Forward-Looking Statements
The information in this report contains forward-looking statements. All
statements other than statements of historical fact made in this report are
forward looking. In particular, the statements herein regarding industry
prospects and future results of operations or financial position are
forward-looking statements. These forward-looking statements can be identified
by the use of words such as "believes," "estimates," "could," "possibly,"
"probably," anticipates," "projects," "expects," "may," "will," or "should" or
other variations or similar words. No assurances can be given that the future
results anticipated by the forward-looking statements will be achieved.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. If underlying assumptions prove inaccurate or unknown
risks or uncertainties materialize, our actual results may differ significantly
from management's expectations. These risks and uncertainties include those
factors described in greater detail in the risk factors disclosed in our Form
10-K for the fiscal year ended December 31, 2020 filed with the Securities and
Exchange Commission. Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may vary in material respects from those anticipated in these forward-looking
statements. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities laws.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Quarterly Report on Form
10-Q or, in the case of documents referred to or incorporated by reference, the
date of those documents.
The following discussion and analysis should be read in conjunction with our
unaudited financial statements, included herewith. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment of our management.
Company Overview and Description of Business
We were incorporated in the State of Delaware on November 18, 2004 for the
purpose of merging with OLB.com. The merger was done for the purpose of changing
our state of incorporation from New York to Delaware. In April 2018, we
completed an acquisition of substantially all of the net assets of Excel and its
subsidiaries Payprotec Oregon, LLC, Excel Business Solutions, Inc. and eVance
Processing, Inc. (such assets are the foundation of our eVance business). In May
2018, we entered into share exchange agreements with Crowdpay and Omnisoft,
affiliate companies of our company's majority stockholder, pursuant to which
each of Crowdpay and Omnisoft became solely owned subsidiaries of our Company.
Our Company's headquarters is located at 200 Park Avenue, Suite 1700, New York,
NY 10166. Our telephone number is (212) 278-0900.
We are a FinTech company and PayFac that focuses on a suite of products in the
merchant services and payment facilitator verticals that seeks to provide
integrated business solutions to merchants throughout the United States. We seek
to accomplish this by providing merchants with a wide range of products and
services through our various online platforms, including financial and
transaction processing services. We also have products that provide support for
crowdfunding and other capital raising initiatives. We supplement our online
platforms with certain hardware solutions that are integrated with our online
platforms. Our business functions primarily through three
wholly-owned subsidiaries, eVance, OmniSoft, and CrowdPay, though substantially
all of our revenue has been generated from our eVance business (we began
generating revenue from our OmniSoft and CrowdPay businesses in the second half
of 2019). We expect to build out our OmniSoft software business and to rely more
on our PayFac model for revenue so that we are not dependent on our revenue from
our eVance business but there is no guarantee that we will be able to do so.
With respect to our eVance business, our merchants are currently processing over
$82,000,000 in gross transactions monthly and average approximately 1,400,000
transactions a month. These transactions come from a variety of sources
including direct accounts and ISO channels. The accounts consist of businesses
across the United States with no concentration of industries or merchants.
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We have integrated all the applications for OmniSoft and the ShopFast
Omnicommerce solution with the eVance mobile payment gateway, SecurePay.comTM.
SecurePay.comTM, is currently used by approximately 3,000 merchants processing
over 32,000 transactions and approximately $9,000,000 of monthly gross
transactions (though our revenue from these transactions is limited). In July
2019, we launched a new merchant and ISO boarding system that will be able to
onboard merchants instantly. This will provide the merchant with an automated
approval and ISOs will have the ability to see all their merchants and their
residuals as they load to the system.
On May 22, 2020, the Company purchased certain assets from POSaBIT Inc.
("POSaBIT"), including its contracts and arrangements with the Doublebeam
merchant payment processing platform (the "POSaBIT Asset Acquisition"). The
assets included, but were not limited to, software source codes, customer lists,
customer contracts, hardware and website domains. The total purchase price was
$215,000 (the "Purchase Price") following post-closing adjustments.
On May 14, 2021, the Company formed OLBit, Inc., a wholly owned subsidiary
("OLBit"). The purpose of OLBit is to hold the Company's assets and operate its
business related to cryptocurrency-related lending and transactional business.
On July 23, 2021, the Company formed DMINT, Inc., a wholly owned subsidiary
("DMINT"). The purpose of DMINT is to operate its business related to
cryptocurrency mining DMint has initiated the first phase of the cryptocurrency
mining operation by placing purchase orders for data centers and ASIC-based
Antminer S19J Pro mining computers specifically configured to mine Bitcoin. The
first lot of equipment will be used to establish a proof of concept before DMint
expands the number of computers in operation. As configured, it is expected that
the computers purchased will have a combined computing power of approximately
100 petahash per second. If the initial mining operation results are as
anticipated, DMint plans to expand the number of mining computers every quarter,
whereby it would potentially have the computing power of 500 petahash per second
by the end of 2022.
The Company has also signed a non-binding letter of intent to acquire a
portfolio of CBD and other merchants that will utilize the Company's SecurePay
Payment Gateway to process payments. The group of merchants to be acquired have
reported annual transaction volume of greater than $300 million. The transaction
is anticipated to add an accomplished and experienced sales channel to the OLB
team, enabling further penetration into this growing sector in the United
States. The transaction is expected to close in the fourth quarter of 2021
however there can be no assurance that the company will close this acquisition.
Results of Operations
Management's discussion and analysis of financial condition and results of
operations ("MD&A") includes a discussion of the consolidated results from
operations of The OLB Group, Inc. and its subsidiaries for the three and six
months ended June 30, 2021 and 2020.
Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30,
2020
For the three months ended June 30, 2021, we had total revenue of $2,833,572
compared to $2,000,035 of revenue for the three months ended June 30, 2020, an
increase of $833,537 or 41.7%. We earned $2,666,049 in transaction and
processing fees, $46,896 in merchant equipment rental and sales and $120,627 in
other revenue during the three months ended June 30, 2021, compared to
$1,831,896 in transaction and processing fees, $18,548 in merchant equipment
sales and $149,591 in other revenue during the three months ended June 30, 2020.
The increase was a result of an increase in the amount of fees earned from
merchant processing transactions and an increase in the number of rentals and
sales of merchant equipment.
For the three months ended June 30, 2021, we had processing and servicing costs
of $2,098,745 compared to $1,294,604 of processing and servicing costs for the
three months ended June 30, 2020. Processing and servicing costs increased by
$804,141 or 62.1%. The increase was a result of the increase in the number of
transactions processed during the period. Visa and Mastercard quarterly charges
were higher than was accrued during the period. This was due to an increase in
processing. Also, revenue for software, DoubleBeam and the net merchant
portfolio decreased. There are no expenses related to these items. A decrease in
revenue related to these items does not directly correspond to a decrease in
expense.
Amortization expense for the three months ended June 30, 2021 was $215,903
compared to $203,215 for the three months ended June 30, 2020, an increase of
$12,688 or 6.2%. We recorded amortization expense on our merchant portfolio and
trademarks.
Salary and wage expense for the three months ended June 30, 2021 was $336,703
compared to $317,198 for the three months ended June 30, 2020, an increase of
$19,505 or 6.1%. The increase was as a result of a change in the Company's
payroll processing which resulted in an expense recognition earlier than the
prior period.
General and administrative expenses ("G&A") for the three months ended June 30,
2021 was $848,368 compared to $380,888 for the three months ended June 30, 2020,
an increase of $467,480 or 122.7%. In the current period, the increases were
primarily due to increases of legal expenses of approximately $99,000 relating
to ongoing litigation matters and legal advice relating to other Company
business and an increase of our auditor fees of approximately $60,000, public
relations and marketing expenses of approximately $160,000 and $82,000 of office
expense. During 2021, the Company has expanded its public relations and
marketing campaigns to increase visibility in the investor community and
merchant marketplace. It has contracted with outside consultants to perform the
investor relations and marketing work. It is anticipated that the Company will
continue to use these services for the remainder of 2021.
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For the three months ended June 30, 2021, we incurred $0 of interest expense,
compared to $314,745 for the three months ended June 30, 2020, a decrease of
$314,745. The decrease in interest expense is due the conversion of all related
party debt and the repayment of the Term Loan in March 2021.
Our net loss for the three months ended June 30, 2021 was $666,136 compared to
$510,409 for the three months ended June 30, 2020. We had an increase in our net
loss of $155,727 for the reasons discussed above.
Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
For the six months ended June 30, 2021, we had total revenue of $5,059,976
compared to $4,614,028 of revenue for the six months ended June 30, 2020, an
increase of $587,938 or 14.1%. We earned $4,756,313 in transaction and
processing fees, $65,403 in merchant equipment rental and sales and $238,260 in
other revenue from monthly recurring subscriptions, during the six months ended
June 30, 2021, compared to having earned $4,168,375 in transaction and
processing fees, $38,810 in merchant equipment rental and sales and $406,843 in
other revenue from monthly recurring subscriptions in the same period in the
prior period. The increase was a result of an increase in the amount of fees
earned from merchant processing transactions and an increase in the number of
rentals and sales of merchant equipment.
For the six months ended June 30, 2021, we had processing and servicing costs of
$3,646,019 compared to $3,015,017 of processing and servicing costs for the six
months ended June 30, 2020. Processing and servicing costs increased by $631,002
or 20.93% because of the increase in the number of transactions processed during
the period.
Amortization expense for the six months ended June 30, 2021 was $431,807
compared to $406,429 for the six months ended June 30, 2020, an increase of
$25,378 or 6.2%. We recorded amortization expense on our merchant portfolio and
trademarks.
Salary and wage expense for the six months ended June 30, 2021 was $1,156,794
compared to $717,386 for the six months ended June 30, 2020, an increase of
$439,408 or 61.2%. Salary and wage expense increased in the current period due
to bonuses paid to our CEO and President for the Company's performance in 2020
and 2021.
G&A expense for the six months ended June 30, 2021 was $1,474,637 compared to
$896,255 for the six months ended June 30, 2020, an increase of $578,382 or
64.,5%. In the current period, the increases were primarily due to increases of
legal expenses of approximately $245,000 relating to ongoing litigation matters,
legal costs relating to the prepayment of the Term Loan and attorney fees
relating to other Company business. This increase was partially offset by a
decrease in our audit fees of approximately $56,000 during the current period
compared with the prior period.
For the six months ended June 30, 2021, we incurred $116,736 of interest
expense, compared to $621,196 for the six months ended June 30, 2020, a decrease
of $504,460 or 432.1%. The decrease in interest expense is due to the conversion
of all related party debt and the repayment of the Term Loan.
Our net loss for the six months ended June 30, 2021 was $1,765,993 compared to
$1,052,616 for the six months ended June 30, 2020. We had an increase in our net
loss of $713,377 for the reasons discussed above.
Liquidity and Capital Resources
Trends and Uncertainties
The Company's future financial condition and results of operations may be
adversely affected by the continued prolongation of the COVID-19 pandemic and
any need to institute additional business capacity restrictions or temporary
closures.
The New York and Atlanta areas, which include the location of the Company's
corporate headquarters and its operations business, have experienced and
continue to experience a significant impact of the COVID-19 pandemic in the U.S.
The Company continues to follow the recommendations of local health authorities
to minimize exposure risk for its employees and visitors. However, the scale and
scope and duration of the ongoing pandemic remains unknown, and the ongoing
business disruption and related financial impact cannot be reasonably estimated
at this time as different states have different regulations relating to business
capacity. While the Company has implemented specific business continuity plans
to reduce the potential impact of the ongoing COVID-19 pandemic during 2021 and
believe that its business being principally operated using digital platforms, in
the long-term, will suffer minimal negative impact, there is no guarantee that
the Company's continuity plan will be successful, that the Company's merchants
will meet the number of forecasted transactions due to a change in consumer
activity around point of sale purchasing resulting from the temporary closure of
businesses.
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In 2020 and the first six months of 2021, the Company continued to experience
certain disruptions to its business and disruptions for the Company's customers
and merchants, along with closures, that may materially affect the number of
transactions processed by the Company. Similarly, the COVID-19 pandemic could
have a long-term impact on the Company's customers and/or merchants during the
second six months of 2021 which could reduce their demand for Company products,
if pre-pandemic levels of purchasing activity does not resume. The extent to
which the COVID-19 pandemic or any other health epidemic may impact the
Company's results for 2021 and beyond will depend on future developments, which
are highly uncertain and cannot be predicted, including the impact of
vaccinations, the impact of the reopening of international travel and new
information which may emerge concerning the severity of the economic impact of
the response to the COVID-19 pandemic on the retail and service industries where
the Company has many customers and merchants. Accordingly, the COVID-19 pandemic
could continue to have a material adverse effect on the Company's business,
results of operations, financial condition and prospects during 2021 and beyond.
Although the reopening of businesses did result in an increase in transactions
using the Company's products to pre-pandemic levels, there can be no assurance
that the business will continue to see transaction valume at or above
pre-pandemic levels.
Changes in Cash Flows
For the six months ended June 30, 2021, $1,279,545 of cash was used by operating
activities, which included our net loss, offset by $373,850 for amortization and
depreciation expense, $153,488 for stock-based compensation $60,458 of operating
lease expense and net changes in operating assets and liabilities of $101,348.
For the six months ended June 30, 2021 and 2020, we used $0 and $125,000 for
investment activities.
For the six months ended June 30, 2021, we used net cash of $493,889 in
financing activities. $7,654,845 was repaid on our loan to GACP. We received a
total of $7,160,940 from the exercise of warrants issued in the Offering and $16
from the exercise of options.
Liquidity and Capital Resources
At June 30, 2021, the Company had cash of $2,051,057 and working capital of
$1,924,373. For the three and six months ended June 30, 2021, the Company's net
loss was $666,136 and $1,765,993, respectively.
On August 11, 2020, the Company closed an offering of its securities (the
"Offering") for gross proceeds of $6.45 million. The Company sold 700,000 units
consisting of (a) one share of our common stock; (b) two Series A Warrants, and
(c) one-half of one Series B warrant. In addition, the underwriter fully
exercised its option to purchase 210,000 Series A warrants and 52,500 Series B
warrants.
On March 2, 2021, the Company utilizing a portion of funds received upon the
exercise of outstanding warrants, paid approximately $7.7 million to the Agent
under the Credit Agreement (the "Prepayment"). This Prepayment resulted in the
discharge in full of all of the obligations under the Credit Agreement. In
connection with the extinguishment of the obligations under the Credit
Agreement, 40,000 warrants to purchase Common Stock were cancelled.
At June 30, 2021, the Company had approximately $967,000 of outstanding
liabilities.
In addition, the Company has received a Paycheck Protection Program loan under
the CARES Act for approximately $236,000 (the "PPP Loan"). The Paycheck
Protection Program provides that the use of PPP Loan proceeds was limited to
certain qualifying expenses and may be partially or wholly forgiven in
accordance with the requirements set forth in the CARES Act. The Company
believes it has used the PPP Loan for permitted uses whereby it will be forgiven
in full, although no assurance can be given that the Company will obtain
forgiveness of all or any portion of amounts due under the PPP Loan.
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The Company has reviewed projected operating cash flows for 2021 and an overall
analysis of market trends to determine whether or not it has sufficient
liquidity to continue as a going concern for a period of at least twelve months
from the date of this Quarterly Report. As a result of the improved transaction
volume trends the Company experienced in the six month period ended June 30,
2021, as well as the funds received from the capital raises discussed above, the
Company believes it has sufficient liquidity in order to sustain operations for
at least of the following twelve months.
The Company has plans to grow its cryptocurrency business by purchasing more
mining computers and contracting with parties to establish a cryptocurrency
lending, wallet and exchange platform as a new product offering to merchants and
other customers. It also plans to increase its customer base through
acquisitions. In order for the Company to execute all of its future plans to do
business in the cryptocurrency marketplace and to make acquisitions, it will be
necessary to obtain additional capital. This can be done by the sale of equity
or debt securities or obtaining a loan. There can however be no assurances that
the company will be able to raise additional funds to expand its crypto currency
business.
Critical Accounting Policies
Refer to our Form 10-K for the year ended December 31, 2020, for a full
discussion of our critical accounting policies.
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