OLB GROUP, INC. 10-Q

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 2022 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 seek 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. 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 into 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. 19 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 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 Bitcoin 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 November 24, 2021, we entered into an Asset Purchase Agreement (the “Agreement”) dated as of November 15, 2021 with FFS Data Corporation (“Seller”) whereby we acquired a portfolio of merchants utilizing financial transaction processing services (the “Acquired Merchant Portfolio”). The purchase price was $20 million, with $16 million paid at closing, $2 million payable within six months after closing, and a $2 million payment to be transferred to an escrow account, contingent upon an Attrition Adjustment, as described in the Agreement. However, on July 18, 2022, the Company notified the Seller of certain breaches of contract relating to, among other things, representations made by Seller in the Agreement, for which it will seek a reduction or cancellation of the final payment and a potential reduction in the overall purchase price. 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 months ended March 31, 2023 and 2022. Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022 For the three months ended March 31, 2023, we had total revenue of $6,622,589 compared to $8,786,459 of revenue for the three months ended March 31, 2022, a decrease of $2,163,870 or 24.6%. We earned $6,353,471 in transaction and processing fees, $24,764 in merchant equipment rental and sales, $77,605 in other revenue from monthly recurring subscriptions and $166,749 of other revenue from the Cryptocurrency Mining segment during the three months ended March 31, 2023, compared to $ 8,413,429 in transaction and processing fees, $17,168 in merchant equipment rental and sales, $91,522 in other revenue from monthly recurring subscriptions and $264,340 of other revenue from the Cryptocurrency Mining segment during the three months ended March 31, 2022 . The decrease in revenue was a result of a decrease in the amount of fees earned from merchant processing transactions compared to the prior year primarily due to the removal and termination of service of approximately 700 merchants that were part of the Acquired Merchant Portfolio due to their non-compliance with the credit card processing rules. The removal of the merchants is the subject of ongoing litigation discussed in the notes to our financial statements above. Processing and servicing costs decreased by $1,180,703 or 18.9%, from $6,258,137 in the prior period to $5,077,434 for the same reason. 20 Amortization and depreciation expense for the three months ended March 31, 2023, was $899,831 compared to $998,590 for the three months ended March 31, 2022, a decrease of $98,759 or 9.9%. We record amortization expense on our merchant portfolio, trademarks and natural gas purchase rights. Our amortization expense for the three months ended March 31, 2023, decreased in the current year period due to the valuation of the agreement with Cai Energy to purchase natural gas to operate the Bitcoin mining computers used in the Cryptocurrency Mining segment. Depreciation expense for our Cryptocurrency Mining segment for the three months ended March 31, 2023 was $799,717 compared to $891,756 for the three months ended March 31, 2022, a decrease of $92,039 or 10.3%. Depreciation expense for our Cryptocurrency Mining segment decreased in the current year period because no new equipment was acquired during the period. Salary and wage expense for the three months ended March 31, 2023, was $690,352 compared to $533,859 for the three months ended March 31, 2022, an increase of $156,493 or 29.3%. Salary and wage expense has increased due to an increase in salary and bonuses for our officers. Professional fees for the three months ended March 31, 2023, were $369,344 compared to $324,407 for the three months ended March 31, 2023, an increase of $44,937 or 13.9%. Professional fees consist mainly of audit and legal fees. The increase in the current period is due to litigation-related legal expenses. General and administrative expenses (“G&A”) for the three months ended March 31, 2023, was $1,188,045 compared to $1,235,317 for the three months ended March 31, 2022, a decrease of $47,272 or 3.8%. Some of our larger G&A expenses included insurance policy expense of approximately $59,000 as a result of the cost to insure the Bitcoin mining machines and the increase in the size of the Company’s business, expenses for outside services were $140,000, a decrease from $259,000 in the same period of 2022, travel expense of $53,000 from $108,000 in the same period of 2022, and utilities of $165,000. We also had a $106,100 reduction of our marketing expenses. For the three months ended March 31, 2023, we had total other expense of $213,271 from a realized loss of $327,925 on the sale of Bitcoin and other income of $114,654, compared to other income of $11 for the three months ended March 31, 2022. Our net loss for the three months ended March 31, 2023 was $2,615,405 compared to $1,455,596 for the three months ended March 31, 2023. We had an increase in our net loss of $1,159,809 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 2022, the Company did not attribute any material impact on its business as a result of the pandemic. 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 into the future, and believes 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. 21 Changes in Cash Flows For the three months ended March 31, 2023, we received $570,783 of cash from operating activities, which included our net loss, offset by $1,699,548 for amortization and depreciation expense, $132,788 for stock-based compensation, $327,925 for realized losses on the sale of bitcoin, and net changes in operating assets and liabilities of $1,025,482. For the three months ended March 31, 2023, we used net cash of $2,561 in financing activities as a result of a cash overdraft of $71,953 and payments on a note payable of $74,514. Liquidity and Capital Resources At March 31, 2023, the Company had cash of $64,627 and a working capital deficit of $1,824,026. The Company has approximately $5,447,000 of outstanding liabilities. The Company has reviewed its projected operating cash flows for the remainder of 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) improving transaction volume trends and positive cash flow in the second quarter, and (b) increasing the number of merchants processing payments, 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, 2022, for a full discussion of our critical accounting policies. Subsequent Events None. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.