greenbox20210331

10-Q 1 greenbox20210331_10q.htm FORM 10-Q greenbox20210331_10q.htm

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, 2021

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)

3131 Camino Del Rio North, Suite 1400

San Diego, CA

92108

(Address of principal executive offices)

(Zip Code)

(619)-631-8261

(Registrant’s telephone number, including area code)

8880 RIO SAN DIEGO DR., SUITE 102, SAN DIEGO, CA, 92108

(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 each exchange on which registered
Common Stock, $0.001 par value	GBOX	The Nasdaq Stock Market LLC (Nasdaq Capital Market)

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 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 12, 2021 was 41,905,571 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, 2021 (unaudited) and December 31, 2020	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2021 and 2020 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)	6
	Notes to (unaudited) Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis or Plan of Operation	19
Item 3.	Controls and Procedures	24

PART II Other Information

Item 1.	Legal Proceedings	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signatures		26

	*March 31,*			*December 31,*
	*2021*			*2020*

ASSETS

Current Assets:
Cash and cash equivalents	$	35,696,589		$	-
Restricted cash		-			1,832,735
Accounts receivable, net		10,000			10,000
Accounts receivables from fines and fees from merchant, net of allowance for bad debt of $6,665,031 and $6,665,031, respectively.		2,789,230			2,789,230
Cash due from gateways, net		11,848,709			7,303,949
Prepaid and other current assets		2,452,753			70,130
Total current assets		52,797,281			12,006,044

Non-current Assets:
Property and equipment, net		62,362			57,264
Operating lease right-of-use assets, net		87,837			117,795
Other assets		81,636			81,636
Total non-current assets		231,835			256,695

Total assets	$	53,029,116		$	12,262,739


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	178,038		$	210,094
Other current liabilities		98,995			68,138
Payment processing liabilities, net		5,355,115			10,199,956
Note payable, payroll protection plan loan		272,713			272,713
Convertible debt, net of debt discount of $0 and $2,993,408, respectively		-			856,592
Current portion of operating lease liabilities		89,017			120,110

Total current liabilities		5,993,878			11,727,603
Long-term debt		149,900			149,900

Total liabilities		6,143,778			11,877,503

Commitments and contingencies

Stockholders' Equity:
Common stock, par value $0.001, 82,500,000 shares authorized, shares issued and outstanding of 40,917,331 and 30,710,646, respectively		40,918			30,711
Additional paid-in capital		71,898,401			12,079,074
Accumulated deficit		(25,053,981	)		(11,724,549	)
Total stockholders' equity		46,885,338			385,236

Total liabilities and stockholder's equity	$	53,029,116		$	12,262,739

	*Three Months Ended March 31,*
	*2021*			*2020*

Net revenue	$	4,749,441		$	187,205
Cost of revenue		1,593,771			247,305

Gross profit (loss)		3,155,670			(60,100	)

Operating expenses:
Advertising and marketing		24,725			11,885
Research and development		653,381			286,548
Payroll and payroll taxes		559,201			402,462
Professional fees		457,752			212,298
General and administrative		566,195			142,050
Stock compensation for employees		797,613			4,130
Stock compensation for services		9,453,825			-
Depreciation and amortization		6,009			5,376
Total operating expenses		12,518,701			1,064,749

Loss from operations		(9,363,031	)		(1,124,849	)

Other income (expense):
Interest expense - debt discount		(2,993,408	)		(30,076	)
Interest expense		(594,258	)		(288,590	)
Changes in fair value of derivative liability		-			(3,822,385	)
Merchant liability settlement		(364,124	)		-
Merchant fines and penalty income		-			24,060
Other income or expense		(14,611	)		-
Total other expense, net		(3,966,401	)		(4,116,991	)

Loss before provision for income taxes		(13,329,432	)		(5,241,840	)

Income tax provision		-			-

Net loss	$	(13,329,432	)	$	(5,241,840	)


Earnings (loss) per share:
Basic and diluted	$	(0.38	)	$	(0.18	)

Weighted average number of common shares outstanding:
Basic and diluted		34,917,106			28,993,402

	Common Stock								Additional Paid-In			Accumulated			Total Stockholders' Equity
	Shares		Amount		To be Issued		Amount		Capital			Deficit			(Deficit)

Balance at December 31, 2020		30,710,645	$	30,711		-	$	-	$	12,079,074		$	(11,724,549	)	$	385,236

Common stock issued for exercise of warrant		1,777,778		1,778		-		-		3,518,222			-			3,520,000

Common stock issued for conversion of convertible debt		1,944,444		1,944		-		-		3,848,056			-			3,850,000

Common shares issued for restricted shares to executive		83,333		83		-		-		(83	)		-			-

Common stock issued for services		783,859		784		-		-		9,453,041			-			9,453,825

Common stock issued for interest for convertible debt		96,664		97		-		-		594,258			-			594,355

Common stock issued for non-cash stock option exercise		39,332		39		-		-		(39	)		-			-

Common stock issued for stock options exercised		5,500		6		-		-		2,244			-			2,250

Issuances of common stock, net of issuance costs of $4,305,758		4,772,500		4,773		-		-		45,800,718			-			45,805,491

Payment for previous common stock repurchased under treasury method		-		-		-		-		(4,194,000	)		-			(4,194,000	)

Issuances of common stock from previous unregistered shares		703,276		703		-		-		(703	)		-			-

Stock compensation expense		-		-		-		-		797,613			-			797,613

Net loss		-		-		-		-		-			(13,329,432	)		(13,329,432	)

Balance at March 31, 2021		40,917,331	$	40,918		-	$	-	$	71,898,401		$	(25,053,981	)	$	46,885,338

	*March 31,* *2021*		*December 31,* *2020*

Cash and cash equivalents	$	35,696,589	$	-
Restricted cash		-		1,832,735

Total cash, cash equivalents, and restricted cash	$	35,696,589	$	1,832,735

	*March 31,* *2021*			*December 31,* *2020*

Settlement Processing Assets:
Cash held for settlements	$	100,532		$	1,832,735
Cash due from gateways		7,532,137			1,922,669
Amounts due from gateways and merchants – hold and fees		6,493,594			1,063,272
Reserves (1)		4,316,572			5,381,281
Total before allowance for uncollectable		18,442,835			10,199,957
Allowance for uncollectable – hold and fees		(6,594,126	)		(2,896,008	)

Total settlement processing assets – cash due from gateways	$	11,848,709		$	7,303,949


Settlement Processing Liabilities:
Settlement liabilities to merchants	$	5,355,115		$	10,199,956
Settlement liabilities to independent sales organizations (ISO)		-			-
Refund allowances		-			-

Total settlement processing liabilities	$	5,355,115		$	10,199,956

	*March 31,* *2021*			*December 31,* *2020*

Computers	$	59,991		$	48,883
Furniture and fixtures		40,320			40,320
Kiosks		6,472			6,473
Vehicles		4,578			4,578
Total property and equipment		111,361			100,254
Less accumulated depreciation		(48,999	)		(42,990	)

Total property and equipment, net	$	62,362		$	57,264

	*March 31,* *2021*		*December 31,* *2020*

*October 27, 2020 ($3,850,000)* – 10% one-time interest charge with outstanding principal and interest due July 27, 2021.	$	-	$	3,850,000

Total convertible notes payable		-		3,850,000
Debt discount		-		(2,993,408	)

Total convertible notes payable, net of debt discount	$	-	$	856,592

	*March 31,* *2021*			*December 31,* *2020*

Deferred tax assets (liabilities):
Net operating loss carryforward	$	2,135,000		$	1,066,726
Depreciation		-			-
Others		-			-
Total deferred tax assets, net		2,135,000			1,066,726
Valuation allowance		(2,135,000	)		(1,066,726	)

Net deferred tax assets (liabilities)	$	-		$	-

	March 31, 2021			December 31, 2020
Risk-free interest rate		0.29	%		0.29	%
Expected term	5 years			5 years
Expected volatility		229.49	%		289.33% to 279.18	%
Expected dividend yield		-			-

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2020		514,607		$	2.30		0.00		3,365,527

Granted		100,000			7.63		0.00
Exercised		(44,832	)		2.50		0.00
Forfeited or expired		(68,428	)		2.50		0.00

Outstanding at March 31, 2021		496,782			4.80		0.00		7,018,853

Exercisable as of March 31, 2021		496,782			4.81		0.00		6,954,941
Vested and Expected to Vest as of March 31, 2021		496,782			4.81		0.00		6,954,941

	■	*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%). The three managing members of Charge Savvy own the same percentages of Cultivate, as they do Charge Savvy. On January 25, 2021, the Company issued a press release announcing it had entered into a non-binding Memorandum of Understanding to acquire Charge Savvy, for total consideration of up to $52 million in restricted shares of the Company’s common stock with $31 million of that all-shares amount due upon closing. Charge Savvy was, until August 2020, one of the largest ISOs that we utilized in our ecosystem. The transaction assumes a per share price of $12.00. The all-stock transaction is subject to the negotiation and signing of definitive transaction documents, the completion of an audit of Charge Savvy’s financial statements, and customary closing conditions.

	■	*Sky Mid*s –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.

	●	*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 and seeking forfeiture of 266,667 PubCo shares that PrivCo had transferred, on or about August 1, 2018, from PrivCo’s Control Shares under the terms of the MLAs. As of March 31, 2020, both parties have abandoned the matter and no further action was required by either party.

	●	*DCSM et al v. Greenbox POS* – On November 25, 2019, four companies (the “Plaintiffs”) filed a complaint against GreenBox POS, LLC, GreenBox POS, 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”). The parties discussed arbitration and Plaintiffs later dismissed the case with prejudice. Plaintiffs refiled on February 28, 2020. The parties attended mediation on November 12, 2020, came to an agreement, and subsequently executed a Settlement Agreement and Release on or around November 23, 2020, whereby GreenBox is to pay $3.8M by March 15, 2021. On December 14, 2020 Plaintiffs filed a Request for Dismissal with prejudice. The Company settled in the amount of $3.8M and was paid in February 2021. The Company had payment processing liability in the amount of $3.4M which was off-set against $3.8M payment and recorded loss on merchant liability settlement in the amount of approximately $360,000 which was recorded in other expense in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2021. The Court has now dismissed the case.

	●	*The Good People Farms, LLC (TGPF)* – TGPF initiated an arbitration in AAA on or about April 20, 2020 against Greenbox POS, Fredi Nisan, Ben Errez, MTrac Tech., Vanessa Luna, and Jason LeBlanc. The matter was placed in abeyance for some time. On January 15, 2021 GreenBox filed a counter-claim for fraud – intentional misrepresentation, breach of contract, breach of covenant of good faith and fair dealing, violation of California Business and Professions Code Section 17200, and accounting. An arbitrator has been selected and the parties are awaiting the scheduling of the preliminary conference. The arbitration is stayed pending further proceedings in the separate but related action filed by MTrac in San Diego Superior Court.

KPI	Description
Annual Transactional Processing Volume (ATPV)	The Company plans to process $1.65B in FY 2021, including previously increased processing volumes projections from $600M to $1.2B, and including the expected processing of the acquired ChargeSavvy portfolio, projected to add another $450M. The Company’s Book of Business exceeds the processing goals for the year.
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 $24-26M for FY2021.
Annual EBITDA	The Company objective is to stay with EBITDA at around 3% of Total Transactional Volume. At the targeted Annual Transactional Processing Volume goal, the Annual EBITDA equals $26M.

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%.

	Three Months Ended March 31,
	2021						2020						Changes
				% of						% of
	Amount			Revenue			Amount			Revenue			Amount			%

Net revenue	$	4,749,441			100.0	%	$	187,205			100.0	%	$	4,562,236			2437.0	%
Cost of revenue		1,593,771			33.6	%		247,305			132.1	%		1,346,466			544.5	%
Gross profit (loss)		3,155,670			66.4	%		(60,100	)		-32.1	%		3,215,770			-5350.7	%

Operating expenses:
Advertising and marketing		24,725			0.5	%		11,885			6.3	%		12,840			108.0	%
Research and development		653,381			13.8	%		286,548			153.1	%		366,833			128.0	%
Payroll and payroll taxes		559,201			11.8	%		402,462			215.0	%		156,739			38.9	%
Professional fees		457,752			9.6	%		212,298			113.4	%		245,454			115.6	%
General and administrative		566,195			11.9	%		142,050			75.9	%		424,145			298.6	%
Stock compensation for employees		797,613			16.8	%		4,130			2.2	%		793,483			19212.7	%
Stock compensation for services		9,453,825			199.1	%		-			0.0	%		9,453,825
Depreciation and amortization		6,009			0.1	%		5,376			2.9	%		633			11.8	%
Total operating expenses		12,518,701			263.6	%		1,064,749			568.8	%		11,453,952			1075.7	%

Loss from operations		(9,363,031	)		-197.1	%		(1,124,849	)		-600.9	%		(8,238,182	)		732.4	%

Other Income (Expense):
Interest expense - debt discount		(2,993,408	)		-63.0	%		(30,076	)		-16.1	%		(2,963,332	)		9852.8	%
Interest expense		(594,258	)		-12.5	%		(288,590	)		-154.2	%		(305,668	)		0.0	%
Changes in fair value of derivative liability		-			0.0	%		(3,822,385	)		-2041.8	%		3,822,385			-100.0	%
Merchant liability settlement		(364,124	)		-7.7	%		-			0.0	%		(364,124	)		-100.0	%
Merchant fines and penalty income		-			0.0	%		24,060			12.9	%		(24,060	)		-100.0	%
Other income or expense		(14,611	)		-0.3	%		-			0.0	%		(14,611	)
Total other income (expense)		(3,966,401	)		-83.5	%		(4,116,991	)		-2199.2	%		150,590			-3.7	%

Loss before provision for income taxes		(13,329,432	)		-280.7	%		(5,241,840	)		-2800.1	%		(8,087,592	)		154.3	%

Provision for income taxes		-			0.0	%		-			0.0	%		-			0.0	%

Net loss	$	(13,329,432	)		-280.7	%	$	(5,241,840	)		-2800.1	%	$	(8,087,592	)		154.3	%

3.1	Certificate of Change Pursuant to NRS 78.209, filed with the Nevada Secretary of State on February 16, 2021 (Incorporated by Reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2021.)
10.1+	Form of Board of Directors Agreement entered into on February 16, 2021, by and between the Company and each of Ms. Baer and Messrs. Caragol and Laniado (Incorporated by Reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 19, 2021).
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

	GREENBOX POS (Registrant)

Date: May 13, 2021	By:	/s/ Fredi Nisan
		Fredi Nisan Chief Executive Officer (Principal Executive Officer)

SEC Form 10-Q filed by Greenbox POS