimates and assumptions. Actual results could differ from these estimates. The following accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of our financial statements.
Going Concern
Our statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon our ability to identify prospects for capital procurement, and to obtain the necessary debt or equity financing needed to develop, sustain and grow our operations, until such time as we are able to generate sufficient cash flow from operation to support our operations, growth, research and development. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
Principles of Consolidation
Pursuant to ASC 805-10-20, a business combination occurs when an acquirer obtains control of one or more businesses. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. ASC 805-10-55-4 through 55-9 state that a business consists of (a) inputs, (b) processes applied to those inputs, and (c) resulting outputs that are used to generate revenues. For an acquired set of activities and assets to be a business, it must contain all of the inputs and processes necessary for it to continue to conduct normal operations after the acquired set is separated from the seller, including the ability to sustain a revenue stream by providing outputs to customers.
Fixed Assets
Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, which range from three to eight years. Leasehold improvements are amortized over the shorter of the useful life of the related assets or the lease term. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period.
Long-Lived Asset Impairments
The Company reviews long-lived assets, including property and equipment and intangible assets, for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, and at least annually. The Company considers assets to be impaired and writes them down to estimated fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows. On or about January 18, 2018, we acquired QuickCitizen, a client interfacing charge card software platform, with certain properties deemed advantageous to products under development. After we acquired QuickCitizen, QuickCitizen’s code was integrated into QuickCard, our card processing technology, which itself has since been integrated into the backend processing engine of the products embodying our blockchain payment and e-wallet technology. Because we perceive the value from QuickCitizen as a component, rather than of standalone value, we fully impaired the value of this investment during 2018. For the year ended 2017, there was no impairment of long-lived assets.
Inventory
Inventory, consists primarily of electronic kiosks, is stated at the lower of cost or net realizable value. Cost is determined by using the first in first out (“FIFO”) method. The Company carries minimal inventory as most orders for kiosks and POS systems are drop shipped directly to merchants or to ISOs for delivery to merchants.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
|
Level 1 |
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
Level 2 |
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|
Level 3 |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Convertible Promissory Notes
The Company accounts for convertible promissory notes in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company evaluates embedded conversion features within convertible debt to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in the Income Statement. If the conversion feature does not require recognition of a bifurcated derivative, the convertible debt instrument is evaluated for consideration of any beneficial conversion feature (“BCF”) requiring separate recognition. When the Company records a BCF, the intrinsic value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument with an offset to additional paid-in capital and amortized to interest expense over the life of the debt.
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.
|
|
a) |
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. |
|
|
b) |
Licensing revenue is paid in advance and is recorded as unearned income, which is amortized monthly over the period of the licensing agreement. |
|
|
c) |
Equipment revenue is generated from the sale of POS products, which is recognized when goods are shipped. |
The Company’s financial instruments consist principally of cash and prepaid expenses. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Leases
Lease for office space at our corporate headquarters is classified as an operating lease in accordance with ASC 840, Leases. Rent expense is recognized on a straight-line basis over the terms of the leases and, accordingly, we record the cumulative difference between cash rent payments and the recognition of rent expense as a deferred rent liability. When an operating lease includes lease incentives, such as a rent abatements or leasehold improvement allowances, or requires fixed escalations of the minimum lease payments, the aggregate rental expense, including such incentives or increases, is recognized on a straight-line basis over the term of the lease.
Research and Development Costs
Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits for research and development personnel, outsourced contract services, and supplies and materials costs.
Income Taxes
Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method in accordance with ASC Topic 740, “Income Taxes.” Deferred taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the condensed consolidated financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the condensed consolidated financial statements.
Earnings (Loss) Per Common Share
A basic earnings per share is computed by dividing net income to common stockholders by the weighted average number of shares outstanding for the year. Dilutive earnings per share include the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive.
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at December 31, 2018 and 2017, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Item 7A – Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8 – Financial Statements and Supplementary Data
The consolidated financial statements required by this item begin on page F-1 of this Annual Report on Form 10-K/A and are incorporated herein by reference.
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A – Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Executive Vice President, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management's evaluation, our Chief Executive Officer and Executive Vice President concluded that, as a result of the material weaknesses described below, as of December 31, 2018, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Executive Vice President, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
|
|
a) |
We did not have enough personnel in our accounting and financial reporting functions. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. |
Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Principal Financial Officer, a bookkeeper and external accounting consultants, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will eliminate or greatly decrease any control and procedure issues we may encounter in the future.
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
|
|
b) |
Changes in internal control over financial reporting. |
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the year ended December 31, 2018 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
|
|
c) |
Management's report on internal control over financial reporting. |
Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2018 for the reasons discussed above.
Item 9B – Other Information
None.
PART III
Item 10 – Directors, Executive Officers and Corporate Governance
The names of our executive officers and directors and their age, title, and biography as of February 3, 2020, are set forth below:
|
Name |
|
Age |
|
Positions |
|
Ben Errez |
|
59 |
|
Chairman of the Board of Directors Executive Vice President Principal Financial Officer |
|
Fredi Nisan |
|
38 |
|
Director Chief Executive Officer |
Ben Errez, Chairman of the Board of Directors, Executive Vice President, Principal Financial Officer
Ben Errez’s (“Errez”) past positions have included positions at large companies like Microsoft and Intel. He has brought this expertise to the Company to lead the Company into the forefront of the blockchain-based financial software, services and hardware market.
Errez was one of the early managers of Microsoft in 1991. From 1991 to 2004, he served as Software Development Lead for the Microsoft International Product Group. He led the International Microsoft Office Components team (Word, Excel, PowerPoint) in design, engineering, development and successful deployment. He also served as Executive Representative of Microsoft Office and was a founding member of the Microsoft Trustworthy Computing Forum, both within the company, and internationally. Errez co-authored the first Microsoft Trustworthy Computing Paper on Reliability. At Microsoft, Mr. Errez was responsible for the development of the first Microsoft software translation Software Development Kit (“SDK”) in Hebrew, Arabic, Thai and Simplified Chinese, as well as the development of the first bidirectional extensions to Rich Text Format (“RTF”) file format, all bidirectional extensions in text converters for Microsoft Office, and contributed to the development of the international extensions to the Unicode standard to include bidirectional requirements under the World Wide Web Consortium (“W3C”).
In 2004, Errez transitioned into the world of consulting, forming the start-up IHC Capital, where he held the position of Principal Consultant from founding to the present date, through which he advises clients in the South Pacific region with market capitalizations ranging from $50M to $150M on matters such as commerce, security, reliability and privacy.
In 2017, immediately before partnering with Fredi Nisan to launch the GreenBox Business, Errez was asked to take over the Microsoft Alumni Network for the Southern California region as a regional director. Errez has been a principal of the GreenBox Business since its inception in 2017.
Fredi Nisan, Director, Chief Executive Officer
Fredi Nisan (“Nisan”)’s career in tech began during his years of service in the Israeli Defense Forces, where he served as IT Manager for all of Israel’s Northern Bases. After serving in the military, Nisan opened and operated a computer hardware store before becoming the Inventory Operations Manager for Zicon Israel in 2005, a hardware and software producer. At Zicon, he supervised inventory operations, worked on quality controls for motherboards and chips, and educated customers on software and hardware product functionality. Subsequently, Nisan moved to the United States, where he worked for One Coach, in San Diego, CA, as a business coach. One Coach specializes in customized growth solutions for small business owners, including the latest strategies for sales, internet marketing, branding and ROI. Nisan was consistently ranked as the top salesperson for small business coaching while working with One Coach.
In 2010, Nisan launched Brava POS, where he served as President until 2015. Brava POS provided point of sale (“POS”) systems for specialty retail companies. Nisan developed software to provide clients with solutions for issues ranging from inventory management to payroll to processing high volume transactions in the form of a cloud-based POS system. This system had the capability to manage multiple stores with centralized inventory and process sales without an internet connection, and offered a secure login for each employee, as well as including advanced inventory management and reporting, plus powerful functionality for its end users.
In 2016, Nisan founded Firmness, LLC. Through Firmness, Nisan created “QuickCitizen,” a software program that simplifies the onboarding process for new clients of law firms specializing in immigration issues. The QuickCitizen software significantly reduced law firm’s onboarding processing time from more than three hours to approximately fifteen minutes. Nisan has been a principal of the GreenBox Business since its August 2017 inception. In January 2018, Firmness sold QuickCitizen to GreenBox (See QuickCitizen Acquisition, included in Item 13 - Certain Relationships and Related Transactions below).
Employment Agreements
The Company has not entered into employment agreements or other compensation agreements with its executive officers. The Company’s agreement with existing employees are all “at will” agreements.
Family Relationships
The Company employs two of our CEO’s brothers, Dan and Liron Nusonivich, who are paid approximately $96,000 and $92,000 per year, respectively. There are no family relationships between any of other directors or executive officers and any other employees or directors or executive officers. The Company made charitable donations to a 501(c)(3) no-profit organizations in which Nate Errez, the son of Ben Errez, is a member, and may be seen as the primary beneficiary of the donations.
Section 16(a) Beneficial Owner Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% owners are required by certain SEC regulations to furnish us with copies of all Section 16(a) forms they file. Our two executive officers and directors have not yet filed any Forms 3, 4 or 5.
Code of Ethics
We have not previously adopted a Code of Ethics due to the small number of officers and employees and the size of our operations. It is anticipated that during 2020 we will adopt a Code of Ethics that applies to the Company’s directors and executive officers serving in any capacity, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.
Board Composition, Committees, and Independence
We are not required to have any independent members of the Board of Directors. As we do not have any board committees nor any “independent directors,” the board carries out all functions that might otherwise be delegated to board committees. of committees, and such has been made pursuant to the committee independence standards.
Involvement in Certain Legal Proceedings
Our two executive officers and directors have not been involved in any of the following events during the past ten years:
|
|
a) |
Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
|
b) |
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
|
c) |
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
|
|
|
d) |
Being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
|
|
e) |
Being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
|
|
f) |
Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Item 11 – Executive Compensation
The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our Chief Executive Officer (Principal Executive Officer) and our two most highly compensated executive officers other than the Principal Executive Officer during fiscal years 2018 and 2017 (collectively, the “Named Executive Officers”)
Summary Compensation Table
|
Name and Principal Position |
Fiscal Year |
Salary* ($) |
Bonus ($) |
Stock ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Non-Qualified Deferred Compensation ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||||||||||||||||
|
Ben Errez Chairman / EVP |
2018 | $ | 206,655 | - | - | - | - | - | - | $ | 206,655 | ||||||||||||||||||||||||
|
2017 |
$ | 40,000 | - | - | - | - | - | - | $ | 40,000 | |||||||||||||||||||||||||
|
Fredi Nisan CEO / Director |
2018 | $ | 206,157 | - | - | - | - | - | - | $ | 206,157 | ||||||||||||||||||||||||
|
2017 |
$ | 40,000 | - | - | - | - | - | - | $ | 40,000 | |||||||||||||||||||||||||
*Both Errez and Nisan were paid as consultants in 2018.
Option/Stock Appreciation Grants in Fiscal Year Ended December 31, 2018
The Company has never had an equity compensation plan.
Outstanding Equity Awards at Fiscal Year-End Table
The Company has no outstanding equity awards as of December 31, 2018.
Employment/Consulting Contracts, Termination of Employment, Change-in-Control Arrangements
The Company has not entered into employment agreements or other compensation agreements with its executive officers. All employee contracts are “at will.”
Director Compensation
Our two current directors are executive officers and majority shareholders through their shared majority ownership of PrivCo, which held approximately 85% of our issued and outstanding shares as of December 31, 2018. During 2018, we did not separately compensate our directors for their service on the Board of Directors.
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
The following table sets forth, as of , certain information as of the date hereof with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at 8880 Rio San Diego Drive, Suite 102, San Diego, California.
|
Name and Address of Owner |
Shares of Common Stock Owned Beneficially |
Percent of Class |
||||||
|
Investors |
||||||||
|
GreenBox POS LLC (1) (2) |
141,735,244 | 83.0 |
% |
|||||
|
Officers, Directors & Related Persons |
||||||||
|
Ben Errez (3) |
70,867,622 | 41.5 |
% |
|||||
|
Fredi Nisan (4) |
70,867,622 | 41.5 |
% |
|||||
|
Total |
141,735,244 | 83.0 |
% |
|||||
(1) GreenBox POS LLC (“PrivCo”) holds 141,735,244 shares of the Company’s issued and outstanding stock. PrivCo is managed by its two managing members, Ben Errez and Fredi Nisan, both of whom serve as our sole officers and directors. Errez and Nisan have equal ownership of PrivCo.
(2) A corporate investor, RB Capital Partners (“RB Cap”), has a disputed claim to approximately six million shares, and possibly more, currently held by PrivCo. The numbers in the table above assume RB Cap will not receive any of PrivCo’s shares. It is possible that the dispute will be settled, in part, by PubCo issuing six million new shares to RB Cap, however, as of February 3, 2020 a settlement between the parties has not been finalized. In a matter related to the RB Capital claim, the GreenBox Parties are negotiating a return of a previous transfer of 440,476 shares by PrivCo to a third party. Likewise, these shares are excluded from the table (see Section C. Legal Matters under Note 11 – Subsequent Events).
(3) Ben Errez is Chairman of the Board of Directors and Executive Vice President of the Company. Through his shared majority ownership of PrivCo, Errez owns 70,867,622 shares of the Company’s issued and outstanding stock. As one of two managing members of PrivCo, Errez has influence over PrivCo’s entire holding of 141,735,244 shares of the Company’s issued and outstanding stock.
(4) Fredi Nisan is a Director serving on our Board of Directors and is the Company’s Chief Executive Officer. Through his shared majority ownership of PrivCo, Nisan owns 70,867,622 shares of the Company’s issued and outstanding stock. As one of two managing members of PrivCo, Nisan has influence over PrivCo’s entire holding of 141,735,244 shares of the Company’s issued and outstanding stock. Additionally, relatives of Nisan, who may be influenced by Nisan, hold 270,000 shares of the Company’s issued and outstanding stock.
There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
Item 13 – Certain Relationships and Related Transactions and Director Independence
QuickCitizen Acquisition
On or about January 18, 2018, we purchased QuickCitizen, a client interfacing charge card platform, from Firmness, LLC (“Firmness”), an affiliated company, which was 50% owned by Fredi Nisan our CEO and co-owner of PrivCo, our controlling shareholder, for $75,000. Nisan believed there to be great long-term value in his involvement with GreenBox, therefore, Nisan and Firmness’s other owner, Marlena Chang Sharvit, agreed that Nisan would forgo any compensation contemplated or realized by the transaction, and that Sharvit would receive the entire consideration paid to Firmness.
America 2030 Capital Limited and Bentley Rothschild Capital Limited
On or about July 30, 2018, Nisan and Errez, the sole officers and directors of PubCo, and the majority owners of PrivCo, each entered into a separate Master Loan Agreement (each an "MLA"): Errez with America 2030 Capital Limited (“America 2030”) and Nisan with Bentley Rothschild Capital Limited ("Bentley"), a company affiliated with America 2030, both located in Nevis, West Indies. Each MLA was for a $5,700,000 loan, at 5.85% interest, maturing in ten years.
Per the MLA’s terms, Nisan and Errez caused PrivCo to transfer 1,600,000 PubCo shares, valued at $2,144,000 at close of trading on the day of issuance, as "Transferred Collateral" from the Control Block (not a new issuance by PubCo) to Bentley (although both contracts acknowledge receipt of 1.6 million shares, there was only was transference of 1.6 million shares). The transfer occurred on or about August 1, 2018. To date, there has been no funding under either of the MLAs.
Subsequently, both Nisan and Errez received constitutive notice, regarding arbitration of an alleged breach of their respective MLAs (see Item 3 – Legal Proceedings above).
Charitable Contributions
During 2018, PrivCo made $13,355 in charitable donations to organizations in which Nate Errez (“Nate”) is a member, including sponsorship of the San Diego Kayak Team (a 501(c)(3) no-profit organization). Nate, the son of Ben Errez, is a competitive athlete and races Surf Skis for the US National Team.
Brothers
We hired Dan Nusinovich on or about February 19, 2018 as our Development and Testing Manager. Dan is the brother of Fredi Nisan, our CEO and Director. Subsequently, we entered into a Referral Commission Agreement with Dan in November 2018, which expired November 2019, under which Dan is to receive 10% for new business resulting from his direct introductions. To date, no new business has been generated by Dan, thus Dan has not been paid under the Referral Agreement. On or about June 18, 2019, the Company issued 160,000 restricted shares to Dan, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $16,000 at closing, on the day of issuance. We pay Dan approximately $96,000 per year.
We hired Liron Nusinovich on or about July 16, 2018as our Risk Analyst. Liron is the brother of Fredi Nisan, our CEO and Director. On or about June 18, 2019, the Company issued 110,000 restricted shares to Liron, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $11,000 at closing, on the day of issuance. We pay Liron approximately $92,000 per year.
Pop N Pay, LLC
In addition to his employment with the Company, Dan Nusinovich owns 100% of Pop N Pay, LLC (“PNP”), a Delaware registered limited liability company, that he formed August 20, 2018.
During the late summer of 2018, when both market opportunity and demand necessitated opening additional bank accounts to support our payment processing products and services, we turned to PNP to open new accounts, as a trustee, on our behalf. For his assistance, Dan, through his ownership of PNP, received approximately $3,000 (in addition to Dan’s salary) in early 2019, for services rendered in the fourth quarter of 2018.
Inadvertent Share Transfers
On or about December 27, 2018 and January 4, 2019, 1,085,000 shares, worth approximately $325,500 as of the close of trading on the days of issuance, were inadvertently transferred from PrivCo instead of being issued by the Company. Subsequently, on or about August 14, 2019, the Company issued 1,085,000 shares to PrivCo, as repayment of the shares that had been previously inadvertently transferred.
Item 14 – Principal Accounting Fees and Services
The aggregate fees billed for the two most recently completed fiscal periods ended December 31, 2018 and December 31, 2017 for professional services rendered by our independent registered public accounting firm auditors for the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by independent accountants in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
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Year Ended December 31, |
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2018 |
2017 |
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Audit Fees (audit for original filings) |
$ | 12,000 | $ | 14,000 | ||||
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Audit Fees (audit for amended filings) |
$ | 34,560 | $ | 34,600 | ||||
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Tax Fees |
$ | 20,750 | $ | 0 | ||||
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Total |
$ | 67,310 | $ | 48,600 | ||||
In the above table, Audit Fees are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year. “Tax fees” are fees billed for professional services rendered for tax compliance, tax advice and tax planning.
Audit Fees. The aggregate fees billed collectively by, including Pinnacle Accountancy Group of Utah, PLLC (a DBA of Heaton & Co., PLLC) (“Pinnacle”), for professional services rendered for the audit of our annual financial statements for the years ended December 31, 2018 and 2017, including review of our interim financial statements were $12,000 and $14,400, respectively. The aggregate fees billed collectively by BF Borgers CPA PC (“Borgers”), for professional services rendered for the audit of our amended annual financial statements for the years ended December 31, 2018 and 2017, including review of our interim amended financial statements were $34,560 and $34,600, respectively.
Tax and Other Fees. We incurred fees to Hall & Company Certified Public Accounts, Inc. of $20,750 and for tax provision and tax submissions for the fiscal years ended December 31, 2018, excluding refiling costs. The Company will be refiling its 2018 tax reports.
PART IV
Item 15 – Exhibits and Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K:
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a) |
Financial Statements: |
Our financial statements and the Report of Independent Registered Public Accounting Firm are included herein on page F-1.
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b) |
Financial Statement Schedules: |
The financial statement schedules are omitted as they are either not applicable or the information required is presented in the financial statements and notes thereto on page F-6.
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c) |
Exhibits: |
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10.3 |
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8-K |
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10.1 |
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11/14/2018 |
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10.4 |
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Asset Purchase Agreement, dated January 4, 2020, by and between GreenBox POS and GreenBox POS LLC |
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8-K |
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10.1 |
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01/07/2020 |
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10.5 |
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21.1 |
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Subsidiaries of the Registrant - None. |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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XBRL Instance Document |
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XBRL Taxonomy Extension Schema Document |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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GreenBox POS |
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Date: February 6, 2020 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
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Chief Executive Officer and Director |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
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Date: February 6, 2020 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
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Chief Executive Officer and Director |
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(Principal Executive Officer) |
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| Date: February 6, 2020 | By: | /s/ Ben Errez | |
| Ben Errez | |||
| Chairman of the Board and Executive Vice President (Principal Financial Officer and Principal Accounting Officer) | |||
GREENBOX POS
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of GreenBox POS
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GreenBox POS as of December 31, 2018 and 2017, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company's auditor since 2019
Lakewood, CO
February 3, 2020
GREENBOX POS
AUDITED CONSOLIDATED BALANCE SHEETS
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Year Ended December 31, |
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2018 |
2017 |
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ASSETS |
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Current Assets |
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Cash & Cash Equivalents |
$ | 45,854 | $ | 83,353 | ||||
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Restricted Cash & Trust Accounts |
239,124 | - | ||||||
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Accounts Receivable |
49,998 | - | ||||||
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Cash Due from Gateways |
630,699 | - | ||||||
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Other Current Assets |
37,232 | 3,339 | ||||||
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Total Current Assets |
$ | 1,002,907 | $ | 86,692 | ||||
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Total Fixed Assets (net) |
30,715 | 6,069 | ||||||
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Total Assets |
$ | 1,033,622 | $ | 92,761 | ||||
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LIABILITIES AND EQUITY |
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Current Liabilities |
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Accounts Payable |
127,029 | 31,980 | ||||||
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Payment Processing Liabilities (net) |
865,086 | - | ||||||
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Short Term Notes |
846,500 | - | ||||||
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Other Current Liabilities |
39,272 | - | ||||||
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Total Current Liabilities |
$ | 1,877,887 | $ | 31,980 | ||||
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Long-Term Liabilities |
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Long Term Notes |
75,000 | - | ||||||
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Total Long Term Liabilities |
75,000 | - | ||||||
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Total Liabilities |
$ | 1,952,887 | $ | 31,980 | ||||
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EQUITY |
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Preferred Stock: 5,000,000 shares authorized; zero shares issued and outstanding |
- | - | ||||||
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Common Stock: $0.001 par value, 495,000,000 shares authorized, 166,390,363 and 14,445,363 shares issued and outstanding at December 31, 2018 and December 31, 2017 |
166,390 | 14,445 | ||||||
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Common Stock Issuable |
1,000 | - | ||||||
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Paid in Capital |
945,940 | 185,655 | ||||||
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Retained Earnings |
(2,032,595 | ) | (139,319 | ) | ||||
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Total Equity (Deficit) |
$ | (919,265 | ) | $ | 60,781 | |||
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TOTAL LIABILITIES AND EQUITY |
$ | 1,033,622 | $ | 92,761 | ||||
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
AUDITED STATEMENTS OF CONSOLIDATED OPERATIONS
(audited)
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Year Ended December 31, |
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2018 |
2017 |
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INCOME |
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Payment Processing Fees (net) |
$ | 393,665 | $ | - | ||||
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Licensing Revenue |
450,000 | - | ||||||
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Equipment Sales |
67,143 | - | ||||||
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Total Income |
$ | 910,808 | $ | - | ||||
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Cost of Goods Sold |
- | |||||||
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Payment Processing |
612,037 | - | ||||||
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Equipment |
58,502 | - | ||||||
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Total Cost of Goods Sold |
670,539 | - | ||||||
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Gross Profit |
$ | 240,269 | $ | - | ||||
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Expenses |
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General & Administration |
740,933 | 9,259 | ||||||
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Finance Costs |
137,000 | - | ||||||
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Legal & Professional Services |
767,867 | 83,621 | ||||||
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R&D Expense |
376,871 | 46,229 | ||||||
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Total Expenses |
2,022,672 | 139,110 | ||||||
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Net Operating Income |
$ | (1,782,403 | ) | $ | (139,110 | ) | ||
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Other Expense / (Income) |
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Asset Impairments |
75,000 | - | ||||||
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Depreciation |
6,608 | 209 | ||||||
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Interest Expense |
30,067 | - | ||||||
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Other Expense / (Income) |
(802 | ) | - | |||||
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Total Other Expenses |
110,873 | 209 | ||||||
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Net Other Income |
(110,873 | ) | (209 | ) | ||||
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Net Income (loss) |
$ | (1,893,276 | ) | $ | (139,319 | ) | ||
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Net income (loss) per common share |
(0.02 | ) | (0.01 | ) | ||||
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Weighted average common shares outstanding |
111,037,712 | 14,445,363 | ||||||
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
AUDITED STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDERS’ EQUITY
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Common Stock |
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Shares |
Amount |
To be Issued |
Amount |
Retained Earnings |
Paid In Capital |
Total Equity |
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Balance, December 31, 2017 |
14,445,363 | 14,445 | (139,319 | ) | 185,655 | 60,781 | ||||||||||||||||||||||
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Conversion of Line of Credit |
144,445,000 | 144,445 | (144,445 | ) | - | |||||||||||||||||||||||
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Net Paid in Capital |
501,114 | 501,114 | ||||||||||||||||||||||||||
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Shares Issuances |
7,500,000 | 7,500 | 7,500 | |||||||||||||||||||||||||
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Shares to be Issued |
1,000,000 | 1,000 | 149,000 | 150,000 | ||||||||||||||||||||||||
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Gain on Purchase of GreenBox Business |
254,616 | 254,616 | ||||||||||||||||||||||||||
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Retained Earnings (Loss) |
(1,893,276 | ) | (1,893,276 | ) | ||||||||||||||||||||||||
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Balance, December 31, 2018 |
166,390,363 | 166,390 | 1,000,000 | 1,000 | (2,032,595 | ) | 945,940 | (919,265 | ) | |||||||||||||||||||
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
AUDITED STATEMENT OF CONSOLIDATED CASH FLOWS
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Year Ended December 31, |
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2018 |
2017 |
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OPERATING ACTIVITIES |
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Net Income |
$ | (1,893,276 | ) | $ | (139,319 | ) | ||
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Adjustments to reconcile Net Income to Net Cash provided by operations: |
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Accounts Receivable (A/R) |
(49,998 | ) | (798 | ) | ||||
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Accounts Payable (A/P) |
95,049 | 31,980 | ||||||
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Cash Due from Gateways |
(630,699 | ) | - | |||||
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Payment Processing Liabilities (net) |
865,086 | - | ||||||
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Other Current Assets |
(33,893 | ) | (2,541 | ) | ||||
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Other Current Liabilities |
9,401 | - | ||||||
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Accrued Interest & Depreciation |
36,479 | 209 | ||||||
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Total Adjustments to reconcile Net Income to Net Cash provided by operations: |
$ | 291,425 | $ | 28,850 | ||||
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Net cash provided by operating activities |
$ | (1,601,851 | ) | $ | (110,469 | ) | ||
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INVESTING ACTIVITIES |
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Fixed Assets |
(31,254 | ) | (6,278 | ) | ||||
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Net cash provided by investing activities |
$ | (31,254 | ) | $ | (6,278 | ) | ||
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FINANCING ACTIVITIES |
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Notes Payable - less than 1 Yr |
921,500 | - | ||||||
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Cash Paid for Stock |
152,945 | 14,445 | ||||||
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Shareholder Contributions |
460,285 | 485,655 | ||||||
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Payment Due for Equity |
300,000 | (300,000 | ) | |||||
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Net cash provided by financing activities |
$ | 1,834,730 | $ | 200,100 | ||||
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Net cash increase (decrease) for period |
$ | 201,624 | $ | 83,353 | ||||
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Cash at beginning of period |
83,353 | - | ||||||
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Cash at end of period |
$ | 284,978 | $ | 83,353 | ||||
The accompanying notes are an integral part of these audited financial statements.
GREENBOX POS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
GreenBox POS (the “Company” or “PubCo”) was formerly known as ASAP Expo, Inc (“ASAP”), which was incorporated April 10, 2007 under the laws of the State of Nevada.
On January 4, 2020, 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.”
New Name
On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018.
Unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS.
Unless the context otherwise requires, all references to “PrivCo” or the “Private Company” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.
Significant Transactions
On March 23, 2018, the then controlling shareholder and then sole officer and sole director of PubCo, Frank Yuan, along with his wife, Vicky PMW Yuan, entered into a Purchase Agreement with PrivCo (the “SPA”).
Pursuant to the SPA, Frank Yuan agreed to convert a portion of a line of credit that he had previously issued to PubCo, in exchange for 144,445,000 shares of PubCo’s common stock, par value $0.001 per share (the “Control Block”). The Yuans agreed to sell the Control Block to PrivCo for a consideration of $500,000: $250,000 in cash and $250,000 in PubCo shares to be issued within 30 days of the completion of the SPA (the “Shares Due”), which were subsequently paid by PrivCo.
On April 12, 2018, all business being conducted at that time by PubCo (the “ASAP Business”) was transferred from PubCo to ASAP Property Holdings Inc., a company owned and operated by Frank Yuan (“Holdings”). In consideration for the ASAP Business, Holdings assumed all liabilities related to the ASAP Business.
On April 12, 2018, following the SPA being entered into and the ASAP Business being transferred to Holdings, Errez and Nisan were the sole acting officers and sole acting directors of PubCo.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018 PubCo assumed nearly all PrivCo’s liabilities (the “Assumed Liabilities”) that had been incurred in the normal course of GreenBox Business (collectively, the “GreenBox Acquisition”).
The value of the GreenBox Business assets on April 12, 2018 was $843,694, which excluded the Control Shares, which remained with PrivCo. The value of the Assumed Liabilities on April 12 was $589,078, which excluded $185,000 of a $300,000 convertible promissory note issued by PrivCo to RB Capital Partners. The difference between assets and liabilities was $254,616, which PubCo booked as a “Gain on Bargain Purchase.” However, because we are using Reverse Acquisition accounting, we recorded the gain as Paid in Capital.
Reverse Acquisition Reporting Requirements
In accordance with SEC Financial Reporting Manual, Topic 12 - Reverse Acquisitions and Reverse Recapitalizations, Section 12200 - Reporting Issues, Sub-section 12210.2 - Reverse Acquisition with a domestic registrant that is not a shell company, PubCo is required to file two years of audited Financials for PrivCo. However, since PrivCo was formed in August 2017, only the period from August 2017 through December 31, 2018 was audited. PubCo is also required to file on a combined basis with PrivCo starting with PubCo’s 10-Q filing for the period ending June 30, 2018.
Given these considerations, PubCo:
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a) |
Executed the Agreement memorializing the Verbal Agreement, and filed a Form 8-K on January 7, 2020 (the “January 8-K”) to disclose the Agreement and to file audited financials for PrivCo for the year ending December 31, 2017; |
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b) |
is restating PubCo’s 2018 financials, to include amended Form 10-Qs for the periods ending June 30 and September 30, and an amended Form 10-K for the year ending December 31, 2018; and |
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c) |
is proceeding to file Form 10-Qs for 2019, for the periods ended March 31, June 30 and September 30, and file Form 10-K for the year ending December 31, 2019; which we ideally wish to accomplish upon or prior to March 30, 2020. |
Our Business
GreenBox POS is a tech company formed with the intent of developing, marketing and selling innovative blockchain-based payment solutions, which we believe will cause favorable disruption in the payment solutions marketplace. Our core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. Our proprietary, blockchain-based 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.
We’ve been awarded five provisional patents for our technology, each directly related to our core business focus. Subsequently, we filed non-provisional patent application 16/212,627 on December 6, 2018, under which we claimed the benefit of the five provisional patents.
In March 2018, we formally announced DEL, PAY, QuickCard, POS and Loopz to an international audience, during a presentation at the Israel International Innovation Expo, in Tijuana, Mexico.
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a) |
DEL is our Delivery App, which provides APIs to POS and PAY. |
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b) |
PAY is our Payment App, which provides financial APIs to all our other software components. |
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c) |
QuickCard is QuickCard Payment System, which is a comprehensive physical and virtual cash management system, including software that facilitates deposits, cash and e-wallet management. |
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d) |
POS Solutions is our complete end-to-end Point of Sale solution, comprising both software and hardware. |
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e) |
Loopz is Loopz Software Solution, which is a mobile delivery service operations management solution with automated dispatch functionality. |
In March 2018, our QuickCard Payment System was comprised of PAY, proprietary kiosks and e-wallet management.
In June 2018, we commenced a soft launch of our system, onboarded our initial customers and began generating revenue.
In July 2018, we introduced TrustGateway, a new fraud prevention component for our QuickCard payment system.
Throughout the remainder of 2018, we continued to build, expand and improve our system, which allowed for an escalation in merchants using our system, as well as increasing revenues.
BASIS OF PRESENTATION
The financial statements include the combined accounts of PubCo and PrivCo. All amounts are presented in U.S. Dollars unless otherwise stated. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”).
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with a maturity of three months or less when purchased. The Company has cash equivalents of $45,854, excluding cash held for settlement liabilities, and $83,353 as of December 31, 2018 and December 31, 2017, respectively.
Going Concern
As of December 31, 2018, the Company had cash and cash equivalents of $45,854, has incurred a net loss of $1,893,276 for the year ending December 31, 2018, and has accumulated a deficit of $2,032,595. During the year ended December 31, 2018, the Company recorded $910,808 in revenues. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Additionally, as the GreenBox ecosystem grows, substantially larger volumes of working capital financing will be required to support our platform’s growth.
The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Accordingly, the accompanying financial statements have been prepared in conformity with GAAP, which contemplate our continuation as a going concern, and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Business Combination
The Company accounts for all business acquisitions at fair value and expenses acquisition costs as they are incurred. Any identifiable assets acquired, and liabilities assumed, are recognized and measured at their respective fair values on the acquisition date. If information about facts and circumstances existing as of the acquisition date is incomplete at the end of the reporting period in which a business acquisition occurs, the Company will report provisional amounts for the items for which the accounting is incomplete. The measurement period ends once the Company receives sufficient information to finalize the fair values; however, the period will not exceed one year from the acquisition date.
Control
The Company accounts for Control per ASC 805-10-25-7, which states “The date on which the acquirer obtains control of the acquiree generally is the date on which the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree — the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date”
Consideration
The Company accounts for Consideration per ASC 805-10-25-20, which states “The acquirer shall recognize as part of applying the acquisition method only the consideration transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for the acquiree.”
Allocation of Purchase Price
The Company accounts for Allocation of Purchase Price per ASC 805-20-30-1, which states “The acquirer shall measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their acquisition date fair values.”
Bargain Purchase
In accordance with ASC 805, there are circumstances where the acquirer’s interest in the acquiree (i.e., the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree and the fair value of any previously held equity interest in the acquiree) is less than the fair value (or other recognized value for the exceptions to fair value recognition) of the identifiable net assets acquired. Such a transaction results in an economic gain to the acquiring entity. Any such gain is recognized in earnings only after a thorough reassessment of all elements of the accounting for the acquisition.
Fair Value Measurements and Disclosures
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
|
Level 1 |
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
Level 2 |
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|
Level 3 |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Convertible Promissory Notes
The Company accounts for convertible promissory notes in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company evaluates embedded conversion features within convertible debt to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in the Income Statement. If the conversion feature does not require recognition of a bifurcated derivative, the convertible debt instrument is evaluated for consideration of any beneficial conversion feature (“BCF”) requiring separate recognition. When the Company records a BCF, the intrinsic value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument with an offset to additional paid-in capital and amortized to interest expense over the life of the debt.
Leases
Lease for office space at our corporate headquarters is classified as an operating lease in accordance with ASC 840, Leases. Rent expense is recognized on a straight-line basis over the terms of the leases and, accordingly, we record the cumulative difference between cash rent payments and the recognition of rent expense as a deferred rent liability. When an operating lease includes lease incentives, such as a rent abatements or leasehold improvement allowances, or requires fixed escalations of the minimum lease payments, the aggregate rental expense, including such incentives or increases, is recognized on a straight-line basis over the term of the lease.
Aggregate future minimum annual payments for our leases as of December 31, 2018, are as follows:
|
Year |
Operating Leases |
|||
|
2019 |
130,176 | |||
|
2020 |
135,562 | |||
|
2021 |
139,629 | |||
|
Total minimum rentals |
$ | 405,367 | ||
Fixed Assets
Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, which range from three to eight years. Leasehold improvements are amortized over the shorter of the useful life of the related assets or the lease term. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period.
Long-Lived Asset Impairments
The Company reviews long-lived assets, including property and equipment and intangible assets, for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, and at least annually. The Company considers assets to be impaired and writes them down to estimated fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows.
Revenue Recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which 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.
Research and Development Costs
Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits including expenses associated with research and development personnel, contract services and costs of supplies.
Income Taxes
Federal and state income taxes are computed at currently enacted tax rates less tax credits using the asset and liability method in accordance with ASC Topic 740, “Income Taxes.” Deferred taxes are adjusted both for items that do not have tax consequences and for the cumulative effect of any changes in tax rates from those previously used to determine deferred tax assets or liabilities. Tax provisions include amounts that are currently payable, changes in deferred tax assets and liabilities that arise because of temporary differences between the timing of when items of income and expense are recognized for financial reporting and income tax purposes, changes in the recognition of tax positions and any changes in the valuation allowance caused by a change in judgment about the realizability of the related deferred tax assets. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
The Company uses a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the condensed consolidated financial statements. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the condensed consolidated financial statements.
Earnings (Loss) per Share
A basic earnings per share is computed by dividing net income to common stockholders by the weighted average number of shares outstanding for the year. Dilutive earnings per share include the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive. The Company's diluted earnings/loss per share is the same as the basic earnings/loss per share for the year ended December 31, 2018 and 2017, as there are no potential shares outstanding that would have a dilutive effect.
Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. For the three and six months ended June 30, 2018, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In July 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815) (“ASU 2017-11”). ASU 2017-11 changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. The amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when triggered with the effect treated as a dividend and as a reduction of income available to common shareholders in basic EPS. The new standard is effective for nonpublic business entities fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. The new standard is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this accounting standard update.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize “right of use” assets and liabilities for all leases with lease terms of more than 12 months. The ASU requires additional quantitative and qualitative financial statement footnote disclosures about the leases, significant judgments made in accounting for those leases and amounts recognized in the financial statements about those leases. The effective date will be fiscal periods beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of this accounting standard update on its financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 2 – RESTATEMENT
On April 12, 2018, pursuant to a verbal agreement (the “Verbal Agreement”), PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”).
From April 12, 2018 through January 4, 2020 (the “In Between Period”), because there was ambiguity regarding the validity of the Verbal Agreement, PubCo filed required quarterly and annual reports with the Securities and Exchange Commission as if there had not been a Reverse Acquisition. During the In Between Period, PrivCo continued to operate as if it still owned the GreenBox Business, which included maintaining records of GreenBox Business financial transactions on PrivCo’s accounting software, and entering into contracts and agreements as PrivCo, while PubCo paid all expenses, including expenses related to PrivCo contracts entered into prior to April 12, 2018 and after April 12, 2018, as well as expenses incurred as a result of litigation resulting from disagreements between PrivCo and other parties. During the In Between Period, PubCo represented itself in press releases, as being the owner/operator of the GreenBox Business. Additionally, from April 12, 2018 through approximately December 31, 2018, PubCo and PrivCo shared control of PrivCo’s bank accounts, and on approximately January 1, 2019, PubCo assumed control of PrivCo’s bank accounts.
By virtue of the payment of PrivCo’s litigation expenses by PubCo, by virtue of PubCo representing itself in press releases, as being the owner/operator of the GreenBox Business, and by virtue of the shared control of PrivCo’s bank accounts starting on April 12, 2018, both PubCo and PrivCo concluded that the Verbal Agreement was valid and the GreenBox Business asset acquisition took place on April 12, 2018.
On January 4, 2020, PubCo and PrivCo entered into an Asset Purchase Agreement (the “Agreement”), to memorialize the Verbal Agreement. For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
Because PubCo previously filed quarterly and annual reports for 2018 with the Securities and Exchange Commission as if there had not been a Reverse Acquisition, PubCo was required to file amended Form 10-Qs for the periods ending June 30, 2018 and September 30, 2018, and an amended Form 10-K for the year ending December 31, 2018 (collectively the “Amended Reports”). These Amended Reports differ substantially from previously filed reports in that PubCo’s financials are presented on a combined basis with PrivCo. Additionally, the previous business operations of PubCo prior to April 12, 2018 are disregarded.
We are therefore filing this amended 10-K (“Amended 10-K”) to the Company’s audited financial statements for the year ended December 31, 2018, contained in the Company’s Annual Report on Form 10-K, originally filed with the SEC on April 16, 2019 (the “2018 Report”) to restate our financial statements and revise related disclosures. As a substantial part of the Amended 10-K is amended and/or restated, we have presented the entire text of the 2018 Report, as amended and/or restated by this Amended 10-K. Readers should therefore read and rely only on this Amended 10-K in lieu of the original 2018 Report.
NOTE 3 – REVERSE ACQUISITION
On January 4, 2020, PubCo and PrivCo entered into the Agreement to memorialize the Verbal Agreement.
On April 12, 2018, pursuant to the Verbal Agreement, PubCo acquired PrivCo’s blockchain gateway and payment system business, point of sale system business, delivery business and kiosk business, and bank and merchant accounts, as well as all intellectual property related thereto (the “GreenBox Business”). As consideration for the GreenBox Business, on April 12, 2018, PubCo assumed PrivCo’s liabilities that had been incurred in the normal course of the GreenBox Business (collectively, the “GreenBox Acquisition”).
For accounting and reporting purposes, PubCo deemed the GreenBox Acquisition a “Reverse Acquisition” with PrivCo designated the “accounting acquirer” and PubCo designated the “accounting acquiree.”
The value of the assets acquired on April 12, 2018 was $843,694. The value of PrivCo’s assumed liabilities on April 12 was $589,078. Exclusions from the Agreement included shares in PubCo held by PrivCo, which remain a PrivCo asset, and $185,000 of a $300,000 convertible promissory note issued by PrivCo.
The following is the purchase price allocation on April 12, 2018:
|
At April 12, 2018 |
||||
|
Cash and Cash Equivalents |
752,393 | |||
|
Customer Accounts |
83 | |||
|
Inventory |
56,988 | |||
|
Security Deposits |
3,990 | |||
|
Fixed Assets, net |
17,697 | |||
|
Prepaid Expense |
12,543 | |||
|
Assets Acquired |
$ | 843,694 | ||
|
Total Consideration – Liabilities Assumed |
$ | 589,078 | ||
|
Gain on Bargain Purchase |
254,616 | |||
|
Total Consideration and Gain on Bargain Purchase |
$ | 843,694 | ||
This acquisition resulted in a “Gain on Bargain Purchase” for PubCo because the fair value of assets we acquired exceeded the total of the fair value of consideration we paid by $254,616. However, as we deemed the acquisition a Reverse Acquisition for accounting purposes, the $254,616 gain was rerecorded and presented as Paid in Capital within our Consolidated Balance Sheet.
The operating results of the GreenBox Business for the period from April 12, 2018 going forward have been included in the Company’s Consolidated Statements of Operations. The Company did not incur a significant amount in transaction costs in connection with the acquisition, but any and all costs were expensed as incurred and are included within the Consolidated Statement of Operations.
NOTE 4 – FIXED ASSETS
Fixed assets consist of the following:
|
December 31, |
December 31, |
|||||||
|
2018 |
2017 |
|||||||
|
Computers |
$ | 15,285 | ||||||
|
Furniture |
4,919 | |||||||
|
Kiosks |
12,750 | 6,278 | ||||||
|
Vehicles |
4,578 | |||||||
|
Less: Accumulated Depreciation |
(6,817 | ) | (209 | ) | ||||
|
Total Fixed Assets (net) |
$ | 30,715 | $ | 6,069 | ||||
NOTE 5 – EQUITY TRANSACTIONS
RB Cap
On or about January 10, 2018, PrivCo signed a Subscription and Stock Purchase Agreement (“RB Cap SPA”) with RB Capital Partners, Inc. (“RB Cap”), wherein PrivCo agreed to sell RB Cap 4% of PrivCo, non-dilutive, for $1,000,000, payable in four installments due January 15, 2018, February 15, 2018, March 15, 2018 and April 15, 2018. By mid-April, we had received all payments. This transaction implied a post money valuation of $25,000,000. As of February 3, 2020, RB Cap remains a minority membership interest holder in PrivCo, with a claim to approximately six million PubCo shares, however the implications of this ownership and RB Cap’s claim to PubCo shares are in dispute, and are the subject of a lawsuit with RB Cap (see C. Legal Matters under Note 12 – Subsequent Events below).
MTrac
On or about February 1, 2018 we signed a joint venture agreement (“MTrac JV”) with MTrac Tech Corporation (“MTrac”) a wholly owned subsidiary of Global Payout, Inc. (OTC:GOHE), in which, in addition to defining terms for business collaboration, MTrac was to acquire 4% of our membership interests for $1,000,000, representing a post-money valuation for the Company of $25,000,000, to be received by us on or before May 15, 2018. On or about June 12, 2018, we agreed with MTrac to nullify MTrac’s equity participation, cancel the MTrac JV, and to instead, enter into a subsequent licensing agreement (see Note 11 – MTrac below).
Bucciero
On October 10, 2017, we entered into a Memorandum of Understanding” (“MOU”) with Matthew Bucciero, Kellsi Booth, Chris Booth and Partners (“Bucciero”), wherein we agreed to sell Bucciero up to 22.5% of the Company, for cash and consideration of $1,250,000, which comprised cash payments due totaling $500,000 for 10%, payments in kind to include licenses and permits valued at $500,000 for 10%, and the remaining 2.5% for anticipated business development activities to be carried out by Bucciero. As of the execution of the MOU, Bucciero became a managing member of the Company on an “as if” ownership basis, assuming ownership of 10% of the Company effective with the execution of the MOU. We received capital contributions from Bucciero of $100,000 on October 10, 2017 and another $100,000 on December 22, 2017. On December 31, 2017, Bucciero held $500,000 in equity: $200,000 from capital contributions, and $300,000 on an “as if paid for” basis, with an expectation of receiving payment from Bucciero of $300,000. This remaining cash balance of $300,000 is stated in the Equity section of our Balance Sheet as a Receivable for Equity Purchase.
On or about April 5, 2018, we agreed to amicably part ways with Bucciero. Under the terms of a Settlement Agreement and Mutual Release, we returned the $200,000 contributed capital, cancelled the $300,000 balance due to us, and paid Bucciero $100,000 as a breakup fee. In return, Bucciero relinquished any and all claims to ownership of any GreenBox equity, and no longer serves as a managing member.
NOTE 6 – DEBT ISSUANCES
Power Up Lending Ltd
On August 6, 2018, the we entered into a Securities Purchase Agreement with Power Up Lending Up Ltd (“PULG”) under which PULG agreed to issue notes of up to $1,500,000 in aggregate over twelve months at the discretion of PULG (the “PULG SPA”). The first note under the PULG SPA, for $253,000 was issued simultaneous with the execution of the PULG SPA.
PULG $253K Note
On August 6, 2018, the Company issued a convertible promissory note for $253,000 to PULG, with a net $250,000 received by the Company. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due August 6, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the Company’s common stock at a discounted rate of 65%. The Company incurred $3,000 in financing fees associated with the loan.
As of December 31, 2018, the principal balance of note was $253,000, and accrued interest on the note was $9,981.37. The Company chose to repay the note on January 30, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $93,333, which we recorded as interest expense.
PULG $53K Note
On September 27, 2018, the Company issued a convertible promissory note for $53,000 to PULG, with a net $50,000 received by the Company. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due September 27, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the Company’s common stock at a discounted rate of 65%. The Company incurred $3,000 in financing fees associated with the loan.
As of December 31, 2018, the principal balance of note was $53,000, and accrued interest on the note was $1,321. The Company chose to repay the note on March 13, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $19,378, which we recorded as interest expense.
PULG $83K Note
On December 13, 2018, PubCo issued a convertible promissory note for $83,000 to PULG, with a net $80,000 received by PubCo. The note incurs interest at 10% per year and the outstanding principal and accrued interest are due December 13, 2019. The note includes a conversion feature where, beginning 180 days after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and accrued interest balance into shares of the PubCo’s common stock at a discounted rate of 65%. PubCo incurred $3,000 in financing fees associated with the loan.
As of December 31, 2018, the principal balance of note was $83,000, and accrued interest on the note was $387. The Company chose to repay the note on March 13, 2019, at which time it repaid the principal, accrued interest and an early repayment penalty of $17,005, which we recorded as interest expense.
RB Capital Partners
RB Cap $300K Note
On or about March 15, 2018, PrivCo issued a twelve-month, $300,000 convertible promissory note to RB Capital Partners (“RB Cap”), with an interest rate of 12% per annum (“RB Cap 300K Note”). The note’s convertibility feature commenced six months after the note’s issuance, at a conversion rate of $0.001 per share of the Company’s common stock. Under the terms of the Agreement which memorialized the Verbal Agreement, we assumed the note, however, PrivCo agreed to pay $185,000 of the principal balance due on this note. On or about June 8, 2018, PrivCo transferred 440,476 restricted shares of Common Stock from the Control Block, with a market value of $185,000, to a purported designee of RB Cap, as a payment of principal of the note. Subsequently, RB Cap disputed the reduction in principal and subsequently, and we, along with PrivCo, disputed whether these shares should have been issued by PrivCo, and sought their return. On or about October 23, 2018, we issued 7,500,000 newly issued, restricted shares of our stock to RB Cap, in repayment of $7,500 of the RB Cap 300K Note. Subsequently, we disputed whether these shares should have been issued to RB Cap. As of December 31, 2018, our recorded principal balance for the note was $107,500 and accrued interest on the note was $15,880. On or about March 13, 2019, we issued a final cash payment towards the RB Cap 300K Note of approximately $126,092 (the “Payoff Funds”). However, RB Cap contested the amount of the Payoff Funds. (See Section C. Legal Matters below, under Note 12 – Subsequent Events)
RB Cap $200K Note
On November 26, 2018, PubCo issued a convertible promissory note for $200,000 to RB Cap (the “RB Cap $200K Note”). The note incurs interest at 12% per year and the outstanding principal and accrued interest are due November 26, 2019. RB Cap may elect to convert the note at any time from six months from the date of issuance at a fixed price per share of $4.50. This note became part of a claim/counter claim suit with RB Capital (See Section C. Legal Matters below.) As of December 31, 2018, the principal balance of note was $200,000, and accrued interest on the note was $2,301.
Saskatchwan Ltd
Saskatchewan Ltd $150K Note
On December 27, 2018, PubCo issued a convertible promissory note for $150,000 to Saskatchewan Ltd (“Sask”) (the “Sask Note”). The note incurs interest at 12% per year, paid quarterly, in advance. The outstanding principal and any remaining interest are due December 12, 2019. The note includes a conversion feature where, beginning six months after the issuance date, at which time the lender may convert all or a portion of the outstanding principal and any accrued interest balance into shares of PubCo’s common stock at a discounted rate of 50%.
As of December 31, 2018, the principal balance of the note was $150,000, with no accrued interest due. Sask issued a notice of conversion to the Company on June 27, 2019 to convert the outstanding principal into 2,307,692 shares of the Company’s stock. The shares were subsequently issued to Sask on August 14, 2019.
NOTE 7 – RELATED PARTY TRANSACTIONS
QuickCitizen Acquisition
On or about January 18, 2018, we purchased QuickCitizen, a client interfacing charge card platform, from Firmness, LLC (“Firmness”), an affiliated company, which was 50% owned by Fredi Nisan our CEO and co-owner of PrivCo, our controlling shareholder, for $75,000. Nisan believed there to be great long-term value in his involvement with GreenBox, therefore, Nisan and Firmness’s other owner, Marlena Chang Sharvit, agreed that Nisan would forgo any compensation contemplated or realized by the transaction, and that Sharvit would receive the entire consideration paid to Firmness.
Brothers
We hired Dan Nusinovich on or about February 19, 2018 as our Development and Testing Manager. Dan is the brother of Fredi Nisan, our CEO and Director. Subsequently, we entered into a Referral Commission Agreement with Dan in November 2018, which expired November 2019, under which Dan is to receive 10% for new business resulting from his direct introductions. To date, no new business has been generated by Dan, thus Dan has not been paid under the Referral Agreement. On or about June 18, 2019, the Company issued 160,000 restricted shares to Dan, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $16,000 at closing, on the day of issuance. We currently pay Dan approximately $96,000 per year.
We hired Liron Nusinovich on or about July 16, 2018 as our Risk Analyst. Liron is the brother of Fredi Nisan, our CEO and Director. On or about June 18, 2019, the Company issued 110,000 restricted shares to Liron, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $11,000 at closing, on the day of issuance. We currently pay Liron approximately $92,000 per year.
Pop N Pay, LLC
In addition to his employment with the Company, Dan Nusinovich owns 100% of Pop N Pay, LLC (“PNP”), a Delaware registered limited liability company, that he formed August 20, 2018.
During the late summer of 2018, when both market opportunity and demand necessitated opening additional bank accounts to support our payment processing products and services, we turned to PNP to open new accounts, as a trustee, on our behalf. For his assistance, Dan, through his ownership of PNP, received approximately $3,000 (in addition to Dan’s salary) in early 2019, for services rendered in the fourth quarter of 2018.
IPX Referral Payments, LLC
Pouya Moghavem, our employee since August 1, 2018, owns 25% of IPX Referral Payments, LLC (“IPX”). In addition to the $5,000 monthly salary we pay Moghavem, we entered into a Referral Agreement with IPX wherein we agreed to compensate IPX for referrals, which subsequently become our customers. During 2018, IPX did not earn any commissions.
Additionally, in or about October 2018, IPX provided GreenBox with a merchant trust account in Mexico through Affinitas Bank, one of the Gateways that process payment transactions on our behalf. We did not pay IPX for this service, however, IPX reported that Affinitas paid IPX approximately $1,830.
RB Capital
Because PrivCo agreed to sell RB Cap 4% of PrivCo in January 2018, which currently purportedly gives RB Cap a claim to approximately six million PubCo shares, RB Cap is deemed an affiliated Party. In March 2018, PrivCo issued a $300,000 convertible promissory note to RB Cap, the balance of which PubCo assumed when we acquired the GreenBox Business from PrivCo. On November 26, 2018, we issued a $200,000 convertible promissory to RB Cap. Subsequently, RB Cap and GreenBox disputed the implications of the share purchase and promissory notes. The implications of this ownership and RB Cap’s claim to PubCo shares are in dispute, which became the subject of a lawsuit with RB Cap (see Legal Matters under Subsequent Events).
America 2030 Capital Limited and Bentley Rothschild Capital Limited
On or about July 30, 2018, Nisan and Errez, the sole officers and directors of PubCo, and the majority owners of PrivCo, each entered into a separate Master Loan Agreement (each an "MLA"): Errez with America 2030 Capital Limited (“America 2030”) and Nisan with Bentley Rothschild Capital Limited ("Bentley"), a company affiliated with America 2030, both located in Nevis, West Indies. Each MLA was for a $5,700,000 loan, at 5.85% interest, maturing in ten years.
Per the MLA’s terms, Nisan and Errez caused PrivCo to transfer 1,600,000 PubCo shares, valued at $2,144,000 at close of trading on the day of issuance, as "Transferred Collateral" from the Control Block (not a new issuance by PubCo) to Bentley (although both contracts acknowledge receipt of 1.6 million shares, there was only was transference of 1.6 million shares). The transfer occurred on or about August 1, 2018. To date, there has been no funding under either of the MLAs.
Subsequently, both Nisan and Errez received constitutive notice, regarding arbitration of an alleged breach of their respective MLAs. To date, only informal conversational proceedings have ensued (see C. Legal Matters, under Note 12 – Subsequent Events below).
Inadvertent Share Transfers
On or about December 27, 2018 and January 4, 2019, 1,085,000 shares were inadvertently transferred from PrivCo instead of being issued by the Company. Subsequently, on or about August 14, 2019, the Company issued 1,085,000 shares to PrivCo, as repayment of the shares that had been inadvertently transferred.
Kenneth Haller and the Haller Companies
Kenneth Haller (“Haller”) became our Senior Vice President of Payment Systems, a key member of our management team, in November 2018. We began working indirectly with Haller earlier in 2018, both individually and through our relationship with MTrac Tech Corporation (“MTrac”) (see Note 11 - MTrac below), which in turn has business relationships with Haller.
Haller brings considerable advantages to our platform’s development and our business development efforts and capabilities, including transactional business relations and a large network of agents, which we believe capable of processing $1 billion annually (the “Haller Network”). The Haller Network is an amalgamation of the collective networks of Haller and three companies owned or majority-owned by Haller: Sky Financial & Intelligence, LLC, Charge Savvy, LLC and Cultivate, LLC (collectively, the “Haller Companies”), each of which has formalized business relationships with us, as well as with some of our partners (for example, MTrac - see below), which we believe allows us to maximize and diversify our market penetration capabilities.
Sky Financial & Intelligence LLC
Haller owns 100% of Sky Financial & Intelligence LLC (“Sky”), a Wyoming limited liability company, and serves as its sole Managing Member. Sky is a strategic merchant services company that focuses on high risk merchants and international credit card processing solutions. In 2018, Sky was using GreenBox’s QuickCard payment system as its main payment processing infrastructure, through Sky’s relationship with MTrac (see Sky - MTrac Agreement below). It was through this successful relationship, that we came to know Haller and the Haller Network. Realizing that the Haller Network and Haller’s unique skill set was highly complementary to our business objectives, we commenced discussions to retain Haller through his consulting firm, Sky, for a senior role, directly responsible for growing GreenBox’s operations. Subsequently, in November 2018, Haller was appointed as our Senior Vice President of Payment Systems, for a monthly consulting fee of $10,000, paid to Sky (“Haller Consulting Fee”). This relationship was referenced in press releases as GreenBox’s “acquisition of Sky MIDs Technologies” (see Sky MIDs below).
We accrued and/or paid Haller $55,365 in the quarter ending December 31, 2018, which included $30,000 in consulting fees and $23,365 in travel and relocation expense reimbursement.
Non-Exclusivity
As our relationship with Haller / Sky is non-exclusive, Haller and the Haller Companies provide services to other companies, including those listed below. Any revenue generated by Haller and/or the Haller Companies through these other relationships is in addition to the Haller Consulting Fee.
Sky - MTrac Agreement
On or about May 4, 2018, Sky entered into a two year, Associate/Referral Agreement-E-Commerce with MTrac, wherein Sky agreed to promote MTrac’s solution payment platform (which is based on the GreenBox platform) and related services; to provide new sales, sales leads, introductions to merchants and ISOs, and other potential customers of MTrac’s services, for which Sky receives ongoing commissions from all credit card transactions processed as a result of new business generated by Sky for MTrac. Most services provided under this contract are executed by Sky’s majority owned subsidiary, Charge Savvy, LLC (see Charge Savvy, LLC below). The agreement noted MTrac’s license of GreenBox’s payment processing technology and contained terms whereby Sky could (but was not required to) refer certain customers to MTrac in exchange for various referral fees. Sky never referred customers to MTrac, and therefore, did not collect, and is not collecting, any referral fees from MTrac.
Haller, through Sky, owns controlling interests in Charge Savvy, LLC and Cultivate, LLC, with whom we do business indirectly, through their respective business relationship with MTrac. We also do business directly with Cultivate LLC, through a three-party agreement, which includes us, MTrac and Cultivate (see Cultivate, LLC below).
Charge Savvy, LLC
Sky owns 68.4% of Charge Savvy, LLC (“Charge Savvy”), an Illinois limited liability company. Haller serves as one of three Managing Members of Charge Savvy, along with Higher Ground Capital, LLC (owns 14%), and Jeff Nickel (owns 17.4%). It is through Charge Savvy, that the Haller Network is most visible as part of our operations, as Charge Savvy is the ISO through which revenue generated from Haller Network Agents is processed, under a contract between Sky and MTrac, who in turn, has a contract with us. The three managing members of Charge Savvy own the same percentages of Cultivate (see below), as they do Charge Savvy.
Cultivate, LLC
Sky owns 68.4% of Cultivate, LLC (“Cultivate”), an Illinois limited liability company, and serves as one of three Managing Members, along with Higher Ground Capital, LLC (owns 14%), and Jeff Nickel (owns 17.4%). When Cultivate was first formed, it was the licensor of certain proprietary point of sale software, retail point of sale operations, and complementary support of Cultivate’s software and related hardware for on-site credit and debit card processing. Subsequently, Cultivate the entity became exclusively a software provider, ceasing all service and support operations. Eventually certain beneficial aspects of the Cultivate software functionality were integrated into QuickCard, then upgraded and replaced with certain updates.
During 2018, we did not pay Charge Savvy nor Cultivate any commissions.
In December 2018, Jeff Nickel, one of the Managing Members of Cultivate and Charge Savvy, was paid approximately $10,758 in commissions, separately from our agreements with Charge Savvy and Cultivate.
Cultivate - MTrac Agreement
On or about May 4, 2018, Cultivate entered into a two year, Associate/Referral Agreement-E-Commerce with MTrac, wherein Cultivate agreed to promote MTrac’s solution payment platform and related services; to provide new sales, leads, merchants, ISO Agents, and other potential customers of MTrac services, for which Cultivate receives ongoing commissions from all credit card transactions processed as a result of new business generated by Cultivate for MTrac, who in turn has a contract with us. The Associate/Referral Agreement-E-Commerce between Cultivate and MTrac noted MTrac’s license of GreenBox’s payment processing technology, and contained terms whereby Cultivate could (but was not required to) refer certain customers to MTrac in exchange for various referral fees. Cultivate never referred customers to MTrac, and therefore, did not collect, and is not collecting, any referral fees from MTrac.
Haller Commissions
Under a verbal agreement in Spring 2018, we offered Haller commissions on any referrals that resulted in new business for the Company (“Haller Commissions”). Under this agreement, Haller introduced us to three merchants who became three of the first merchants to use our system. Under the verbal agreement, we paid Haller commissions from transactions processed by these three merchants, summing to approximately $210 in June 2018, $8,396 in July 2018 and $321 in August 2018. In or about September 2018, we commenced discussions with Haller to join our management team and discontinued paying Haller commissions related to these three merchants.
GreenBox, Cultivate and MTrac Agreement
On or about December 17, 2018, PubCo entered into a 5-year exclusive three-party license agreement with MTrac and Cultivate (see Section E. MTrac above). The three Managing Members of Cultivate and Charge Savvy, owning the same percentages in each entity, subsequently decided to collect all revenue through Charge Savvy instead of Cultivate.
Sky Mids
Previous references in press releases issued by PubCo in or about August 2018 regarding a “Sky Mids Acquisition” are references to the non-exclusive working relationship between PrivCo (and subsequently, PubCo) and Sky / Haller. The designation “Sky MIDs” was a colloquial reference to Sky, based upon a Sky-owned and operated website, which is no longer in use. While an acquisition of Sky has not formally been executed, nor have we (nor subsequently, PubCo) executed a formal engagement with Haller nor Sky, previous statements regarding the nature of our relationship with Sky Mids, which include our beliefs in the advantages of this relationship, accurately represent the working relationship between the Company and Sky / Haller.
Verbal Agreement
As part of Haller’s remuneration, the Company and Haller have a verbal agreement for Haller to be issued approximately 14 to 18 million shares of the Company’s stock. While a formalized remuneration agreement has not yet been executed as of February 3, 2020, the Company does not foresee the issuance to be dilutive, as PrivCo will likely surrender an equal amount of shares to PubCo, as a means of compensating PubCo for the issuance.
NOTE 8 – INCOME TAXES
Provision for income taxes consisted of the following for the years ended December 31:
|
2018 |
2017 |
|||||||
|
Current |
||||||||
|
Federal |
$ | - | $ | - | ||||
|
State |
900 | |||||||
| $ | 900 | $ | - | |||||
|
Deferred |
||||||||
|
Federal |
$ | - | - | |||||
|
State |
- | - | ||||||
| $ | - | $ | - | |||||
|
Total Provision for Income Taxes |
$ | 900 | $ | - | ||||
The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2018, the Company had federal and California net operating loss carryforwards of approximately $2.2 million. The federal and California net operating loss carryforwards will expire at various dates from 2026 through 2037; however, $2.2 million of the Federal operating loss does not expire and will be carried forward indefinitely.
Significant components of the Company's deferred tax assets (liabilities) as of December 31, 2018 and December 31, 2017, are shown below. A valuation allowance of $500,000 as of December 31, 2018, has been established against the Company's deferred tax assets related to loss entities the Company cannot consolidate under the Federal consolidation rules, as realization of these assets is uncertain.
|
2018 |
2017 |
|||||||
|
Deferred Tax Assets (liabilities) |
||||||||
|
Charitable Contributions |
$ | (3,700 | ) | $ | - | |||
|
Unearned Revenue |
(75,600 | ) | - | |||||
|
Depreciation |
(26,300 | ) | - | |||||
|
Net Operating Loss Carryforward |
612,800 | - | ||||||
|
Net deferred tax assets before valuation allowance |
$ | 507,200 | $ | - | ||||
|
Valuation Allowance |
$ | (507,300 | ) | $ | - | |||
| $ | (100 | ) | $ | - | ||||
On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA establishes new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax; (3) a new limitation on deductible interest expense; (4) the Transition Tax; (5) limitations on the deductibility of certain executive compensation; (6) changes to the bonus depreciation rules for fixed asset additions: and (7) limitations on NOLs generated after December 31, 2018, to 80% of taxable income.
ASC 740, Income Taxes, requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA’s provisions, the SEC staff issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740.
The provision for income taxes differs from the amount computed by applying the federal income tax rate as follows for the years ended December 31:
|
2018 |
2017 |
|||||||
|
Book Income at Statutory Rates |
21.00 | % | - | |||||
|
State Taxes net of Federal Benefit |
-0.04 | % | - | |||||
|
Non-deductible Meals & Entertainment |
-0.06 | % | - | |||||
|
Other |
-0.80 | % | - | |||||
|
Change in Valuation Allowance |
-20.14 | % | - | |||||
|
Effective Income Tax Rate |
-0.05 | % | - | |||||
The Company is subject to U.S. federal income tax as well as income tax in California and other states. The Company’s state and federal income tax returns are open to audit under the statute of limitations for the years ended December 31, 2015 through December 31, 2017 and for the years ended December 31, 2015 through December 31, 2017, respectively.
NOTE 9 – LEDGER MANAGEMENT
GreenBox’s core business is ledger management. We have developed and deployed a proprietary, closed-loop, blockchain-based infrastructure for recording transactions. We use a multitude of vendors to perform adjoining activities, which allows us, for example, to use this infrastructure to facilitate payment services for the benefit of consumers and merchants.
GreenBox does not directly manage the transfer of funds for individuals, companies or merchants. Such transfers are done exclusively by banking vendors who are responsible for any activity involving funds flowing out of our ecosystem. Because of this, there are no requirements for us to have a Money Transfer License, nor are we required to register as a Money Service Business.
As a ledger manager, we are not directly involved with any product or service bought or sold using our ecosystem – whether the access to our ecosystem is originated by us or by an Independent Sales Organization (“ISO”) representing us, nor are we directly involved when processing capabilities using our ecosystem are leased from us. We own the technology that tokenizes each transaction (issues encrypted keys for the parties in any transaction so that the transaction can be conducted using blockchain), provides gateway services (authorization and settlement for each transaction), and manages the ledger that records immutable details of every transaction. GreenBox does not touch nor endorse any actual merchandise or service, whether bought, sold or returned, using our payment ecosystem, and we are not involved in shipping or any type of fulfillment services.
GreenBox does not accept any cannabis business. However, we do have an exclusive license agreement with MTrac Technologies, that specializes in high-risk clients, such as those in the cannabis space. We provide MTrac with access to our ecosystem, from which MTrac serves their merchant clients. MTrac (not GreenBox) engages with these high-risk merchants and has their own procedures for legal and regulatory requirements and onboarding.
GreenBox, ISOs and Licensors use full transparency with their corresponding bank vendors, who have the right to approve or reject any individual merchant.
NOTE 10 – AML, KYC and SAR POLICIES
The Company’s Anti-Money Laundering (“AML”), Know Your Customer (“KYC”) and Suspicious Activity Report (“SAR”) policies are designed to prevent and limit GreenBox’s exposure to prohibited and unlawful activity.
Both international and local regulations require GreenBox to implement effective internal procedures and mechanisms to prevent money laundering, terrorist financing, drug and human trafficking, proliferation of weapons of mass destruction, corruption and bribery and to take action in case of any form of suspicious activity from users of our ecosystem.
Our policies cover the following matters:
|
|
● |
Verification procedures |
|
|
● |
Compliance Officer |
|
|
● |
Monitoring Transactions |
|
|
● |
Risk Assessment |
We are legally and/or contractually required to adhere to Anti-Money Laundering (“AML”) laws and regulations, including the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (collectively, the “BSA”), and the BSA implementing regulations of the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury. A variety of similar anti-money laundering requirements apply in other countries. In some countries, we are directly subject to these requirements; in other countries, we have contractually agreed to assist our sponsor banks with their obligation to comply with anti-money laundering requirements that apply to them. These laws typically require organizations to:
|
|
● |
Establish and audit anti-money laundering programs |
|
|
● |
Establish procedures for obtaining and verifying customer information |
|
|
● |
File reports on large cash transactions |
|
|
● |
File suspicious activity reports if the financial institution believes a customer may be violating U.S. laws and regulations. |
Regulations issued by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury place prohibitions and restrictions on all U.S. citizens and entities, including GreenBox, with respect to transactions by U.S. persons with specified countries and individuals and entities identified on OFAC’s Specially Designated Nationals list (for example, individuals and companies owned or controlled by, or acting for or on behalf of, countries subject to certain economic and trade sanctions, as well as terrorists, terrorist organizations and narcotics traffickers identified by OFAC under programs that are not country specific). Similar requirements apply to transactions and dealings with persons and entities specified in lists maintained in other countries. We have developed procedures and controls that are designed to monitor and address legal and regulatory requirements and developments and that allow our customers to protect against having direct business dealings with such prohibited countries, individuals or entities.
The purpose of a Suspicious Activity Report is to assist the government in identifying individuals, groups and organizations involved in fraud, terrorist financing, money laundering and /or other crimes. SAR filing are submitted to FinCEN. The criteria to decide what to report, includes any observation of activity that appears to be unusual for a particular client; or appears to be done only for the purpose of hiding or obfuscating another, separate transaction. The report can start with any of our employees or consultants, or any of the employees or consultants of our partner organizations.
Our Know Your Customer policy is a process of verifying the identity of prospective clients and assessing their suitability, along with the potential risks of illegal intentions towards any anticipated business relationship. Our KYC policy is used by us to ensure any proposed customers, agent, consultant, representative, vendor, sponsor or distributor are anti-bribery compliant, and are actually who they claim to be, before we commence with onboarding the individual or entity into our ecosystem.
NOTE 11 – MTrac
Exclusive Licensing Agreement: MTrac JV
On or about February 1st, 2018, we signed a joint venture agreement (“MTrac JV”), with MTrac Tech Corporation (“MTrac”), a wholly owned subsidiary of Global Payout, Inc. (OTC:GOHE), by which we gave exclusive rights to MTrac to use our technology for merchants, that we are not servicing. The initial term of this agreement was one year, with automatic renewals in one-year increments, until such time as the agreement is restructured or cancelled, for which MTrac would pay a total of $360,000 annually. Additionally, as part of the MTrac JV, MTrac was to acquire 4% in membership interests in the Company for $1,000,000, representing a post-money valuation for the Company of $25,000,000. We received $360,000 on or about March 15, 2018 from MTrac and were to receive $1,000,000 on or before May 15, 2018.
New Exclusive Licensing Agreement: MTrac 5 Year License
On or about June 12, 2018, we agreed with MTrac to cancel the MTrac JV and replace it with a new exclusive licensing agreement (the “MTrac 5 Year License”) which granted MTrac exclusive use of our technology for high risk industries for a period of 5 years, while cancelling MTrac’s planned equity investment. We applied $270,000 of the $360,000 MTrac had paid us on March 15, 2018 to this MTrac 5 Year License, with the remaining $90,000 paid by MTrac on or about November 6, 2018.
New Exclusive Licensing Agreement: Unified Agreement
On or about October 2, 2018, we entered into a three-party agreement with MTrac and Cultivate Technologies, LLC (“Cultivate”) a Nevada Corporation, to redefine pricing and revenue sharing under a new agreement (the “Unified Agreement”). The Unified Agreement did not eliminate the licensing fees stated in the MTrac 5 Year License, but added and defined a profit sharing agreement on all accounts generated by the merchants and agents that MTrac procured for PubCo, as follows: 40% to MTrac, 40% to PubCo, and 20% to Cultivate, with profit defined as Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”), adjusted for non-cash long-term compensation, based upon publicly filed financial information. Under the terms of the Unified Agreement, MTrac was granted the exclusive right by Cultivate and us to market the GreenBox Business’ new blockchain ledger-based payment platform which combined our proprietary system with certain proprietary technologies owned by Cultivate, which in combination offer a payment platform that allows a much more user-friendly payment system (the “Current Platform”).
New Exclusive Licensing Agreement: Current Exclusive License
On or about December 17, 2018, all previous agreements with MTrac were revoked, at which point we entered into a new 5-year exclusive three-party Software License and Services Agreement with Exclusivity with MTrac and Cultivate (referred to as the “Current Exclusive License”). Under the terms of the Current Exclusive License, PubCo waived all future licensing fees for the remaining 4-year term (in recognition of MTrac’s introduction of Kenneth Haller to PubCo – see Section M. Kenneth Haller below) and gave MTrac the exclusive right to market the Current Platform to high risk cannabis merchants in North America and to license the Current Platform to non-high risk merchant on a nonexclusive basis. The parties’ revenue sharing agreement was newly defined as a split of revenue derived from the processing of the payments from merchants referred under the Current Exclusive License, distributed after deducting certain agreed upon costs, as follows: 50% to MTrac, 25% to PubCo and 25% to Cultivate.
In order for MTrac to maintain exclusivity rights under the Current Exclusive License, MTrac must meet certain merchant payment processing targets, subsequently modified under a verbal agreement, as follows: as of September 1, 2019, $10,000,000 in monthly processing volume (which MTrac achieved); as of January 1, 2020, $25,000,000; and as of June 1, 2020, $40,000,000 in monthly process volume.
Lawsuit
On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, MTrac, Global Payout, Inc. and Cultivate Technologies, LLC in the Superior Court of the State of California. The Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally (see Legal Matters under Subsequent Events below).
NOTE 12 – SUBSEQUENT EVENTS
|
A. |
Formalizing the Reverse Acquisition |
On January 4, 2020, PubCo and PrivCo entered into an Asset Purchase Agreement (the “Agreement”), to formalize and memorialize a verbal agreement (the “Verbal Agreement”) entered into on April 12, 2018, by and among PubCo and PrivCo. The Agreement was disclosed in a Form 8-K filed with the Securities and Exchange Commission on January 7, 2020.
|
B. |
Product Development, Launch and Sales |
In 2019, we commenced a larger deployment of our blockchain-based, payment and ledger system, which we believe was enthusiastically received. As we increased our Independent Sales Organizations (“ISO”) relationships, we were able to on-board clients at an increasing pace, resulting in increasing revenues. As client acquisitions accelerated, we experienced significant growth in payment processing volume through the third quarter of 2019.
Servicing our quickly growing customer base required us to grow our “acquiring bandwidth” proportionally. Acquiring bandwidth is the technology nomenclature for the ability to push transactional volume to an accumulation account held by a commercial bank, sponsoring such activity for a company. We work with several acquiring banks, each of which provides this support to us, as well as setting support limits and/or transactional volume limits, for each account. Additionally, each account comes with policies for disbursements and reserves set by each sponsor bank, under which we operate. We then apply these policies, limits and reserve requirements to each of our client accounts. In some cases, we experienced challenging reserve policies from certain acquirers, which in turn created challenging situations for us. Where we couldn’t negotiate more favorable conditions with an acquirer, we formed relations with new acquirers, which better suited our needs.
As we grew, it became apparent to us that market demand for our services could be substantial and that we would need to upgrade and reengineer certain technology modules of our acquiring engine. As a result, we scaled back our acquiring capabilities in the fourth quarter of 2019, which allowed us to focus on the technology upgrades. As anticipated, this shift in focus resulted in a reduction of revenues in the fourth quarter. However, we anticipate these upgrades will enable growth acceleration in 2020 and beyond.
|
C. |
Legal Matters |
During 2019, through November 30, the Company recorded approximately $270,000 in legal expenses for litigation and arbitration.
America 2030 Capital Limited and Bentley Rothschild Capital Limited
On or about October 31, 2018, Nisan and Errez received constitutive notice, regarding arbitration against Nisan, Errez, PrivCo and possibly PubCo, from Bentley Rothschild Capital Limited ("Bentley") and America 2030 Capital Limited (“America 2030”), both located in Nevis, West Indies, and both claiming breach of contract by Nisan and Errez of Nisan and Errez’s respective individual Master Loan Agreements (see Note 7 – Related Party Transactions above) and seeking forfeiture of 1,600,000 PubCo shares that PrivCo had transferred, on or about August 1, 2018, from PrivCo’s Control Shares under the terms of the MLAs. To date, only informal conversational proceedings have ensued.
RB Capital Partners, Inc.
On April 24, 2019, RB Cap and related parties (the “RB Cap Parties”) filed a complaint in the San Diego Superior Court against PrivCo, PubCo, Ben Errez and Fredi Nisan (collectively, the “GreenBox Parties”); and on October 1, 2019, the RB Cap Parties filed an amended complaint against the GreenBox Parties alleging claims of fraud, breach of fiduciary duty, breach of contract and other, related claims in the Superior Court for the State of California, County of San Diego. The GreenBox Parties filed a cross-complaint against the RB Capital Parties, alleging claims of fraud, breach of contract, tortious interference, and other, related claims. On or about December 15, 2019, the GreenBox Parties and RB Cap Parties resolved to negotiate a settlement and agreed in principal to settlements terms. The documentation of the settlement terms was underway as of February 3, 2020.
Dahan
Yoram Dahan, Melissa Dahan, Forty8 Ltd., and Trustees of the Melissa H. Dahan Living Trust (collectively, “the Dahan Parties”) were also named by RB Capital in the suit listed in the previous paragraph. On October 31, 2019, the GreenBox Parties filed a cross-complaint against the Dahan Parties, alleging claims of fraud, securities fraud, misrepresentation, promissory estoppel, and other related claims, in the Superior Court for the State of California, County of San Diego. On or about December 15, 2019, the GreenBox Parties and the Dahan Parties resolved to negotiate a settlement and agreed in principal to settlements terms. The documentation of the settlement terms was underway as of February 3, 2020.
Withholding Suit
On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, Global Payout, Inc., MTrac Tech Corporation and Cultivate Technologies, LLC (collectively the “Defendants”) in the Superior Court of the State of California. Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally (collectively, the “Withholding Suit”). Pursuant to a mandatory arbitration clause in the controlling agreement, the parties to the Withholding Suit have agreed to arbitrate their claims.
We do not dispute the funds owed; however, we do believe it’s within our rights to hold the funds, per the terms of agreements signed by Plaintiffs. We disagree with any allegations of any wrongdoing and will aggressively defend ourselves against the Withholding Suit. Ideally, we will settle this claim in the near term. While the results of this matter cannot be predicted with certainty, especially at this early stage, we believe that losses, if any, resulting from resolution of this matter will not have a materially adverse effect on operations or cash flow.
|
D. |
Kenneth Haller and the Haller Companies / Affiliated Party Transactions |
Kenneth Haller (“Haller”) became our Senior Vice President of Payment Systems, a key member of our management team, in November 2018. Haller brings considerable advantages to our platform’s development and our business development efforts and capabilities, including transactional business relations and a large network of agents, which we believe capable of processing $1 billion annually (the “Haller Network”). The Haller Network is an amalgamation of the collective networks of Haller and three companies owned or majority-owned by Haller: Sky Financial & Intelligence, LLC (“Sky”), Charge Savvy, LLC and Cultivate, LLC (collectively, the “Haller Companies”), each of which has formalized business relationships with us, as well as with some of our partners (for example, MTrac), which we believe allows us to maximize and diversify our market penetration capabilities.
We pay Haller a monthly consulting fee, through Sky, a company 100% owned by Haller, of $10,000, which was subsequently increased to $16,667 per month commencing September 2019 (“Haller Consulting Fee”).
In 2019, we paid Sky consulting fees of $30,000 in the quarter ending March 31, $30,000 in the quarter ending June 30, $36,667 in consulting fees in the quarter ending September 30, and $124,150 in the quarter ending December 31, which included $50,000 in consulting fees and $74,150 in expense reimbursement. In 2019, Sky facilitated $1,397,822 in payments (using our funds) on our behalf during the quarter ending September 30, and similarly $184,056 in the quarter ending December 31.
During the quarters ending June 30 and September 30 of 2019, Charge Savvy, a company 68.4% owned by Sky, PubCo POS-related equipment totaling $22,450 and $16,000, respectively.
Lawsuit
On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, Cultivate Technologies, LLC (a company 68.4% owned by Sky), Global Payout, Inc. and MTrac Tech Corporation in the Superior Court of the State of California. Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally (see Withholding Suit in Section C. Legal Matters above).
|
E. |
Issuance of Unregistered Securities |
PubCo issued the following securities that were not registered under the Securities Act. Except where noted, all the securities stated below were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
|
|
a) |
On or about May 10, 2019, PubCo issued 10,000 shares to a non-affiliated legal consultant for services rendered. |
|
|
b) |
On or about June 18, 2019, PubCo issued a total of 850,000 shares to nine PubCo employees as performance bonuses. The shares were fully vested upon issuance and worth $0.10 per share, at closing, on the day of issuance. |
|
|
c) |
On or about August 14, 2019, PubCo issued 2,307,692 shares to a lender, that chose to convert a $150,000 promissory note at a 50% discount into shares of PubCo. |
|
|
d) |
On or about August 14, 2019, PubCo issued 1,085,000 shares to PrivCo, as repayment of shares inadvertently transferred by PrivCo to third parties on behalf of PubCo as follows |
|
|
i) |
On or about December 27, 2018, PrivCo inadvertently transferred 1,000,000 restricted PubCo shares, with a market value of $150,000, which money was deposited into PrivCo’s bank accounts (control of which bank accounts were shared by PubCo and PrivCo from April 12, 2018 through approximately December 31, 2018). |
|
|
ii) |
On or about January 4, 2019, PrivCo inadvertently transferred 50,000 restricted PubCo shares to a non-affiliated service provider to PubCo for services rendered to PubCo. |
|
|
iii) |
On or about January 4, 2019, PrivCo inadvertently transferred 35,000 PubCo shares of to a non-affiliated service provider to PubCo for services rendered to PubCo. |
|
|
iv) |
On or about December 12, 2019, PubCo entered into an agreement to issue 600,000 restricted shares to a non-affiliated service provider as renumeration in lieu of cash fees, on a vesting schedule as follows: 200,000 shares vest upon each of the following milestones: the Company filing its Form 10-K for 2018, the Company filing its three interim Form 10-Qs for 2019, and the Company filing its Form 10-K for 2019. |
|
F. |
Purchase Agreements |
West Coast Business Capital, LLC
On or about November 12, 2019, PubCo entered into a Purchase Agreement with West Coast Business Capital, LLC (“West Coast”). Under the terms of the Purchase Agreement, we agreed to sell West Coast $596,000 of future incoming cashflow from the GreenBox Business, to be delivered to West Coast in daily installments of $5,960, for $400,000, from which $16,000 in fees was deducted, providing us with net cash of $384,000. For accounting purposes, we recorded this transaction as a loan of $400,000, with interest of $196,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.
Fox Capital Group, Inc.
On or about December 5, 2019, PubCo entered into a Secured Merchant Agreement with Fox Capital Group, Inc. (“Fox”). Under the terms of the Secured Merchant Agreement, we agreed to sell Fox $366,000 of future incoming cashflow from the GreenBox Business, to be delivered to Fox in daily installments of $4,073.33, for $260,000, from which $26,000 in fees was deducted, providing us with net cash of $234,000. For accounting purposes, we recorded this transaction as a loan of $260,000, with interest of $106,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Secured Merchant Agreement.
Complete Business Solutions Group, Inc.
On or about December 9, 2019, PubCo entered into an Agreement for the Purchase and Sale of Future Receivables (the “Purchase and Sale Agreement”) with Complete Business Solutions Group Inc, (“CBSG”). Under the terms of the Purchase and Sale Agreement, we agreed to sell CBSG $240,000 of future incoming cashflow from the GreenBox Business, to be delivered to CBSG in weekly installments of $16,000, for $200,000, from which $35 in fees was deducted, providing us with net cash of $19,965. For accounting purposes, we recorded this transaction as a loan of $200,000, with interest of $40,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase and Sale Agreement.
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G. |
Convertible Promissory Notes |
Vista Capital Investments, LLC
Vista $500K Note
On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon payback of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares, with an exercise price of $2.50 (the “Commitment Shares”). Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”). The Vista Note’s principal and interest were due to be paid October 6, 2019.
On or about October 16, 2019, the parties amended the Vista Note to extend the Maturity Date to November 6, 2019, reduce the principal and interest due to $464,625 and cancel the Commitment Shares. On or about December 11, 2019, the parties agreed to a second amendment of the Vista Note, which extended the Maturity Date to January 15, 2020, required the Company to make a one-time payment of $10,000, changed the principal and interest balance due to $487,858, and waived Vista’s default rights through January 15, 2020. On January 22, 2020, Vista issued a default notice to the Company, which included an increase in the balance due to $634,213. On or about January 28, 2020, the parties agreed upon a third amendment to the Vista Note, which extended the Maturity Date to February 29, 2020, reduced the principal and interest due to $482,856 and required the Company to make a one-time $20,000 payment on or before January 29, 2020, of which $5,000 is to be applied to principal due. All other terms of the note remain in full force and effect.
Exhibit 4.1
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
GREENBOX POS, LLC
CONVERTIBLE PROMISSORY NOTE
|
Principal Amount: $300,000.00 USD |
March 15, 2018 |
WHEREAS on March 15, 2018, RB Capital Partners, Inc., with its offices at 2856 Torrey Pines Road, La Jolla, California 92037 (the “Holder”) loaned funds totaling, $300,000.00 to GreenBox POS, LLC, a Washington corporation with its office at 2305 Historic Decatur Road, # 100; San Diego, California 92106 (the “Company”). Payment for the loan was made directly to the Company in the form of a Wire Transfer.
WHEREAS the Company and Holder further agreed that such services provided by the Holder to the Company would be evidenced in a convertible note, which convertible note would be convertible into shares of common stock of the Company at the rate of $0.001 in accordance with Section 3 below ;
NOW THEREFORE THIS AGREEMENT WITNESSES that for and in consideration of the mutual premises and the mutual covenants and agreements contained herein, the parties covenant and agree each with the other as follows:
1. Principal and Interest.
1.1 The Company, for value received, hereby promises to pay to the order of the Holder the sum of Three Hundred Thousand Dollars ($300,000.00), which amount represents the amount owed to Holder as of March 15, 2018.
1.2 This Convertible Promissory Note (the “Note”) shall bear twelve percent (12%) interest per annum. This Note shall be payable upon demand (“Demand Date”). Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the Holder. The Note is for a period of (12) months and cannot be converted until (6) months from the date first written above has passed.
1.3 Upon payment in full of the principal , this Note shall be surrendered to the Company for cancellation.
1.4 The principal under this Note shall be payable at the principal office of the Company and shall be forwarded to the address of the Holder hereof as such Holder shall from time to time designate.
2. Attorney’s Fees. If the indebtedness represented by this Note or any part thereof is collected in bankruptcy, receivership or other judicial proceedings or if this Note is placed in the hands of attorneys for collection after default, the Company agrees to pay, in addition to the principal payable hereunder, reasonable attorneys' fees and costs incurred by the Holder.
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3. |
Conversion. |
3.1 Voluntary Conversion. The Holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company's S0.001 par value common stock (“Common Stock”) determined in accordance with Section 3.2 below.
3.2 Shares Issuable. The number of whole shares of Common Stock into which this Note may be voluntarily converted (the “Conversion Shares”) shall be determined by dividing the aggregate principal amount borrowed hereunder by $0.001 (the “Note Conversion Price”); provided, however, that, in no event, shall Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of Maker subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of common stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in the beneficial ownership by Holder and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 and Regulation 130-G thereunder, except as otherwise provided in clause
(1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the Note Conversion Price. The Term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus, (2) at the Company's option, accrued and unpaid interest, if any, on such principal amount at the interest rate provided in this Note to the conversion date, provided; however, that the Company shall have the right to pay any or all interest in cash.
3.3 Notice and Conversion Procedures. After receipt of demand for repayment, the Company agrees to give the Holder notice at least five (5) business days prior to the time that the Company repays this Note. If the Holder elects to convert this Note, the Holder shall provide the Company with a written notice of conversion setting forth the amount to be converted. The notice must be delivered to the Company together with this Note. Within twenty (20) business days of receipt of such notice, the Company shall deliver to the Holder certificate(s) for the Common Stock
issuable upon such conversion and, if the entire principal amount was not so converted, a new note representing such balance.
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3.4 |
Other Conversion Provisions. |
(a) Adjustment of Note Conversion Price. In the event the Company shall in any manner, subsequent to the issuance of this Note, approve a reclassification involving a reverse stock split and subdivision of the Company's issued and outstanding shares of Common Stock, the Note Conversion Price shall forthwith be adjusted by proportionately increasing the Note Conversion Price on the date that such subdivision shall become effective. In the event the Company shall in any manner, subsequent to the issuance of this Note, approve a reclassification involving a forward stock split and subdivision of the Company's issued and outstanding shares of Common Stock, the Note Conversion Price shall forthwith be adjusted by proportionately decreasing the Note Conversion Price on the date that such subdivision shall become effective.
(b) Common Stock Defined. Whenever reference is made in this Note to the shares of Common Stock, the term “Common Stock” shall mean the Common Stock of the Company authorized as of the date hereof, and any other class of stock ranking on a parity with such Common Stock. Shares issuable upon conversion hereof shall include only shares of Common Stock of the Company.
3.5 No Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Note, the Company shall pay to the Holder the amount of outstanding principal hereunder that is not so converted.
4. Representations, Warranties and Covenants of the Company. The Company represents , warrants and covenants with the Holder as follows:
(a) Authorization; Enforceability. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Note and the performance of all obligations of the Company hereunder has been taken, and this Note constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
(b) Governmental Consents. No consent, approval, qualification, order or authorization of, or filing with, any local, state or federal governmental authority is required on the part of the Company in connection with the Company's valid execution, delivery or performance of this Note except any notices required to be filed with the Securities and Exchange Commission under Regulation D of the Securities Act of 1933, as amended (the “1933 Act”), or such filings as may be required under applicable state securities laws, which, if applicable, will be timely filed within the applicable periods therefor.
(c) No Violation. The execution, delivery and performance by the Company of this Note and the consummation of the transactions contemplated hereby will not result in a violation of its Certificate of Incorporation or Bylaws, in any material respect of any provision of any mortgage, agreement, instrument or contract to which it is a party or by which it is bound or, to the best of its knowledge , of any federal or state judgment , order, writ, decree, statute, rule or regulation applicable to the Company or be in material conf1ict with or constitute, with or without the passage of time or giving of notice, either a material default under any such provision or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties.
5. Representations and Covenants of the Holder. The Company has entered into this Note in reliance upon the following representations and covenants of the Holder:
(a) Investment Purpose. This Note and the Common Stock issuable upon conversion of the Note are acquired for investment and not with a view to the sale or distribution of any part thereof, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption.
(b) Private Issue. The Holder understands (i) that this Note and the Common Stock issuable upon conversion of this Note are not registered under the 1933 Act or qualified under applicable state securities laws, and (ii) that the Company is relying on an exemption from registration predicated on the representations set forth in this Section 8.
(c) Financial Risk. The Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.
(d) Risk of No Registration. The Holder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934 (the “1934 Act”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell the Common Stock issuable upon conversion of the Note, it may be required to hold such securities for an indefinite period. The Holder also understands that any sale of the Note or the Common Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule.
6. Assignment. Subject to the restrictions on transfer described in Section 8 below, the rights and obligations of the Company and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
7. Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Holder.
8. Transfer of This Note or Securities Issuable on Conversion Hereof. With respect to any offer, sale or other disposition of this Note or securities into which this Note may be converted, the Holder will give written notice to the Company prior thereto, describing briefly the manner thereof. Unless the Company reasonably determines that such transfer would violate applicable securities laws, or that such transfer would adversely affect the Company's ability to account for future transactions to which it is a party as a pooling of interests, and notifies the Holder thereof within five (5) business days after receiving notice of the transfer, the Holder may effect such transfer. The Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the 1933 Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the 1933 Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.
9. Notices. Any notice, other communication or payment required or permitted hereunder shall be in writing and shall be deemed to have been given upon delivery if personally delivered or three (3) business days after deposit if deposited in the United States mail for mailing by certified mail, postage prepaid. Each of the above addressees may change its address for purposes of this Section by giving to the other addressee notice of such new address in conformance with this Section.
10. Governing Law. This Note is being delivered in and shall be construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions thereof.
11. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof.
12. Waiver by the Company. The Company hereby waives demand, notice, presentment, protest and notice of dishonor.
13. Delays. No delay by the Holder in exercising any power or right hereunder shall operate as a waiver of any power or right.
14. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision was so excluded and shall be enforceable in accordance with its terms.
15. No impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Note against impairment.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, GreenBox POS, LLC has caused this Note to be executed in its corporate name and this Note to be dated, issued and delivered, all on the date first above written.
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GREENBOX POS, LLC |
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Date: March 16, 2018 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
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Its: |
CEO & Director |
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RB CAPITAL PARTNERS, INC. |
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Date: March 16, 2018 |
By: |
/s/ Brett Rosen |
|
Brett Rosen |
||
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Its: |
Managing Member |
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Exhibit 4.4
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
GREENBOX POS, LLC
CONVERTIBLE PROMISSORY NOTE
|
Principal Amount: $200,000.00 USD |
November 26, 2018 |
WHEREAS on November 26, 2018, RB Capital Partners, Inc., with its offices at 2856 Torrey Pines Road, La Jolla, California 92037 (the “Holder”) loaned funds totaling, $200,000.00 to GreenBox POS, LLC, a Nevada corporation with its office at 2305 Historic Decatur Road, #100; San Diego, California 92106 (the “Company”). Payment for the loan was made directly to the Company in the form of a Wire Transfer.
WHEREAS the Company and Holder further agreed that such services provided by the Holder to the Company would be evidenced in a convertible note, which convertible note would be convertible into shares of common stock of the Company at the rate of $4.50 in accordance with Section 3 below;
NOW THEREFORE THIS AGREEMENT WITNESSES that for and in consideration of the mutual premises and the mutual covenants and agreements contained herein, the parties covenant and agree each with the other as follows:
1. Principal and Interest.
1.1 The Company, for value received, hereby promises to pay to the order of the Holder the sum of Two Hundred Thousand Dollars ($200,000.00) , which amount represents the amount owed to Holder as of November 26, 2018.
1.2 This Convertible Promissory Note (the “Note”) shall bear twelve percent (12%) interest per annum. This Note shall be payable upon demand (“Demand Date”). Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the Holder. The Note is for a period of (12) months and cannot be converted until (6) months from the date first written above has passed.
1.3 Upon payment in full of the principal, this Note shall be surrendered to the Company for cancellation.
1.4 The principal under this Note shall be payable at the principal office of the Company and shall be forwarded to the address of the Holder hereof as such Holder shall from time to time designate.
2. Attorney's Fees. If the indebtedness represented by this Note or any part thereof is collected in bankruptcy, receivership or other judicial proceedings or if this Note is placed in the hands of attorneys for collection after default, the Company agrees to pay, in addition to the principal payable hereunder, reasonable attorneys' fees and costs incurred by the Holder.
|
3. |
Conversion. |
3.1 Voluntary Conversion. The Holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company's $0.001 par value common stock (“Common Stock”) determined in accordance with Section 3.2 below.
3.2 Shares Issuable. The number of whole shares of Common Stock into which this Note may be voluntarily converted (the “Conversion Shares”) shall be determined by dividing the aggregate principal amount borrowed hereunder by $4.50 (the “Note Conversion Price”); provided, however, that, in no event, shall Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1 ) the number of shares of Common stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of Maker subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of common stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in the beneficial ownership by Holder and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 and Regulation 13D-G thereunder, except as otherwise provided in clause ( 1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the Note Conversion Price. The Term “Conversion Amount” means, with respect to any conversion of this Note, the sum of ( 1) the principal amount of this Note to be converted in such conversion plus, (2) at the Company's option, accrued and unpaid interest, if any, on such principal amount at the interest rate provided in this Note to the conversion date, provided; however, that the Company shall have the right to pay any or all interest in cash.
3.3 Notice and Conversion Procedures. After receipt of demand for repayment, the Company agrees to give the Holder notice at least five (5) business days prior to the time that the Company repays this Note. If the Holder elects to convert this Note, the Holder shall provide the Company with a written notice of conversion setting forth the amount to be converted. The notice must be delivered to the Company together with this Note. Within twenty (20) business days of receipt of such notice, the Company shall deliver to the Holder certificate(s) for the Common Stock
issuable upon such conversion and, if the entire principal amount was not so converted, a new note representing such balance.
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3.4 |
Other Conversion Provisions. |
(a) Adjustment of Note Conversion Price. In the event the Company shall in any manner, subsequent to the issuance of this Note, approve a reclassification involving a reverse stock split and subdivision of the Company's issued and outstanding shares of Common Stock, the Note Conversion Price shall forthwith be unaffected. In the event the Company shall in any manner, subsequent to the issuance of this Note, approve a reclassification involving a forward stock split and subdivision of the Company's issued and outstanding shares of Common Stock, the Note Conversion Price shall forthwith be unaffected.
(b) Common Stock Defined. Whenever reference is made in this Note to the shares of Common Stock, the term “Common Stock” shall mean the Common Stock of the Company authorized as of the date hereof, and any other class of stock ranking on a parity with such Common Stock. Shares issuable upon conversion hereof shall include only shares of Common Stock of the Company.
3.5 No Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Note, the Company shall pay to the Holder the amount of outstanding principal hereunder that is not so converted.
4. Representations, Warranties and Covenants of the Company. The Company represents, warrants and covenants with the Holder as follows:
(a) Authorization; Enforceability. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Note and the performance of all obligations of the Company hereunder has been taken, and this Note constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
(b) Governmental Consents. No consent, approval, qualification, order or authorization of, or filing with, any local, state or federal governmental authority is required on the part of the Company in connection with the Company's valid execution, delivery or performance of this Note except any notices required to be filed with the Securities and Exchange Commission under Regulation D of the Securities Act of 1933, as amended (the “1933 Act”), or such filings as may be required under applicable state securities laws, which, if applicable, will be timely filed within the applicable periods therefor.
(c) No Violation. The execution, delivery and performance by the Company of this Note and the consummation of the transactions contemplated hereby will not result in a violation of its
Certificate of Incorporation or Bylaws, in any material respect of any provision of any mortgage, agreement, instrument or contract to which it is a party or by which it is bound or, to the best of its knowledge, of any federal or state judgment, order, writ, decree, statute, rule or regulation applicable to the Company or be in material conflict with or constitute, with or without the passage of time or giving of notice, either a material default under any such provision or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations , or any of its assets or properties.
5. Representations and Covenants of the Holder. The Company has entered into this Note in reliance upon the following representations and covenants of the Holder:
(a) Investment Purpose. This Note and the Common Stock issuable upon conversion of the Note are acquired for investment and not with a view to the sale or distribution of any part thereof, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption.
(b) Private Issue. The Holder understands (i) that this Note and the Common Stock issuable upon conversion of this Note are not registered under the 1933 Act or qualified under applicable state securities laws, and (ii) that the Company is relying on an exemption from registration predicated on the representations set forth in this Section 8.
(c) Financial Risk. The Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.
(d) Risk of No Registration. The Holder understands that if the Company does not register with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934 (the “1934 Act”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the 1933 Act is not in effect when it desires to sell the Common Stock issuable upon conversion of the Note, it may be required to hold such securities for an indefinite period. The Holder also understands that any sale of the Note or the Common Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule.
6. Assignment. Subject to the restrictions on transfer described in Section 8 below, the rights and obligations of the Company and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
7. Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Holder.
8. Transfer of This Note or Securities Issuable on Conversion Hereof. With respect to any offer, sale or other disposition of this Note or securities into which this Note may be converted, the Holder will give written notice to the Company prior thereto, describing briefly the manner
thereof. Unless the Company reasonably determines that such transfer would violate applicable securities laws, or that such transfer would adversely affect the Company's ability to account for future transactions to which it is a party as a pooling of interests, and notifies the Holder thereof within five (5) business days after receiving notice of the transfer, the Holder may effect such transfer. The Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the 1933 Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the 1933 Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.
9. Notices. Any notice, other communication or payment required or permitted hereunder shall be in writing and shall be deemed to have been given upon delivery if personally delivered or three (3) business days after deposit if deposited in the United States mail for mailing by certified mail, postage prepaid. Each of the above addressees may change its address for purposes of this Section by giving to the other addressee notice of such new address in conformance with this Section.
10. Governing Law. This Note is being delivered in and shall be construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions thereof.
11. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof.
12. Waiver by the Company. The Company hereby waives demand, notice, presentment, protest and notice of dishonor.
13. Delays. No delay by the Holder in exercising any power or right hereunder shall operate as a waiver of any power or right.
14. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision was so excluded and shall be enforceable in accordance with its terms.
15. No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Note against impairment.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, GreenBox POS, LLC has caused this Note to be executed in its corporate name and this Note to be dated, issued and delivered, all on the date first above written.
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GREENBOX POS, LLC |
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Date: November 26, 2018 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
||
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Its: |
CEO & Director |
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|
RB CAPITAL PARTNERS, INC. |
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Date: November 26, 2018 |
By: |
/s/ Brett Rosen |
|
Brett Rosen |
||
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Its: |
Managing Member |
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Exhibit 4.5
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
GREENBOX POS
CONVERTIBLE PROMISSORY NOTE
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Principal Amount: $150,000 USD |
December 27, 2018 |
WHEREAS on December 27, 2018, 102065761 SASKATCHEWAN LTD., with its offices at 230-22nd St E. Suite 800. Saskatoon, Saskatchewan, Canada. S7K 0E9 (the “Holder”) loaned funds totaling, $150,000 to GreenBox POS a Nevada corporation with its office at 8880 Rio San Diego Drive, Suite 102, San Diego. CA 92108 (the “Company”). Payment for the loan was made directly to the Company in the form of a Wire Transfer as follows:
$150,000 USD deposit, wired directly to Bergerman Smith, LLP (“Bergerman Smith”) client trust account with “for the benefit of GreenBox POS” in the memo line via wire transfer.
This money shall be held in the Bergerman Smith client trust account until receipt of an executed copy of this note. Upon receipt of the executed Note, Berman Smith shall pay the $150,000.00 USD to Company via wire transfer pursuant to the following wire instructions:
U.S. Bank N.A.
425 Walnut Street
Cincinnati, OH 45202
Swift code:
Account #
Routing #
WHEREAS the Company and Holder further agreed that such services provided by the Holder to the Company would be evidenced in a convertible note, which convertible note would be convertible into shares of common stock of the Company at the rate of 50% of the closing price of the stock on the day of conversion, in accordance with Section 3 below;
NOW THEREFORE THIS AGREEMENT WITNESSES that for and in consideration of the mutual premises and the mutual covenants and agreements contained herein, the parties covenant and agree each with the other as follows:
1. Principal and Interest.
1.1 The Company, for value received, hereby promises to pay to the order of the Holder, the sum of One Hundred & Fifty Thousand Dollars ($150,000.00) USD, which amount represents the amount owed to Holder as of the money being transferred and deal closing.
1.2 This Convertible Promissory Note (the “Note”) shall bear twelve percent (12%) interest per annum. This Note shall be payable upon demand (“Demand Date”). Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the Holder. The Demand Date shall be any time after 12 months from the closing of this note that the Holder designates at their sole discretion. The Note is for a period of (12) months The Principal Amount and all accrued and unpaid interest, if not otherwise converted, will be paid in full on December 21, 2019 unless earlier demand is made.
1.3 The Company shall make quarterly interest payments to holder in advance of the quarter, the quarterly interest prepayments shall be in the amounts and on the dates listed below:
$3856.00 on December 27,2018
$3856.00 on February 27, 2019
$3856.00 on May 27, 2019
$ 3856 on August 27, 2019
1.4 At any time prior to the Demand Date, the Company may prepay and satisfy its obligations under this Note by paying to Holder the principal and any outstanding unpaid interest.
1.5 Upon payment in full of the principal and interest, or conversion, this Note shall be surrendered to the Company for cancellation.
1.6 The principal under this Note shall be payable at the principal office of the Company and shall be forwarded to the address of the Holder hereof as such Holder shall from time to time designate.
2. Attorney's Fees. If the indebtedness represented by this Note or any part thereof is collected in bankruptcy, receivership or other judicial proceedings or if this Note is placed in the hands of attorneys for collection after default, the Company agrees to pay, in addition to the principal payable hereunder, reasonable attorneys' fees and costs incurred by the Holder.
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3. |
Conversion. |
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3.1 |
Voluntary Conversion. |
3.1.1 Pre-Term Conversion. Holder shall have the right any time after six months from Closing, to convert the outstanding principal and accrued and unpaid interest into a number of
fully paid and non-assessable whole shares of the Company's $0.001 par value Series B common stock (“Common Stock”) determined in accordance with Section 3.2 below.
Similarly, the Company shall have the right any time prior to the Demand Date, to convert the outstanding principal and unpaid interest into a number of fully paid and non- assessable whole shares of the Company's $0.001 par value Series B common stock (“Common Stock”) determined in accordance with Section 3.2 below.
If the Holder or Company elects to convert prior to the Demand Date, any interest accrual upon the principal shall cease on the date of conversion, and Company shall not be obligated to make any future interest payments. The note shall be satisfied in accordance with section 1.5.
3.1.2 Post Term Conversion. The Holder shall also have the right any time after the expiration of the Demand Date, exercisable in whole or in part, to convert the outstanding principal and accrued and unpaid interest into a number of fully paid and non-assessable whole shares of the Company's $0.001 par value Series B common stock (“Common Stock”) determined in accordance with Section 3.2 below.
3.2 Shares Issuable. The number of whole shares of Common Stock into which this Note may be voluntarily converted (the “Conversion Shares”) shall be determined by taking the closing price of the shares of GreenBox POS on the day of conversion and discounting the price by 50% (the “Note Conversion Price”); provided, however, that, in no event, shall Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of Maker subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of common stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in the beneficial ownership by Holder and its affiliates of more than 4.99% of the outstanding shares of common stock of the Company. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the Note Conversion Price. The Term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus, (2) at the Company's option, accrued and unpaid interest, if any, on such principal amount at the interest rate provided in this Note to the conversion date, provided; however, that the Company shall have the right to pay any or all interest in cash.
3.3 Notice and Conversion Procedures. After receipt of demand for repayment, the Company agrees to give the Holder notice at least five (5) business days prior to the time that the Company repays this Note. If the Holder elects to convert this Note, the Holder shall provide the Company with a written notice of conversion setting forth the amount to be converted. The
notice must be delivered to the Company together with this Note. Within twenty (20) business days of receipt of such notice, the Company shall deliver to the Holder certificate(s) for the Common Stock issuable upon such conversion and, if the entire principal amount was not so converted, a new note representing such balance.
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3.4 |
Other Conversion Provisions. |
(a) Adjustment of Note Conversion Price. In the event the Company shall in any manner, subsequent to the issuance of this Note, approve a reclassification involving a reverse stock split and subdivision of the Company's issued and outstanding shares of Common Stock, the Note Conversion Price shall forthwith be adjusted by proportionately increasing the Note Conversion Price on the date that such subdivision shall become effective. In the event the Company shall in any manner, subsequent to the issuance of this Note, approve a reclassification involving a forward stock split and subdivision of the Company's issued and outstanding shares of Common Stock, the Note Conversion Price shall forthwith be adjusted by proportionately decreasing the Note Conversion Price on the date that such subdivision shall become effective.
(b) Common Stock Defined. Whenever reference is made in this Note to the shares of Common Stock, the term “Common Stock” shall mean the Common Stock of the Company authorized as of the date hereof, and any other class of stock ranking on a parity with such Common Stock. Shares issuable upon conversion hereof shall include only shares of Common Stock of the Company.
3.5 No Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Note, the Company shall pay to the Holder the amount of outstanding principal hereunder that is not so converted.
4. Representations, Warranties and Covenants of the Company. The Company represents, warrants and covenants with the Holder as follows:
(a) Authorization; Enforceability. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Note and the performance of all obligations of the Company hereunder has been taken, and this Note constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
(b) Governmental Consents. No consent, approval, qualification, order or authorization of, or filing with. any local, state or federal governmental authority is required on the part of the Company in connection with the Company's valid execution, delivery or performance of this Note except any notices required to be filed with the Securities and Exchange Commission under Regulation D of the Securities Act of 1933, as amended (the “1933 Act”), or such filings as may
be required under applicable state securities laws, which, if applicable, will be timely filed within the applicable periods therefor.
(c) No Violation. The execution, delivery and performance by the Company of this Note and the consummation of the transactions contemplated hereby will not result in a violation of its Certificate of Incorporation or Bylaws, in any material respect of any provision of any mortgage, agreement, instrument or contract to which it is a party or by which it is bound or, to the best of its knowledge, of any federal or state judgment, order, writ, decree, statute, rule or regulation applicable to the Company or be in material conflict with or constitute, with or without the passage of time or giving of notice, either a material default under any such provision or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties.
(d) Registration. On conversion, Company will register with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934 (the “1934 Act”), or will file reports pursuant to Section 15(d) of the 1934 Act, or otherwise cause a registration statement covering the securities under the 1933 Act to be in effect when the Investor desires to sell the Shares following any applicable hold period(s) they will be freely tradable and without any hold or legend restriction whatsoever.
5. Representations and Covenants of the Holder. The Company has entered into this Note in reliance upon the following representations and covenants of the Holder:
(a) Investment Purpose. This Note and the Common Stock issuable upon conversion of the Note are acquired for investment and not with a view to the sale or distribution of any part thereof, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption.
(b) Private Issue. The Holder understands (i) that this Note and the Common Stock issuable upon conversion of this Note are not registered under the 1933 Act or qualified under applicable state securities laws, and (ii) that the Company is relying on an exemption from registration predicated on the representations set forth in this Section 8.
(c) Financial Risk. The Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.
6. Assignment. Subject to the restrictions on transfer described in Section 8 below, the rights and obligations of the Company and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
7. Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Holder.
8. Transfer of This Note or Securities Issuable on Conversion Hereof. With respect to any offer, sale or other disposition of this Note or securities into which this Note may be converted, the Holder will give written notice to the Company prior thereto, describing briefly the manner thereof. Unless the Company reasonably determines that such transfer would violate applicable securities laws, or that such transfer would adversely affect the Company’s ability to account for future transactions to which it is a party as a pooling of interests, and notifies the Holder thereof within five (5) business days after receiving notice of the transfer, the Holder may effect such transfer. The Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the 1933 Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the 1933 Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.
9. Notices. Any notice, other communication or payment required or permitted hereunder shall be in writing and shall be deemed to have been given upon delivery if personally delivered or three (3) business days after deposit if deposited in the United States mail for mailing by certified mail, postage prepaid. Each of the above addressees may change its address for purposes of this Section by giving to the other addressee notice of such new address in conformance with this Section.
10. Governing Law. This Note is being delivered in and shall be construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions thereof.
11. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof.
12. Waiver by the Company. The Company hereby waives demand, notice, presentment, protest and notice of dishonor.
13. Delays. No delay by the Holder in exercising any power or right hereunder shall operate as a waiver of any power or right.
14. Severability . If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision was so excluded and shall be enforceable in accordance with its terms.
15. No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Note against impairment.
[Signature Page Follows]
IN WITNESS WHEREOF, GreenBox POS, LLC has caused this Note to be executed in its corporate name and this Note to be dated, issued and delivered, all on the date first above written.
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GREENBOX POS, LLC |
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Date: December 27, 2018 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
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Title: |
CEO & Director |
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By: |
/s/ Ben Errez |
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Ben Errez |
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Title: |
EVP & Director |
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102065761 SASKATCHEWAN LTD. |
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Date: December 27, 2018 |
By: |
/s/ Ivan Bergerman |
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Ivan Bergerman |
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Its: |
Director |
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By: |
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Its: |
Director |
Exhibit 10.5
Software License and Services Agreement with Exclusivity
This software license and services agreement (“Agreement”) is by and between GreenBox POS, LLC (“GreenBox”), a Nevada corporation, having its principal place of business at 8880 Rio San Diego Drive Suite 102 San Diego, CA 92106, Cultivate Technologies, LLC (“Cultivate”), a Nevada Limited Liability Company, having its principal place of business at 3333 East End Ave, Chicago, IL, 60411 and MTrac Tech Corp. (“MTrac”), A Nevada Corporation having its principal place of business at 1835 Sunset Cliffs Blvd. Ste 202 San Diego Ca 92107 (individually each a “Party” collectively the “Parties”).
This Agreement sets forth the terms and conditions upon which GreenBox and Cultivate will provide an exclusive license for use of its proprietary point of sale and payment gateway software that supports standardized banking functions for the business participants, e-wallet system, private blockchain ledger, and blockchain payment gateway (“Software”) and certain support services to MTrac in exchange for referral and agent management services for cannabis related transactions. GreenBox and Cultivate will provide a limited, non-exclusive license for all other low and high-risk retail transactions. Retail in this agreement shall mean any location that is taking card present (face to face) transactions . GreenBox and Cultivate will extend a limited license to all e-commerce accounts referred by MTrac.
RECITALS
Whereas:
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A. |
GreenBox is in the business of enabling consumer purchases using cash, credit and debit cards, while supporting standardized banking functions for the business participants, using proprietary payment systems. |
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B. |
Cultivate has developed proprietary point of sale software and is in the business of providing retail point of sale operations, 24/7 support of said software and software and hardware related to credit and debit card processing on site (card present transactions). |
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C. |
MTrac is a Company and also an Independent Sales Organization (ISO), marketing and managing point of sale transactions for Retail Locations for High Risk Merchants and managing third party agents that have relationships and contacts with these merchant types. |
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D. |
MTrac initially entered into a joint venture agreement with GreenBox on February 1, 2018 and paid an initial sum of $360,000 on March 16, 2018 as a part of joint venture agreement (the “Joint Venture” ). |
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E. |
As a part of the joint venture agreement GreenBox Paid $90,000 to MTrac for marketing and other services. |
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F. |
MTrac was unable to meet the requirements of the Joint Venture agreement and was unable to conduct marketing and other activities on GreenBox's behalf, the Parties agreed to terminate such agreement and apply funds paid to date to a license of the Software with $360,000 due yearly as a licensing fee. This agreement was formally memorialized June 12, 2018. $270,000 of the amount paid by MTrac was applied to the license agreement with the remaining $90,000 subject to reimbursement to GreenBox, by December 31, 2018. |
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G. |
An additional $90,000.00 was paid by MTrac to GreenBox on November 6, 2018, and GreenBox agrees and acknowledges that the term of the license has been paid through June 12, 2019. |
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H. |
Due to the changing nature of the relationship between the parties, the parties desire to revoke all prior agreements and enter into this new agreement. |
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I. |
The parties wish to enter into an arrangement on the terms and conditions contained in this Agreement. |
In consideration of the mutual promises, covenants, warranties and representations set forth herein, the parties agree as follows:
ARTICLE 1: SCOPE OF LICENSE
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1.1 |
Grant of License |
GreenBox and Cultivate hereby grant to MTrac an exclusive license to use and market the software to any retail/face to face cannabis-related business, retail/face to face CBD stores that use Cultivate software on site, and other high-risk retail stores that use Cultivate software on-site. With regard to e-commerce, internet sales, or other online referral businesses not related to any retail/face to face cannabis-related business, retail/face to face CBD stores, and other high-risk retail stores that use Cultivate software on-site, GreenBox grants Mtrac a non-exclusive license to the Software. The distribution of revenue for e-commerce, internet sales, or other online referral businesses under the non-exclusive license shall be governed by Exhibit A.
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1.2 |
Intellectual Property Ownership |
The Software is the intellectual property of and is owned by GreenBox and Cultivate respectively. The structure, organization and code of the Software are the valued trade secrets and confidential information of GreenBox and Cultivate. This Agreement does not grant MTrac any intellectual property rights in the Software except those that are expressly granted. In the co- development of all process and procedures, operational developments, training, on-boarding of Merchants, forms and contracts, due diligence, compliance, government relations, or any other rights not expressly granted are reserved for consideration as Joint Intellectual property of MTrac, GreenBox, and Cultivate. MTrac reserves the rights to their Independent Intellectual Property as it pertains to the evolving business model supported by GreenBox and Cultivate.
Any such intellectual property, trade secret, technology, procedure or contact shall remain an asset of the providing Party except for the licensing rights granted by this Agreement. Upon termination of this Agreement these assets shall be returned to the Party that provided the assets. The other Parties may not utilize it in any other of its affiliated activities during the duration of this Agreement nor any of its affiliated activities after the termination of this Agreement.
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1.3 |
Restrictions |
MTrac shall not attempt to copy, modify, adapt, duplicate, reproduce or translate the Software without the prior written consent of GreenBox and/or Cultivate. MTrac shall not reverse engineer, decompile, disassemble or otherwise attempt to discover the source code of the Software.
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1.4 |
Transfer |
MTrac may not assign this Agreement and/or any rights and/or obligations hereunder without the prior written consent of GreenBox and Cultivate, and any such attempted assignment shall be void. Any request for the transfer of the license shall be submitted to GreenBox Pos, LLC 8880 Rio San Diego Dr. San Diego, CA 92108 and Cultivate Technologies at 3333 East End Ave, Chicago, IL, 60411.
ARTICLE 2: PERFORMANCE OF SERVICES
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2.1 |
MTrac Services and Duties |
MTrac shall perform the following services.
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2.1.1 |
Marketing and Promotion |
MTrac shall make reasonable efforts to promote and market GreenBox's and Cultivate's payment solutions and the Software to merchants and agents under the white-labeled name of MTrac™. Merchants for the purposes of this agreement shall be defined as retail cannabis-related businesses, including delivery services taking curbside cannabis transactions and any retail business using the Cultivate software on-site or by means of delivery. Agents for the purpose of this agreement shall mean people who help assist in engaging with, closing, account openings, or on-boarding of merchants.
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2.1.2 |
Agent, Independent Sales Organization, Referral Management . |
MTrac shall manage and maintain all relationships with Merchants, Independent Sales Organizations (“ISOs”), Agents, and Clients. The management and maintenance of the relationships shall include but is not limited to:
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A) |
Responding to all calls and emails from Merchants, ISOs, Agents, and Client within reasonable time frames. Reasonable time frames shall be at minimum within two business days. |
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B) |
Overseeing and facilitating the execution of agent, ISO, or client agreements using Co-developed standardized forms. |
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C) |
Providing client and agent training on procedures, troubleshooting, and basic support (not defined as technical support which should be provided by Cultivate) for use of GreenBox and Cultivate equipment and software. |
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D) |
Order equipment for High Risk Marijuana Retail Dispensaries from Cultivate. |
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E) |
MTrac shall provide to GreenBox completed application and KYC documentation for each merchant under this agreement. |
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F) |
Ensure that all Merchants agreements include both debit and credit processing, which GreenBox is responsible for monitoring and ensuring dual processing types. It is understood that processing of either type is never guaranteed. Should GreenBox lose all of its banking power it will use its best efforts within reason to solidify further processing. |
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2.1.3 |
Equipment Costs |
Equipment costs shall be the responsibility of MTrac to collect from all merchants. Cultivate will invoice at net 15 term s. Net 15 terms shall mean that the payment of the invoice shall be received by Cultivate within 15 days of shipment of the equipment to the merchant. If any payment is not made, Cultivate reserves the right to de-activate the equipment it shipped until payment has been rendered.
If MTrac elects to provide equipment to Merchants at a discount, they shall nonetheless remain responsible to Cultivate for the full cost of the equipment.
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2.1.4 |
Agent, ISO, and Referral fees. |
MTrac shall be solely responsible for the payment of any Agent, ISO, and/or referral fees. GreenBox and Cultivate are responsible for the proper coding and facilitation of Agent, ISO, and referral fees debited in accordance with their multi-level wallets and in accordance with how MTrac designates the amounts in which the agents will be paid.
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2.1.5 |
Demonstrations |
MTrac shall provide both online and in person demonstrations as reasonably requested by Agents, ISO, and Clients. Such demonstrations shall not deviate from the co-developed materials created by MTrac, GreenBox, and Cultivate. All marketing materials must be approved by GreenBox and Cultivate in writing prior to giving to merchants and/or agents. GreenBox and Cultivate will have 2 business days to accept or propose any material changes to marketing . MTrac shall not expand upon or promise any capabilities of the Software beyond what has been provided by GreenBox and Cultivate.
GreenBox and Cultivate will make its best efforts to provide MTrac with updates to its software that effect live operations.
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2.1.6 |
Merchant and Agent Indemnification. |
In addition to the indemnification provision, section 7.4 of this agreement, Mtrac shall indemnify, defend and hold GreenBox, Cultivate, and their assignees, agents, officers and employees harmless any claims, suits, proceedings, costs, liabilities, expenses (including court costs and reasonable legal fees), or damages (Claims) to real or tangible personal property and/or bodily injury to persons, including death, resulting from the usage of the Software by agents, ISOs, Merchants, and any other third parties referred to GreenBox and Cultivate by Mtrac .
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2.2 |
Cultivate services and duties |
Cultivate shall perform the following services under this agreement.
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2.2.1 |
Equipment Procurement and Configuration. |
Cultivate will procure and configure terminals, iPads, stands and cables (the “Equipment') for use by Merchants. Cultivate will deliver the Equipment directly to the Merchants. Cultivate is responsible for all shipping costs associated with delivery to merchants. Cultivate will ship all Equipment via 2 day air , if faster delivery is requested by MTrac, Mtrac shall be assessed a fee of One Hundred Dollars ($100.00) per station charge for the faster delivery.
Cultivate will maintain each material item of Equipment in good working order and condition (reasonable wear and tear and obsolescence excepted), and in accordance in all material respects with any manufacturers manual, and will timely provide all maintenance, service and repairs reasonably necessary.
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2.2.2 |
Hardware Set Up and Delivery |
Cultivate will manage the initial set up and deployment of the hardware to merchants.
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2.2.3 |
24/7 Technical Support and Trouble Shooting |
Cultivate will provide, at no additional cost, full and complete technical assistance to Merchants for the Equipment covered by this Agreement, including ongoing remote technical support and to assist
with installation, operation, maintenance, and problem resolution. Technical support, including emergency support (service affecting) will be provided by Cultivate 24 hours a day 7 days a week. Cultivate will also maintain a TEXT support line where customers can text support phone a phone call not be available due to noise or other reasons on location. Cultivate will also be responsible for the warranty of any equipment that malfunctions that is still under warranty.
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2.3 |
GreenBox Services and Duties |
GreenBox shall perform the following services.
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2.3.1 |
Transaction Services. |
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2.3.1.1 |
Processing. |
GreenBox shall provide credit and debit card processing services to Merchants referred by MTrac. Greenbox shall maintain necessary licensing and internal controls as it deems necessary to carry out its duties under this agreement at its sole discretion.
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2.3.1.2 |
Monitoring . |
GreenBox will monitor its systems to assure proper funding to proper wallets and or other locations such as bank accounts is being done properly. GreenBox is responsible for the accurate accounting of all merchant and affiliated account s. It is GreenBox's responsibility to monitor all activity and take appropriate course of action in the review of all merchant accounts
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2.3.1.3 |
KEYs. |
GreenBox shall create Merchant Keys (“KEYs”) to Cultivate for configuration to Cultivate clients. Keys will be defined as the needed credentials for a merchant to go live and start transacting.
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2.3.1.3 |
eWallets. |
GreenBox shall be responsible for providing the eWallet technology and payment infrastructure, including all of its parts and modules used by Merchants in this agreement. These wallets will be maintained at all times by GreenBox. GreenBox will designate support agents to MTrac to provide non- confidential information as it pertains to any functionality within the wallet, including transferring of funds, reporting , report review and analysis, and checks and bala ncing. GreenBox will be responsible for responding to MTrac in a reasonable amount of time.
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2.3.1.4 |
Deposit Management. |
GreenBox shall manage deposits to Merchant's bank accounts for those exiting their platform. MTrac shall not be held responsible for any loses related to merchant funds within the GreenBox ecosystem so long as any such loss is not a result of MTrac's negligence, act, or omission.
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2.3.2 |
Software Maintenance. |
GreenBox shall provide to Cultivate and MTrac updates and changes to the Software which may be necessary in order to ensure that the Software functions according to its intended purpose. Such enhancement may include modifications to the Software and changes to the software. Greenbox shall
respond to any requests to modify the software due to an error or malfunction if it effects more than 20% of the customers within a reasonable period of time.
ARTICLE 3: WARRANTIES
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3.1 |
Warranty of Title |
GreenBox and Cultivate hereby represents and warrants to MTrac that they are the owners of the Software or otherwise has the right to grant to MTrac the rights set forth in this Agreement, including without limitation, any third-party software, data and materials included in the Software.
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3.2 |
Warranty of Functionality |
GreenBox and Cultivate warrant that, for the entire term of this Agreement, the Software shall perform in all material respects according to the specifications concerning the Software. Cultivate will insure that the appropriate computer equipment is used at the GreenBox hosting facility to operate the Software. GreenBox will insure that the Software will maintain compatibility with current and future versions of Microsoft Internet Explorer.
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3.3 |
Warranty of Performance |
All of the parties represent and warrant that all services provided under this Agreement will be performed promptly in a good and workmanlike manner consistent with best industry practices and in accordance with the service level standards. If performance is not met within reasonable timeframe for business conducive to maintaining accounts in good standing the under-performing party may be liable.
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3.4 |
Warranty of Authority |
GreenBox, Cultivate, and MTrac represent and warrant that they have the full right and authority to execute and deliver this Agreement and to perform its obligations under this Agreement, and that neither the execution nor delivery of this Agreement by GreenBox or MTrac, nor consummation of the transactions contemplated hereby, will result in a breach or default under the terms and conditions of any contract, order, license, charter document or other agreement by which GreenBox or MTrac is bound.
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3.5 |
Warranty of Organization and Licensing |
GreenBox represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.
Cultivate represents and warrants that is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.
MTrac represents and warrants that is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted
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3.6 |
Reliance on Information. |
GreenBox and Cultivate shall be entitled to rely upon merchant data and information provided by MTrac. In no event shall GreenBox or Cultivate be liable with respect to any loss, claim, liability, cost, damage or expense arising out of a claim by MTrac or by third parties in connection with data, merchant information, computations, sales or registration information, and or services as to which such claim arises were provided and/or performed in accordance with MTrac's written requirements, separate or special agreement agreements with merchants that deviate from the standard terms provided, mis- entered data by MTrac employees, clients, affiliates , or agents.
MTrac shall be entitled to rely upon representations, compliance provisions, licensing, financial, and banking resources provided by GreenBox and Cultivate .
ARTICLE 4: LICENSE FEE, PROCESSING TARGETS, AND REVENUE
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4.1 |
License Fee. |
MTRAC in their original agreement, agreed to pay to GreenBox an annual licensing fee of Three Hundred and Sixty Thousand Dollars ($360,000.00). In recognition of the introduction of Ken Haller to GreenBox, future licensing fees shall be waived.
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4.2 |
Processing Minimums. |
As a condition to the exclusivity of MTrac's license, MTrac must meet certain merchant payment processing targets beginning in June 1, 2019 . The revenue targets for the first year shall be:
June 1, 2019 - Fifteen Million Dollars ($15,000,000.00) in monthly processing volume by MTrac referred merchants.
January 1, 2020 - Twenty-Five Million Dollars ($25,000,000 .00) in Monthly Processing Volume by Mtrac referred merchants.
June 1, 2020 - 40 Million Dollars ($40,000,000) in Monthly Processing Volume by Mtrac referred merchants.
After June 1, 2020 MTrac shall maintain revenue/processing at the June 1, 2020 processing volume . Failure to maintain the process volume shall be grounds for termination of the agreement pursuant to Article 6 based on a 3 month average. GreenBox will promptly notify MTrac of any month where the performance metric was not met. However , any final calculation for the purposes of cancellation shall be based on a calculation of the three (3) month average.
MTrac shall be excused for the failure to meet processing minimums, if Mtrac's failure to meet the processing minimum results solely from a demonstratable software failure or performance defect in the Software provided by GreenBox or Cultivate. In the event of such a failure or defect, the processing minimums shall be waived only for the time period that the defect or failure is active.
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4.3 |
Distribution of Revenue |
Any revenue derived from the processing of the payments from Merchants referred under this agreement shall first be used to pay the buy rates set forth in section 4.2.1. The buy rates may be revised by GreenBox from time to time at its sole discretion. GreenBox shall provide Mtrac and Cultivate with updated buy rates within ten (10) days of any change based on Bank rate increases at which time GreenBox will provide proof of said increase.
After payment of the buy rates, any remaining funds shall be distributed as follows:
50% to MTrac
25% To GreenBox
25% To Cultivate Technologies
MTrac will be solely responsible for paying any Agent/ISO/ Affiliate/Referral fees out of MTrac's percentage.
MTrac is entitled to receive revenue distribution on any retail/face to face cannabis -relate d business, retail/face to face CBD stores that use Cultivate software on site, and other high-risk retail stores that use Cultivate software on-site referred to GreenBox and Cultivate by MTrac based on the above rate splits for the life of the account. As long as a merchant is transacting in the GreenBox and Cultivate system.
Any revenues generated from Business to Business (“B2B”) wallet to wallet transfers from retail/face to face cannabis-related business, retail/face to face CBD stores that use Cultivate software on site, and other high-risk retail stores that use Cultivate software on-site referred by MTrac to GreenBox and Cultivate will be split according to this section 4.3.
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4.2.1 |
Buy Rates |
The Buy rates as of the date of this agreement are as follows:
1.5% + $2.00 per transaction for all debit and credit card transactions
ARTICLE 5: CONFIDENTIALITY
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5.1. |
Definitions |
“Confidential Information” includes written machine-reproducible and visual materials; all verbal disclosures made by or on behalf of the Parties under this Agreement; the terms of this Agreement; any software, whether in object, source or executable code; documentation and nonpublic financial information; information relating to the Parties' methods of operations; names, addresses, telephone numbers and other identifying information relating to clients; compilations and lists of clients; personnel data relating to any of the Parties' employees and contractors ; information contained in placement lists, job orders, applications, files, inter-office referral documents and other documents prepared by or for the Parties and their employees, at the Parties' expense or on the Parties' time or otherwise in furtherance of the Parties' business; nonpublic plans for new products and services,
improvements and marketing strategies; and business contacts, pricing, business plans, techniques, methods and processes.
“Trade Secret” shall have the meaning as defined under California Civil Code Section 3426.1.
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5.2. |
Non-Disclosure |
The Parties agree to receive and maintain the Confidential Information and Trade Secrets of the Parties as a confidential disclosure and shall not disclose such Confidential Information and Trade Secrets or any part thereofto any other person or entity, or use or permit any use of such Confidential Information and Trade Secrets or any part thereof or attempt to sell, assign, convey, lease, sub-license, commercially exploit, and/or otherwise market or use, in any way or manner, except as herein expressly permitted, except as follows: (i) with the Parties' prior written consent in each instance of disclosure or (ii) if any Party is required by law to disclose the Parties' Confidential Information or Trade Secrets, but only after prompt notice to the applicable Party, such that it has a reasonable opportunity to oppose or prevent a disclosure, and only to the extent so required. The foregoing nondisclosure obligations shall not apply to Confidential Information or Trade Secrets (a) which is or becomes publicly available other than through the breach of this Agreement, (b) which was known to the recipient prior to the disclosure by the other Party, (c) which a Party rightfully receives from a third party not bound by any confidentiality agreement with respect thereto, (d) which is independently developed by the recipient, or (e) which is required to be disclosed pursuant to legal or governmental requirements; provided, that disclosure under this clause (e) shall be limited to persons legally entitled to receive the information.
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5.3. |
Effect of Termination |
In the event this Agreement expires or is terminated for any reason or should any Party request another Party to do so for any reason, such Party will promptly return, erase, or destroy all Confidential Information and Trade Secrets in its possession or control, including Confidential Information and Trade Secrets stored in any computer memory or data storage apparatus, and, at the Parties' request, provide an affidavit that such Party retains no Confidential Information or Trade Secrets in any form whatsoever.
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5.4. |
Irreparable Harm |
The Parties hereto acknowledge that the Services to be rendered by the Parties and their confidentiality obligations hereunder are of a special, unique, unusual, and extraordinary character which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated by damages in any action at law, and the breach by the Parties of any of the confidentiality provisions of this Agreement will cause the Parties irreparable injury and damage. The Parties expressly agree that the Parties shall be entitled to injunctive and other equitable relief in the event of, or to prevent, a breach of any provision of this Agreement by the Parties. Resort to such equitable relief, however, shall not be construed to be a waiver of any other rights or remedies that the Parties may have for damages or otherwise. The various rights and remedies of the Parties under this Agreement or otherwise shall be construed to be cumulative, and no one of them shall be exclusive of any other or of any right or remedy allowed by law.
ARTICLE 6: TERM AND TERMINATION
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6.1 |
Term of Agreement. |
This Agreement shall commence upon December 17, 2018 and remain in effect until December 17, 2023 unless terminated sooner pursuant hereto. After this initial term, the contract will automatically renew for successive one-year terms unless notification is provided by either party that the contract will not be renewed. Such notification should occur at least 90 days prior to the expiration of the contract .
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6.2 |
Termination of Agreement. |
This Agreement may be terminated by any party if:
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A) |
A party becomes insolvent, is dissolved or liquidated, makes a general assignment of the benefits of its creditors, files or has filed against it a petition in bankruptcy, fails to pay any of its state or federal taxes, or has a receiver appointed for a substantial part of its assets. |
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B) |
A party has committed a material breach and such breach has not been cured within thirty (30) days of receipt of a written notice of such breach. |
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C) |
Any change in law or regulation that would: (i) make this Agreement or material portion of a party's performance under this Agreement illegal, or (ii) require that any material terms of this Agreement be extended to any nonparty. |
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D) |
This agreement shall be terminated if a party breaches its obligations under Article 2. |
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6.3 |
Obligations upon Termination for Cause. |
Upon termination:
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A) |
MTrac shall immediately discontinue use of GreenBox and Cultivate services and system applicati ons. |
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B) |
MTrac shall pay GreenBox and Cultivate any amounts due for equipment under this Agreement up to and including the date of termination. |
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C) |
MTrac shall immediately return all GreenBox and Cultivate software and delete any GreenBox and Cultivate software hosted by MTrac. MTrac shall provide GreenBox and Cultivate with all necessary documentation of this deletion. |
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D) |
Parties shall continue to adhere to the confidentiality obligations of Article 5. |
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E) |
GreenBox and Cultivate will be responsible for furnishing payment to MTrac pursuant to Article 4. |
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F) |
GreenBox and Cultivate will be responsible for continuing to pay any referral fee/transaction split as referenced in 4.2 for existing merchants on the system to MTrac for the life of the acco unts. |
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G) |
GreenBox and Cultivate will be responsible for maintaining the MTrac wallet for deposit of any transactional royalty owed for any merchant that was referred to GreenBox or Cultivate by MTrac. |
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H) |
GreenBox and Cultivate will be responsible for maintaining the wallets of any ISO/Agents/Affiliates or Referrers for deposit of any transactional royalty owed for any merchant that are referred to GreenBox or Cultivate by MTrac. |
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6.4 |
Change-in-Control/ Data |
Pursuant to Article 5 of this Agreement, both parties shall treat all data and other proprietary information as confidential at all times including during any due diligence or other activities that may
occur as a part of a contemplated sale, merger, joint venture, strategic partnership or similar event with regards to ownership and operations of their respective companies .
Any data collected through joint partnership is considered shared data and no resale is permitted without consent from all parties, GreenBox, Cultivate, and MTrac. In the event of any significant change in ownership of GreenBox, no consent shall be required if the data is sold to an acquiring entity as a part of an acquisition or sale.
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6.5 |
Data Security |
Each Party shall comply with its obligations under all applicable data protection laws in respect of the Services to be provided under this Agreement.
ARTICLE 7: MISCELLANEOUS
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7.1 |
Entire Agreement |
This Agreement contains the entire agreement and understanding of the parties and shall supersede any and all prior agreements and understandings of the parties with respect to the subject matter hereof.
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7.2 |
Compliance with Laws and Severability |
In the performance of its duties and obligations under this Agreement, GreenBox, Cultivate, and MTrac shall each at all times comply with all applicable national, federal, state and local laws, statutes, regulations, rules, orders and ordinances now in effect or as hereafter enacted, amended or promulgated. If any clause or provision of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction, the remainder of this Agreement shall not be affected thereby. All other clauses or provisions of this Agreement, not found invalid or unenforceable shall be and remain valid and enforceable.
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7.3 |
Mutual Indemnity |
Each Party will indemnify, defend and hold the other Parties and their assignees, agents, officers and employees harmless from and against any claims, suits, proceedings, costs, liabilities, expenses (including court costs and reasonable legal fees), or damages (Claims) to real or tangible personal property and/or bodily injury to persons, including death, resulting from its or its employees, clients, affiliates, or agents negligence or a or omission arising from or related to this Agreement.
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7.4 |
Enjoinment |
If MTrac is enjoined (either temporarily or permanently) from using the Software in the manner described herein, GreenBox shall, at its option, either (1) replace the application, without additional charge, with a comparable, functionally equivalent and non-infringing product; (2) modify the Software to avoid the infringement; or (3) obtain a license for MTrac to continue to use the Software for the duration of the term and pay for any additional fee required for such license.
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7.5 |
Amendments and Captions |
The terms of this Agreement may only be modified or amended in writing signed by duly authorized representatives of both parties. The captions of this Agreement are for convenience and reference only and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof.
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7.6 |
Notices |
Any notice to be given by either party to the other shall be in writing and shall be given by sending such notice postage prepaid by certified mail or by overnight carrier and addressed to the other party at the location specified below:
If to Cultivate:
Cultivate Technologies, LLC
3333 East End Ave,
South Chicago Heights, IL, 60411
If to GreenBox:
GreenBox POS, LLC
8880 Rio San Diego Drive
Suite 102
San Diego, CA 92106
If to Mtrac:
1835 Sunset Cliffs Blvd
Suite 202
San Diego Ca 92107
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7.8 |
Arbitration |
Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in San Diego, CA before one arbitrator. The arbitration shall be administered by JAMS pursuant to JAMS' Streamlined Arbitration Rules and Procedures. Judgment on the Award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.
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7.9 |
Attorney's Fees |
If any party hereto commences an action to enforce the terms of, or resolve a dispute concerning this Agreement, the prevailing party in such action shall be entitled to recover from the other party all costs and expenses incurred by such party in connection therewith, including reasonable attorney's fees.
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7.10 |
Assignments |
GreenBox, Cultivate, and MTrac shall not assign this Agreement to a third party without prior written consent of the other party except that GreenBox shall have the right to transfer its license to the Software to a new entity that results from a merger and/or acquisition of GreenBox provided that the new entity agrees to abide by the terms of this agreement. Any permitted assignee shall assume all obligations of its assignor under this Agreement. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective assigns as permitted under this Agreement.
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7.12 |
Force Majeure |
None of the parties shall be considered in default of its obligations hereunder, or be liable for damages or otherwise, for failure or delay in performance which is due to, including but not limited to the following: (i) Acts of God (ii) regulations or laws of any government (iii) war or civil commotion (iv) destruction of facilities (v) fire, earthquake or storm (vi) labor disturbances (vii) failure of public utilities or common carrier.
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7.11 |
No Waiver of Rights |
No waiver by Cultivate, GreenBox, or MTrac with respect to any breach or default or of any right or remedy and no course of dealing shall be deemed to constitute a continuing waiver of any other breach or default or of any other right or remedy, unless such a waiver be expressed in writing by the party to be bound.
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7.12 |
Governing Law |
The provisions of this Agreement and all questions with respect to the construction and enforcement thereof and the rights and liabilities of the parties hereto shall be governed by, and construed and enforced in accordance with, the laws of the State of California. The venue of any action construing or enforcing this Agreement initiated by any party hereto shall be filed in the state or federal courts servicing California located in San Diego County.
The parties to this Agreement, by their signatures below, agree to the terms set forth herein.
[A Signature Page Follows]
| Cultivate Technologies, LLC |
GreenBox POS |
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| By: /s/ Ken | By: /s/ Fredi Nisan | |
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Name: Ken |
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Name: Fredi Nisan |
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| Title: Partner |
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Title: CEO |
| Date: 12/17/2018 | Date: 12/17/2018 | |
| Mtrac | ||
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| By: /s/ Vanessa | ||
| Name: Vanessa | ||
| Title: CEO |
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| Date: 12/17/2018 |
EXHIBIT A.
MTrac ISO agreement attached hereto - will provide.
EXHIBIT 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
I, Fredi Nisan, certify that:
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1. |
I have reviewed this annual report on Form 10-K/A of GreenBox POS; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
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Date: February 6, 2020 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
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Chief Executive Officer (Principal Executive Officer) |
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EXHIBIT 31.2
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
I, Ben Errez, certify that:
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1. |
I have reviewed this annual report on Form 10-K/A of GreenBox POS; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
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Date: February 6, 2020 |
By: |
/s/ Ben Errez |
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Ben Errez |
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Executive Vice President (Principal Financial Officer) |
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EXHIBIT 32.1
Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act
I, Fredi Nisan, the Principal Executive Officer of GreenBox POS (the “Company”), hereby certify that, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to my knowledge:
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1. |
The Company’s Form 10-K/A for the year ended December 31, 2018 (the “Form 10-K/A”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Form 10-K/A fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: February 6, 2020 |
By: |
/s/ Fredi Nisan |
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Fredi Nisan |
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Chief Executive Officer (Principal Executive Officer) |
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EXHIBIT 32.2
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act
I, Ben Errez, the Principal Financial Officer of GreenBox POS (the “Company”), hereby certify that, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to my knowledge:
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1. |
The Company’s Form 10-K/A for the year ended December 31, 2018 (the “Form 10-K/A”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Form 10-K/A fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: February 6, 2020 |
By: |
/s/ Ben Errez |
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Ben Errez |
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Executive Vice President (Principal Financial Officer)
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