Item 1. Business
Item 1. Business.
Forward-Looking Statements
Unless the context indicates otherwise, as used
in this Annual Report, the terms “OLB,” “we,” “us,” “our,” “our company” and
“our business” refer, to The OLB Group, Inc., including its subsidiaries named herein. Certain statements, other than purely
historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating
results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking
statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,”
“estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements
are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted
accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
Overview
We are a FinTech company that focuses on a suite
of products in the merchant services marketplace and seeks to provide integrated business solutions to merchants throughout the United States.
We seek to provide 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, Inc., a Delaware corporation (“eVance”), OmniSoft.io, Inc., a Delaware
corporation (“OmniSoft”), and CrowdPay.Us, Inc., a New York corporation (“CrowdPay”).
OmniSoft operates a cloud-based business management
platform that provides turnkey solutions for merchants to enable them to build and manage their retail businesses, whether online or at
a “brick and mortar” location. The OmniSoft platform, which can be accessed by merchants through any mobile and computing
device, allows merchants to, among other features, manage and track inventory, track sales and process customer transactions and can provide
interactive data analysis concerning sales of products and need for additional inventory. Merchants generally utilize the platform by
uploading to the platform information about their inventory (description of units, number of units, price per unit, and related information).
Once such information has been uploaded, merchants, either with their own device or with hardware that we sell directly to them, are able
to utilize the platform to monitor inventory and process and track sales of their products (including coordinating shipping of their products
with third party logistics companies). We manage and maintain the OmniSoft platform through a variety of domain names or a merchant can
integrate our platform with their own domain name. Using the OmniSoft platform, merchants can “check-out” their customers
at their “brick and mortar” stores or can sell products to customers online, in both cases accepting payment via a simple
credit card or debit card transaction (either swiping the credit card or entering the credit card number), a cash payment, or by use of
a QR code or loyalty and reward points, and then print or email receipts to the customer. For more information regarding our OmniSoft
platform, see “Description of our OmniSoft Business.”
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eVance provides competitive payment processing
solutions to merchants which enable merchants to process credit and debit card-based internet payments for sales of their products at
competitive prices (whether such sales occur online or at a “brick and mortar” location). eVance is an independent sales organization
(an “ISO”) that signs up new merchants on behalf of acquiring banks and processors that provides financial and transaction
processing solutions to merchants throughout the United States. eVance differentiates itself from other ISOs by focusing on both
obtaining and maintaining new merchant contracts for its own account (including, but not limited to, merchants that utilize the OmniSoft
platform) and also obtaining and maintaining merchant contracts obtained by third-party ISOs (for which we negotiate a shared fee arrangement)
and utilizing our own software and technology to provide merchants and other ISOs differentiating products and software. In particular,
we (i) own our own payments gateway, (ii) have proprietary omni-commerce software platform, (iii) have in-house underwriting
and customer service, (iv) have in-house sub-ISO management system which offers sub-ISOs and agents tools for online boarding, account
management, residual reports among other tools, and (v) offer a suite of products in the financial markets (through CrowdPay). Leveraging
our relationship with three of the top five merchant processors in the United States (representing a majority of the merchant processing
market) and with the use of our proprietary software, our payment gateway (which we call “SecurePay”) enables merchants to
reduce the cost of transacting with their customers by removing the need for a third-party payment gateway solution. eVance operates as
both a wholesale ISO and a retail ISO depending on the risk profile of the merchant and the applicable merchant processor and acquiring
bank. As a wholesale ISO, eVance underwrites the processing transactions for merchants, establishing a direct relationship with the merchant
and generating individual merchant processing contracts in exchange for future residual payments. As a retail ISO, eVance primarily gathers
the documents and information that our partners (acquiring banks and acquiring processors) need to underwrite merchants’ transactions
and as a result receives only residual income as commission for merchants it places with our partners. For more information regarding
the electronic payment industry, see “Business — Description of our eVance Business — Our Industry.”
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SecurePay
SecurePay is a payment gateway and virtual terminal
with proprietary business management tools that is in compliance with the Payment Card Industry (PCI).
SecurePay has been certified by Visa and MasterCard
(certified Level II and Level III) and finalized implementation of “3D Secure” in 2019 (a feature that is unique to what we
offer in order to provide for more secure environment for E-commerce and mobile payments in-store and online).
On June 15, 2023, the Company entered into a Membership
Interest Purchase Agreement (the “Agreement”) with SDI Black 001, LLC (“Seller”) whereby it acquired 80.01% of
the membership interests of Cuentas SDI, LLC, a Florida limited liability company (the “LLC”). The LLC’s owns the platform
of Black011.com and the network serving over 31,000 convenience stores (“Bodegas”) in and around New York and New Jersey.
Crowdpay
CrowdPay.us™ operates a white label capital
raising platform that targets small and midsized businesses seeking to raise capital and registered broker-dealers seeking to host capital
raising campaigns for such businesses by integrating the platform onto such company’s or broker-dealer’s website. Our CrowdPay
platform is tailored for companies seeking to raise money through a crowdfunding offering of between $1 million and $50 million pursuant
to Regulation CF under Title III of the Jumpstart Our Business Startups (the “JOBS Act”), offerings pursuant to Rule 506(b)
and Rule 506(c) under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and offerings pursuant
to Regulation A+ of the Securities Act. Our platform, which can be used for multiple offerings at once, provides companies and broker-dealers
with an easy-to-use, turnkey solution to support company offerings, allowing companies and broker-dealers to easily present online to
potential investors relevant marketing and offering materials and by aiding in the accreditation and background check processes to ensure
investors meets the applicable requirements under the rules and regulations of the Securities Exchange Commission (the “SEC”).
CrowdPay charges a fee to each company and broker-dealer for the use of its platform under a fee structure that is agreed to between CrowdPay
and the Company and/or broker-dealer prior to the initiation of the offering. CrowdPay also generates revenues by providing ancillary
services to the companies and broker-dealers utilizing our platform, including running background checks and providing anti-money laundering
and know-your-customer compliance. CrowdPay is not a registered funding portal or a registered broker-dealer.
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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 would
purchase 100% of the equity of Crowd Ignition in exchange for 1,318,408 shares of the common stock, par value $0.0001 of the Company (the
“CI Issued Shares”). The value of the CI Issued Shares was, for purposes of the Agreement, based on the closing trading price
of the Company on October 1, 2021 (the date on which a third-party fairness opinion was issued), resulting in an aggregate purchase price
for Crowd Ignition of $5.3 million.
Crowd Ignition is a web-based crowdfunding software
system. Ronny Yakov, Chairman and CEO of the Company and John Herzog, a significant shareholder of the Company, own 100% of the equity
of Crowd Ignition. The software provides broker-dealer, merchant banks and law firms a platform to market crowdfunding offerings, collect
payments and issue securities. The software has been developed in response to, and to comply with, recent changes in investment regulations
including Regulation D 506(b) and 506(v), Regulation A+ and Title III of the Jobs Act (Regulation CF), including raising the crowdfunding
limit from $1.07 million to $5.0 million. Crowd Ignition is one of only about 50 companies registered with the SEC to provide the services
permitted under Regulation CF.
OLBit and DMINT
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 money transmission and transactional business. OLBit had been in the process of applying for money transmission licenses
in all 50 states along with New York Bitlicense. Around June 2023, it was decided to delay the process of applying for licenses
in order to have a greater focus of financial and management resources on the Company’s payment processing business and DMINT’s
Bitcoin mining business.
On July 23, 2021, we formed DMINT, Inc., a wholly
owned subsidiary (“DMINT”) to operate in the Bitcoin mining industry. DMINT initiated the first phase of the Bitcoin mining
operation by establishing data centers and ASIC-based Antminer S19J Pro mining computers specifically configured to mine Bitcoin in Bradford,
Pennsylvania. As of December 31, 2023, DMINT had 400 computers online and mining for Bitcoin. It has six data centers located in Tennessee.
In February 2023, DMINT redeployed its mining computers from its Pennsylvania location and focus the mining efforts at the Selmer, TN
location because of the lower cost of operations in the location.
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On August 16, 2022, DMINT Real Estate Holdings,
Inc. (“DREH”), a wholly owned subsidiary of purchased 4.73 acres of land and a building located at 565 Industrial Park Drive,
Selmer, McNairy County, Tennessee for a purchase price of $408,000.00. DMINT established a Bitcoin mining data center powered on the local
power grid. The location is expected to have capacity for up to 5,000 mining machines. The Company plans to complete the buildout
of the building to be fully operational with 5,000 machines in 2024 following a spin-off of DMINT into a standalone entity which is currently
in process.
Synergies between the subsidiaries
The success of our business model is dependent
on the synergies between the business segments operated by our subsidiaries. We have created and developed products that we believe, form
an ecosystem of e-commerce to provide a variety of clients, from online equity financing companies or merchants selling online or in brick
and mortar stores, with multiple product offerings and ancillary services from underwriting with the banks and merchant billing from the
cloud software. We expect that these synergies will create additional revenue by charging transaction fees on each service provided to
clients by our partnerships with Merchant Acquiring Banks and PCI Compliance.
We believe that our wholly-owned subsidiaries
combine to create an ecosystem where each subsidiary benefits the other. Starting with the services provided by eVance, we enable each
of our products and platforms to communicate with each other and create an ecosystem among our products and, potentially, third-party
products. These services are provided to other subsidiaries such as Black011, the bodega distribution subsidiary.
The product environment created with a new registered
merchant or issuer enables all merchant information to be stored in a single, centralized location but utilized by all subsidiaries. For
example, merchant services utilizing eVance provide electronic payment processing services that can be utilized for payments on the Crowdfunding
platform. The platform is used by merchant services to allow mobile and online processing to merchants.
The Omni commerce platform will be offered to
all of the merchant services clients. The offered Merchant Services products we provide will enable all processing needs for the OmniCommerce
system. The gateway will allow merchants that are using the platform to accept online eCommerce transactions.
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Competitive Advantages
We believe that our platform of services will
provide the following key advantages.
● Time to Market —
we can create a customized website for retailers within days and have it fully operational in less than 2 weeks. During 2022 and
2023, we did not develop any new retailer websites but continue to offer the service.
● Cost — we believe
that we are the only content service provider that does not charge a setup fee.
● Flexibility — our
platform has the flexibility to provide customized solutions for partners.
● Pricing — we provide
partners with a price comparison feature which they can utilize if they wish to set prices for products or run promotions.
● Payment processing —
we can provide financial service companies with the ability to have their customers’ accounts directly debited for payment.
● We can assist existing “brick &
mortar” businesses that have inventory and fulfilment capability but do not wish to create and maintain an e-commerce website and
infrastructure to sell their products.
● We can provide a platform for
early-stage companies looking for an effective and less costly way to raise capital.
Risks Associated with our Business
Our business and ability to execute our business
strategy are subject to a number of risks of which you should be aware before you decide to buy our securities. In particular, you should
consider the following risks, which are discussed more fully in the section entitled “Risk Factors” in this Annual Report:
● We operate in a regulatory
environment that is evolving and uncertain and any changes to regulations could have a material impact on our business and financial
condition;
●
We rely on a combination of confidentiality clauses, assignment agreements and license agreements with employees and third parties, trade secrets, copyrights and trademarks to protect our intellectual property and competitive advantage, all of which offer only limited protection meaning that we may be unable to maintain and protect our intellectual property rights and proprietary information or prevent third-parties from making unauthorized use of our technology;
●
Our growth may not be sustainable and depends on our ability to attract new merchants, retain existing merchants and increase sales to both new and existing merchants;
●
While we believe that we have sufficient capital to continue operations for a period of at least twelve months from the date of this Annual Report, if there are unanticipated expenses, insufficient cash from operations, we may require additional capital to continue our operations that may not be available or, if available, may not be available on reasonable terms;
●
We are substantially dependent on our eVance business for revenue. If we are unable to maintain our eVance business for any reason (including the various reasons described in the risk factors herein) or for no reason, it will have a material adverse effect on our company;
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● Our ability to anticipate and
respond to changing industry trends and the needs and preferences of our merchants and consumers may adversely affect our competitiveness
or the demand for our products and services;
●
The properties included in our mining network may experience damages;
●
Regulatory changes or actions may alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects our business, prospects or operations;
● Banks and financial institutions may not provide banking
services, or may cut off services, to businesses that provide cryptocurrency-related services or that accept cryptocurrencies as payment,
including financial institutions of investors in our securities;
● It may be illegal in the future,
to acquire, own, hold, sell or use Bitcoin or other cryptocurrencies, participate in the blockchain or utilize similar digital assets
in one or more countries, the ruling of which would adversely affect us.
● Acquisitions create certain
risks and may adversely affect our business, financial condition or results of operations; and
● If we fail to improve and enhance
the functionality, performance, reliability, design, security and scalability of our platform in a manner that responds to our merchants’
evolving needs, our business may be adversely affected.
Regulations
Various aspects of our service areas are subject
to U.S. federal, state, and local regulation. Certain of our services also are subject to rules promulgated by various card networks and
banking and other authorities as more fully described below.
The Dodd-Frank Act
In July 2010, the Dodd-Frank Act was signed into
law in the United States. The Dodd-Frank Act has resulted in significant structural and other changes to the regulation of the financial
services industry. Among other things, Title X of the Dodd-Frank Act established a new, independent regulatory agency known as the Consumer
Financial Protection Bureau (the “CFPB”) to regulate consumer financial products and services (including some offered by our
customers). The CFPB may also have authority over us as a provider of services to regulated financial institutions in connection with
consumer financial products. Separately, under the Dodd-Frank Act, debit interchange transaction fees that a card issuer receives and
are established by a payment card network for an electronic debit transaction are now regulated by the Federal Reserve and must be “reasonable
and proportional” to the cost incurred by the card issuer in authorizing, clearing, and settling the transaction. Effective October
1, 2011, the Federal Reserve capped debit interchange rates for card issuers operating in the United States with assets of $10 billion
or more at the sum of $0.21 per transaction and an ad valorem component of 5 basis points to reflect a portion of the issuer’s fraud
losses plus, for qualifying issuers, an additional $0.01 per transaction in debit interchange for fraud prevention costs. In addition,
the new regulations contain non-exclusivity provisions that ban debit card networks from prohibiting an issuer from contracting with any
other card network that may process an electronic debit transaction involving an issuer’s debit cards and prohibit card issuers
and card networks from inhibiting the ability of merchants to direct the routing of debit card transactions over any network that can
process the transaction. Beginning April 1, 2012, all debit card issuers in the United States were required to participate in at least
two unaffiliated debit card networks. On April 1, 2013, the ban on network exclusivity arrangements became effective for prepaid card
and healthcare debit card issuers, with certain exceptions for prepaid cards issued before that date.
Effective July 22, 2010, merchants were allowed
to set minimum dollar amounts (not to exceed $10) for the acceptance of a credit card (while federal governmental entities and institutions
of higher education may set maximum amounts for the acceptance of credit cards). They were also allowed to provide discounts or incentives
to entice consumers to pay with an alternative payment method, such as cash, checks or debit cards.
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Association and network rules
We are subject to the rules of credit card associations
and other credit and debit networks. In order to provide processing services, a number of our subsidiaries are registered with Visa or
Mastercard as service providers for member institutions. Various subsidiaries of ours are also processor level members of numerous debit
and electronic benefits transaction networks or are otherwise subject to various network rules in connection with processing services
and other services we provide. As such, we are subject to applicable network rules. Card networks and their member financial institutions
regularly update and generally expand security expectations and requirements related to the security of cardholder data and environments.
We are also subject to network operating rules promulgated by the National Automated Clearing House Association relating to payment transactions
processed by us using the Automated Clearing House Network and to various state federal and foreign laws regarding such operations, including
laws pertaining to electronic benefits transactions.
Privacy and information security regulations
We provide services that may be subject to various
state, federal, and foreign privacy laws and regulations, including, among others, the Financial Services Modernization Act of 1999 (the
“Gramm-Leach-Bliley Act”). These laws and their implementing regulations restrict certain collection, processing, storage,
use, and disclosure of personal information, require notice to individuals of privacy practices, and provide individuals with certain
rights to prevent use and disclosure of protected information. These laws also impose requirements for the safeguarding and proper destruction
of personal information through the issuance of data security standards or guidelines. Certain federal, state and foreign laws and regulations
impose similar privacy obligations and, in certain circumstances, obligations to notify affected individuals, state officers or other
governmental authorities, the media, and consumer reporting agencies, as well as businesses and governmental agencies, of security breaches
affecting personal information. In addition, there are state and foreign laws restricting the ability to collect and utilize certain types
of information such as Social Security and driver’s license numbers.
Unfair trade practice regulations
We and our clients are subject to various federal
and state laws prohibiting unfair or deceptive trade practices, such as Section 5 of the Federal Trade Commission Act. Various regulatory
agencies, including the Federal Trade Commission, the Consumer Financial Protection Bureau, and state attorneys general, have authority
to take action against parties that engage in unfair or deceptive trade practices or violate other laws, rules, and regulations, and to
the extent we are processing payments for a client that may be in violation of laws, rules, and regulations, we may be subject to enforcement
actions and incur losses and liabilities that may impact our business.
Anti-money laundering, anti-bribery, sanctions,
and counter-terrorist regulations
We are subject to anti-money laundering laws and
regulations, including certain sections of the USA PATRIOT Act of 2001. We are also subject to anti-corruption laws and regulations, including
the U.S. Foreign Corrupt Practices Act (the “FCPA”) and other laws, that prohibit the making or offering of improper payments
to foreign government officials and political figures and includes anti-bribery provisions enforced by the Department of Justice and accounting
provisions enforced by the SEC. The FCPA has a broad reach and requires maintenance of appropriate records and adequate internal controls
to prevent and detect possible FCPA violations. Many other jurisdictions where we conduct business also have similar anticorruption laws
and regulations. We have policies, procedures, systems, and controls designed to identify and address potentially impermissible transactions
under such laws and regulations.
We are also subject to certain economic and trade
sanctions programs that are administered by the Office of Foreign Assets Control (“OFAC”) which prohibit or restrict transactions
to or from or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals
and entities that are specially-designated nationals of those countries, narcotics traffickers, and terrorists or terrorist organizations.
Other group entities may be subject to additional local sanctions requirements in other relevant jurisdictions.
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Securities Act
Since the JOBS Act was passed, Crowdfunding, Regulation
D offerings and Regulation A and A+ offerings rapidly became a familiar concept among investment firms, venture capitalists, real estate
developers and small to medium sized businesses as a way to facilitate and democratize financing. We believe it has created, and continues
to create, a profound shift in the world of investments. Below is a brief overview of the rules that permit the offer and sale of securities
through such platforms. This overview is in no way intended to be a comprehensive review of all the rules and regulations associated with
the above mentioned offerings and should not be relied upon by anyone.
Regulation D under the Securities Act is the most
common regulatory exemption used small businesses to raise capital through equity financing. It exempts private placement offerings under
Rule 506(b) and 506(c) when sold to accredited investors, as defined under Rule 501 of Regulation D. Companies relying on the Rule 506
exemptions can raise an unlimited amount of money, so long as they comply with the rule’s requirements. Regulation A and Regulation A+
are more similar to a public offerings, and require filing Form 1-A with the SEC. Regulation A and Regulation A+ offer two tiers of offerings;
the first tier is for offerings of up to $20 million within any 12 month period and the second tier is for offerings of up to $50 million,
within any 12 month period. Regulation CF allows a company to raise up to $1.07 million from non-accredited investors.
Intellectual property
Our products and services utilize a combination
of proprietary software and hardware that we own and license from third parties. Over the last few years, we have developed a payment
gateway, merchant boarding system, E-commerce platform, recurring billings and a crowdfunding platform. We generally control access to
and use of our proprietary software and other confidential information through the use of internal and external controls, including entering
into non-disclosure and confidentiality agreements with both our employees and third parties. As of the date of this report, we have a
patent pending on transferable QR codes on Omni Commerce devices.
Employees
As of December 31, 2023, we had six key employees
as part of our overall staff of 26 full-time employees. Our risk, compliance, underwriting and analyst’s accounting and customer
service functions are primarily located in Georgia. In addition, we have operations in India where we retain 35 developers at any given
time depending on our requirements and scope of projects. None of our employees are represented by a labor union or covered by a collective
bargaining agreement. We consider our relationship with our employees to be good.
Corporate Information
We were incorporated in the State of Delaware
on November 18, 2004, for the purpose of merging with OLB.com, Inc., a New York corporation incorporated in 1993 (“OLB.com”).
The merger was done for the purpose of changing our state of incorporation from New York to Delaware. In April 2018, we completed an acquisition
of substantially all of the assets of Excel Corporation and its subsidiaries Payprotec Oregon, LLC, Excel Business Solutions, Inc. and
eVance Processing, Inc. (such assets are the foundation of our eVance business). In connection with the Asset Acquisition, in May 2018,
we entered into share exchange agreements with CrowdPay and OmniSoft, affiliate companies owned by Mr. Yakov and John Herzog, an affiliate
of our company, pursuant to which each of CrowdPay and OmniSoft became wholly owned subsidiaries of our company.
Our Company’s headquarters is located at
1120 Avenue of the Americas, 4 th Floor, New York, NY 10036. Our telephone number is (212) 278-0900.
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Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company”
as defined under the Securities Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements
that are otherwise applicable to public companies. These provisions include, but are not limited to:
●
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (or the Sarbanes-Oxley Act);
●
reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
●
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
In addition, an emerging growth company can take
advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth
company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected
to avail ourselves of this extended transition period. We will remain an emerging growth company until the earliest to occur of: (i) our
reporting $1.07 billion or more in annual gross revenues; (ii) the end of fiscal year 2024; (iii) our issuance, in a three year period,
of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held
by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter.