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, 2021 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
Overview
We are a FinTech company 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 payment processing 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
$100,000,000 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 provides 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.
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 its emerging cryptocurrency-related lending and
transactional business.
On July 23, 2021, we formed DMINT, Inc., a wholly owned subsidiary ("DMINT") to
operate in the cryptocurrency mining industry. 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 is being used to
establish a proof of concept before DMINT expands the number of computers in
operation. As of September 30, 2022, DMint has purchased 1,000 computers, of
which all computers have been delivered with 350 online and mining for Bitcoin
and 400 computers are in process of being installed at the Company's newly
acquired building in Selmer, Tennessee. It has six data centers located in
Pennsylvania where it has mined 25 Bitcoin. It has entered into an exclusive
agreement whereby it has rights to all of the natural gas produced by 15 mines
in Bradford, Pennsylvania. The natural gas is taken directly from the well heads
to generate electricity required to power the mining computers. 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 aim to have the computing power of 500 petahash
per second by the end of 2022.
On January 3, 2022, the Company entered into a share exchange agreement with all
of the shareholders of Crowd Ignition, Inc. ("Crowd Ignition") whereby the
Company purchased 100% of the equity of Crowd Ignition).
Crowd Ignition is a web-based crowdfunding software system. Ronny Yakov,
Chairman and CEO of the Company and John Herzog, a shareholder of the Company,
owned 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 SEC to provide the services permitted under Regulation CF.
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, 2022 and 2021.
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Three Months Ended September 30, 2022 Compared to the Three Months Ended
September 30, 2021
For the three months ended September 30, 2022, we had total revenue of
$6,246,551 compared to $2,823,921 of revenue for the three months ended
September 30, 2021, an increase of $3,302,173 or 123.2%. We earned $5,982,177 in
transaction and processing fees, $8,417 in merchant equipment rental and sales,
$94,708 in other revenue from monthly recurring subscriptions and $161,249 of
other revenue from the Cryptocurrency Mining segment during the three months
ended September 30, 2022, compared to $2,680,004 in transaction and processing
fees, $32,787 in merchant equipment sales and $111,130 in other revenue during
the three months ended September 30, 2021. The increase in revenue was a result
of an increase in the amount of fees earned from merchant processing
transactions primarily due to the revenue attributed to the merchant portfolio
acquired in the fourth quarter ended December 31, 2021 and to revenue from
cryptocurrency mining, which we did not have in the prior period. Processing and
servicing costs increased by $2,455,472 or 110.4%
Amortization and depreciation expense for the three months ended September 30,
2022 was $892,788 compared to $269,475 for the three months ended September 30,
2021, an increase of $623,313 or 231.3%. We record amortization expense on our
merchant portfolio, trademarks and natural gas purchase rights. Our amortization
expense for the three months ended September 30, 2022, increased in the current
year period due to the agreement with Cai Energy to purchase natural gas to
operate the cryptocurrency mining computers used in the Cryptocurrency Mining
segment. Depreciation expense for our cryptocurrency mining segment was $799,716
in the current period due to the acquisition of Cryptocurrency Mining
equipment.
Salary and wage expense for the three months ended September 30, 2022, was
$649,012 compared to $326,776 for the three months ended September 30, 2021, an
increase of $322,236 or 98.6%. Salary and wage expense has increased due to the
hiring of new employees during the latter part of 2021 and to an increase in
salary for our officers.
Professional fees for the three months ended September 30, 2022, were $174,472
compared to $358,668 for the three months ended September 30, 2021, a decrease
of $184,196 or 51.4%. Professional fees consist mainly of audit and legal fees.
The decrease in the current period is mainly due to a decrease in legal expense.
General and administrative expenses ("G&A") for the three months ended September
30, 2022, was $753,944 compared to $545,646 for the three months ended September
30, 2021, an increase of $208,298 or 38.2%. Some of our larger G&A expenses
included insurance policy expense of approximately $104,000 as a result of the
cost to insure the cryptocurrency mining machines and the increase in the size
of the Company's business, travel of $71,000 from $29,000 in the same period of
2021 and utilities of $175,100 from $0 in the same period of 2021.
For the three months ended September 30, 2022, we had total other expense of
$9,989 compared to other income of $10 for the three months ended September 30,
2021.
Our net loss for the three months ended September 30, 2022 was $1,712,562
compared to $900,354 for the three months ended September 30, 2021. We had an
increase in our net loss of $812,208 for the reasons discussed above.
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September
30, 2021
For the nine months ended September 30, 2022, we had total revenue of
$23,405,445 compared to $7,883,897 of revenue for the nine months ended
September 30, 2021, an increase of $15,521,548 or 196.9%. We earned $22,209,575
in transaction and processing fees, $43,759 in merchant equipment rental and
sales, $518,556 in other revenue from monthly recurring subscriptions and
$633,555 of other revenue from the Cryptocurrency Mining segment during the nine
months ended September 30, 2022, compared to $7,436,317 in transaction and
processing fees, $98,190 in merchant equipment sales and $349,390 in other
revenue during the nine months ended September 30, 2021. The increase in revenue
was a result of an increase in the amount of fees earned from merchant
processing transactions primarily due to the revenue attributed to the merchant
portfolio acquired in the fourth quarter ended December 31, 2021 and to revenue
from cryptocurrency mining, which we did not have in the prior period.
Processing and servicing costs increased by $11,739,731 or 200%.
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Amortization and depreciation expense for the nine months ended September 30,
2022, was $2,794,731 compared to $701,282 for the nine months ended September
30, 2021, an increase of $2,093,449 or 298.5%. We record amortization expense on
our merchant portfolio, trademarks and natural gas purchase rights. Our
amortization expense for the nine months ended September 30, 2022, increased in
the current year period due to the agreement with Cai Energy to purchase natural
gas to operate the cryptocurrency mining computers used in the Cryptocurrency
Mining segment. Depreciation expense for our cryptocurrency mining segment was
$2,393,966 in the current period due to the acquisition of Cryptocurrency Mining
equipment.
Salary and wage expense for the nine months ended September 30, 2022 was
$1,805,785 compared to $1,483,570 for the nine months ended September 30, 2021
an increase of $322,215. There were $275,000 in salary increases in 2022.
Professional fees for the nine months ended September 30, 2022 were $793,626
compared to $968,995 for the nine months ended September 30, 2021, a decrease of
$175,369 or 18.1%. Professional fees consist mainly of audit and legal fees. The
decrease in the current period is mainly due to a decrease in legal and auditor
expenses compared with the prior period in which the Company completed an
offering of its common stock and warrants.
General and administrative expenses ("G&A") for the nine months ended September
30, 2022 was $2,997,169 compared to $1,409,956 for the nine months ended
September 30, 2021, an increase of $1,587,213 or 112.6%. Some of our larger G&A
expenses included insurance policy expense of $234,000 as a result of the cost
to insure the cryptocurrency mining machines and the increase in the size of the
Company's business, travel of $250,000 from $40,000 in the same period of 2021,
marketing and promotion of $180,000 from $7,400 in the same period of 2021,
contracted services of $511,000 from $233,000 in the same period of 2021,
utilities of $406,000 from $0 in the same period of 2021and computer and
internet expense of $515,000 from $182,000 in the same period of 2021.
For the nine months ended September 30, 2022, we incurred $0 of interest
expense, compared to $116,736 for the nine months ended September 30, 2021, a
decrease of $116,736. The decrease in interest expense is due the conversion of
all related party debt and the repayment of the Term Loan in March 2021.
For the nine months ended September 30, 2022, we had other income of $383,190
compared to $34 for the nine months ended September 30, 2021. In the current
period we recognized a gain of $393,158 from the reversal of a liability
associated with a prior adverse judgement on appeal.
Our net loss for the nine months ended September 30, 2022 was $4,606,112
compared to $2,666,347 for the nine months ended September 30, 2021. We had an
increase in our net loss of $1,939,765 for the reasons discussed above.
Liquidity and Capital Resources
Trends and Uncertainties
The Company's financial condition and results of operations may be adversely
affected by a further prolonging of the COVID-19 pandemic.
The New York and Atlanta areas, including the location of the Company's
corporate headquarters and its operations business, continued to experience
impacts of the COVID-19 pandemic in the U.S. as some workers were forced to
quarantine or convalesce as a result of the spread of the COVID-19 virus. The
Company is currently following the recommendations of local health authorities
to minimize exposure risk for its employees and visitors. During the first nine
months of 2022, the Company did not attribute any material impact on its
business as a result of the pandemic. However, the duration of this pandemic
continues to remain unknown. If there was another increase in cases requiring
quarantines or closures of businesses by our merchants, the duration of the
business disruption and related financial impact cannot be reasonably estimated
at this time. While the Company has specific business continuity plans to reduce
the potential impact of COVID-19, during the remainder of 2022 and into the
future, and believe that its business being principally operated using digital
platforms, in the long-term, will suffer minimal ongoing negative impact, there
is no guarantee that the Company's continuity plans will be successful or that
the Company's merchants will meet the number of forecasted transactions.
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In 2021 and the first six months of 2022, the Company experienced some
disruptions to its business and disruptions for the Company's customers and
merchants that had an impact on the number of transactions processed by the
Company. [From June to September 2022, the Company believes that its business
experience no disruptions to its business as a result of the pandemnic.] The
extent to which COVID-19 or any other health epidemic may impact the Company's
results for the remainder of 2022 and beyond will depend on future developments
and impacts of variants of the virus, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning the severity of
the continuing economic impact of the response to the COVID-19 pandemic.
Accordingly, COVID-19 could still have a material adverse effect on the
Company's business, results of operations, financial condition and prospects
during the remainder of 2022 and beyond.
Changes in Cash Flows
For the nine months ended September 30, 2022, $1,028,510 of cash was used by
operating activities, which included our net loss, offset by $5,204,443 for
amortization and depreciation expense, $213,219 for stock-based compensation and
net changes in operating assets and liabilities of $1,840,060.
For the nine months ended September 30, 2022, we received net cash of $631,942
in financing activities from a loan payable.
Liquidity and Capital Resources
At September 30, 2022, the Company had cash of $2,296,631 and working capital of
$2,172,843. The Company has approximately $3.4 million of outstanding
liabilities.
On March 2, 2021, the Company, utilizing a portion of funds received from the
exercise of outstanding warrants, paid approximately $7.7 million to the pay off
the entire outstanding amount of the Term Loan. In connection with the
extinguishment of the obligations under the Term Loan, 40,000 warrants to
purchase Common Stock were cancelled.
In addition, the Company has received a Paycheck Protection Program loan under
the CARES Act for approximately $236,000 (the "PPP Loan"). On October 11, 2021,
the Company obtained forgiveness of all amounts due under the PPP Loan.
On November 2, 2021, the Company entered into a series of securities purchase
agreements with certain institutional accredited investors pursuant to which the
Company issued and sold, in a private placement (i) 1,969,091 shares (the
"Shares") of the Company's Common Stock (ii) pre-funded 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 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
offering closed on November 5, 2021 and the Company received net proceeds of
approximately $22.9 million, after deducting placement agent fees and other
offering expenses. The Company intends to use the net proceeds from the offering
to invest in or acquire companies or technologies that are synergistic with or
complimentary to its business, to expand and market its current products and for
working capital and general corporate purposes.
The Company has reviewed its cash flow for 2022 and projected operating cash
flows for the remainder of 2022 and 2023 and performed 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 (a) the improved transaction volume
trends the Company experienced during 2021 and the first nine months ended
September 30, 2022, (b) the increase in the number of merchants after the
acquisitions of several portfolios during 2021, and (c) the funds received from
the capital raises and PPP Loan, as discussed above, the Company believes it has
sufficient liquidity in order to sustain operations for at least the twelve
months following the filing of this Quarterly Report.
Critical Accounting Policies
Refer to our Form 10-K for the year ended December 31, 2021, for a full
discussion of our critical accounting policies.
Subsequent Events
None.
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THE OLB GROUP, INC. 