UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(MARK ONE)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

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

 

For the transition period from  ______________ to ______________

 

Commission file number: 001-34294

 

GREENBOX POS

(Exact name of small business issuer as specified in its charter)

 

Nevada

22-3962936

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification Number)

 

8880 Rio San Diego Dr, Suite 102

San Diego, CA 

92108

 (Address of principal executive offices)

 (Zip Code)

 

(619)-631-8261

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report)

 

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

 

Title of each class

 

Trading symbol(s)

 

Name of exchange on

which registered

None

 

None

 

None

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ☒ No ☐ 

 

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

 

Large accelerated filer   ☐

Accelerated filer   ☐

Non-accelerated filer ☒

Smaller reporting company   ☒

 

Emerging growth company   ☐

 

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

 

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

 

Number of shares outstanding of the issuer’s classes of common equity, as of May 26, 2020 was 181,430,260 Shares of Common Stock (One Class)

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

PART I   Consolidated Financial Information

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

3

 

Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019 

3

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited)

4

 

Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)

6

 

Notes to (unaudited) Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis or Plan of Operation

26

Item 3.

Controls and Procedures

31

 

 

 

PART II  Other Information

 

 

 

 

Item 1.

Legal Proceedings

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

32

Signatures

33

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

GREENBOX POS

CONSOLIDATED BALANCE SHEETS 

 

   

(Unaudited)

         
   

March 31,

   

December 31,

 
   

2020

   

2019

 
                 

ASSETS

               
                 

Current Assets:

               

Cash and cash equivalents

  $ -       -  

Restricted cash

    306,479       763,110  

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

    33,052       70,257  

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

    2,776,687       2,776,687  

Cash due from gateways, net

    3,402,324       8,426,844  

Prepaid and other current assets

    84,676       42,062  

Total current assets

    6,603,218       12,078,960  
                 

Non-current Assets:

               

Property and equipment, net

    73,679       66,491  

Operating lease right-of-use assets, net

    198,063       229,639  

Total non-current assets

    271,742       296,130  
                 

Total assets

  $ 6,874,960       12,375,090  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

Current Liabilities:

               

Accounts payable

  $ 498,234       504,505  

Other current liabilities

    -       15,100  

Accrued interest

    317,156       368,071  

Payment processing liabilities, net

    10,660,328       14,021,892  

Short-term notes payable, net of debt discount of $32,418 and $2,342, respectively

    329,418       741,253  

Convertible debt

    480,000       807,500  

Derivative liability

    4,872,448       1,050,063  

Current portion of operating lease liabilities

    86,766       113,935  
                 

Total current liabilities

    17,244,350       17,622,319  

Operating lease liabilities, less current portion

    120,109       120,110  
                 

Total liabilities

    17,364,459       17,742,429  
                 

Commitments and contingencies

               
                 

Stockholders' Equity:

               

      Common stock, par value $0.001, 495,000,000 shares authorized and 175,921,993 and
          169,862,933 shares issued and outstanding, respectively

    175,922       169,863  

Common stock - issuable

    -       695  

Additional paid-in capital

    1,293,588       1,179,272  

Accumulated deficit

    (11,959,009 )     (6,717,169 )

Total stockholders' deficit

    (10,489,499 )     (5,367,339 )
                 

Total liabilities and stockholder's deficit

  $ 6,874,960       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 March 31,

 
   

2020

   

2019

 
                 

Revenue

  $ 187,205     $ 967,998  
                 

Cost of revenue

    247,305       727,291  
                 

Gross profit (loss)

    (60,100 )     240,707  
                 

Operating expenses:

               

Advertising & Marketing

    11,885       13,006  

Research and development

    286,548       103,922  

General and administrative

    760,940       495,301  

Depreciation and amortization

    5,376       2,840  

Total operating expenses

    1,064,749       615,069  
                 

Loss from operations

    (1,124,849 )     (374,362 )
                 

Other income (expense):

               

Interest expense

    (288,590 )     (150,215 )

Interest expense - debt discount

    (30,076 )     (188,273 )

Derivative expense

    -       (634,766 )

Changes in fair value of derivative liability

    (3,822,385 )     46,788  

Other income or expense

    24,060       (167 )

Total other expense, net

    (4,116,991 )     (926,633 )
                 

Loss before provision for income taxes

    (5,241,840 )     (1,300,995 )
                 

Income tax provision

    -       -  
                 

Net loss

  $ (5,241,840 )     (1,300,995 )
                 
                 

Earnings (loss) per share:

               

Basic and diluted

  $ (0.03 )     (0.01 )
                 

Weighted average number of common shares outstanding:

               

Basic and diluted

    173,960,411       166,390,363  

 

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 December 31, 2019

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

Shares issuable adjustment

    -       -       (695,122 )     (695 )     695       -       -  
                                                         

Common stocks issued from settlement of convertible notes

    6,000,000       6,000       -       -       109,550       -       115,550  
                                                         

Common stocks issued for professional fees

    59,000       59       -       -       4,071       -       4,130  
                                                         

Net loss

    -       -       -       -       -       (5,241,840 )     (5,241,840 )
                                                         

Balance at March 31, 2020

    175,921,933     $ 175,922       -     $ -     $ 1,293,588     $ (11,959,009 )   $ (10,489,499 )

 

 

   

Common Stock

   

Additional Paid-In

   

Accumulated Other Comprehensive

   

Total Stockholders' Equity

 
   

Shares

   

Amount

   

To be Issued

   

Amount

   

Capital

   

Income (Loss)

   

(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  
                                                         

Net loss

    -       -       -       -       -       (1,300,995 )     (1,300,995 )
                                                         

Balance at March 31, 2019

    166,390,363     $ 166,390       1,150,000     $ 5,500     $ 1,001,251     $ (3,333,590 )   $ (2,160,449 )

 

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

 

 

GREENBOX POS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 
                 

Cash flows from operating activities:

               

Net loss

  $ (5,241,840 )     (1,300,995 )
                 

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

               

Depreciation expense

    5,376       2,840  

Noncash lease expense

    4,406       2,146  

Stock compensation expense

    4,130       -  

Amortization expense - debt discount

    30,076       -  

Interest expense - warrants issued under convertible debt

    -       184,811  

Derivative expense

    -       634,766  

Changes in fair value of derivative liability

    3,822,385       (46,788 )
                 

Changes in assets and liabilities:

               

Accounts receivable, net

    37,205       (1,294 )

Prepaid and other current assets

    (42,614 )     20,337  

Cash due from gateways, net

    5,024,520       (1,525,985 )

Accounts payable

    (6,271 )     6,308  

Other current liabilities

    (15,100 )     36,683  

Accrued interest

    7,135       20,930  

Payment processing liabilities, net

    (3,361,564 )     2,023,121  

Net cash provided by operating activities

    267,844       56,880  
                 

Cash flows from investing activities:

               

Purchases of property and equipment

    (12,564 )     (25,769 )

Net cash used in investing activities

    (12,564 )     (25,769 )
                 

Cash flows from financing activities:

               

Borrowings from convertible debt

    -       375,000  

Repayments on convertible debt

    (270,000 )     (496,500 )

Repayments on short-term notes payable, net

    (441,911 )     -  

Repayment on long-term debt

    -       (75,000 )

Proceeds from issuances of common stock

    -       -  

Net cash used in financing activities

    (711,911 )     (196,500 )
                 

Net decrease in cash, cash equivalents, and restricted cash

    (456,631 )     (165,389 )
                 

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

    763,110       284,978  
                 

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

  $ 306,479       119,589  
                 

Supplemental disclosures of cash flow information

               

Cash paid during the period for:

               

Interest

  $ 339,505       167,343  

Income taxes

  $ 800       800  
                 
                 

Disclosures of non-cash activities under investing activities:

               

Convertible debt converted to common stock

  $ 57,500       -  

Interest accrual from convertible debt converted to common stock

  $ 58,050       -  

 

 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”).

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

1.

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)

 

Going Concern

 

As of March 31, 2020, the Company had cash and cash equivalents of $0, has incurred a net loss of $5,241,840 for the three months ended March 31, 2020, and has accumulated a deficit of $11,959,009. 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 March 31, 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.

 

   

March 31, 2020

   

December 31, 2019

 
                 

Cash and cash equivalents

  $ -     $ -  

Restricted cash

    306,479       763,110  
                 

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

  $ 306,479     $ 763,110  

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

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 $11,885 and $13,006 for the three months ended March 31, 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 $286,548and $103,922 for the three months ended March 31, 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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts Receivables from Fines and Fees from Merchants

 

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

 

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

 

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

 

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

 

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

 

Accounts Receivable and Allowance for Bad Debt

 

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

 

Property and Equipment

 

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

 

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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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:

 

March 31, 2020

 

Level 1

   

Level 2

   

Level 3

 
                         

Derivative liability

  $ -     $ -     $ 4,872,448  

 

 

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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

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:

 

   

March 31, 2020

   

December 31, 2019

 

Settlement Processing Assets:

               

Cash held for settlements

  $ 306,479     $ 763,110  

Cash due from gateways

    398,654       3,073,183  

Amount due from gateways and merchants – hold and fees

    6,951,824       4,824,223  

Reserves (1)

    3,003,370       5,353,661  

Total before allowance for uncollectable

    10,660,327       14,014,177  

Allowance for uncollectable – hold and fees

    (7,258,003 )     (5,587,333 )

Total – settlement processing assets

  $ 3,402,324     $ 8,426,844  
                 

Settlement Processing Liabilities:

               

Settlement liabilities to merchants

    10,660,328       14,021,892  

Settlement liabilities to ISOs

    -       -  

Refund allowances

    -       -  

Totals

  $ 10,660,328     $ 14,021,892  

 

(1) 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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

4.

CASH DUE FROM GATEWAYS

 

Cash due from gateways consisted of the following:

 

   

March 31, 2020

   

December 31, 2019

 
                 

Cash due from Gateways

  $ 398,654     $ 3,073,183  

Amount due from gateways and merchants – hold and fees

    6,951,824       4,824,223  

Reserves (1)

    3,003,370       5,353,661  
                 

Total cash due from gateways

    10,353,848       13,251,067  

Allowance of uncollectable – hold and fees

    (6,951,524 )     (4,824,223 )
                 

Total cash due from gateways, net

  $ 3,402,324     $ 8,426,844  

 

(1) 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:

   

March 31, 2020

   

December 31, 2019

 
                 

Computers

  $ 47,322     $ 38,938  

Furniture

    40,320       37,339  

Kiosks

    7,671       12,750  

Vehicles

    4,578       4,578  
                 

Total property and equipment

    99,891       93,605  

Less: Accumulated depreciation

    (26,212 )     (27,114 )
                 

Total property and equipment, net

  $ 73,679     $ 66,491  

 

Depreciation expense was $5,376 and $2,840 for the three months ended March 31, 2020 and 2019, respectively.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

6.

PAYMENT PROCESSING LIABILITIES, NET

 

Payment processing liabilities consisted of the following:

 

   

March 31, 2020

   

December 31, 2019

 
                 

Settlement liabilities to merchants

  $ 10,660,328     $ 14,021,892  

Settlement liabilities to ISOs

    -       -  
                 

Total processing liabilities

    10,660,328       14,021,892  

Refund allowances

    -       -  
                 

Total payment processing liabilities

  $ 10,660,328     $ 14,021,892  

 

7.

CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consisted of the following:

   

March 31, 2020

   

December 31, 2019

 
                 

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

  $ 480,000     $ 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

  $ 480,000     $ 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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

7.

CONVERTIBLE NOTES PAYABLE (continued)

 

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

  

 

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

 

 

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

 

 

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

 

The Vista Note has matured as of March 31, 2019. The Company has defaulted on the Vista Note and subsequently the Vista Note has not been extended. The Company is currently negotiating with Vista on extension of the Vista Note.

 

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.  Refer to paragraph below for settlement provision.

 

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.  Refer to paragraph below for settlement provision.

 

RB Capital Anti-Dilution Provision with Settlement Provision: RB Capital Inc (“RB”) filed a complaint against GreenBox POS (“the Company”), (jointly “the Parties”), pertaining to an investment agreement the parties entered into in March 2018. RB amended this filing on October 1, 2019, and the Company filed a cross complaint on October 31, 2019. Following a dispute resolution process, the Parties negotiated a dismissal and satisfaction of all obligations the Company may have had with RB, in consideration for a one-time payment in cash of $250,000 and 6,000,000 Common shares (“Shares”). The Parties further agreed to a non-dilution provision, whereby RB will be entitled to an additional issuance of Shares if the number of shares outstanding of that class was to increase from the total number of shares outstanding that existed when the matter was resolved, 170,643,055. Such additional issuance is to be pro-rated to the percent increase in the shares of that class. This provision persists for the duration RB holds their shares in book entry form with the Company’s transfer agent and ceases to exist if any of these shares are transferred out of that ledger, for example to RB’s broker or assigns.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

8.

SHORT-TERM NOTES PAYABLE

 

Short-term notes payable consisted of the following:

 

   

March 31, 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.

  $ 25,892     $ 213,671  

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

    181,867       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  
                 

Total short-term notes payable

  $ 331,760       773,671  
                 

Debt discount

    (2,342 )     (32,418 )
                 

Total short-term notes payable, net of debt discount

  $ 329,418     $ 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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

9.

DERIVATIVE LIABILITY

 

Derivative liability consisted of the following:

 

   

March 31, 2020

   

December 31, 2019

 
                 

Beneficial conversion feature – convertible debt

  $ 4,872,448     $ 1,050,063  
                 

Total derivative liability

  $ 4,872,448     $ 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).

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

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 months ended March 31, 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 Months Ended March 31,

 
   

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:

 

   

March 31, 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 March 31, 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 March 31, 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. 

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

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.

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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

12.

RELATED PARTY TRANSACTIONS (continued)

 

 

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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

  

12.

RELATED PARTY TRANSACTIONS (continued)

 

 

Kenneth Haller and the Haller Companies (continued)

 

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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

12.

RELATED PARTY TRANSACTIONS (continued)

 

 

Kenneth Haller and the Haller Companies (continued)

 

 

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 months ended March 31, 2019 and 2018.

 

13.

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. To date, only informal conversational proceedings have ensued.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

13.

COMMITMENTS AND CONTINGENCIES (continued)

 

Legal Proceedings (continued)

 

 

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.

 

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

 

The Company entered into an operating lease for corporate location on October 4, 2018. Rent expense paid under the lease agreements for the three months ended March 31, 2020 and 2019 was $22,390 and $26,518, respectively.

 

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 $198,063 and $206,875 respectively, as of March 31, 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.

 

 

GREENBOX POS

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(continued)

 

13.

COMMITMENTS AND CONTINGENCIES (continued)

 

Operating Leases (continued)

 

In accordance with ASC 842, the components of lease expense were as follows:

 

   

March 31,

 
   

2020

   

2019

 
                 

Operating lease expense – Hyundai Rio Vista

  $ 4,406     $ 2,146  
                 

Total lease expense

  $ 4,406     $ 2,146  

 

14.

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:

 

 

Vista Placement: On March 11th, 2019, the Company entered into a placement agreement with Vista Capital Investments, LLC (“Investor”), a California entity, in the gross amount of $500,000 (“Placement”). That agreement had a termination date of October 6th, 2019, and a conversion provision that under certain scenarios and for non-payment, the Investor could convert portion of the debt into Company Common Shares (“Stock”) at a discount. The Investor is limited to a maximum holding of 4.99% of Stock at any given time. On April 17th, 2020, the Investor notified the company of a partial conversion of $100,000 of the Placement into Stock. The conversion allocated approximately 5.2 million shares of Stock to the Investor. The Company is in discussion with the Investor to retire the Placement and prevent any further conversion or dilution. The Company has no other convertible debt.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

 

Disclaimer Regarding Forward Looking Statements

 

Our Management’s Discussion and Analysis or Plan of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

 

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

Overview – Organization and New Name

 

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 the financial activity disclosed from the perspectives of on-going Q2/20 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. Q1/2020 continued to execute on these management directives. While Covid-19 virus impacted of the rate of increase in operational figures was observed in Q1/2020, Q2/2020 figures are as expected, and the rest of the year is projections remain unchanged.

 

 

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

 

KPI

Description

Annual Transactional Processing Volume (ATPV)

The Company plans on processing an amount around $1B in FY2020, however the full impact of Covid-19 on this figure is yet to be appreciated. The Company’s Book of Business exceeds the processing goals for the year. By Q4/2020, the Company projects daily volumes to reach multimillion USD.

Annual Gross Profit Margin (AGPM)

This index matches the Company goals and remains at levels supporting the Company’s financial projections.

Annual Gross Profit (AGP)

At the targeted Annual Transactional Processing Volume goal and targeted Annual Gross Profit Margin, projected Annual Gross Profit is $12-14M for FY2020.

Annual EBITDA

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

[Table 1]

 

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

 

KPI

Description

Average Monthly Transaction Count (AMTC)

The Company projects an AMTC of around 500,000

New Clients Backlog (NCB)

The Company will continue to invest in on-boarding technologies in order to expedite the process and reduce backlog. There are five client statuses: application, KYC, on-boarding, integration, processing. Current backlog of clients at application stage is greater than 2,000. Our goal is to bring the NCB down to 200.

Client Attrition

Current attrition rates are under 5%. Company goal is to reduce it further and keep it under 3%.

[Table 2]

 

Based on the above and the current traction in Q2/20, the Company is comfortable projecting approximately $12-14M EBITDA in FY2020. 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 Q2/2020 the Company plans on uplisting to a senior exchange by Q2 of FY2021 and does not plan on an artificial stock price increase, such as a reverse split. The current plan is to grow the Company organically to the size and value required by the exchange.

 

The ATPV, Profitability and other major KPIs remain sensitive to regulatory changes 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 March 31, 2020 (Unaudited) Compared to Three Months Ended March 31, 2019 (Unaudited):

 

   

Three Months Ended

                 
   

March 31, 2020

   

March 31, 2019

   

Changes

 
           

% of

           

% of

                 
   

Amount

   

Revenue

   

Amount

   

Revenue

   

Amount

   

%

 
                                                 

Revenue

  $ 187,205       100.00 %   $ 967,998       100.00 %   $ (780,793 )     -417.08 %

Cost of revenue

    247,305       132.10 %     727,291       75.13 %     (479,986 )     -194.09 %
                                                 

Gross profit (loss)

    (60,100 )     -32.10 %     240,707       24.87 %     (300,807 )     500.51 %
                                                 

Operating expenses:

                                               

Advertising & Marketing

    11,885       6.35 %     13,006       1.34 %     (1,121 )     -9.43 %

Research and development

    286,548       153.07 %     103,922       10.74 %     182,626       63.73 %

General and administrative

    760,940       406.47 %     495,301       51.17 %     265,639       34.91 %

Depreciation and amortization

    5,376       2.87 %     2,840       0.29 %     2,536       47.17 %

Total operating expenses

    1,064,749       568.76 %     615,069       63.54 %     449,680       136.38 %
                                                 

Loss from operations

    (1,124,849 )     -600.86 %     (374,362 )     -38.67 %     (750,487 )     364.13 %
                                                 

Other income (expense):

                                               

Interest expense

    (288,590 )     -154.16 %     (150,215 )     -15.52 %     (138,375 )     47.95 %

Interest expense - debt discount

    (30,076 )     -16.07 %     (188,273 )     -19.45 %     158,197       -525.99 %

Derivative expense

    -       0.00 %     (634,766 )     -65.58 %     634,766       100.00 %

Changes in fair value of derivative liability

    (3,822,385 )     -2041.82 %     46,788       4.83 %     (3,869,173 )     0.00 %

Other income or expense

    24,060       12.85 %     (167 )     -0.02 %     24,227       0.00 %

Total other expense, net

    (4,116,991 )     -170.22 %     (926,633 )     -95.73 %     (3,190,358 )     -378.04 %
                                                 

Loss before income tax provision

    (5,241,840 )     -430.64 %     (1,300,995 )     -134.40 %     (3,940,845 )     75.18 %
                                                 

Income tax provision

    -       -       -       -       -       -  
                                                 

Net loss

  $ (5,241,840 )     -430.64 %   $ (1,300,995 )     -134.40 %   $ (3,940,845 )     75.18 %

 

Revenue

 

Revenue decreased by $780,793, or 417.08%, to $187,205 in the first quarter of fiscal 2020 from $967,998 in the first quarter last year. The change in net sales reflected the following:

 

 

Continued work on technology launch of new platforms, including Crypto, FOREX and transactional routing. Onboarding of existing merchants and new clients resumed in March\2020, with volume of revenues in April exceeding the first three months combined.

 

Covid-19 impact on certain client business verticals and shift between focus categories.

 

Main office shutdown due to Covid-19 closure.

 

 

 

Cost of Revenue

 

Cost of revenue decreased by $479,986, or 194.09%, to $247,305 in the first quarter of fiscal 2020 from $727,291 in the first 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. For the three months ended March 31, 2019, our COGS associated with payment processing was $727,291. Most orders are delivered directly to the customer, without any handling, storage or processing by us. Cost of revenues decreased due to the following:

 

 

Increased automation by installation of two new platforms, FOREX and Crypto, that are much more streamlined and less demand for manual work.

 

Installation and integration of an advance transactional routing technology.

 

Revocations of the license agreement with MTrac and moving operations inhouse for better efficiency and higher margins.

 

Termination of service to problematic and low revenue producing clients.

 

Onboarding of higher profitability clients.

 

Operating Expenses

 

Operating expenses increased by $841,480, or 158.50%, to $1,456,716 in the first quarter of fiscal 2020 from $615,236 in the first quarter last year. The increase was due to higher general administrative expenses and the following:

 

 

Increased R&D investment towards the completion and launch of the new technologies (Crypto and FOREX platforms, and advanced transactional routing technology).

 

Settlement of legal disputes and associated payments.

 

Expenses relating to the closure of the main offices and remote operations during Covid-19 pandemic.

 

Expedited compliance and legal work including audit and legal.

 

Early payoff of indebtedness.

 

Non-Operating Expenses

 

We incurred interest expense related to various debt in the amount of $288,590 and $150,215 for the three months ended March 31, 2020 and 2019, respectively. We incurred a loss from changes in fair value of derivative liability of $3,822,385 for the three months ended March 31, 2020 and derivative expense of $634,766 for the three months ended March 31, 2019.

 

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:

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 
                 

Net cash provided by (used in) operating activities

  $ 267,844     $ 56,880  

Net cash provided by (used in) investing activities

    (12,564 )     (25,769 )

Net cash provided by (used in) financing activities

    (711,911 )     (196,500 )
                 

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

  $ (456,631 )   $ (165,389 )

 

Operating Activities – For the three months ended March 31, 2020 and 2019, net cash provided by (used in) operating activities was $17,844 and $56,880, 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 three months ended March 31, 2020 and borrowings and payments of convertible debt for the three months ended March 31, 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. 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 March 31, 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

 

ITEM 1. LEGAL PROCEEDINGS

 

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 March 31, 2020.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The Company issued RB Cap 6,000,000 shares of common stock in connection with a settlement agreement as described in Note 7 to the condensed unaudited financial statements.


The Company issued 59,000 shares of common stock as payment of professional fees.

 

The above securities were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act’). These securities qualified for exemption under Section 4(a)(2) since the issuance by us did not involve a public offering. The offerings were not “public offerings” as defined in 4(a)(2) due to the insubstantial number of persons involved in the transactions, manner of the issuance and number of securities issued. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(a)(2) since they agreed to and received securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering”. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for these transactions.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

31.1

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

31.2

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

32.1*

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

32.2*

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

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

 

* 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: May 27, 2020

By:

/s/ Fredi Nisan

 

 

 

Fredi Nisan

Chief Executive Officer (Principal Executive Officer)

 

 

 

 

 

 

 

 

 

Date: May 27, 2020

By:

/s/ Ben Errez

 

 

 

Ben Errez

Chairman of the Board and Executive Vice

President (Principal Financial Officer and

Principal Accounting Office)

 

 

 

33

 

 

 

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 March 31, 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: May 27, 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 March 31, 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: May 27, 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 March 31, 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: May 27, 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 March 31, 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: May 27, 2020