OLB GROUP, INC. 10-K

Item 8. Financial Statements and Supplementary Data The OLB Group, Inc. December 31, 2020 and 2019 Consolidated Financial Statements TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm F-2 Report of Independent Registered Public Accounting Firm F-3 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 F-5 Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2020 and 2019 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-7 Notes to the Consolidated Financial Statements F-8 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders The OLB Group, Inc. New York, New York Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of The OLB Group, Inc. (the “Company”) at December 31, 2020, and the related consolidated statements operations, stockholders’ equity and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Intangible Assets Impairment Assessments As described in Notes 2 and 4 to the consolidated financial statements, the Company has goodwill and intangible assets of $9.5 million at December 31, 2020. In most cases, no directly observable market inputs are available to measure the fair value to determine if the asset is impaired. Therefore, an estimate is derived indirectly and is based on net present value techniques utilizing post-tax cash flows and discount rates. The estimates that management used in calculating the net present values depend on assumptions specific to the nature of the service activities with regard to the amount and timing of projected future cash flows; long-term forecasts; actions of competitors (competing services), future tax and discount rates. The principal considerations for our determination that performing procedures relating to the intangible assets impairment assessment is a critical audit matter are the significant judgment by management when developing the net present value of the intangible assets. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of projected future cash flows and the discount rate. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the net present value techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the amount and timing of projected future cash flows and the discount rate. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and the discount rate involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the intangible assets, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ Daszkal Bolton LLP Daszkal Bolton LLP We have served as the Company’s auditor since 2020 Boca Raton, Florida March 29, 2021 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of The OLB Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of The OLB Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum llp Marcum llp We served as the Company’s auditor from 2019 to 2020. New York, NY April 29, 2020 F- 3 The OLB Group, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2020 December 31, 2019 ASSETS Current Assets: Cash $ 3,824,491 $ 507,616 Accounts receivable, net 355,994 479,404 Prepaid expenses 15,754 16,706 Other current assets 8,768 108,278 Total Current Assets 4,205,007 1,112,004 Other Assets: Property and equipment, net 19,807 36,653 Intangible assets, net 2,640,816 3,335,239 Deferred offering costs - 210,305 Goodwill 6,858,216 6,858,216 Operating lease right-of-use asset 269,508 - Other long-term assets 384,148 316,512 TOTAL ASSETS $ 14,377,502 $ 11,868,929 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current Liabilities: Accounts payable $ 359,968 $ 592,853 Accrued expenses – related party - 1,012,023 Accrued expenses 103,634 78,392 Operating lease liability – current portion 85,598 - Deferred revenue - 99,594 Note payable – current portion 450,000 325,000 Note payable – related parties – current portion - 386,467 Total Current Liabilities 999,200 2,494,329 Long Term Liabilities: Note payable – related party - 3,000,000 Notes payable, net of current portion 7,441,076 9,175,000 Operating lease liability – net of current portion 185,045 - Total Liabilities 8,625,321 14,669,329 Commitments and contingencies (Note 9) Stockholders’ Equity (Deficit): Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding - - Series A Preferred stock, $0.01 par value, 10,000 shares authorized, 4,633 and no shares issued and outstanding, respectively 46 - Common stock, $0.0001 par value; 200,000,000 shares authorized, 6,170,054 and 5,411,905 shares issued and outstanding, respectively 617 541 Additional paid-in capital 26,380,124 16,050,938 Accumulated deficit (20,628,606 ) (18,851,879 ) Total Stockholders’ Equity (Deficit) 5,752,181 (2,800,400 ) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $ 14,377,502 $ 11,868,929 The accompanying notes are an integral part of these consolidated financial statements. F- 4 The OLB Group, Inc. and Subsidiaries Consolidated Statements of Operations For the Years Ended December 31, 2020 2019 Revenue: Transaction and processing fees $ 8,358,459 $ 10,177,931 Merchant equipment rental and sales 88,538 88,797 Other revenue from monthly recurring subscriptions 1,319,624 24,796 Total revenue 9,766,621 10,291,524 Operating expenses: Processing and servicing costs, excluding merchant portfolio amortization 6,003,931 6,723,666 Amortization expense 844,423 812,857 Salaries and wages 1,363,451 1,490,762 General and administrative expenses 2,289,521 1,533,102 Total operating expenses 10,501,326 10,560,387 Loss from operations (734,705 ) (268,863 ) Other Income (Expense): Interest expense (807,982 ) (866,875 ) Interest expense, related party (235,951 ) (382,279 ) Gain on settlement of payables - 172,390 Other income 1,911 2,215 Total other expense (1,042,022 ) (1,074,549 ) Net Loss $ (1,776,727 ) $ (1,343,412 ) Net loss per share, basic and diluted $ (0.31 ) $ (0.25 ) Weighted average shares outstanding, basic and diluted 5,711,266 5,452,626 The accompanying notes are an integral part of these consolidated financial statements. F- 5 The OLB Group, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity (Deficit) For the Years ended December 31, 2020 and 2019 Preferred Stock Common Stock Additional Paid Accumulated Shares Amount Shares Amount In Capital Deficit Total Balance at December 31, 2018 - $ - 5,411,905 $ 541 $ 15,785,888 $ (17,508,467 ) $ (1,722,038 ) Stock based compensation - - - - 265,050 - 265,050 Net loss - - - - - (1,343,412 ) (1,343,412 ) Balance at December 31, 2019 - - 5,411,905 541 16,050,938 (18,851,879 ) (2,800,400 ) Stock based compensation - - - - 298,381 - 298,381 Conversion of debt – related party 4,633 46 - - 4,634,396 - 4,634,442 Common stock units issued for cash - - 700,000 70 4,942,811 - 4,942,881 Warrants sold for cash - - - - 155,380 - 155,380 Common stock issued exercise of Warrants - - 21,150 2 94,498 - 94,500 Common stock issued for services – related party - - 36,999 4 203,720 - 203,724 Net loss - - - - - (1,776,727 ) (1,776,727 ) Balance at December 31, 2020 4,633 $ 46 6,170,054 $ 617 $ 26,380,124 $ (20,628,606 ) $ 5,752,181 The accompanying notes are an integral part of these consolidated financial statements. F- 6 The OLB Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,776,727 ) $ (1,343,412 ) Adjustments to Reconcile Net Loss to Net Cash Used in Operations: Depreciation and amortization 861,269 842,149 Stock based compensation 298,381 265,050 Common stock issued for services – related party 203,724 - Operating lease expense 1,134 - Changes in assets and liabilities: Accounts receivable 123,410 (73,294 ) Prepaid expenses and other current assets 101,068 (95,571 ) Other long-term assets (67,635 ) 63,396 Accounts payable (232,885 ) 125,327 Accrued expenses – related party 235,952 372,014 Other accrued liabilities 25,242 (10,385 ) Deferred revenue (99,594 ) 99,594 Net Cash (used in) provided by Operating Activities (326,661 ) 244,868 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of intangible assets (150,000 ) - Net Cash used in Investing Activities (150,000 ) - CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable – related party 361,467 Proceeds from note payable 236,231 - Payments on note payable (1,845,155 ) - Proceeds from exercise of warrants 94,500 - Proceeds from sale of common stock units 5,446,000 - Proceeds from sale of warrants 154,775 - Payment of deferred offering costs (292,815 ) (210,305 ) Net Cash provided by Financing Activities 3,793,536 151,162 Net Change in Cash 3,316,875 396,030 Cash – Beginning of Year 507,616 111,586 Cash – End of Year $ 3,824,491 $ 507,616 Cash Paid For: Interest $ 813,483 $ 876,875 Income taxes $ - $ - Supplemental non-cash disclosure: Establishment of ROU operating lease asset and related liability $ 323,812 $ - Conversion of debt – related party $ 4,634,442 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 7 The OLB Group, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2020 NOTE 1 – BACKGROUND Background The OLB Group, Inc. (“OLB” the “Company”) was incorporated in the State of Delaware on November 18, 2004 and provides services through its wholly-owned subsidiaries. The Company provides integrated financial and transaction processing services to businesses throughout the United States. Through its eVance Capital, Inc. subsidiary (“eVance”), the Company provides an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payment processing solutions primarily to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. eVance operates as an independent sales organization (“ISO”) generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance has a direct contractual relationship with the merchants and takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and as a result, receives additional consideration for this service and risk. The Company’s Securus365, Inc. subsidiary operates as a retail ISO and receives residual income as commission for merchants it places with third party processors. CrowdPay.us, Inc. (“CrowdPay”) is a Crowdfunding platform used to facilitate a capital raise anywhere from $1,000,0000 -$50,000,000 of various types of securities under Regulation D, Regulation Crowdfunding, Regulation A and the Securities Act of 1933. To date, the activities of this subsidiary have been nominal. OmniSoft.io, Inc. (“OmniSoft”) operates a software platform for small merchants. The Omnicommerce applications work on an iPad, mobile device and the web and allows you to sell a store’s products in a physical, retail setting. To date, the activities of this subsidiary have been nominal when compared to the overall business. The Company also provides ecommerce development and consulting services on a project by project basis. COVID-19 Impact On January 30, 2020, the World Health Organization declared the COVID-19 (coronavirus) outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. The virus and actions taken to mitigate its spread have had and are expected to continue to have a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates. In response to the pandemic, the Company is working with merchants to address potential changes to the purchase patterns of consumers. In addition, it is focusing on servicing merchants that sell products with an extended delivery time frame, that have products that are paid for in advance, and that work in the catering, ticketing, limo and travel related businesses which have been directly impacted by the social distancing requirement of the pandemic. Further, for those of the Company’s employees that are able to perform their job remotely, the Company has implemented a “remote work” policy and provided employees with the technology necessary to continue to do their jobs from home and for those employees that are unable to perform their job from a remote location, the Company has taken steps to ensure appropriate distancing and added sanitizing stations along with requiring frequent hand washing and work station cleaning. At December 31, 2020, most employees were no longer working remotely. However, the Company continues to monitor and follow the advice of federal and state authorities. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). F- 8 Use of Estimates The preparation of financial statements in conformity with U.S. 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. The Company’s accounting estimates include the collectability of receivables, useful lives of long lived assets and recoverability of those assets, impairment in fair value of goodwill, valuation allowances for income taxes, stock based compensation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, eVance, Securus, CrowdPay, and OMNISOFT. All significant intercompany transactions and balances have been eliminated. Reclassifications Certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the year ended December 31, 2020. Segments Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group in deciding how to allocate resources and in assessing performance. Our chief operating decision–making group is composed of the chief executive officer. We currently operate in one segment surrounding our ISO operations. Cash and Cash Equivalents The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents. The carrying amount of financial instruments included in cash and cash equivalents approximates fair value because of the short maturities for the instruments held. The Company had no cash equivalents as of December 31, 2020 and 2019. Concentration of Credit Risk Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company’s cash is deposited with major financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount (“FDIC”). As of December 31, 2020, the Company had $3,573,882 of cash above the FDIC’s $250,000 coverage limit. Net Loss per Share Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares for the year ended December 31, 2020 and 2019 does not include warrants to acquire 3,353,698 and 40,000 shares of common stock, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the year ended December 31, 2019 and 2018 does not include 172,438 and 223,249 options, respectively, to purchase common stock because of their anti-dilutive effect. F- 9 Accounts Receivable Accounts receivable represent contractual residual payments due from the Company’s processing partners or other customers. Residual payments are determined based on transaction fees and revenues from the credit and debit card processing activity of merchants for which the Company’s processing partners pay the Company. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable for our residual payments to be fully collectible and accordingly, no allowance for doubtful accounts is required; however, CrowdPay has a recorded an allowance of approximately $38,000 as of both December 31, 2020 and 2019, respectively. Reserve for Chargeback Losses Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s bank and charged to the merchant. If the merchant has inadequate funds, the Company must bear the credit risk for the full amount of the transaction. The Company evaluates the risk for such transactions and estimates the potential loss for chargebacks based primarily on historical experience and records a loss reserve accordingly. For the years ended December 31, 2020 and 2019, we had losses related to chargebacks of approximately $5,000 and $111,500, respectively. Property and Equipment Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized over the lesser of the remaining term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred. Impairment of Long-Lived Assets The Company periodically reviews the carrying value of its long-lived assets held and used at least annually or when events and circumstances warrant such a review. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. Cash flow projections are sometimes based on a group of assets, rather than a single asset. If cash flows cannot be separately and independently identified for a single asset, the Company determines whether impairment has occurred for the group of assets for which it can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, it measures any impairment by comparing the fair value of the asset group to its carrying value. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in the amount of the difference is recorded. Merchant Portfolios Merchant portfolios are valued at fair value of merchant customers on the date of acquisition and are amortized over their estimated useful lives (7 years). Goodwill The Company accounts for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill. F- 10 The Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ., the Company performed a quantitative assessment of indefinite lived intangibles and goodwill and determined there was no impairment as of at December 31, 2020 and 2019. Business Combinations Acquisitions are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred. The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired and identified based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Stock-based Compensation We account for equity-based transactions with nonemployees under the provisions of ASC Topic No. 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). ASC 505-50 establishes that equity-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to nonemployees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize the fair value of the equity instruments issued as deferred stock compensation and amortize the cost over the term of the contract. We account for employee stock-based compensation in accordance with the guidance of Financial Accounting Standards Board (“FASB”) ASC Topic 718, Compensation — Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. Revenue Recognition and Cost of Revenues The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company has a direct contractual relationship with the merchant, bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability and has no or limited contractual relationship with the merchant, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue. F- 11 Disaggregation of Revenue The following table presents the Company’s revenue disaggregated by revenue source: For the Years Ended December 31, 2020 2019 Revenue from contracts with customers: Wholesale contracts $ 5,106,588 $ 6,202,083 Retail contracts $ 2,242,164 $ 2,689,506 Other transaction and processing fees $ 2,417,869 $ 1,399,935 Total Revenue $ 9,766,621 $ 10,291,524 The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps: ● Identification of a contract with a customer; ● Identification of the performance obligations in the contract; ● Determination of the transaction price; ● Allocation of the transaction price to the performance obligations in the contract; and ● Recognition of revenue when or as the performance obligations are satisfied. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Shipping and handling activities associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment activity and recognized as revenue at the point in time at which control of the goods transfers to the customer. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less. Transaction and processing fees Fees for the Company’s transaction and processing arrangements are typically billed and paid on a monthly basis. The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar, volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. These merchant services represent a single performance obligation satisfied over time and that the same measure of progress should be used to measure the Company’s progress toward complete satisfaction of the performance obligation. The Company will recognize revenue on a monthly basis as the services are transferred to the customer in short daily increments that qualify for series guidance as the best measure of the transfer of control. In wholesale contracts, the Company recognizes transaction and processing fees on a gross basis as the Company is the principal in the merchant services. The Company has concluded it is the principal because it has a direct contractual relationship with the merchant, is primarily responsible for the delivery of services to the merchants, including performing underwriting, has discretion in setting prices, and bears risk of chargebacks and other merchant losses. The Company also has the unilateral ability to accept or reject a transaction based on criteria established by the Company. As the principal, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees within cost of revenues. F- 12 In retail contracts, the Company is not responsible for merchant underwriting, has no chargeback liability and has no or limited contractual relationship with the merchant. As such, the Company records the net amount it receives from the processor, after interchange and other interchange and other processing fees, as revenue. Merchant equipment sales and other The Company generates revenue through the sale and rental of merchant equipment. The Company satisfies its performance obligation upon delivery of equipment to merchants and recognizes revenue at a point in time. The Company allows for customer returns which are accounted for as variable consideration. The Company estimates these amounts based on historical experience and reduces revenue recognized. The Company invoices customers upon delivery of the equipment to merchants, and payments from such customers are due upon invoicing. The Company offers hardware installment sales to customers with terms ranging from three to forty-eight months. The Company allocates a portion of the consideration received from these arrangements to a financing component when it determines that a significant financing component exists. The financing component is subsequently recognized as financing revenue separate from hardware revenue, within subscription and services-based revenue, over the terms of the arrangement with the customer. Pursuant to practical expedients afforded under ASC 606, the Company does not recognize a financing component for hardware installment sales that have a term of one year or less. Deferred Revenue From time to time the Company may launch new products or services to its merchants. In the event step 1 under ASC 606 is not met, the Company will record deferred revenue upon receipt of the payment by the customer. In November 2019, the Company began billing existing merchants for its cloud-based omni-channels software, ShopFast. Merchants are billed monthly with the ability to opt out and receive a refund for up to 30 days after they are billed. Due to the lack of historical data related to these services, customer activity and the associated billings and refunds, $99,594 was recorded as deferred revenue as of December 31, 2019. During the year ended December 31, 2020, the Company determined it had sufficient information to determine Step 1 was achieved, and therefore recognized all revenue that was previously deferred. As such, $99,594 of revenue recognized during the year ended December 31, 2020 pertained to services provided in the prior period. As of December 31, 2020, there was no revenue that required deferment. During the year ended December 31, 2019, $223,670 of revenue was recognized from performance obligations satisfied (or partially satisfied) in previous periods in connection with a legal settlement. Recently Adopted Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The ASU requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The Company adopted the ASU effective January 1, 2020, using the modified retrospective transition method. Under this method, there was no cumulative impact adjustment necessary with the adoption to our accumulated deficit on January 1, 2020. Our consolidated financial statements for periods ending after January 1, 2020 are presented in accordance with the requirements of Topic 842, while comparative prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivative and Hedging (Topic 815), and Leases (Topic 842). This new guidance became effective for us on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. On January 1, 2020 the Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . The ASU eliminates Step 2 of the goodwill impairment test and the qualitative assessment for any reporting unit with a zero or negative carrying amount. The ASU also requires an entity to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount. The adoption did not have an impact on the Company’s consolidated financial statements. F- 13 NOTE 3 – LIQUIDITY AND CAPITAL RESOURCES At December 31, 2019, the Company had liabilities in excess of assets in the amount of approximately $2.8 million. During 2020, the Company incurred a net loss of approximately $1.8 million and consumed cash in operating activities of approximately $0.3 million. During 2020, the Company received proceeds of approximately $4.9 million from the sale of common stock units, and extinguished approximately $4.6 million of indebtedness from the conversion of related party debt. At December 31, 2020, the Company had cash of approximately $3.8 million and working capital of approximately $3.2 million. As such, the Company believes it has sufficient liquidity to fund its future operations and capital requirements for a period of at least twelve months from the date its consolidated financial statements are issued. NOTE 4 – INTANGIBLE ASSETS Intangible assets, net, consist of the following as of: December 31, 2020 December 31, 2019 Merchant Portfolios $ 2,340,000 $ 2,190,000 Less Accumulated Amortization (1,199,184 ) (854,761 ) Net residual portfolios $ 1,140,816 $ 1,335,239 December 31, 2020 December 31, 2019 Trade name $ 2,500,000 $ 2,500,000 Less Accumulated Amortization (1,000,000 ) (500,000 ) Net trade name $ 1,500,000 $ 2,000,000 Amortization expense for the years ended December 31, 2020 and 2019 was $844,423 and $812,857, respectively. The Company’s merchant portfolios and tradename are being amortized over respective useful lives of 7 and 5 years. The following sets forth the estimated amortization expense related to amortizing intangible assets for the years ended December 31: 2021 $ 863,615 2022 863,615 2023 496,443 2024 312,857 2025 104,286 Total $ 2,640,816 The weighted average remaining useful life of amortizing intangible assets was 3.08 years at December 31, 2020. F- 14 NOTE 5 – NOTE PAYABLE On April 8, 2018, eVance, Omnisoft, and CrowdPay, (collectively, the “Borrowers”), entered into a term loan of $12,500,000 with GACP (the “Term Loan”) to the which obligations are guaranteed by the Company (collectively with the Borrowers, the “Loan Parties”), under the Loan and Security Agreement (the “Credit Agreement”). On April 24, 2020, the Company entered into Amendment No. 4 to Loan and Security Agreement amending the Credit Agreement. The purpose of Amendment No. 4 was to extend the Maturity Date of the indebtedness and to waive certain outstanding events of default. Specifically, the Maturity Date of the indebtedness was extended for one year to April 9, 2022. The lenders also waived the Company’s existing default under the Credit Agreement from the date the default occurred until the date of Amendment No. 4. These defaults were: (i) failure to notify the Agent that one or more of the Loan Parties received proceeds from litigation above $99,999.99 and use the proceeds to make a prepayment of the Loans, (ii) one or more of the Loan Parties incurred indebtedness in an aggregate amount of $386,467 during fiscal year 2019 as a result of not reimbursing business expenses paid by Mr. Yakov in the ordinary course, which indebtedness is not permitted under Section 5.23(f) of the Credit Agreement (“ Debt Default ”) and (iii) Lender had not received financial statements and covenant compliance certificate of the Company as parent guarantor and the Borrowers for the fiscal year ended December 31, 2019 within 90-days of such fiscal year end as required by Section 5.15(a) of the Credit Agreement. In addition, Amendment No. 4 provides the Company with a limited waiver permitting the Company to incur government funded indebtedness from the United States CARES Act loan programs. Further, the financial covenants were amended whereby Consolidated Net Revenue for any rolling 12-month period shall not be less than $9,000,000 until June 30, 2021 and $10,000,000 from and after July 1, 2021. Further, Amendment No. 4 requires that the Company pay 100% of the proceeds from any favorable judgments from ongoing litigation and 20% of the net proceeds from any future equity offering completed by the Company to reduce the principal of the Term Loan and such payment was made following the closing of the Offering. The Term Loan matures in full on April 9, 2022, the third anniversary of the Closing. $1,000,000 of the principal amount under the Term Loan was repaid on to July 31, 2018, and an additional $2,000,000 in principal was paid on November 14, 2018. Additionally, the Company paid $125,000 of the Term Loan upon execution of Amendment No. 4 in April 2020 and the Company agreed to make a monthly payment of $25,000 per month, commencing May 1, 2020 and on the first business day of each calendar month thereafter, with the remaining principal due upon maturity. The Term Loan can be prepaid without penalty in part by the Loan Parties with ten days’ prior written notice to the Agent, and in full within thirty days’ prior written notice. The Term Loan is subject to an interest rate of 9.0% per annum, payable monthly in arrears. The obligations of the Loan Parties under the Credit Agreement are secured by all of their respective assets and the Loan Parties pledged all of their assets as collateral for their obligations under the Credit Agreement. Additionally, the Company pledged its ownership interests in the Purchasers and any of its other subsidiaries that it may form or acquire from time to time. The Credit Agreement includes customary representations, warranties and financial and other covenants of the Loan Parties for the benefit of the Lenders and the Agent. The obligations of the Loan Parties under the Credit Agreement are subject to customary events of default for a secured term loan. Each Loan Party is jointly and severally liable for the obligations under the Credit Agreement. Although, following the execution of Amendment No. 4, we are in compliance, we have been out of compliance at certain times with these obligations since the Credit Agreement was entered into, including at June 30, 2020, and were obligated to obtain certain waivers and modifications of these provisions to avoid an acceleration event under the Credit Agreement. Total interest expense for the GACP loan incurred during the years ended December 31, 2020 and 2019 was $807,982 and $866,875, respectively. Accrued interest as of December 31, 2020 and 2019 was $59,325 and $73,625, respectively. F- 15 Amendment No. 5 to Loan and Security Agreement On October 23, 2020, the Company entered into Amendment No. 5 to Loan and Security Agreement (“Amendment No. 5”) amending the Loan and Security Agreement (as amended by Amendment No. 1 to Loan and Security Agreement dated July 30, 2018, Amendment No. 3 to Loan and Security Agreement dated February 5, 2019, Amendment No. 4 to Loan and Security Agreement dated April 24, 2020, the “Credit Agreement”), dated as of April 9, 2018, by and among the Company’s subsidiaries Securus365, Inc., eVance Capital, Inc., and eVance Inc., (the “Purchasers”) and GACP Finance Co., LLC, a Delaware limited liability company (“GACP”), as administrative agent and collateral agent (“Agent”), and as the initial sole lender thereunder. The purpose of Amendment No. 5 was to remove the financial covenant whereby the Company’s was required to have a Fixed Charge Coverage Ratio not be less than 1.20:1.00, measured in each case on a trailing twelve-month basis. In consideration for the removal of the financial covenant requirement, the Credit Agreement was amended to include a requirement that the Company maintain a cash balance in its controlled operating bank account of not less than $1,000,000. Further, the repayment schedule under the note was amended whereby the Company paid an amount equal to $450,000 upon execution of Amendment No. 5. On May 6, 2020, the Company received a Paycheck Protection Program loan under the CARES Act for $236,231 (the “PPP Loan”). The PPP Loan matures on May 7, 2022 and bears interest at 1% per annum. Monthly amortized principal and interest payments are deferred for 6 months after the date of the agreement. The Paycheck Protection Program provides that the use of PPP Loan proceeds were 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, although no assurance can be given that the Company will obtain forgiveness of all or any portion of amounts due under the PPP Loan. The loan has been accounted for as long-term debt, which, if forgiven will result in a gain on forgiveness of debt in the period forgiveness is obtained. NOTE 6 – STOCK OPTIONS On January 1, 2019, pursuant to the terms on the employment agreement with Mr. Yakov he was granted 6,667 common stock options. The grant shall vest at the rate of 1/3 beginning on each anniversary of the effective date of grant. The options have an exercise price of $0.03 and expire in three years after each vest date. The aggregate fair value of the options totaled $39,814 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.03, 2.47% risk free rate, 104.8% volatility and expected life of the options of 3 years. The fair value is being amortized over the applicable vesting period and credited to additional paid in capital. On November 13, 2019, the Company entered into an agreement with the above holder of 265,172 common stock options and on November 25, 2019, the Company entered into an agreement with the holder of 13,334 common stock options, whereby the Company and option holders each agreed that the exercise price pertaining to those options would not be adjusted for the effects of the Reverse Stock Split. As are result, the exercise price of $0.03 associated with the options granted to the VP of Finance was modified to be $0.0001, and the exercise price of $0.03 associated with the options granted to Mr. Yakov was modified to be $0.001. The Company evaluated the impact of the option modification and concluded that there was no material impact to the consolidated financial statements. On January 1, 2020, the Company granted stock options to purchase 6,667 shares of common stock pursuant to the terms on the Company’s employment agreement with Mr. Yakov. The grant shall vest at the rate of 1/3 beginning on each anniversary of the effective date of grant. The options have an exercise price of $0.001 and expire in three years after each vest date. The aggregate fair value of the options totaled $99,994 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.001, 1.63% risk free rate, 95.3% volatility and expected life of the options of 3 years. The fair value is being amortized over the applicable vesting period and credited to additional paid in capital. A summary of the status of the Company’s outstanding stock options and changes during the year ended December 31, 2020 is presented below: Stock Options Options Weighted Average Exercise Price Aggregate Intrinsic Value Options outstanding at January 1, 2019 271,839 $ 0.0001 - Granted 6,667 $ 0.001 - Exercised - $ - Forfeited - $ - - Options outstanding at January 1, 2020 278,506 $ 0.0001 - Granted 6,667 $ 0.001 - Exercised - $ - - Forfeited - $ - - Options outstanding December 31, 2020 285,173 $ 0.0001 $ 1,408,755 Shares exercisable at December 31, 2020 112,735 $ 0.0001 $ 556,866 F- 16 NOTE 7 – WARRANTS On August 6, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp., acting as representative of the underwriters (“Aegis”), pursuant to which the Company agreed to sell to the underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 700,000 units (the “Units”), with each Unit consisting of: (a) one share of our common stock; (b) two Series A warrants (the “Series A Warrants”), with each Series A Warrant entitling the holder thereof to purchase one share of our common stock at an exercise price equal to $9.00 per share, exercisable until the fifth anniversary of the issuance date, subject to their earlier redemption as described therein; and (c) one-half of one Series B warrant (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”), with each whole Series B Warrant entitling the holder thereof to purchase one share of common stock at an exercise price equal to $4.50 per share, exercisable until the fifth anniversary of the issuance date and subject to their earlier redemption as described therein. The Company also granted the underwriters a 45-day option to purchase up to an additional 105,000 shares of common stock, and/or an additional 210,000 Class A Warrants to purchase shares of common stock and/or an additional 52,500 Class B Warrants to purchase shares of common stock as may be necessary to cover over-allotments in connection with the Offering. The Offering, including the exercise in full of the over-allotment option for the Warrants, closed on August 11, 2020. The Units and the securities underlying the Units were offered by the Company pursuant to a registration statement on Form S-1, as amended (File No. 333-232368), filed with the Securities and Exchange Commission (the “Commission”), which was declared effective by the Commission on August 6, 2020 (the “Registration Statement”). The net proceeds to the Company from the Offering, after deducting the underwriting discount, the underwriters’ fees and expenses and the Company’s Offering expenses, was approximately $4.9 million. The Company utilized $1,120,155 of the net proceeds to repay a portion of the Company’s long-term indebtedness (the “Term Loan”) and anticipates using the remainder of the net proceeds from the Offering to invest in or acquire companies or technologies that are synergistic with or complimentary to our business, expand and market our current products and for working capital and other general corporate purposes (including payment of outstanding accounts payable). Warrants The Warrants were issued in registered form under separate warrant agent agreements (each a “Warrant Agent Agreement”) between us and our warrant agent, Transfer Online, Inc. (the “Warrant Agent”). Each Series A Warrant entitles the registered holder to purchase one share of our common stock at a price equal to $9.00 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance. No fractional warrants will be issued and only whole warrants are exercisable. The exercise price and number of shares of common stock issuable upon exercise of the Series A Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable upon the exercise of the Series A Warrants, such holders may exercise their Series A warrants on a “cashless” basis pursuant to a formula set forth in the terms of the Series A Warrants. Each whole Series B Warrant entitles the holder thereof to purchase one share of our common stock at an exercise price of $4.50 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance. No fractional warrants will be issued and only whole warrants are exercisable. The exercise price and number of shares of common stock issuable upon exercise of a whole Series B Warrant may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable upon the exercise of the Series B Warrants, such holders may exercise their Series B warrants on a “cashless” basis pursuant to a formula set forth in the terms of the Series B Warrants. Each holder of the Warrants will be subject to a requirement that they will not have the right to exercise the Warrants to the extent that, after giving effect to such exercise, such holder (together with its affiliates) would beneficially own in excess of 4.99% (subject to increase to 9.99%) of the shares of our common stock outstanding immediately after giving effect to such exercise. F- 17 The Warrants are callable in the event that the last sales price of our common stock for any twenty (20) consecutive trading day period on or after the date of issuance (the “Measurement Period”) exceeds $9.00. The Company may, within ten (10) trading days of the end of such Measurement Period, call for the redemption of all or any portion of the outstanding and unexercised Warrants for consideration equal to the Black Scholes Value (as defined therein) of the remaining unexercised portion of the Warrants called for redemption on such date. Pursuant to the Underwriting Agreement, the Company issued to Aegis a warrant (the “Representative’s Warrants”) to purchase 35,000 shares of common stock. The Representative’s Warrants will be exercisable at a per share exercise price equal to $11.25 and is exercisable at any time and from time to time, in whole or in part, during the four-year period commencing twelve months from the effective date of the Registration Statement. The Representative’s Warrants also provide for one demand registration right of the shares underlying the Representative’s Warrants, and unlimited “piggyback” registration rights with respect to the registration of the shares of common stock underlying the Representative’s Warrants and customary anti-dilution provisions. The aggregate fair value of the 35,000 warrants, totaled $363,958 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $11.25, 0.21% risk free rate, 315.6% volatility and expected life of the warrants of 6 years. The value of the warrants has been netted against the proceeds of the offering proceeds and accounted for in additional paid in capital. Pursuant to and as additional consideration for the Term Loan under the Credit Agreement, on April 9, 2018 the Company issued to GACP a Warrant to purchase 40,000 shares of common stock of the Company The warrants have an exercise price of $7.50 and expire in three years. The aggregate fair value of the warrants, which was charged to interest expense, totaled $7,660 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $7.50, 2.28% risk free rate, 114.11% volatility and expected life of the warrants of 3 years. Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding, December 31, 2018 40,000 $ 7.50 2.27 Granted - $ - - Outstanding, December 31, 2019 40,000 $ 7.50 1.27 Warrant A Granted (1) 2,639,848 $ 9.00 9.00 Expired - $ - - Warrant B Granted (2) 659,970 $ 4.50 4.50 Warrant B Exercised (21,150 ) $ 4.50 - Underwriter Warrant 35,000 $ 11.25 11.25 Underwriter Warrant Exercised - - - Outstanding, December 31, 2020 3,353,698 4.61 4.81 (1) Includes 210,000 Warrant A granted to Underwriters upon exercise of overallotment in connection with the Offering (2) Includes 52,5000 Warrant B granted to Underwriters upon exercise of overallotment in connection with the Offering NOTE 8 – RELATED PARTY TRANSACTIONS On July 30, 2018, pursuant to the terms of the Amendment, the Company issued to Mr. John Herzog, a significant stockholder of the Company a subordinated promissory note in the principal amount of $1,000,000 (the “Note”) for cash proceeds of $1,000,000. The Note initially matured on March 31, 2019 (though the Company had the right to prepay the Note, in whole or in part, at any time prior to maturity) and bears interest at a rate of 12% per annum, compounding annually. The Note is subordinated to the Credit Agreement. The Company used the proceeds received to make the initial payment under the Credit Agreement. On November 14, 2018, the Company issued to John Herzog, a subordinated promissory note in the principal amount of $2,000,000 for cash proceeds of $2,000,000. F- 18 On March 1, 2019, the Company entered into Amendment No. 1 to Subordinated Promissory Note (the “Subordinated Note Amendment”) with Mr. Herzog. The purpose of the Subordinated Note Amendment was to amend that certain subordinated promissory note issued on July 26, 2018 in the principal amount of $1,000,000 to reflect an increase in the amount of principal due under the note from $1,000,000 to $3,000,000 reflecting a payment made by the payee to the Company of $2,000,000 on November 14, 2018 (the proceeds of which were used by the Company to make a second required payment under the Credit Agreement) and to extend the maturity date of the Note from March 31, 2019 to September 30, 2020. On June 25, 2019, the Company entered into Amendment No. 2 to the subordinated promissory note with Mr. Herzog. The purpose of the amendment was to amend the maturity date of such subordinated promissory note such that it will be extended until September 30, 2022. Total interest expense on the loans from Mr. Herzog for the years ended December 31, 2020 was $33,321 and $360,000, respectively. Total accrued interest as of December 31, 2020 and December 31, 2019 was $0 and $402,849, respectively. On May 13, 2020, Mr. Herzog agreed to convert, concurrently with the public offering of the Company’s securities, $3,522,191 in principal amount of indebtedness (plus any additional accrued interest and other fees thereon that accrues prior to the offering) into shares of convertible Series A Preferred Stock to be designated concurrently with the offering. On July 24, 2020, the terms of such conversion were amended such that Mr. Herzog agreed to convert such an aggregate of $3,582,355 of indebtedness and accrued interest into Series A Preferred Stock and warrants to purchase common stock at an exercise price determined by the public offering (“Conversion Warrants”), which Series A Preferred Stock and conversion warrants would be issued concurrently with the closing of the public offering. The Company has determined Mr. Herzog’s debt is being extinguished in order to protect his equity investment in the Company. Mr. Herzog is considered a principal owner with 10.3% of voting interests of the Company prior a conversion. The Company believes the equity investment in the Company is significant and indicates that Mr. Herzog entered into the exchange to protect his equity investment. In accordance with ASC 470-50-40-2, an extinguishment transaction between related entities may be capital transactions. If the extinguishment accounting is applied, any gain or loss that results should be reflected in equity. As a result, we believe the extinguishment did not and will not have any impact to the Company’s future financial statements. As of December 31, 2019, the Company had total accrued compensation due, and advances to be repaid, to Mr. Yakov in the amounts of $568,027 and $17,684, respectively. No similar amounts were owed to Mr. Yakov at December 31, 2020. Mr. Yakov, CEO has loaned funds to the Company for working capital purposes. As of December 31, 2019 the balance on these loans was $386,467. The loans were unsecured, bear interest at 12% and were due on demand. As of December 31, 2019 there was $22,279 of interest accrued on these loans. No similar loan amounts were owed to Mr. Yakov at or during the year ended December 31, 2020. Interest expense for the years ended December 31, 2020 and 2019 was $23,125 and $21,096, respectively. On May 13, 2020, Mr. Yakov agreed to convert, concurrently with the public offering of the Company’s securities, $1,011,016 in principal amount of indebtedness and accrued interest, which includes deferred salary and unreimbursed expenses, most of which was outstanding for more than one year, (plus any additional accrued interest and other fees thereon that accrues prior to the offering), into shares of convertible Series A Preferred Stock to be designated concurrently with the offering. On July 24, 2020, the terms of such conversion were amended such that Mr. Yakov agreed to convert an aggregate of $1,017,573 of accrued salary, indebtedness and accrued interest into Series A Preferred Stock and Conversion Warrants, which Series A Preferred Stock and conversion warrants were issued concurrently with the closing of the offering. In accordance with ASC 470-50-40-2, an extinguishment transaction between related entities may be a capital transaction. As the extinguishment accounting is applied, any gain or loss that results will be reflected in equity. On July 24, 2020, the terms of the agreement whereby Mr. Herzog agreed to convert, concurrently with the public offering of the Company’s securities, $3,522,191 in principal amount of indebtedness (plus any additional accrued interest and other fees thereon that accrues prior to the offering) into shares of convertible Series A Preferred were amended such that Mr. Herzog agreed to convert such an aggregate of $3,582,355 of indebtedness and accrued interest into Series A Preferred Stock and Conversion Warrants, which Series A Preferred Stock and Conversion Warrants would be issued concurrently with the closing of the public offering. On August 11, 2020, Mr. Herzog converted $3,612,940 of indebtedness into 3,612 shares of Series A Preferred Stock (the terms of which are described below) and 802,875 Series A Conversion Warrants with an exercise price of $9.00 and 200,719 Series B Conversion Warrants with an exercise price of $4.50. F- 19 On July 24, 2020, the terms of the agreement whereby Mr. Yakov agreed to convert, concurrently with the public offering of the Company’s securities, $1,017,753 in principal amount of indebtedness and accrued interest, which includes deferred salary and unreimbursed expenses (plus any additional accrued interest and other fees thereon that accrues prior to the offering), into shares of convertible Series A Preferred Stock to be designated concurrently with the offering such conversion were amended such that Mr. Yakov agreed to convert an aggregate of $1,017,573 of accrued salary, indebtedness and accrued interest into Series A Preferred Stock and conversion warrants, which Series A Preferred Stock and conversion warrants would be issued concurrently with the closing of the offering. On August 11, 2020, Mr. Yakov converted $1,021,512 of indebtedness into 1,021 shares of Series A Preferred Stock (the terms of which are described in Note 10 below) and 227,003 Series A Conversion Warrants with an exercise price of $9.00 and 56,751 Series B Conversion Warrants with an exercise price of $4.50. NOTE 9 – OPERATING LEASE On June 24, 2020, eVance, Inc. (“eVance”), a Delaware corporation and an indirect, wholly owned subsidiary of The OLB Group, Inc. (the “Company”), entered into a Lease Agreement dated June 24, 2020 (the “Lease”) with Pergament Lodi, LLC (the “Lessor”) relating to approximately 4,277 square feet of property located at 960 Northpoint Parkway, Alpharetta, Georgia, Suite 400. The term of the Lease is for thirty-nine (39) months commencing September 1, 2020. The monthly base rent is $8,019 for the first twelve (12) months increasing thereafter to $8,768. The total rent for the entire lease term is $315,044 and $8,768 is payable as a security deposit. The first three months of rent will be abated so long as eVance is not in default of any portion of the Lease. Balance Sheet Classification December 31, 2020 Asset Operating lease asset Right of use asset $ 269,508 Total lease asset $ 269,508 Liability Operating lease liability – current portion Current operating lease liability $ 85,598 Operating lease liability – noncurrent portion Long-term operating lease liability 185,045 Total lease liability $ 270,643 Lease obligations at December 31, 2020 consisted of the following: For the year ended December 31 : 2021 $ 97,202 2022 100,139 2023 94,393 Total payments $ 291,734 Amount representing interest $ (21,091 ) Lease obligation, net 270,643 Less current portion (85,598 ) Lease obligation – long term $ 185,045 Rent expense for the year ended December 31, 2020 was $91,052 and $97,488, respectively. At December 31, 2020, the weighted average remaining lease term is 2.92 years and the weighted average discount rate is 5%. F- 20 NOTE 10 – PREFERRED STOCK Our certificate of incorporation authorizes the issuance of 50,000,000 shares of blank check preferred stock with such designation, rights and preferences as may be determined from time to time by our board of directors. No shares of preferred stock are currently issued or outstanding. Series A Preferred Stock On August 7, 2020, we filed a Certificate of Designations, Preferences and Rights of Series A Preferred Stock (the “Certificate of Designations”) with the Secretary of State of Delaware. The Certificate of Designations will provide that the Company may issue up to 10,000 shares of Series A Preferred Stock at a stated value (the “Stated Value”) of $1,000.00 per share. Holders of Series A Preferred Stock are entitled to the following rights and preferences: Dividends The Series A Preferred Stockholders are entitled to receive cash dividends at a rate per share (as a percentage of the Stated Value per share) of 12% per annum. Dividends accrue quarterly. Dividends are to be paid to the holders from funds legally available for payment and as approved for payment by the Board of Directors of the Company. Conversion The Series A Preferred Stock holders may convert, at their option, on or after the date on which the Term Loan is repaid in full, each share of Series A Preferred Stock (along with accrued but unpaid dividends thereon) into such number of shares of common stock as determined by dividing the Stated Value by the conversion price. The conversion price for the Series A Preferred Stock will be equal to the offering price per Unit in this offering and will be subject to adjustment for splits and the like. The holders of Series A Preferred Stock will only be permitted to convert their shares of Series A Preferred Stock into shares of common stock at such time as the Term Loan has been repaid in full and there is no further outstanding obligations regarding such indebtedness. Voting Each holder of a share of Series A Preferred Stock will have the right to vote its shares of Series A Preferred Stock with the common stock on an as-converted basis, and with respect to such votes, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock, and shall be entitled, to notice of any stockholders’ meeting in accordance with the Company’s bylaws, and shall be entitled to vote, together with holders of common stock, with respect to any question upon which holders of common stock have the right to vote. Fractional votes shall not be permitted, and such shares shall be rounded up. Liquidation Preference Each share of Series A Preferred Stock will have a liquidation preference equal to the Stated Value plus any accrued but unpaid dividends thereon. In the event of a liquidation, dissolution or winding up of the Company (which includes any merger, reorganization, sale of assets in which control of the Company is transferred or event which results in all or substantially all of the Company’s assets being transferred), the holders of Series A Preferred Stock shall be entitled to receive out of the assets of the Company, before any payment is made to the holders of the Company’s common stock and either in preference to or pari pasu with the holders of any other series of preferred stock that may be issued in the future, a per share amount equal to the liquidation preference. F- 21 NOTE 11 – COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements. On October 20, 2017, the Company entered into a 7-year term employment agreement with its founder and president, effective January 1, 2018 through December 31, 2024. The agreement provides for an annual salary of $375,000, fringe benefits ($2,500 monthly automobile allowance, any benefit plans of the Company and 4 weeks paid vacation), an incentive bonus of $200,000 based on the achievement of certain performance criteria and an acquisition bonus equal to two (2%) percent of the gross purchase price paid in connection therewith upon the closing of any acquisition directly or indirectly by the Company or its subsidiaries during the Employment Period of any company or business (including purchases of all or substantially all of the assets of any such entity) having then existing sales of not less than three million five hundred thousand dollars ($3,500,000). During the year ended December 31, 2020, Mr. Yakov was paid a $400,000 bonus ($200,000 per year for 2019 and 2020). On December 11, 2019, the Company entered into a settlement agreement to resolve disputes in ongoing litigation it initiated, relating to a portfolio of merchants acquired by the Company when it acquired Payprotec Oregon, LLC (the “Portfolio”), whereby it received the sum of $734,250. The Company recorded $172,390 of the settlement to a gain in other income. This was the portion of the settlement allocated to the period prior to April 9, 2018. The remaining $561,860 has been recognized in revenue for the year ended December 31, 2019, out of which $223,670 are performance obligations relating to the prior year. NOTE 12 — INCOME TAX Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Net deferred tax assets consist of the following components as of December 31: 2020 2019 Deferred Tax Assets: NOL Carryover $ 1,790,700 $ 1,195,800 Payroll accrual - 7,500 Allowance for Doubtful Accounts 10,300 10,300 Related party accrual - 145,900 Depreciation and amortization 467,658 253,327 Less valuation allowance (2,268,658 ) (1,612,827 ) Net deferred tax assets $ — $ — The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pre-tax income from continuing operations for the period ended December 31, due to the following: 2020 2019 Book loss $ (373,000 ) $ (282,000 ) State taxes (107,000 ) (81,000 ) Meals and entertainment 800 1,200 Stock based compensation 135,600 71,600 Other adjustments (368,891 ) 53,481 Adjustment to deferred tax asset (198,108 ) Valuation allowance 712,491 434,827 $ — $ — F- 22 At December 31, 2020, the Company had operating loss carry forwards of approximately $6,630,000, $3,415,000 of which expire from 2021 – 2040, and no expiration on the remaining amount. In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s net operating loss carryforwards may be limited in the event of a change in ownership. A full Section 382 analysis has not been prepared and NOLs could be subject to limitation under Section 382. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the years ended December 31, 2020 and 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position in the next twelve months. The Company files income tax returns in the U.S. federal jurisdiction, New York and Georgia which remain subject to examination by the various taxing authorities beginning with the tax year ended December 31, 2017 (or the tax year ended December 31, 2001 if the Company were to utilize its NOLs). No tax audits were commenced or were in process during the years ended December 31, 2020 and 2019. NOTE 13 – SUBSEQUENT EVENTS On March 2, 2021, the Company transferred cash in the amount of $7,712,256.28 to the Agent under the Credit Agreement (the “Prepayment”). The Prepayment facilitated the discharge in full of all of the obligations under the Credit Agreement. F- 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.