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.
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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.
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 2, 2021, the Company 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.
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.
On October 25, 2021, the Board approved entry by the Company into a share
exchange agreement ("Agreement") between the Company and all of the shareholders
of Crowd Ignition, Inc. ("Crowd Ignition") whereby the Company would purchase
100% of the equity of Crowd Ignition in exchange for 1,318,408 shares of the
common stock, par value $0.0001 of the Company (the "Shares"). The value of the
Shares was, for purposes of the Agreement, based on the closing trading price of
the Company on October 1, 2021 (the date on which a third-party fairness opinion
was issued), resulting in an aggregate purchase price for Crowd Ignition of $5.3
million. Crowd Ignition is a web-based crowdfunding software system. Ronny
Yakov, Chairman and CEO of the Company and John Herzog, a significant
shareholder of the Company, own 100% of the equity of Crowd Ignition. The
software provides broker-dealer, merchant banks and law firms a platform to
market crowdfunding offerings, collect payments and issue securities. The
software has been developed in response to, and to comply with, recent changes
in investment regulations including Regulation D 506(b) and 506(v), Regulation
A+ and Title III of the Jobs Act (Regulation CF), including raising the
crowdfunding limit from $1.07 million to $5.0 million. Crowd Ignition is one of
only about 50 companies registered with the U.S. Securities and Exchange
Commission ("SEC") to provide the services permitted under Reg CF. The
transaction is expected to close by the end of November 2021, subject to
execution of the Agreement and customary closing conditions.
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 nine
months ended September 30, 2021 and 2020.
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Three Months Ended September 30, 2021 Compared to the Three Months Ended
September 30, 2020
For the three months ended September 30, 2021, we had total revenue of
$2,823,921 compared to $2,308,037 of revenue for the three months ended
September 30, 2020, an increase of $551,233 or 22.4%. We earned $2,680,004 in
transaction and processing fees, $32,787 in merchant equipment rental and sales
and $111,130 in other revenue during the three months ended September 30, 2021,
compared to $2,128,771 in transaction and processing fees, $22,018 in merchant
equipment sales and $157,248 in other revenue during the three months September
30, 2020. The increase in revenue 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. Processing and servicing costs
increased by $737,463 or 49.6%. 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 September 30, 2021 was $269,475
compared to $222,090 for the three months ended September 30, 2020, an increase
of $47,385 or 21.3%. We recorded amortization expense on our merchant portfolio
acquired in April 2018, trademarks and mineral rights acquired in August 2021.
Our amortization expense increased in the current period due to the acquisition
of mineral rights of natural gas.
Salary and wage expense for the three months ended September 30, 2021 was
$326,776 compared to $318,682 for the three months ended September 30, 2020, an
increase of $8,094 or 2.5%.
General and administrative expenses ("G&A") for the three months ended September
30, 2021 was $904,314 compared to $706,430 for the three months ended September
30, 2020, an increase of $197,884 or 28%. In the current period, the increases
were primarily due to increases of legal expenses of approximately $270,003
relating to ongoing litigation matters and legal advice relating to other
Company business and was offset by a decrease of our auditor fees of
approximately $74,940 and stock based compensation of $156,843. During 2021, the
Company has expanded its public relations and marketing campaigns to increase
visibility in the investor community and merchant marketplace. The Company 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 and into 2022.
For the three months ended September 30, 2021, we incurred $0 of interest
expense, compared to $233,211 for the three months ended September 30, 2020, a
decrease of $233,211. 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 September 30, 2021 was $900,351 compared
to $657,358 for the three months ended September 30, 2020. We had an increase in
our net loss of $242,993 for the reasons discussed above.
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September
30, 2020
For the nine months ended September 30, 2021, we had total revenue of $7,883,897
compared to $6,922,065 of revenue for the nine months ended September 30, 2020,
an increase of $1,139,171 or 18.1%. We earned $7,436,317 in transaction and
processing fees, $98,190 in merchant equipment rental and sales and $349,390 in
other revenue from monthly recurring subscriptions, during the nine months ended
September 30, 2021, compared to having earned $6,297,146 in transaction and
processing fees, $60,828 in merchant equipment rental and sales and $564,091 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 nine months ended September 30, 2021, we had processing and servicing
costs of $5,869,739_ compared to $4,501,274 of processing and servicing costs
for the nine months ended September 30, 2020. Processing and servicing costs
increased by $1,368,465 or 30.4% because of the increase in the number of
transactions processed during the period.
Amortization expense for the nine months ended September 30, 2021 was $701,282
compared to $628,519 for the nine months ended September 30, 2020, an increase
of $72,763 or 11.5%. We recorded amortization expense on our merchant portfolio,
trademarks and mineral rights. Our amortization expense increased in the current
period due to the acquisition of mineral rights of natural gas.
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Salary and wage expense for the nine months ended September 30, 2021 was
$1,483,570 compared to $1,036,068 for the nine months ended September 30, 2020,
an increase of $447,502 or 43.2%. 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 nine months ended September 30, 2021 was $2,378,951 compared
to $1,602,685 for the nine months ended September 30, 2020, an increase of
$776,266 or 33.6%. In the current period, the increases were primarily due to
increases of legal expenses of approximately $682,000 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 $324,000 during the
current period compared with the prior period.
For the nine months ended September 30, 2021, we incurred $119,736 of interest
expense, compared to $865,397 for the nine months ended September 30, 2020, a
decrease of $748,661 or 198%. The decrease in interest expense is due to the
conversion of all related party debt and the repayment of the Term Loan. We also
recognized a loss of $4,499,952 for the fair value of warrants that were issued.
Our net loss for the nine months ended September 30, 2021 was $2,666,347
compared to $1,709,974 for the nine months ended September 30, 2020. We had an
increase in our net loss of $956,373 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.
In 2020 and the first nine 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
remainder 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 continue to 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 volume at or above
pre-pandemic levels. However, any prolonged impact of the pandemic on the
Company's other businesses is likely to have an immaterial or no impact.
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Changes in Cash Flows
For the nine months ended September 30, 2021, $1,602,406 of cash was used by
operating activities, which included our net loss, offset by $744,389 for
amortization and depreciation expense, $232,965 for stock-based compensation
$34,859 of operating lease expense and net changes in operating assets and
liabilities of $51,728.
For the nine months ended September 30, 2021 and 2020, we used $6,068,300 and
$125,000 for investment activities. During the current year we purchased $93,300
of office equipment and $5,910,000 of mining equipment for our DMINT subsidiary.
For the nine months ended September 30, 2021, we received net cash of $5,009,270
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, $16
from the exercise of options and we netted $5,461,552 of cash from the sale of
common stock and warrants.
Liquidity and Capital Resources
At September 30, 2021, the Company had cash of $1,163,055 and working capital of
$869,443. For the three and nine months ended September 30, 2021, the Company's
net loss was $900,354 and $2.666,347, respectively.
At September 30, 2021, the Company had approximately $838,000 of outstanding
liabilities.
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.
On August 18, 2021, the Company sold, in a registered direct offering, an
aggregate of 1,418,605 shares of common stock and in a concurrent private
placement, warrants to purchase up to 1,418,605 shares of Common Stock, at an
aggregate purchase price of $4.30 per Share and associated Warrant. The Warrants
will be exercisable six months from the date of issuance at an exercise price of
$5.42 per share and will expire five and one-half years following the initial
date of issuance. As a result of the transactions, the Company received gross
proceeds of approximately $6.1 million and net proceeds of $[ ] million
On November 2, 2021, the Company sold, in a private placement (the "Private
Placement"), (i) 1,969,091 shares (the "Shares") of the Company's common stock,
par value $0.0001 per share (the "Common Stock"), (ii) pre-funded warrants (the
"Prefunded Warrants") exercisable for a total of 2,576,364 shares of Common
Stock (the "Prefunded Warrant Shares") with an exercise price of $0.0001 per
Prefunded Warrant Share, and (iii) warrants (the "Common Warrants") exercisable
for a total of 4,545,455 shares of Common Stock (the "Common Warrant Shares" and
together with the Prefunded Warrant Shares, the "Warrant Shares") with an
exercise price of $6.50 per Common Warrant Share. The Private Placement closed
on November 5, 2021. The purchase price of each share of Common Stock and
associated Common Warrant was $5.50 and the purchase price of each Prefunded
Warrant and associated Common Warrant was $5.4999. Subject to certain ownership
limitations, the Common Warrants are immediately exercisable upon issuance and
will expire on the five year anniversary of the effective date of the initial
registration statement filed under the Registration Rights Agreement (as defined
below). The Prefunded Warrants are immediately exercisable upon issuance and may
be exercised at any time until all of the Prefunded Warrants are exercised in
full. From the Private Placement, the Company received gross proceeds of
approximately $25 million and net proceeds of $22.9 million.
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
received notice on October 11, 2021 that the PPP Loan had been entirely
forgiven.
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 nine month period ended September
30, 2021, as well as the funds received from the capital raises discussed above,
including those received following the nine month period ended September 30,
2021, the Company believes it has sufficient liquidity in order to sustain
operations for at least of the following twelve months.
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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 addition, the Company plans to expand its payment processing
business with the CBD merchant acquisitions and expand its crowd funding
platform with the acquisition of Crowd Ignition.
In order for the Company to execute all of its future plans to do business in
the cryptocurrency marketplace and to make acquisitions, it may 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 cryptocurrency
business or any of the acquired businesses.
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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