RTB Digital, Inc 10-Q for FY2020 Q2
RTB Digital, Inc. (RTB)
About this 10-Q
RTB Digital, Inc filed this 10-Q on August 14, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.29M
- down 30.7% from $3.31M a year earlier
- Net income
- $4.94M
- compared with a net loss of $1.34M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-34294
GREENBOX POS
(Exact name of registrant as specified in its charter)
|
Nevada |
|
22-3962936 |
|
(State or other jurisdiction of incorporation) |
|
(IRS Employer Identification No.) |
8880 Rio San Diego Dr, Suite 102
San Diego, CA 92108
(Address of principal executive offices)
(619)-631-8261
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
None |
|
None |
|
None |
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, 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
Non-accelerated filer |
☒ |
Smaller Reporting Company |
☒ |
|
Emerging growth company |
☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 5, 2020, there were 181,050,238 shares outstanding of the registrant’s common stock.
GREENBOX POS
|
|
|
Page No. |
|
PART I. FINANCIAL INFORMATION |
|
|
|
Item 1. |
3 | |
|
|
Unaudited Balance Sheets as of June 30, 2020 and December 31, 2019 |
3 |
|
|
Unaudited Statement of Operations for the Three and Six Months Ended June 30, 2020 and 2019 |
4 |
|
|
Unaudited Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2019 |
5 |
|
Unaudited Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2020 |
5 | |
|
|
Unaudited Statement of Cash Flows for the Six Months Ended June 30, 2020 and 2019 |
6 |
|
|
7 | |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
|
Item 3. |
32 | |
|
Item 4. |
32 | |
|
|
|
|
|
PART II. OTHER INFORMATION |
||
|
|
|
|
|
Item 1. |
33 | |
|
Item 1A. |
33 | |
|
Item 2. |
33 | |
|
Item 3. |
33 | |
|
Item 4. |
33 | |
|
Item 5. |
33 | |
|
Item 6. |
33 | |
PART I - FINANCIAL INFORMATION
GREENBOX POS
|
(Unaudited) |
||||||||
|
June 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
ASSETS |
||||||||
|
Current Assets: |
||||||||
|
Cash and cash equivalents |
$ | - | $ | - | ||||
|
Restricted cash |
697,232 | 763,110 | ||||||
|
Accounts receivable, net of allowance for bad debt of $0 and $0, respectively |
10,000 | 70,257 | ||||||
|
Accounts receivables from fines and penalties from merchants, net of allowance for bad debt of $6,665,031 |
2,789,230 | 2,776,687 | ||||||
|
Cash due from gateways, net |
5,297,642 | 8,426,844 | ||||||
|
Prepaid and other current assets |
75,403 | 42,062 | ||||||
|
Total current assets |
8,869,507 | 12,078,960 | ||||||
|
Non-current Assets: |
||||||||
|
Property and equipment, net |
65,603 | 66,491 | ||||||
|
Operating lease right-of-use assets, net |
175,442 | 229,639 | ||||||
|
Total non-current assets |
241,045 | 296,130 | ||||||
|
Total assets |
$ | 9,110,552 | $ | 12,375,090 | ||||
|
Current Liabilities: |
||||||||
|
Accounts payable |
$ | 470,761 | $ | 504,505 | ||||
|
Other current liabilities |
29,454 | 15,100 | ||||||
|
Accrued interest |
84,000 | 368,071 | ||||||
|
Payment processing liabilities, net |
12,944,341 | 14,021,892 | ||||||
|
Short-term notes payable, net of debt discount of $78,000 and $32,418, respectively |
617,184 | 741,253 | ||||||
|
Convertible debt |
225,000 | 807,500 | ||||||
|
Derivative liability |
- | 1,050,063 | ||||||
|
Current portion of operating lease liabilities |
58,898 | 113,935 | ||||||
|
Total current liabilities |
14,429,638 | 17,622,319 | ||||||
|
Operating lease liabilities, less current portion |
120,111 | 120,110 | ||||||
|
Total liabilities |
14,549,749 | 17,742,429 | ||||||
|
Commitments and contingencies |
||||||||
|
Stockholders' Equity: |
||||||||
|
Common stock, par value $0.001, 495,000,000 shares authorized, shares issued and outstanding of 181,050,238 and 169,862,933, respectively |
181,150 | 169,863 | ||||||
|
Common stock - issuable |
- | 695 | ||||||
|
Additional paid-in capital |
1,396,360 | 1,179,272 | ||||||
|
Accumulated deficit |
(7,016,707 | ) | (6,717,169 | ) | ||||
|
Total stockholders' equity |
(5,439,197 | ) | (5,367,339 | ) | ||||
|
Total liabilities and stockholder's equity |
$ | 9,110,552 | $ | 12,375,090 | ||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Revenue |
$ | 2,292,859 | $ | 3,309,747 | $ | 2,480,064 | $ | 4,277,745 | ||||||||
|
Cost of revenue |
1,411,683 | 3,041,064 | 1,658,988 | 3,768,355 | ||||||||||||
|
Gross profit |
881,176 | 268,683 | 821,076 | 509,390 | ||||||||||||
|
Operating expenses: |
||||||||||||||||
|
Advertising and marketing |
15,384 | 12,603 | 27,269 | 25,609 | ||||||||||||
|
Research and development |
267,686 | 600,264 | 554,234 | 704,186 | ||||||||||||
|
General and administrative |
113,653 | 119,685 | 246,422 | 199,252 | ||||||||||||
|
Payroll and payroll taxes |
428,758 | 310,858 | 842,958 | 547,047 | ||||||||||||
|
Professional fees |
293,622 | 127,473 | 507,593 | 307,018 | ||||||||||||
|
Depreciation and amortization |
5,716 | 3,615 | 11,092 | 6,455 | ||||||||||||
|
Total operating expenses |
1,124,819 | 1,174,498 | 2,189,568 | 1,789,567 | ||||||||||||
|
Loss from operations |
(243,643 | ) | (905,815 | ) | (1,368,492 | ) | (1,280,177 | ) | ||||||||
|
Other income (expense): |
||||||||||||||||
|
Interest expense |
(30,659 | ) | (24,738 | ) | (319,249 | ) | (174,953 | ) | ||||||||
|
Interest expense - debt discount |
(8,342 | ) | - | (38,418 | ) | (188,273 | ) | |||||||||
|
Derivative expense |
(4,373 | ) | - | (4,373 | ) | (634,766 | ) | |||||||||
|
Changes in fair value of derivative liability |
2,619,250 | (412,158 | ) | (1,203,135 | ) | (365,370 | ) | |||||||||
|
Gain from extinguishment of convertible debt |
2,612,246 | - | 2,630,795 | - | ||||||||||||
|
Other income or expense |
(2,177 | ) | 167 | 3,334 | - | |||||||||||
|
Total other expense, net |
5,185,945 | (436,729 | ) | 1,068,954 | (1,363,362 | ) | ||||||||||
|
Loss before provision for income taxes |
4,942,302 | (1,342,544 | ) | (299,538 | ) | (2,643,539 | ) | |||||||||
|
Income tax provision |
- | - | - | - | ||||||||||||
|
Net loss |
$ | 4,942,302 | $ | (1,342,544 | ) | $ | (299,538 | ) | $ | (2,643,539 | ) | |||||
|
Earnings (loss) per share: |
||||||||||||||||
|
Basic and diluted |
$ | 0.03 | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | |||||
|
Weighted average number of common shares outstanding: |
||||||||||||||||
|
Basic and diluted |
173,898,204 | 166,509,363 | 176,953,079 | 166,449,863 | ||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
|
Common Stock |
Additional Paid-In |
Accumulated |
Total Stockholders' Equity |
|||||||||||||||||||||||||
|
Shares |
Amount |
To be Issued |
Amount |
Capital |
Deficit |
(Deficit) |
||||||||||||||||||||||
|
Balance at March 31, 2020 |
175,921,933 | $ | 175,922 | - | $ | - | $ | 1,293,588 | $ | (11,959,009 | ) | (10,489,499 | ) | |||||||||||||||
|
Common stocks issued from conversion of convertible debt |
5,128,205 | 5,128 | - | - | 94,872 | - | 100,000 | |||||||||||||||||||||
|
Common stocks issued - donation |
100,000 | 100 | - | - | 7,900 | - | 8,000 | |||||||||||||||||||||
|
Net loss |
- | - | - | - | - | 4,942,302 | 4,942,302 | |||||||||||||||||||||
|
Balance at June 30, 2020 |
181,150,138 | $ | 181,150 | - | $ | - | $ | 1,396,360 | $ | (7,016,707 | ) | $ | (5,439,197 | ) | ||||||||||||||
|
Common Stock |
Additional Paid-In |
Accumulated |
Total Stockholders' Equity |
|||||||||||||||||||||||||
|
Shares |
Amount |
To be Issued |
Amount |
Capital |
Deficit |
(Deficit) |
||||||||||||||||||||||
|
Balance at March 31, 2019 |
166,390,363 | $ | 166,390 | 1,150,000 | $ | 5,500 | $ | 1,001,251 | $ | (3,333,590 | ) | (2,160,449 | ) | |||||||||||||||
|
Common stock and warrants issuable forfeited |
- | - | (150,000 | ) | (4,500 | ) | (55,311 | ) | - | (59,811 | ) | |||||||||||||||||
|
Share issued to employees and vendor |
860,000 | 860 | - | - | 85,640 | - | 86,500 | |||||||||||||||||||||
|
Shares issuable from conversion of convertible debt |
- | - | 2,307,692 | 2,308 | 147,692 | - | 150,000 | |||||||||||||||||||||
|
Net loss |
- | - | - | - | - | (1,342,544 | ) | (1,342,544 | ) | |||||||||||||||||||
|
Balance at June 30, 2019 |
167,250,363 | $ | 167,250 | 3,307,692 | $ | 3,308 | $ | 1,179,272 | $ | (4,676,134 | ) | $ | (3,326,304 | ) | ||||||||||||||
|
Common Stock |
Additional Paid-In |
Accumulated |
Total Stockholders' Equity |
|||||||||||||||||||||||||
|
Shares |
Amount |
To be Issued |
Amount |
Capital |
Deficit |
(Deficit) |
||||||||||||||||||||||
|
Balance at December 31, 2019 |
169,862,933 | $ | 169,863 | 695,122 | $ | 695.00 | $ | 1,179,272 | $ | (6,717,169 | ) | $ | (5,367,339 | ) | ||||||||||||||
|
Shares issuable adjustment |
- | - | (695,122 | ) | $ | (695 | ) | 695 | - | - | ||||||||||||||||||
|
Common stocks issued from conversion of convertible debt |
11,128,205 | 11,128 | - | - | 204,422 | - | 215,550 | |||||||||||||||||||||
|
Common stocks issued for professional fees |
59,000 | 59 | - | - | 4,071 | - | 4,130 | |||||||||||||||||||||
|
Common stocks - issued donation |
100,000 | 100 | - | - | 7,900 | - | 8,000 | |||||||||||||||||||||
|
Net loss |
- | - | - | - | - | (299,538 | ) | (299,538 | ) | |||||||||||||||||||
|
Balance at June 30, 2020 |
181,150,138 | $ | 181,150 | $ | - | $ | - | $ | 1,396,360 | $ | (7,016,707 | ) | $ | (5,439,197 | ) | |||||||||||||
|
Common Stock |
Additional Paid-In |
Accumulated |
Total Stockholders' Equity |
|||||||||||||||||||||||||
|
Shares |
Amount |
To be Issued |
Amount |
Capital |
Deficit |
(Deficit) |
||||||||||||||||||||||
|
Balance at December 31, 2018 |
166,390,363 | $ | 166,390 | 1,000,000 | $ | 1,000 | $ | 945,940 | $ | (2,032,595 | ) | (919,265 | ) | |||||||||||||||
|
Common stock issuable under convertible debt |
- | - | 25,000 | 4,500 | - | - | 4,500 | |||||||||||||||||||||
|
Warrants issuable under convertible debt |
- | - | 125,000 | - | 55,311 | - | 55,311 | |||||||||||||||||||||
|
Common stock and warrants issuable forfeited |
- | - | (150,000 | ) | (4,500 | ) | (55,311 | ) | - | (59,811 | ) | |||||||||||||||||
|
Share issued to employees and vendor |
860,000 | 860 | - | - | 85,640 | - | 86,500 | |||||||||||||||||||||
|
Shares issuable from conversion of convertible debt |
- | - | 2,307,692 | 2,308 | 147,692 | - | 150,000 | |||||||||||||||||||||
|
Net loss |
- | - | - | - | - | (2,643,539 | ) | (2,643,539 | ) | |||||||||||||||||||
|
Balance at June 30, 2019 |
167,250,363 | $ | 167,250 | 3,307,692 | $ | 3,308 | $ | 1,179,272 | $ | (4,676,134 | ) | $ | (3,326,304 | ) | ||||||||||||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Six Months Ended June 30, |
||||||||
|
2020 |
2019 |
|||||||
|
Cash flows from operating activities: |
||||||||
|
Net loss |
$ | (299,538 | ) | $ | (2,643,539 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
|
Depreciation expense |
11,092 | 6,456 | ||||||
|
Noncash lease expense |
(839 | ) | 3,219 | |||||
|
Stock compensation expense |
12,130 | 85,640 | ||||||
|
Interest expense - debt discount |
38,418 | 188,273 | ||||||
|
Derivative expense |
4,373 | 634,766 | ||||||
|
Gain (loss) on extinguishment of debt |
(2,630,795 | ) | - | |||||
|
Changes in fair value of derivative liability |
1,203,135 | 365,370 | ||||||
|
Changes in assets and liabilities: |
||||||||
|
Other receivable, net |
47,714 | - | ||||||
|
Prepaid and other current assets |
(33,341 | ) | 35,110 | |||||
|
Cash due from gateways, net |
3,502,426 | (3,184,361 | ) | |||||
|
Accounts payable |
(33,597 | ) | (39,054 | ) | ||||
|
Other current liabilities |
14,354 | 15,356 | ||||||
|
Accrued interest |
(290,021 | ) | 9,442 | |||||
|
Payment processing liabilities, net |
(1,077,551 | ) | 6,364,927 | |||||
|
Net cash provided by (used in) operating activities |
467,960 | 1,841,605 | ||||||
|
Cash flows from investing activities: |
||||||||
|
Purchases of property and equipment |
(10,244 | ) | (41,634 | ) | ||||
|
Net cash used in investing activities |
(10,244 | ) | (41,634 | ) | ||||
|
Cash flows from financing activities: |
||||||||
|
Borrowings from convertible debt |
- | 482,500 | ||||||
|
Repayments on convertible debt |
(445,000 | ) | (496,500 | ) | ||||
|
Borrowigs from notes payable |
744,480 | - | ||||||
|
Principal payments on notes payable |
(823,074 | ) | - | |||||
|
Repayment on long-term debt |
- | (75,000 | ) | |||||
|
Net cash provided by (used in) financing activities |
(523,594 | ) | (89,000 | ) | ||||
|
Net increase in cash, cash equivalents, and restricted cash |
(65,878 | ) | 1,710,971 | |||||
|
Cash, cash equivalents, and restricted cash – beginning of period |
763,110 | 284,978 | ||||||
|
Cash, cash equivalents, and restricted cash – end of period |
$ | 697,232 | $ | 1,995,949 | ||||
|
Supplemental disclosures of cash flow information |
||||||||
|
Cash paid during the period for: |
||||||||
|
Interest |
$ | 525,270 | $ | 125,511 | ||||
|
Income taxes |
$ | 800 | $ | 800 | ||||
|
Non-cash financing activities: |
||||||||
|
Convertible debt conversion to common stock |
$ | 137,500 | $ | (150,000 | ) | |||
|
Interest accrual from convertible debt converted to common stock |
$ | 78,050 | $ | - | ||||
The accompanying notes are an integral part of these condensed unaudited financial statements.
GREENBOX POS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
1. |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Organization
GreenBox POS (the “Company” or “PubCo”) is a tech company formed with the intent of developing, marketing and selling innovative blockchain-based payment solutions, which the Company believes will cause favorable disruption in the payment solutions marketplace. The Company’s core focus is to develop and monetize disruptive blockchain-based applications, integrated within an end-to-end suite of financial products, capable of supporting a multitude of industries. The Company’s proprietary, blockchain-based systems are designed to facilitate, record and store a virtually limitless volume of tokenized assets, representing cash or data, on a secured, immutable blockchain-based ledger.
The Company was formerly known as GreenBox POS, 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.”
Name Change
On May 3, 2018, PubCo formally changed its name to GreenBox POS LLC, then subsequently changed its name to GreenBox POS on December 13, 2018. Unless the context otherwise requires, all references to “the Company,” “we,” “our”, “us” and “PubCo” refer to GreenBox POS. Unless the context otherwise requires, all references to “PrivCo” or the “Private Company” refer to GreenBox POS LLC, a limited liability company, formed in the state of Washington.
Unaudited Interim Financial Information
These unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2020.
The balance sheets and certain comparative information as of December 31, 2019 are derived from the audited financial statements and related notes for the year ended December 31, 2019 (“2019 Annual Financial Statements”), included in the Company’s 2019 Annual Report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the 2019 Annual Financial Statements.
Basis of Presentation and Consolidation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
The financial statements include the combined accounts of PubCo and PrivCo. All amounts are presented in U.S. Dollars unless otherwise stated. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”).
Going Concern
As of June 30, 2020, the Company had cash and cash equivalents of $0, has incurred a net loss of $299,538 for the six months ended June 30, 2020, and has accumulated a deficit of $7,016,707. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Additionally, as the GreenBox ecosystem grows, substantially larger volumes of working capital financing will be required to support our platform’s growth.
The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, we will have to develop and implement a plan to further extend payables, reduce overhead or scale back our business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Accordingly, the accompanying financial statements have been prepared in conformity with GAAP, which contemplate our continuation as a going concern, and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities 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.
Use of Estimates
The preparation of financial statements in conformity with the GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
The Company’s cash, cash equivalent and Restricted cash represents the following:
|
|
● |
Cash and cash equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with a maturity of three months or less when purchased. The Company has cash equivalents of $0 and $0, excluding cash held for settlement liabilities, as of June 30, 2020 and December 31, 2019, respectively. |
|
|
● |
Restricted Cash – The Company’s technology enables transactional blockchain ledger to instantly reflect all transactions details. The final cash settlement of each transaction is subject to the gateway policies. This final disposition takes days to weeks to complete in accordance with these policies. Each policy is an integral part of the transactional contracts between the Company, its Independent Sales Organizations (ISOs), its agents, and the merchant clients. While the ledger reflects a held balance for the merchant, in reserve or payment in arears, the Company holds funds in a trust account as cash deemed restricted. The Company’s books reflect such restricted cash as a restricted cash and trust accounts, and the sum balance due to merchants and ISOs as settlement liabilities. |
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
Cash and cash equivalents |
$ | - | $ | - | ||||
|
Restricted cash |
697,232 | 763,110 | ||||||
|
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows |
$ | 697,232 | $ | 763,110 | ||||
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Cash Due from Gateways and Payment Processing Liabilities
The Company’s primary source of revenues continues to be payment processing services for its merchant clients. When such merchant makes a sale, the process of receiving the payment card information, engaging the banks for transferring the proceeds to the merchant’s account via digital gateways, and recording the transaction on a blockchain ledger are the activities for which the Company gets to collect fees.
In 2019 the Company utilized several gateways. The gateways have strict guidelines pertaining to scheduling of the release of funds to merchants based on several criteria, such as return and chargeback history, associated risk for the specific business vertical, average transaction amount and so on. In order to mitigate processing risks, these policies determine reserve requirements and payment in arear strategy. While reserve and payment in arear restrictions are in effect for a merchant payout, the Company records gateway debt against these amounts until released.
Therefore, the total gateway balances reflected in the Company’s books represent the amount owed to the Company for processing – these are funds from transactions processed and not yet distributed.
Advertising and Marketing Costs
Advertising and marketing costs are recorded as general and administrative expenses when they are incurred. Advertising and marketing expenses were $15,384 and $12,603 for the three months ended June 30, 2020 and 2019, respectively, and $27,269 and $25,609 for the six months ended June 30, 2020 and 2019, respectively.
Research and Development Costs
Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits for research and development personnel, outsourced contract services, and supplies and materials costs. Research and development expenses were $267,686 and $600,264 for the three months ended June 30, 2020 and 2019, respectively, and $554,234 and $704,186 for the six months ended June 30, 2020 and 2019, respectively.
Revenue Recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.
The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.
The Company generates revenue from payment processing services, licensing fees and equipment sales.
|
|
● |
Payment processing revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed. |
|
|
● |
Licensing revenue is paid in advance and is recorded as unearned income, which is amortized monthly over the period of the licensing agreement. |
|
|
● |
Equipment revenue is generated from the sale of POS products, which is recognized when goods are shipped. |
Accounts Receivables from Fines and Fees from Merchants
The fines and penalties charged to the Company’s merchants is a normal course of business and historically, the Company has had more than 90% collections success rate. These fees and penalties represent certain chargebacks which are at fault by the Company’s merchants and are imposed as the merchant agreement between the Company and the merchant. The Company has legal rights under the merchant agreement to claim the chargeback. These chargebacks, fees, and fines are earned and delivered because the Company has been “chargebacked” by the Gateways and the Company has legal rights under the agreement to claim this against the merchants.
In end of Q3 2019, GreenBox received constructive notice of potential violations of its Terms of Service by a merchant, The Good People Farms (“TGPF”). An ongoing audit and investigation of this account resulted in the discovery of a number of violations GreenBox believes TGPF is responsible for, including but not limited to violations of VISA, Mastercard, and American Express’s rules.
This investigation is ongoing, but initial results indicate that excessively high chargeback percentages are connected with fraudulent activity and / or transaction laundering. These issues lead to the implementation of aggressive bank reserves, stunting GreenBox’s ability to conduct business and contributed to undetermined consequential damages. GreenBox promptly terminated the merchant account and placed all processed funds on reserve.
Although the investigation is ongoing, GreenBox estimates that the total amount of fees, fines, and chargebacks are currently $9,441,718. The Company has provided for an allowance for bad debt of $6,665,031 on the gross balance of $9,441,718 bringing to net balance of $2,789,230 which is included as accounts receivables from fines and penalties from merchants. To date, GreenBox has successfully recouped $840,739.33 (collected in 2019). The Company expects to recoup at minimum approximately $2.8M in fiscal year 2020. The Company may assess $100,000 per fraudulent transactions but the Company used $5,000 per transaction to calculate the fees and fines.
The Company recorded net balance of $2,776,687 as other income in the statements of operations for the year ended December 31, 2019.
Accounts Receivable and Allowance for Bad Debt
The Company maintains an allowance for doubtful accounts for estimated losses from the inability of customers to make required payments. The allowance for doubtful accounts is evaluated periodically based on the aging of accounts receivable, the financial condition of customers and their payment history, historical write-off experience and other assumptions, such as current assessment of economic conditions.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, which range from three to eight years. Leasehold improvements are amortized over the shorter of the useful life of the related assets or the lease term. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period.
Fair Value of Financial Instruments
The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s financial instruments consisted of cash, accounts payable and accrued liabilities, advances to due to or from affiliated companies, notes payable to officers. The estimated fair value of cash, accounts payable and accrued liabilities, due to or from affiliated companies, and notes payable approximates its carrying amount due to the short maturity of these instruments.
The table below describes the Company’s valuation of financial instruments using guidance from ASC 820-10:
|
June 30, 2020 |
Level 1 |
Level 2 |
Level 3 |
|||||||||
|
Derivative liability |
$ | - | $ | - | $ | - | ||||||
|
December 31, 2019 |
Level 1 |
Level 2 |
Level 3 |
|||||||||
|
Derivative liability |
$ | - | $ | - | $ | 1,050,063 | ||||||
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net of operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
Long-Lived Asset Impairments
The Company reviews long-lived assets, including property and equipment and intangible assets, for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, and at least annually. The Company considers assets to be impaired and writes them down to estimated fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows.
Earnings Per Share
A basic earnings per share is computed by dividing net income to common stockholders by the weighted average number of shares outstanding for the year. Dilutive earnings per share include the effect of any potentially dilutive debt or equity under the treasury stock method, if including such instruments is dilutive. The Company’s diluted earnings/loss per share is the same as the basic earnings/loss per share for the three months ended March 31, 2020 and 2019, as there are no potential shares outstanding that would have a dilutive effect.
Leases
Prior to January 1, 2019, the Company accounted for leases under Accounting Standards Codification (ASC) 840, Accounting for Leases. Effective from January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases
On February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. ASC 842 requires that lessees recognize right of use assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months.
ASC 842 distinguishes leases as either a finance lease or an operating lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows. ASC 842 supersedes nearly all existing lease accounting guidance under GAAP issued by the Financial Accounting Standards Board (“FASB”) including ASC Topic 840, Leases.
For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the IBR as of that date.
Recently Issued Accounting Updates
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with prior GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease. However, unlike prior GAAP—which required only finance (formerly capital) leases to be recognized on the balance sheet—the new ASU requires both types of leases to be recognized on the balance sheet. The ASU took effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This standard can be applied at the beginning of the earliest period presented using the modified retrospective approach, which includes certain practical expedients that an entity may elect to apply, including an election to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840.
The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use assets and operating lease liabilities of liabilities of $307,531 and $309,677, respectively as of March 31, 2019. The difference between the operating lease ROU assets and operating lease liabilities at transition represented tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. While the Company is currently in the process of evaluating the effects of this standard on the consolidated financial statements, the Company plans to adopt ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company plans to adopt the updated disclosure requirements of ASU No. 2018-15 prospectively in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.
Other recently issued accounting updates are not expected to have a material impact on the Company’s Interim Financial Statements.
|
3. |
SETTLEMENT PROCESSING |
The Company’s proprietary blockchain-based technology serves as the settlement engine for all transactions within the Company’s ecosystem. The blockchain ledger provides a robust and secure platform to log immense volumes of immutable transactional records in real time. Generally speaking, blockchain is a distributed ledger that uses digitally encrypted keys to verify, secure and record details of each transaction conducted within an ecosystem. Unlike general blockchain-based systems, GreenBox uses proprietary, private ledger technology to verify every transaction conducted within the GreenBox ecosystem. The verification of transaction data comes from trusted partners, all of whom have been extensively vetted by us. GreenBox facilitates all financial elements of our closed-loop ecosystem and we act as the administrator for all related accounts. Using our TrustGateway technology, we seek authorization and settlement for each transaction from Gateways to the issuing bank responsible for the credit/debit card used in the transaction. When the Gateway settles the transaction, our TrustGateway technology composes a chain of blockchain instructions to our ledger manager system.
When consumers use credit/debit cards to pay for transactions with merchants who use our ecosystem, the transaction starts with the consumer purchasing tokens from us. The issuance of tokens is accomplished when we load a virtual wallet with a token, which then transfers credits to the merchant’s wallet on a dollar for dollar basis, after which the merchant releases its goods or services to the consumer. These transfers take place instantaneously and seamlessly, allowing the transaction experience to seem like any other ordinary credit/debit card transaction to the consumer and merchant. While our blockchain ledger records transaction details instantaneously, the final cash settlement of each transaction can take days to weeks, depending upon contract terms between us and the gateways we use, between us and our ISOs, and between us and/or our ISOs and merchants who use our services. In the case where we have received transaction funds, but not yet paid a merchant or an ISO, we hold funds in either a trust account or as cash deemed restricted within our operating accounts. We record the total of such funds as Cash held for Settlements – a Current Asset. Of these funds, we record the sum balance due to Merchants and ISOs as Settlement Liabilities to Merchants and Settlement Liabilities to ISOs, respectively.
The table below shows the status of transaction settlements:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
Settlement Processing Assets: |
||||||||
|
Cash held for settlements |
$ | 697,232 | $ | 755,395 | ||||
|
Cash due from gateways |
3,276,151 | 3,073,183 | ||||||
|
Amount due from gateways and merchants – hold and fees |
6,949,467 | 4,824,223 | ||||||
|
Chargeback allowances (1) |
- | - | ||||||
|
Reserves (2) |
2,021,491 | 5,353,661 | ||||||
|
Total before allowance for uncollectable |
12,944,341 | 14,021,892 | ||||||
|
Allowance for uncollectable – hold and fees |
(6,949,467 |
) |
(4,824,223 |
) |
||||
|
Cash held for settlement |
(697,232 |
) |
(763,110 |
) |
||||
|
Total – settlement processing assets |
$ | 5,297,642 | $ | 8,426,844 | ||||
|
Settlement Processing Liabilities: |
||||||||
|
Settlement liabilities to merchants |
12,944,341 | 14,021,892 | ||||||
|
Settlement liabilities to ISOs |
- | - | ||||||
|
Refund allowances (3) |
- | - | ||||||
|
Totals |
$ | 12,944,341 | $ | 14,021,892 | ||||
(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.
(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.
(3) The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using the Company’s proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with allowances.
|
4. |
CASH DUE FROM GATEWAYS |
Cash due from gateways consisted of the following:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
Cash due from Gateways |
$ | 3,276,151 | $ | 3,073,183 | ||||
|
Amount due from gateways and merchants – hold and fees |
6,949,467 | 4,824,223 | ||||||
|
Reserves (2) |
2,021,491 | 5,353,661 | ||||||
|
Total cash due from gateways |
12,247,109 | 13,251,067 | ||||||
|
Chargeback Allowances (1) |
- | - | ||||||
|
Allowance of uncollectable – hold and fees |
(6,949,467 | ) | (4,824,223 | ) | ||||
|
Total cash due from gateways, net |
$ | 5,297,642 | $ | 8,426,844 | ||||
(1) During 2018, the Company absorbed all chargeback costs as a cost of services provided – essentially a sales promotion tool to onboard customers in 2018. The Chargeback Allowance shown in the table above reflects our estimate of potential chargebacks that are likely to be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox is owed from the Gateways we use in our proprietary ecosystem. In 2019, the actual dollar amount of chargebacks will be reconciled with our allowance.
(2) Reserves are essentially an escrow fund that protects a gateway/card issuer from financial losses. In the Reserve, funds are held until chargeback time limits expire.
|
5. |
PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
Computers |
$ | 46,200 | $ | 38,938 | ||||
|
Furniture |
40,320 | 37,339 | ||||||
|
Kiosks |
6,472 | 12,750 | ||||||
|
Vehicles |
4,578 | 4,578 | ||||||
|
Total property and equipment |
97,570 | 93,605 | ||||||
|
Less: Accumulated depreciation |
(31,967 | ) | (27,114 | ) | ||||
|
Total property and equipment, net |
$ | 65,603 | $ | 66,491 | ||||
Depreciation expense was $5,376 and $3,615 for the three months ended June 30, 2020 and 2019, respectively, and $11,092 and $6,455 for the six months ended June 30, 2020 and 2019, respectively.
|
6. |
PAYMENT PROCESSING LIABILITIES, NET |
Payment processing liabilities consisted of the following:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
Settlement liabilities to merchants |
$ | 12,944,341 | $ | 14,021,892 | ||||
|
Settlement liabilities to ISOs |
- | - | ||||||
|
Total processing liabilities |
12,944,341 | 14,021,892 | ||||||
|
Refund allowances |
- | - | ||||||
|
Total payment processing liabilities |
$ | 12,944,341 | $ | 14,021,892 | ||||
The Refund Allowance shown in the table above reflects our estimate of potential refunds that may be realized in 2019, which are connected to sales transactions that occurred in 2018. The allowance decreases the amount that GreenBox owes to Merchants using our proprietary ecosystem. In 2019, the actual dollar amount of refunds with be reconciled with our allowance.
|
7. |
CONVERTIBLE NOTES PAYABLE |
Convertible notes payable consisted of the following:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
March 11, 2019 ($500,000) – 8% one-time interest charge with outstanding principal and interest due October 6, 2019. |
$ | 255,000 | $ | 500,000 | ||||
|
November 26, 2018 ($200,000) – 12% interest per annum with outstanding principal and interest due November 26, 2019. |
- | 200,000 | ||||||
|
March 15, 2018 ($300,00) – 12% interest per annum with outstanding principal and interest due March 15, 2019. |
- | 107,500 | ||||||
|
Total convertible notes payable |
$ | 255,000 | $ | 807,500 | ||||
Vista Capital Investments, LLC - $500,000 (original received $375k)
On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon repayment of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”). The Vista Note’s principal and interest were due to be paid October 6, 2019.
The Company and Vista amended the convertible debt agreement as follows:
|
|
● |
First Amendment – On or about October 16, 2019, the parties amended the Vista Note to extend the Maturity Date to November 6, 2019, reduce the principal and interest due to $464,625 and cancel the Commitment Shares. |
|
|
● |
Second Amendment – On or about December 11, 2019, the parties agreed to a second amendment of the Vista Note, which extended the Maturity Date to January 15, 2020, required the Company to make a one-time payment of $10,000, changed the principal and interest balance due to $487,858, and waived Vista’s default rights through January 15, 2020. On January 22, 2020, Vista issued a default notice to the Company, which included an increase in the balance due to $634,213. |
|
|
● |
Third Amendment – On or about January 28, 2020, the parties agreed upon a third amendment to the Vista Note, which extended the Maturity Date to February 29, 2020, reduced the principal and interest due to $482,856 and required the Company to make a one-time $20,000 payment on or before January 29, 2020, of which $5,000 is to be applied to principal due. All other terms of the note remain in full force and effect. |
On April 21, 2020, Vista converted $100,000 of convertible debt by receiving 5,128,205 common shares. On June 15, 2020, the Company and Vista entered into a settlement agreement, whereby, the Company will pay $225,000 on June 19, 2020 and $225,000 on July 19, 2020 and issuing 5,128,205 common shares to settle all of the outstanding balance including accrued interest. The Company has provided payment on those dates to fully settle the balance accordingly.
RB Cap – $200,000
On November 26, 2018, PubCo issued a convertible promissory note for $200,000 to RB Cap (the “RB Cap $200K Note”). The note incurs interest at 12% per year and the outstanding principal and accrued interest are due November 26, 2019. RB Cap may elect to convert the note at any time from six months from the date of issuance at a fixed price per share of $4.50. This note became part of a claim/counter claim suit with RB Capital. The Company paid the loan with full settlement during the quarter ended March 31, 2020. As part of the payment settlement for all RB Cap convertible notes, the Company collectively provided 6,000,000 common shares.
RB Cap – $300,000
On or about March 15, 2018, PrivCo issued a twelve-month, $300,000 convertible promissory note to RB Capital Partners (“RB Cap”), with an interest rate of 12% per annum (“RB Cap 300K Note”). The note’s convertibility feature commenced six months after the note’s issuance, at a conversion rate of $0.001 per share of the Company’s common stock. Under the terms of the Agreement which memorialized the Verbal Agreement, we assumed the note, however, PrivCo agreed to pay $185,000 of the principal balance due on this note. On or about June 8, 2018, PrivCo transferred 440,476 restricted shares of Common Stock from the Control Block, with a market value of $185,000, to a purported designee of RB Cap, as a payment of principal of the note. Subsequently, RB Cap disputed the reduction in principal and subsequently, and we, along with PrivCo, disputed whether these shares should have been issued by PrivCo, and sought their return. On or about October 23, 2018, we issued 7,500,000 newly issued, restricted shares of our stock to RB Cap, in repayment of $7,500 of the RB Cap $300,000 Note. Subsequently, we disputed whether these shares should have been issued to RB Cap. As of December 31, 2018, our recorded principal balance for the note was $107,500 and accrued interest on the note was $15,880. On or about March 13, 2019, we issued a final cash payment towards the RB Cap 300K Note of approximately $126,092 (the “Payoff Funds”). However, RB Cap contested the amount of the Payoff Funds. The Company paid the loan of $50,000 during the quarter ended March 31, 2020 and settled the rest of the outstanding balance including interest with shares issuances. As part of the payment settlement for all RB Cap convertible notes, the Company collectively provided 6,000,000 common shares.
|
8. |
SHORT-TERM NOTES PAYABLE |
Short-term notes payable consisted of the following:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
December 10, 2019 ($260,000) – Total interest charge of $106,000 with daily installments (5 days per week) of $4,073 for four months totaling $366,000. |
$ | - | $ | 213,671 | ||||
|
December 9, 2019 ($200,000) – Total interest charge of $40,000 with 15 weekly installments of $16,000 totaling $240,000. |
- | 160,000 | ||||||
|
November 12, 2019 ($400,000) – Total interest charge of $196,000 with daily installments (5 days per week) of $5,960 for four months totaling $596,000. |
124,000 | 400,000 | ||||||
|
June 3, 2020 ($300,000) – Total weekly payment of $13,714 for total of 28 payments. |
272,571 | - | ||||||
|
June 9, 2020 ($150,000) – Monthly payment of $731 after 12 months with maturity date of June 1, 2050 with interest rate at 3.75% per annum. |
149,900 | - | ||||||
|
April 29, 2020 ($272,713) – Paycheck protection program (“PPP”) loan provided by SBA under CARES Act with interest rate at 1.00% per annum with maturity date of April 29, 2022. |
272,713 | - | ||||||
|
Total short-term notes payable |
$ | 695,184 | 773,671 | |||||
|
Debt discount |
(78,000 | ) | (32,418 | ) | ||||
|
Total short-term notes payable, net of debt discount |
$ | 617,184 | $ | 741,253 | ||||
Fox Capital Group, Inc. - $260,000
On or about December 5, 2019, PubCo entered into a Secured Merchant Agreement with Fox Capital Group, Inc. (“Fox”). Under the terms of the Secured Merchant Agreement, the Company agreed to sell Fox $366,000 of future incoming cashflow from the GreenBox Business, to be delivered to Fox in daily installments of $4,073, for $260,000, from which $26,000 in fees was deducted, providing the Company with net cash of $234,000. For accounting purposes, the Company recorded this transaction as a loan of $260,000, with interest of $106,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Secured Merchant Agreement.
Complete Business Solutions Group, Inc. - $200,000
On or about December 9, 2019, PubCo entered into an Agreement for the Purchase and Sale of Future Receivables (the “Purchase and Sale Agreement”) with Complete Business Solutions Group Inc, (“CBSG”). Under the terms of the Purchase and Sale Agreement, we agreed to sell CBSG $240,000 of future incoming cashflow from the GreenBox Business, to be delivered to CBSG in weekly installments of $16,000, for $200,000, from which $35 in fees was deducted, providing us with net cash of $199,965. For accounting purposes, we recorded this transaction as a loan of $200,000, with interest of $40,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase and Sale Agreement.
West Coast Business Capital, LLC - $400,000
On or about November 12, 2019, the Company entered into a Purchase Agreement with West Coast Business Capital, LLC (“West Coast”). Under the terms of the Purchase Agreement, the Company agreed to sell West Coast $596,000 of future incoming cashflow from the GreenBox Business, to be delivered to West Coast in daily installments of $5,960, for $400,000, from which $16,000 in fees was deducted, providing the Company with net cash of $384,000. For accounting purposes, the Company recorded this transaction as a loan of $400,000, with interest of $196,000, which will be repaid over the following four months. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.
Itria Ventures - $300,000
On June 3, 2020, the Company entered into a loan agreement with Itria Ventures in the amount of $300,000. The loan requires weekly payment of $13,714 for total of 28 payments until fully paid. The loan bears 4.09% interest per annum. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.
SBA CARES Act Loan - $150,000
On June 9, 2020, the Company entered into a loan agreement with SBA under CARES Act in the amount of $150,000. The loan requires monthly payment of $731 after 12 months with maturity date of June 1, 2050 with interest rate at 3.75% per annum. Both Nisan and Errez, individually, signed personal guarantees for this Purchase Agreement.
Preferred Bank - Paycheck Protection Program – CARES Act - $272,713
On April 29, 2020, the Company entered into a loan agreement with Preferred Bank under Paycheck Protection Program administered by SBA in the amount of $272,713. Under this loan program, the loan may be forgiven if utilized for specific purpose specified under the CARES Act and PPP guideline. The loan bears interest of 1.00% per annum and matures on April 29, 2022.
|
9. |
DERIVATIVE LIABILITY |
Derivative liability consisted of the following:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
Beneficial conversion feature – convertible debt |
$ | - | $ | 1,050,063 | ||||
|
Total derivative liability |
$ | - | $ | 1,050,063 | ||||
On March 11, 2019, PubCo issued a convertible promissory note for $500,000 to Vista Capital Investments, LLC (“Vista”) (the “Vista Note”), due October 6, 2019 (the “Maturity Date”). The Vista Note incurred a onetime interest charge of 8%, which was recorded at issuance, and was due upon payback of the Vista Note. The Vista Note included an original issue discount of $125,000, netting the balance received by PubCo from Vista at $375,000. The Vista transaction included commitment fees, which took the form of an obligation by PubCo to issue Vista 25,0000 shares and a four-year warrant to purchase 125,000 shares (the “Commitment Shares”) which are only provided in the event of default. Upon the occurrence of an event of default, as defined in the Vista Note, the conversion price shall become equal to a 65% of the lowest traded price for the Company’s common stock in the 25 consecutive trading days preceding the notice of conversion and the balance due shall be multiplied by 130% (the “Default Provision”).
Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and valued the derivative using the Black-Scholes method. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated life and interest rates) that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s operating results will reflect the volatility in these estimate and assumption changes.
The Company performs valuation of derivative instruments at the end of each reporting period. The fair value of derivative instruments is recorded and shown separately under current liabilities as these instruments can be converted anytime. Changes in fair value are recorded in the consolidated statement of income under other income (expenses).
|
10. |
INCOME TAXES |
The Company did not have income tax provision (benefit) due to net loss and deferred tax assets having a full valuation allowances as of and for the three and six months ended June 30, 2020 and 2019.
The provision for income taxes differs from the amounts computed by applying the federal statutory tax rate of 21% to earnings before income taxes, as follows:
|
Three and Six Months Ended June 30, |
||||||||
|
2020 |
2019 |
|||||||
|
Book income at statutory rate |
21.00 | % | 21.00 | % | ||||
|
Others |
0 | % | -0.80 | % | ||||
|
Change in Valuation Allowance |
-21.00 | % | -20.14 | % | ||||
|
Effective income tax rate |
0 | % | 0.06 | % | ||||
Deferred tax assets and liabilities consist of the following tax-effected temporary differences:
|
June 30, 2020 |
December 31, 2019 |
|||||||
|
Deferred tax assets (liabilities): |
||||||||
|
Charitable contributions |
$ | - | $ | - | ||||
|
Unearned revenue |
- | - | ||||||
|
Depreciation |
- | - | ||||||
|
Net operating loss carryforward |
725,000 | 498,888 | ||||||
|
Total deferred tax assets, net |
725,000 | 498,888 | ||||||
|
Valuation allowance |
(725,000 | ) | (498,888 | ) | ||||
|
Net deferred tax assets (liabilities) |
$ | - | $ | - | ||||
The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of June 30, 2020, the Company had federal and California net operating loss carryforwards of approximately $3.5 million. The federal and California net operating loss carryforwards will expire at various dates from 2026 through 2028; however, $3.5 million of the Federal operating loss does not expire and will be carried forward indefinitely.
As of June 30, 2020 and December 31, 2019, the Company maintained full valuation allowance for net operating loss carryforward deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced.
The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statutes of limitations for its consolidated federal income tax returns are open for years 2016 and after, and state and local income tax returns are open for years 2015 and after.
|
11. |
EQUITY TRANSACTIONS |
The Company issued the following common shares:
|
|
● |
On or about May 10, 2019, PubCo issued 10,000 shares to a non-affiliated legal consultant for services rendered. |
|
|
● |
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. |
|
|
● |
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. |
|
|
● |
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 |
|
|
o |
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). |
|
|
o |
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. |
|
|
o |
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. |
|
12. |
STOCK COMPENSATION |
On June 19, 2020, the Company adopted 2020 Incentive and Non-statutory Stock Option Plan (the “2020 Plan”) by making 10,000,000 shares available to be issued to employees of the Company.
At its discretion, the Company grants share option awards, nonvested share awards and nonvested share unit awards to certain employees, as defined by ASC 718, Compensation—Stock Compensation, under the Company’s 2020 Plan, and accounts for its stock compensation in accordance with ASC 718. The stock compensation expense for the three months and six months ended June 30, 2020 was not material.
The Company granted stock options of total of 3,145,116 on June 22, 2020 and June 24, 2020 with an exercise price of $0.070 per share for shares issued on June 22, 2020 and $0.065 per share for shares issued on June 24, 2020 with full vesting after six months from the grant date.
A summary of the status of the Company’s share option awards is presented below:
|
Weighted- |
||||||||||||||||
| Average | ||||||||||||||||
|
Weighted- |
Remaining | |||||||||||||||
|
Average |
Contractual |
Aggregate |
||||||||||||||
|
Exercise |
Life |
Intrinsic |
||||||||||||||
|
Shares |
Price |
(In Years) |
Value |
|||||||||||||
|
Outstanding at December 31, 2019 |
- | $ | - | |||||||||||||
|
Granted |
3,145,116 | 0.07 | ||||||||||||||
|
Forfeited or Expired |
- | - | ||||||||||||||
|
Outstanding at June 30, 2020 |
3,145,116 | $ | 0.07 | 0.46 | $ | 220,158 | ||||||||||
|
Exercisable at June 30, 2020 |
- | $ | - | - | $ | - | ||||||||||
|
Vested and Expected to Vest at June 30, 2020 |
112,835 | $ | 0.07 | - | $ | - | ||||||||||
The aggregate intrinsic value represents the total pretax intrinsic value, based upon the Company’s most recent closing stock price of $0.07 as of June 30, 2020, which would have been received by the option holders had all option holders exercised their option awards as of that date.
The fair value of each share option award on the date of grant is estimated using the Black-Scholes method based on the following weighted-average assumptions:
|
3 Months Ended |
6 Months Ended |
|||||||||||||||
|
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
|||||||||||||
|
Weighted average fair value of options granted |
$ | 0.07 | $ | - | $ | 0.07 | $ | - | ||||||||
|
Risk-free interest rate |
0.29 | % | - | 0.29 | % | - | ||||||||||
|
Expected term |
5 years |
- |
5 years |
- | ||||||||||||
|
Expected volatility |
289.33 | % | - | 289.33 | % | - | ||||||||||
|
Expected dividend yield |
- | - | - | - | ||||||||||||
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option award; the expected term represents the weighted-average period of time that option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield is based upon the Company’s current dividend rate.
As of June 30, 2020, there was $219,900 of total unrecognized compensation expense related to share option awards granted. That expense is expected to be recognized over a weighted-average period of six months.
|
13. |
RELATED PARTY TRANSACTIONS |
The Company had the following related party transactions:
|
|
● |
Related Party Employees and Employee Entity: |
Dan Nusinovich – The Company hired Dan Nusinovich on or about February 19, 2018 as the Company’s Development and Testing Manager. Dan is the brother of Fredi Nisan, our CEO and Director. Subsequently, the Company entered into a Referral Commission Agreement with Dan in November 2018, which expired November 2019, under which Dan is to receive 10% for new business resulting from his direct introductions. To date, no new business has been generated by Dan, thus Dan has not been paid under the Referral Agreement. On or about June 18, 2019, the Company issued 160,000 restricted shares to Dan, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $16,000 at closing, on the day of issuance. The Company currently pays Dan approximately $96,000 per year.
Liron Nusinovich – The Company hired Liron Nusinovich on or about July 16, 2018 as our Risk Analyst. Liron is the brother of Fredi Nisan, our CEO and Director. On or about June 18, 2019, the Company issued 110,000 restricted shares to Liron, who was one of nine employees to receive a performance bonus in stock on this day. The shares were fully vested upon issuance and worth $11,000 at closing, on the day of issuance. The Company currently pays Liron approximately $92,000 per year.
Pop N Pay, LLC – In addition to his employment with the Company, Dan Nusinovich owns 100% of Pop N Pay, LLC (“PNP”), a Delaware registered limited liability company, that he formed on August 20, 2018. During the late summer of 2018, when both market opportunity and demand necessitated opening additional bank accounts to support our payment processing products and services, we turned to PNP to open new accounts, as a trustee, on our behalf. For his assistance, Dan, through his ownership of PNP, received approximately $3,000 (in addition to Dan’s salary) in early 2019, for services rendered in the fourth quarter of 2018.
|
|
● |
Related Party Entities: |
IPX Referral Payments, LLC – Pouya Moghavem, an employee since August 1, 2018, owns 25% of IPX Referral Payments, LLC (“IPX”). In addition to the $5,000 monthly salary we pay Moghavem, the Company entered into a Referral Agreement with IPX wherein the Company agreed to compensate IPX for referrals, which subsequently become the Company’s customer. For the three months ended March 31, 2019 and 2018, IPX did not earn any commissions. Additionally, in or about October 2018, IPX provided GreenBox with a merchant trust account in Mexico through Affinitas Bank, one of the Gateways that process payment transactions on the Company’s behalf. The Company did not pay IPX for this service, however, IPX reported that Affinitas paid IPX approximately $1,830.
RB Capital – Because PrivCo agreed to sell RB Cap 4% of PrivCo in January 2018, which currently purportedly gives RB Cap a claim to approximately six million PubCo shares, RB Cap is deemed an affiliated Party. In March 2018, PrivCo issued a $300,000 convertible promissory note to RB Cap, the balance of which PubCo assumed when we acquired the GreenBox Business from PrivCo. On November 26, 2018, we issued a $200,000 convertible promissory to RB Cap. Subsequently, RB Cap and GreenBox disputed the implications of the share purchase and promissory notes. The implications of this ownership and RB Cap’s claim to PubCo shares are in dispute, which became the subject of a lawsuit with RB Cap (see Legal Matters under Subsequent Events). This was settled on February 27, 2020.
America 2030 Capital Limited and Bentley Rothschild Capital Limited – On or about July 30, 2018, Nisan and Errez, the sole officers and directors of PubCo, and the majority owners of PrivCo, each entered into a separate Master Loan Agreement (each an "MLA"): Errez with America 2030 Capital Limited (“America 2030”) and Nisan with Bentley Rothschild Capital Limited ("Bentley"), a company affiliated with America 2030, both located in Nevis, West Indies. Each MLA was for a $5,700,000 loan, at 5.85% interest, maturing in ten years. Per the MLA’s terms, Nisan and Errez caused PrivCo to transfer 1,600,000 PubCo shares, valued at $2,144,000 at close of trading on the day of issuance, as "Transferred Collateral" from the Control Block (not a new issuance by PubCo) to Bentley (although both contracts acknowledge receipt of 1.6 million shares, there was only was transference of 1.6 million shares). The transfer occurred on or about August 1, 2018. To date, there has been no funding under either of the MLAs. Subsequently, both Nisan and Errez received constitutive notice, regarding arbitration of an alleged breach of their respective MLAs. As of March 31, 2020, both parties have abandoned the matter and no further action was required by either party.
|
|
● |
Kenneth Haller and the Haller Companies |
Kenneth Haller (“Haller”) became the Company’s Senior Vice President of Payment Systems in November 2018. The Company began working indirectly with Haller earlier in 2018, both individually and through our relationship with MTrac Tech Corporation (“MTrac”), which in turn has business relationships with Haller. Haller brings considerable advantages to the Company’s platform development and business development efforts and capabilities, including transactional business relations and a large network of agents, which the Company believes, are capable of processing $1 billion transactions annually (the “Haller Network”). The Haller Network is an amalgamation of the collective networks of Haller and three companies owned or majority-owned by Haller, which are Sky Financial & Intelligence, LLC (“Sky”), Charge Savvy, LLC, Cultivate, LLC (collectively, the “Haller Companies”), each of which has formalized business relationships with the Company, as well as with some of the Company’s partners, which the Company believes allows the Company to maximize and diversity the Company’s market penetration capabilities. Haller, through Sky, owns controlling interests in Charge Savvy, LLC and Cultivate, LLC, with whom we do business indirectly, through their respective business relationship with MTrac. We also do business directly with Cultivate LLC, through a three-party agreement, which includes us, MTrac and Cultivate.
The following are certain transactions between the Company and the Haller Companies:
|
|
o |
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. |
|
|
o |
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 above). 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. 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. |
|
|
§ |
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. 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. |
|
|
o |
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. |
|
|
o |
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. |
|
|
o |
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. |
|
|
o |
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 number of shares to PubCo, as a means of compensating PubCo for the issuance. |
The Company did not pay any commissions to Charge Savvy or Cultivate for the three and six months ended June 30, 2020 and 2019.
|
14. |
COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
The Company has the following legal proceedings:
|
● |
MTrac, Global Payout, Inc. and Cultivate Technologies, LLC – On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, MTrac, Global Payout, Inc. and Cultivate Technologies, LLC in the Superior Court of the State of California. The Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally. This was dismissed by both parties as of September 30, 2019. |
|
● |
America 2030 Capital Limited and Bentley Rothschild Capital Limited – On or about October 31, 2018, Nisan and Errez received constitutive notice, regarding arbitration against Nisan, Errez, PrivCo and possibly PubCo, from Bentley Rothschild Capital Limited ("Bentley") and America 2030 Capital Limited (“America 2030”), both located in Nevis, West Indies, and both claiming breach of contract by Nisan and Errez of Nisan and Errez’s respective individual Master Loan Agreements (see Note 7 – Related Party Transactions above) and seeking forfeiture of 1,600,000 PubCo shares that PrivCo had transferred, on or about August 1, 2018, from PrivCo’s Control Shares under the terms of the MLAs. On March 25, 2019, Mr. Errez filed an objection and challenge to selection of proposed arbitrators and request for stay of proceedings. America 2030 also initiated an Arbitration with the Arbitrator in St. Kitts against Fredi Nisan with nearly identical allegations to the above breach alleged by Bentley Rothschild. Mr. Nisan filed a counter-claim and statement of defense on December 28, 2018. On January 23, 2019, Mr. Nisan filed an election to disqualify the Arbitrator, Karen Hill-Hector and Notice of Stay. On March 25, 2019, a challenge was filed to the selection of proposed arbitrators. Both Mr. Nisan and Mr. Errez refuse to participate in the arbitration on the basis that Arbitrator Hill-Hector was a captive arbitrator and that the arbitration clause at issue was not valid or enforceable due to fraud. Mr. Nisan and Mr. Errez entered into the agreements as individuals but are principals of the Company. There is no litigation asserted towards the Company to the Firm’s knowledge. To date, no other responses have been made among the parties. |
|
● |
RB Capital Partners, Inc. – On April 24, 2019, RB Cap and related parties (the “RB Cap Parties”) filed a complaint in the San Diego Superior Court against PrivCo, PubCo, Ben Errez and Fredi Nisan (collectively, the “GreenBox Parties”); and on October 1, 2019, the RB Cap Parties filed an amended complaint against the GreenBox Parties alleging claims of fraud, breach of fiduciary duty, breach of contract and other, related claims in the Superior Court for the State of California, County of San Diego. The GreenBox Parties filed a cross-complaint against the RB Capital Parties, alleging claims of fraud, breach of contract, tortious interference, and other, related claims. On or about December 15, 2019, the GreenBox Parties and RB Cap Parties resolved to negotiate a settlement and agreed in principal to settlements terms. The documentation of the settlement terms was underway as of February 3, 2020. This was dismissed by both parties on February 27, 2020. |
|
● |
Dahan – Yoram Dahan, Melissa Dahan, Forty8 Ltd., and Trustees of the Melissa H. Dahan Living Trust (collectively, “the Dahan Parties”) were also named by RB Capital in the suit listed in the previous paragraph. On October 31, 2019, the GreenBox Parties filed a cross-complaint against the Dahan Parties, alleging claims of fraud, securities fraud, misrepresentation, promissory estoppel, and other related claims, in the Superior Court for the State of California, County of San Diego. On or about December 15, 2019, the GreenBox Parties and the Dahan Parties resolved to negotiate a settlement and agreed in principal to settlements terms. The documentation of the settlement terms was underway as of February 3, 2020. This was dismissed by both parties on February 27, 2020. |
|
● |
Withholding Suit – On November 25, 2019, five companies (the “Plaintiffs”) filed a complaint against us, Global Payout, Inc., MTrac Tech Corporation and Cultivate Technologies, LLC (collectively the “Defendants”) in the Superior Court of the State of California. Plaintiffs filed suit to recover processed funds and processing fees alleged to be withheld illegally (collectively, the “Withholding Suit”). Pursuant to a mandatory arbitration clause in the controlling agreement, the parties to the Withholding Suit have agreed to arbitrate their claims. We do not dispute the funds owed; however, we do believe it’s within our rights to hold the funds, per the terms of agreements signed by Plaintiffs. We disagree with any allegations of any wrongdoing and will aggressively defend ourselves against the Withholding Suit. Ideally, we will settle this claim in the near term. While the results of this matter cannot be predicted with certainty, especially at this early stage, we believe that losses, if any, resulting from resolution of this matter will not have a materially adverse effect on operations or cash flow. This was dismissed by both parties as of March 30, 2020. Plaintiffs refiled on February 28, 2020. The parties are currently engaged in discovery. GreenBox has responded to discovery requests and propounded discovery requests on Plaintiffs. Several depositions are scheduled and/or space reserved. A case management conference is calendared for September 2, 2020. |
|
● |
The Good People Farms, LLC – The Good People Farm, LLC (TGPF) initiated an Arbitration in AAA on or about April 20, 2020 against Greenbox POS, Fredi Nisan, Ben Errez, MTrac Tech., Vanessa Luna, and Jason LeBlanc. However, no formal demand was ever served or received on Greenbox to the Firm’s knowledge pursuant to AAA rules. Therefore, the arbitration has not be initiated at this time. It is premature to provide any predicted outcome at this time. Additionally, our firm is currently assessing a potential claim against The Good People Farms, LLC, a merchant who used Greenbox POS’s services for suspected fraudulent conduct which caused damage to Greenbox’s relationships with acquiring banks and other merchants, including excessive fines. It is premature to provide any predicted outcome at this time. |
Operating Leases
The Company entered into the following operating facility lases:
|
● |
Hyundai Rio Vista – On October 4, 2018, the Company entered into an operating facility lease for its corporate office located in San Diego with 38 months term and with option to renew. The lease started on October 4, 2018 and expires on October 3, 2021 |
For operating leases, we calculated right of use assets and lease liabilities based on the present value of the remaining lease payments as of the date of adoption using the incremental borrowing rate. The adoption of ASC 842 resulted in recording an adjustment to operating lease right of use asset and operating lease liabilities of $175,442 and $179,009 respectively, as of June 30, 2020. The difference between the operating lease ROU asset and operating lease liabilities at transition represented existing deferred rent expenses and tenant improvements, and indirect costs that was derecognized. The adoption of ASC 842 did not materially impact our results of operations, cash flows, or presentation thereof.
In accordance with ASC 842, the components of lease expense were as follows:
|
Three months ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Amortization of right-of-use assets, net of liability amortization |
$ | 115 | $ | 1,073 | $ | 229 | $ | 2,146 | ||||||||
|
Operating lease expense |
32,904 | 31,945 | 65,807 | 63,890 | ||||||||||||
|
Total lease expense |
$ | 33,018 | $ | 33,018 | $ | 66,036 | $ | 66,036 | ||||||||
|
15. |
SUBSEQUENT EVENTS |
The Company follows the guidance in FASB ASC Topic 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. ASC 855 sets forth (i) the period after the balance sheet date during which management of a reporting entity evaluates events or transactions that may occur for potential recognition or disclosure in the consolidated financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its consolidated financial statements, and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Accordingly, the Company did not have any subsequent events that require disclosure other than the following:
|
1. |
The Company purchased the Canadian Money Service Business (MSB) MoltoPay for $70,000 in cash as asset purchase agreement. The transaction closed on August 3, 2020. |
|
2. |
The Company elected to exercise an option to purchase a block of 6.0M shares from RB Capital as prescribed in the settlement agreement with RB from January 2020. As a result, the Company paid $810,000 (or $0.135/share) and the 6M shares block was canceled by the Company’s transfer agent. This transaction closed on July 31, 2020. The transaction was funded with bridge cash from one of the Company’s top executives. There was no cost to this bridge funding, however the company issued a 25,000 shares bonus to the same executive. That bridge has since been repaid. |
|
3. |
In a related transaction, the Company accepted an investment of $810,000 from long term investors and issued 6M shares to them (reflecting $0.135 per share). These shares were allocated out of pool of shares the company registered in a recent S-8 filing. As of this time, there was no dilution to the common stock. This transaction closed on August 3, 2020. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclaimer Regarding Forward Looking Statements
Our Management’s Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview – Organization and New Name
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.
Management Discussion and Analysis
This MD&A section was prepared by the management of GreenBox POS (OTC: GRBX) (“GreenBox”, “GRBX”, the “Company”), in conjunction with the discussion of the financial activity disclosed from the perspectives of on-going Q3/20 and plans and projections for the remainder of 2020.
Q1/20 signified the return of operations in full scale for the Company. In Q4/2019 and Q1/2020, the Company continued to invest in research and development, improving its acquiring platform and enabling safer, faster and significantly more scalable services. These technology improvements allow for major new capabilities, including Real Time Payments (RTP), a very sought-after payment feature. This change also reduces the Company COGS. Although the Company saw a decrease in operations in Q4/2019, and was essentially flat for Q1/2020, the improved platform is performing better than its predecessor platform and increase total volumes while increasing profit margins and operating sustainability is observed and expected to persist through 2020. The Company returned to ramping up commercial large-scale operations, on-boarding large number of clients, and increasing the Company operational bandwidth to accommodate the needs of its clients.
Q2/20 also symbolizes the transition into large scale operations with increased capacity of the payment processing platform, and with the addition of two new platforms, Crypto payouts and FOREX, allowing the Company to expand licensed operations in Europe and beyond. It is anticipated that European operation will match and could exceed USA operational volume for the Company. While the COVID-19 virus impacted the rate of increase in operational figures we observed in Q2/2020, Q3/2020 figures through August, 12, 2020 are as expected, and the projections for the rest of the year remains unchanged.
In order to process the targeted Annual Transactional Processing Volume (“ATPV”) goal of $1B, the Company must be able to process close to $90M/month, or $3M/day, in a consistent fashion. The Company needed to invest further in its core technologies to reach this capacity, a task it believe it has now completed. The Company believes it now has the required bandwidth and technical capabilities to achieve this goal. The Company projects it will process transactions in volumes greater than $1M/day within Q3/2020 and will ramp up the targeted Average Daily Volumes in Q4/2020. We believe the current operational bandwidth for the Company is virtually unlimited. COVID-19 will push the ATPV forward, likely by a quarter or two, but the projected figures for daily processing are still anticipated to materialize during 2020. These projections are contingent on projected execution figures on opportunities made available to the company in the USA, Canada, and Europe.
The Company owns all the IP rights for operations in its space: tokenizer, gateway, ledger manager and blockchain substrate. Other, supporting patents, such as fraud proofing, on-boarding accelerators, and an all new blockchain implementation, are pending.
With the visibility into the Company’s operation management has in Q3/2020 the Company plans on uplisting to a senior exchange within the next 18 months and, at this time, the Company does not plan on an artificial stock price increase, such as due to a reverse split. The current plan is to grow the Company organically to the size and value required by the exchange.
The ATPV and other major performance indicators remain sensitive to regulatory changes and global and national economic trends. These will impact and influence the Company’s product line, its potential mergers and acquisitions targets, its joint ventures and the Company’s technology emphasis.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2020 (Unaudited) Compared to Three Months Ended June 30, 2019 (Unaudited):
|
Three Months Ended June 30, |
||||||||||||||||||||||||
|
2020 |
2019 |
Changes |
||||||||||||||||||||||
|
% of |
% of |
|||||||||||||||||||||||
|
Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
|||||||||||||||||||
|
Revenue |
$ | 2,292,859 | 100.0 | % | $ | 3,309,747 | 100.0 | % | $ | (1,016,888 | ) | -30.7 | % | |||||||||||
|
Cost of revenue |
1,411,683 | 61.6 | % | 3,042,022 | 91.9 | % | (1,630,339 | ) | -53.6 | % | ||||||||||||||
|
Gross profit |
881,176 | 38.4 | % | 267,725 | 8.1 | % | 613,451 | 229.1 | % | |||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||
|
Advertising and marketing |
15,384 | 0.7 | % | 12,603 | 0.4 | % | 2,781 | 22.1 | % | |||||||||||||||
|
Research and development |
267,686 | 11.7 | % | 600,264 | 18.1 | % | (332,578 | ) | -55.4 | % | ||||||||||||||
|
Payroll and payroll taxes |
428,758 | 18.7 | % | 309,719 | 9.4 | % | 119,039 | 38.4 | % | |||||||||||||||
|
Professional fees |
293,622 | 12.8 | % | 127,473 | 3.9 | % | 166,149 | 130.3 | % | |||||||||||||||
|
General and administrative |
113,653 | 5.0 | % | 119,699 | 3.6 | % | (6,046 | ) | -5.1 | % | ||||||||||||||
|
Depreciation and amortization |
5,716 | 0.2 | % | 3,615 | 0.1 | % | 2,101 | 58.1 | % | |||||||||||||||
|
Total operating expenses |
1,124,819 | 49.1 | % | 1,173,373 | 35.5 | % | (48,554 | ) | -4.1 | % | ||||||||||||||
|
Loss from operations |
(243,643 | ) | -10.6 | % | (905,648 | ) | -27.4 | % | 662,005 | -73.1 | % | |||||||||||||
|
Other Income (Expense): |
||||||||||||||||||||||||
|
Interest expense |
(30,659 | ) | -1.3 | % | (24,738 | ) | -0.7 | % | (5,921 | ) | 23.9 | % | ||||||||||||
|
Interest expense - debt discount |
(8,342 | ) | -0.4 | % | - | 0.0 | % | (8,342 | ) | n/a | ||||||||||||||
|
Derivative expense |
(4,373 | ) | -0.2 | % | - | 0.0 | % | (4,373 | ) | n/a | ||||||||||||||
|
Changes in fair value of derivative liability |
2,619,250 | 114.2 | % | (412,158 | ) | -12.5 | % | 3,031,408 | -735.5 | % | ||||||||||||||
|
Gain from extinguishment of convertible debt |
2,612,246 | 113.9 | % | - | 0.0 | % | 2,612,246 |
#DIV/0! |
||||||||||||||||
|
Other income or expense |
(2,177 | ) | -0.1 | % | - | 0.0 | % | (2,177 | ) | n/a | ||||||||||||||
|
Total other income (expense) |
5,185,945 | 226.2 | % | (436,896 | ) | -13.2 | % | 5,622,841 | -1287.0 | % | ||||||||||||||
|
Loss before provision for income taxes |
4,942,302 | 215.6 | % | (1,342,544 | ) | -40.6 | % | 6,284,846 | -468.1 | % | ||||||||||||||
|
Provision for income taxes |
- | 0.0 | % | - | 0.0 | % | - | 0.0 | % | |||||||||||||||
|
Net loss |
$ | 4,942,302 | 215.6 | % | $ | (1,342,544 | ) | -40.6 | % | $ | 6,284,846 | -468.1 | % | |||||||||||
Revenue
Revenue decreased by $1,016,888 or 30.7%, to $2,292,859 in the second quarter of fiscal 2020 from $3,309,747 in the second quarter last year. The change in net sales reflected the following: Q2 revenues are a reflection of ramp up to operations following the upgrade and rerelease of the Company’s processing platform and the release of the two new platforms, Crypto payouts platform and FOREX platform. In Q1/20, operations slowed significantly due to the processing platform limitations. As such, Q/20 is better compared to Q1/19 in terms of operations following a product launch, as Q1/2019 followed the release and launch of the first generation of the GreenBox technology commercially.
Cost of Revenue
Cost of revenue decreased by $1,630,339, or 53.6%, to $1,411,683 in the second quarter of fiscal 2020 from $3,042,022 in the second quarter last year. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the Independent Sales Organizations (“ISO”) responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Most orders are delivered directly to the customer, without any handling, storage or processing by us. Q2/20 shows a reduction in COR as a result of increased processing efficiency and decreased cost to scale.
Operating Expenses
Operating expenses decreased by $48,554, or 4.1%, to $1,124,819 in the second quarter of fiscal 2020 from $1,173,373 in the second quarter last year. The decrease was primarily due to decease in research and development of $332,578 and off-set by increase in payroll and professional fees.
Non-Operating Expenses
We incurred interest expense related to various debt in the amount of $30,659 and $24,738 for the three months ended June 30, 2020 and 2019, respectively. We incurred a gain from changes in fair value of derivative liability of $2,612,246 for the three months ended June 30, 2020 and derivative expense of $634,766 for the three months ended June 30, 2019. We incurred gain from extinguishment of convertible debt of $2,612,246 for the three months ended June 30, 2020.
Six Months Ended June 30, 2020 (Unaudited) Compared to Six Months Ended June 30, 2019 (Unaudited):
|
Six Months Ended June 30, |
||||||||||||||||||||||||
|
2020 |
2019 |
Changes |
||||||||||||||||||||||
|
% of |
% of |
|||||||||||||||||||||||
|
Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
|||||||||||||||||||
|
Revenue |
$ | 2,480,064 | 100.0 | % | $ | 4,277,745 | 100.0 | % | $ | (1,797,681 | ) | -42.0 | % | |||||||||||
|
Cost of revenue |
1,658,988 | 72.4 | % | 3,768,355 | 88.1 | % | (2,109,367 | ) | -56.0 | % | ||||||||||||||
|
Gross profit |
821,076 | 35.8 | % | 509,390 | 11.9 | % | 311,686 | 61.2 | % | |||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||
|
Advertising and marketing |
27,269 | 1.2 | % | 25,609 | 0.6 | % | 1,660 | 6.5 | % | |||||||||||||||
|
Research and development |
554,234 | 24.2 | % | 704,186 | 16.5 | % | (149,952 | ) | -21.3 | % | ||||||||||||||
|
Payroll and payroll taxes |
842,958 | 36.8 | % | 547,047 | 12.8 | % | 295,911 | 54.1 | % | |||||||||||||||
|
Professional fees |
507,593 | 22.1 | % | 307,018 | 7.2 | % | 200,575 | 65.3 | % | |||||||||||||||
|
General and administrative |
246,422 | 10.7 | % | 199,252 | 4.7 | % | 47,170 | 23.7 | % | |||||||||||||||
|
Depreciation and amortization |
11,092 | 0.5 | % | 6,455 | 0.2 | % | 4,637 | 71.8 | % | |||||||||||||||
|
Total operating expenses |
2,189,568 | 95.5 | % | 1,789,567 | 41.8 | % | 400,001 | 22.4 | % | |||||||||||||||
|
Loss from operations |
(1,368,492 | ) | -59.7 | % | (1,280,177 | ) | -29.9 | % | (88,315 | ) | 6.9 | % | ||||||||||||
|
Other Income (Expense): |
||||||||||||||||||||||||
|
Interest expense |
(319,249 | ) | -13.9 | % | (174,953 | ) | -4.1 | % | (144,296 | ) | 82.5 | % | ||||||||||||
|
Interest expense - debt discount |
(38,418 | ) | -1.7 | % | (188,273 | ) | -4.4 | % | 149,855 | -79.6 | % | |||||||||||||
|
Derivative expense |
(4,373 | ) | -0.2 | % | (634,766 | ) | -14.8 | % | 630,393 | -99.3 | % | |||||||||||||
|
Changes in fair value of derivative liability |
(1,203,135 | ) | -52.5 | % | (365,370 | ) | -8.5 | % | (837,765 | ) | 229.3 | % | ||||||||||||
|
Gain from extinguishment of convertible debt |
2,630,795 | 114.7 | % | - | 0.0 | % | 2,630,795 |
#DIV/0! |
||||||||||||||||
|
Other income or expense |
3,334 | 0.1 | % | - | 0.0 | % | 3,334 | n/a | ||||||||||||||||
|
Total other income (expense) |
1,068,954 | 46.6 | % | (1,363,362 | ) | -31.9 | % | 2,432,316 | -178.4 | % | ||||||||||||||
|
Loss before provision for income taxes |
(299,538 | ) | -13.1 | % | (2,643,539 | ) | -61.8 | % | 2,344,001 | -88.7 | % | |||||||||||||
|
Provision for income taxes |
- | 0.0 | % | - | 0.0 | % | - | 0.0 | % | |||||||||||||||
|
Net loss |
$ | (299,538 | ) | -13.1 | % | $ | (2,643,539 | ) | -61.8 | % | $ | 2,344,001 | -88.7 | % | ||||||||||
Revenue
Revenue decreased by $1,797,681 or 42.0%, to $2,480,064 in the six months ended June 30, 2020 from $4,277,745 in the six months ended June 30, 2019. The change in net sales reflected the following: Q2 revenues area reflection of ramp up to operations following the upgrade and rerelease of the Company’s processing platform and the release of the two new platforms, Crypto payouts platform and FOREX platform. In Q1/20, operations slowed significantly due to the processing platform limitations. As such, Q/20 is better compared to Q1/19 in terms of operations following a product launch, as Q1/2019 followed the release and launch of the first generation of the GreenBox technology commercially.
Cost of Revenue
Cost of revenue decreased by $2,109,367, or 56.0%, to $1,658,988 in the six months ended June 30, 2020 from $3,768,355 in the six months ended June 30, 2019. Payment processing consists of various processing fees paid to Gateways, as well as commission payments to the ISOs responsible for establishing and maintaining merchant relationships, from which the processing transactions ensue. Most orders are delivered directly to the customer, without any handling, storage or processing by us. Q2/20 shows a reduction in COR as a result of increased processing efficiency and decreased cost to scale.
Operating Expenses
Operating expenses increased by $40,001, or 22.4%, to $2,189,568 in the six months ended June 30, 2020 from $1,789,567 in the six months ended June 30, 2019. The increase was due to increase in payroll and professional fees.
Non-Operating Expenses
We incurred interest expense related to various debt in the amount of $319,249 and $174,953 for the six months ended June 30, 2020 and 2019, respectively. We incurred a loss from changes in fair value of derivative liability of $1,203,135 for the six months ended June 30, 2020 and derivative expense of $634,766 for the six months ended June 30, 2019. We incurred gain from extinguishment of convertible debt of $2,630,795 for the three months ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
Our principal liquidity requirements are for working capital and capital expenditures. We fund our liquidity requirements primarily through cash on hand, cash flows from operations and borrowings from through debt. We ended March 31, 2020 with $306,479 of cash, cash equivalents, and restricted cash compared with $763,110 as of December 31, 2019.
The following table summarizes our cash flows from operating, investing and financing activities:
|
Six Months Ended June 30, |
||||||||
|
2020 |
2019 |
|||||||
|
Net cash provided by (used in) operating activities |
$ | 467,960 | $ | 1,841,605 | ||||
|
Net cash provided by (used in) investing activities |
(10,244 | ) | (41,634 | ) | ||||
|
Net cash provided by (used in) financing activities |
(523,594 | ) | (89,000 | ) | ||||
|
Net increase (decrease) in cash, cash equivalents, and restricted cash |
$ | (65,878 | ) | $ | 1,710,971 | |||
Operating Activities – For the six months ended June 30, 2020 and 2019, net cash provided by operating activities was $467,960 and $1,841,605, respectively. The cash provided by operating activities was primarily due to timing of settlement of assets and liabilities.
Investing Activities – Cash used in investing activities primarily consisted of purchases of property and equipment.
Financing Activities – Net cash provided by or used in financing activities primarily consisted of payments of short-term notes payable debt for the six months ended June 30, 2020 and borrowings and payments of convertible debt for the three months ended June 30, 2019.
CRITICAL ACCOUNTING POLICIES
Our critical accounting estimates are included in our significant accounting policies as described in Note 2 of the consolidated financial statements of this Form 10-Q. Those consolidated financial statements were prepared in accordance with GAAP. Critical accounting estimates are those that we believe are most important to the portrayal of our financial condition and results of operations. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense. Our estimates are evaluated on an ongoing basis and drawn from historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Actual results may differ from our estimates. Management believes that the following accounting estimates reflect the more significant judgments and estimates we use in preparing our consolidated financial statements.
Revenue Recognition
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers outlines the basic criteria that must be met to recognize revenue and provide guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes the Company’s revenue recognition policies conform to ASC 606.
The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.
The Company generates revenue from payment processing services, licensing fees and equipment sales.
|
|
● |
Payment processing revenue is based on a percentage of each transaction’s value and/or upon fixed amounts specified per each transaction or service and is recognized as such transactions or services are performed. |
|
|
● |
Licensing revenue is paid in advance and is recorded as unearned income, which is amortized monthly over the period of the licensing agreement. |
|
|
● |
Equipment revenue is generated from the sale of POS products, which is recognized when goods are shipped. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required under Regulation S-K for “smaller reporting companies.”
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Executive Vice President, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management's evaluation, our Chief Executive Officer and Executive Vice President concluded that, as a result of the material weaknesses described below, as of June 30, 2020, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Executive Vice President, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
|
|
a) |
We did not have enough personnel in our accounting and financial reporting functions. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. |
Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Principal Financial Officer, a bookkeeper and external accounting consultants, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will eliminate or greatly decrease any control and procedure issues we may encounter in the future.
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
PART II - OTHER INFORMATION
Management currently is not aware of any legal matters or pending litigation that would have a significant effect on the Company’s financial statements as of June 30, 2020.
We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.
Our business will be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to our operations and sales activities. Our third-party vendors and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work or other travel or health-related restrictions. In addition, the Novel Coronavirus (COVID-19) or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect demand for our products and services and impact our operating results. There can be no assurance that any decrease in sales resulting from the Novel Coronavirus (COVID-19) will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued spread of the Novel Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1+ |
|
|
32.2+ |
|
|
101.INS |
XBRL Instance Document |
|
101.SCH |
XBRL Taxonomy Extension Schema Document |
|
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
|
* |
Filed herewith. |
|
|
|
|
+ |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
GREENBOX POS (Registrant) |
|
|
|
|
|
|
|
|
Date: August 14, 2020 |
By: |
/s/ Fredi Nisan |
|
|
|
|
Fredi Nisan Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
Date: August 14, 2020 |
By: |
/s/ Ben Errez |
|
|
|
|
Ben Errez Chairman of the Board and Executive Vice President (Principal Financial Officer and Principal Accounting Office) |
|
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
I, Fredi Nisan, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2020 of GreenBox POS; |
|
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; |
|
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; |
|
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: |
|
(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; |
|
(b) |
Designed such internal controls over financial reporting, or caused such internal controls 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; |
|
(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 |
|
(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 |
|
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): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
By: |
/s/ Fredi Nisan |
|
|
Fredi Nisan |
|
|
Chief Executive Officer (Principal Executive Officer) |
Date: August 14, 2020
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
I, Ben Errez, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2020 of GreenBox POS; |
|
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; |
|
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; |
|
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: |
|
(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; |
|
(b) |
Designed such internal controls over financial reporting, or caused such internal controls 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; |
|
(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 |
|
(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 |
|
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): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
By: |
/s/ Ben Errez |
|
|
Ben Errez |
|
|
Executive Vice President (Principal Financial Officer) |
Date: August 14, 2020
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:
|
1. |
The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
|
|
By: |
/s/ Fredi Nisan |
|
Name: |
Fredi Nisan |
|
Title: |
Chief Executive Officer (Principal Executive Officer) |
Date: August 14, 2020
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:
|
1. |
The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
|
|
By: |
/s/ Ben Errez |
|
Name: |
Ben Errez |
|
Title: |
Executive Vice President (Principal Financial Officer) |
Date: August 14, 2020