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. 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, 2023, DMint has purchased 1,000 computers, of which all computers have been delivered with 250 online and mining for Bitcoin at the Company’s building in Selmer, Tennessee. As configured, it is expected that the computers purchased will have a combined computing power of approximately 100 petahash per second. 23 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. The matter is currently in litigation. 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. On June 15, 2023, the Company acquired 80.01% of the membership interests of Cuentas SDI, LLC, a Florida limited liability company (“SDI”). SDI will enable the Company to focus on marketing to the underbanked communities utilizing the SDI debit and calling card platform’s ability for users to reload cash to their account and provide instant access to digital products to their customers’ Mobile App and digital wallet into its electronic portal. The Company plans to market to the SDI merchant network, which currently has approximately 31,600 locations in the United States, the ability of having one POS system that will allow the retail customer to purchase products using OLB’s payment processing solutions along with the ability to reload payment cards and their mobile phone minutes. Results of Operations Management’s discussion and analysis of financial condition and results of operations (“MD&A”) includes a discussion of the consolidated results from operations of The OLB Group, Inc. and its subsidiaries for the three and nine months ended September 30, 2023 and 2022. Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 For the three months ended September 30, 2023, we had total revenue of $9,694,440 compared to $6,246,551 of revenue for the three months ended September 30, 2022, an increase of $2,349,008 or 39.3%. We earned $8,331,185 in transaction and processing fees, $21,160 in merchant equipment rental and sales, $147,068 in other revenue from monthly recurring subscriptions, $95,667 of revenue from the Cryptocurrency Mining segment and $1,099,360 of revenue from the sale of digital products. For the three months ended September 30, 2022, we earned $5,982,177 in transaction and processing fees, $8,417 in merchant equipment rental and sales, $94,708 in other revenue from monthly recurring subscriptions and $161,249 of other revenue from the Cryptocurrency Mining segment . The increase in revenue was a result of the increase in the amount of fees earned from a greater number of merchant processing transactions compared to the prior year and the addition of the digital product revenue. Processing and servicing costs increased by $1,767,371 or 37.8%, from $4,679,192 in the prior period to $6,449,563. Amortization and depreciation expense for the three months ended September 30, 2023, was $899,831 compared to $892,788 for the three months ended September 30, 2022, an increase of $7,043 or 0.8%, thus fairly consistent between periods. We record amortization expense on our merchant portfolio, trademarks and natural gas purchase rights. Depreciation expense for our Cryptocurrency Mining segment for the three months ended September 30, 2023 was $910,743 compared to $799,716 for the three months ended September 30, 2022, an increase of $111,027 or 13.9% due to depreciating more bitcoin mining equipment in the current period. 24 Salary and wage expense for the three months ended September 30, 2023, was $687,456 compared to $649,012 for the three months ended September 30, 2022, an increase of $38,444 or 5.9%. Salary and wage expenses have increased due to an increase in salary and bonuses paid to our officers during the 2023 period. Professional fees for the three months ended September 30, 2023, were $707 900 compared to $174,472 for the three months ended September 30, 2022, an increase of $533,424 or 305.7%. Professional fees consist mainly of audit and legal fees. The increase was due to increased litigation-related legal expenses and auditor and legal expenses relating to the preparation of a spin-off of DMINT during the 2023 period. General and administrative expenses for the three months ended September 30, 2023, was $1,901,850 compared to $753,944 for the three months ended September 30, 2022, an increase of $1,147,906 or 152.3%. Some of our larger G&A expenses included insurance policy expense of $109,000 as a result of the cost to insure the cryptocurrency mining machines and the increase in the size of the Company’s business, bank and credit card charges of $336,000, contracted services of $299,000 from $45,000 in the same period of 2022 and utilities of $228,00 from $175,000 in the same period of 2022. For the three months ended September 30, 2023, we had total other expense of $24,974 from an unrealized loss on investment, compared to total other expense of $9,989 for the three months ended September 30, 2022. For the three months ended September 30, 2023, we had $83,112 of net loss attributed to the non-controlling interest of Cuentas SDI, LLC, due to the acquisition of 80.01% interest of the entity during the quarter ended June 30, 2023. Our net loss for the three months ended September 30, 2023, after the reduction for minority interest, was $1,801,738 compared to $1,712,562 for the three months ended September 30, 2023. This was an increase in our net loss of $89,176 for the reasons discussed above. Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022 For the nine months ended September 30, 2023, we had total revenue of $24,661,041 compared to $23,405,445 of revenue for the nine months ended September 30, 2022, an increase of $230,329 or 1%. We earned $22,439,904 in transaction and processing fees, $68,443 in merchant equipment rental and sales, $295,941 in other revenue from monthly recurring subscriptions, $399,957 of other revenue from the Cryptocurrency Mining segment and $1,456,796 of revenue from the sale of digital products during the nine months ended September 30, 2023, compared to $22,209,575 in transaction and processing fees, $43,759 in merchant equipment rental and sales, $518,556 in other revenue from monthly recurring subscriptions and $633,555 of other revenue from the Cryptocurrency Mining segment during the nine months ended September 30, 2022 . The increase in revenue was a result of the increase in the amount of fees earned from a greater number of merchant processing transactions compared to the prior year and the addition of the digital product revenue. Amortization and depreciation expense for the nine months ended September 30, 2023, was $2,699,496 compared to $2,794,731 for the nine months ended September 30, 2022, a decrease of $694,798 or 3.9% due to fully depreciating certain assets in the prior year. We record amortization expense on our merchant portfolio, trademarks and natural gas purchase rights. Depreciation expense for our cryptocurrency mining segment was $2,510,176 in the current period compared to $2,393,966 in the prior period, an increase of $116,210 or 4.9%, thus fairly consistent between periods. Salary and wage expense for the nine months ended September 30, 2023 was $2,070,288 compared to $1,805,785 for the nine months ended September 30, 2022 an increase of $264,503 or 14.6%. Salary and wage expenses have increased due to an increase in salary and bonuses paid to our officers during the 2023 period. Professional fees for the nine months ended September 30, 2023 were $1,297,026 compared to $793,626 for the nine months ended September 30, 2022, an increase of $503,400 or 63.4%. Professional fees consist mainly of audit and legal fees. The increase was due to increased litigation-related legal expenses and auditor and legal fees related to the preparation of the spin-off of DMINT during the 2023 period. General and administrative expenses (“G&A”) for the nine months ended September 30, 2023 was $4,063,159 compared to $2,997,169 for the nine months ended September 30, 2022, an increase of $1,065,990 or 35.6%. Some of our larger G&A expenses included insurance policy expense of $333,400 as a result of the cost to insure the cryptocurrency mining machines and the increase in the size of the Company’s business, travel of $130,000 from $250,000 in the same period of 2022, marketing and promotion of $88,000 from $180,000 in the same period of 2022, contracted services of $624,000 from $511,000 in the same period of 2022, utilities of $510,00 from $406,000 in the same period of 2022 and computer and internet expense of $670,000 from $515,000 in the same period of 2022. 25 For the nine months ended September 30, 2023, we had total other expense of $196,025 compared to other income $383,190 for the nine months ended September 30, 2022. In the current period we had a loss of $279,242 from the sale of cryptocurrency, an unrealized loss on investment of $31,437, and other income of $114,654, compared to other income of $383,190 for the nine months ended September 30, 2022. In the prior period we recognized a gain of $383,190 from the reversal of a liability associated with a prior adverse judgement on appeal. For the nine months ended September 30, 2023, we had $81,387 of net loss attributed to the non-controlling interest of Cuentas SDI, LLC, due to the acquisition of 80.01% interest of the entity during the quarter ended June 30, 2023. Our net loss for the nine months ended September 30, 2023, after the reduction for minority interest, was $5,008,411 compared to $4,606,112 for the nine months ended September 30, 2022. We had an increase in our net loss of $402,299 for the reasons discussed above. Liquidity and Capital Resources Changes in Cash Flows For the nine months ended September 30, 2023, we received $1,964,977 of cash from operating activities, which included our net loss of $5,089,798 plus our operating lease expense, net of repayment of $8,444 offset by $5,209,669 for amortization and depreciation expense, $161,605 for stock-based compensation, $279,242 from the loss on sale of cryptocurrency and net changes in operating assets and liabilities of $1,412,703. For the nine months ended September 30, 2023, we used net cash of $231,590 in financing activities as a result of a cash overdraft obtained in an acquisition of $8,050 and payments on a note payable of $223,540 and used $2,079,630 in investing activities as a result of the acquisition of property and equipment of $1,229,630 and the purchase of an 80.01% interest in Cuentas SDI, LLC for $850,000. Liquidity and Capital Resources At September 30, 2023, the Company had cash of $87,783, $123,466 of bitcoins and a working capital deficit of $2,329,626. The Company has approximately $5,899,000 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) continued improving transaction volume trends and positive cash flow in the third quarter, and (b) an increase in revenues created from the purchase of Cuentas SDI, LLC in June 2023, the Company believes it has and will continue to have sufficient liquidity in order to sustain operations for at least the twelve months following the filing of this Quarterly Report. 26 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.