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, 2023 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 marketplace that seeks to provide integrated business solutions to merchants throughout the United States. We seek to accomplish this by providing merchants with a wide range of products and services through our various online platforms, including financial and transaction processing services. We also have products that provide support for crowdfunding and other capital raising initiatives. We supplement our online platforms with certain hardware solutions that are integrated with our online platforms. Our business functions primarily through three wholly-owned subsidiaries, eVance, OmniSoft, and CrowdPay, though substantially all of our revenue has been generated from our eVance business (we began generating revenue from our OmniSoft and CrowdPay businesses in the second half of 2019). We expect to build out our OmniSoft software business and to rely more on individualized merchant services offerings 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 to the system. On May 22, 2020, the Company purchased certain assets from POSaBIT Inc. (“POSaBIT”), including its contracts and arrangements with the Doublebeam merchant payment processing platform (the “POSaBIT Asset Acquisition”). The assets included, but were not limited to, software source codes, customer lists, customer contracts, hardware and website domains. 24 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. On July 23, 2021, we formed DMINT, Inc., a wholly owned subsidiary (“DMINT”) to operate in the Bitcoin mining industry, specifically the mining of Bitcoin. DMINT initiated the first phase of the Bitcoin mining operation by placing data centers and ASIC-based Antminer S19J Pro mining computers specifically configured to mine Bitcoin in Pennsylvania. As of December 31, 2022, DMINT had purchased 1,000 computers. In February 2023, it re-deployed all of the computers to its Selmer, Tennessee location. At December 31, 2023, DMINT had mined 31.06 Bitcoin. 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. 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 months ended March 31, 2024 and 2023. Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023 For the three months ended March 31, 2024, we had total revenue of $3,496,182 compared to $6,622,589 of revenue for the three months ended March 31, 2023, a decrease of $3,126,407 or 47.2%. For the three months ended March 31, 2024, we earned $2,288,209 in transaction and processing fees, $20,183 in merchant equipment rental and sales, $108,868 in other revenue from monthly recurring subscriptions, $211,617 of revenue from the Bitcoin Mining segment and $867,305 of revenue from the sale of digital products. For the three months ended March 31, 2023, 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. The decrease in revenue was a result of the loss of the CBD portfolio. Processing and servicing costs decreased by $2,323,841 or 45.8%, from $5,077,434 in the prior period to $2,753,593. Amortization expense for the three months ended March 31, 2024, was $190,961 compared to $899,831 for the three months ended March 31, 2023 a decrease of $708,870 or 78.8%. We record amortization expense on our merchant portfolio, trademarks and natural gas purchase rights. The decrease in the current period is due to the write off of the CBD portfolio as of December 31, 2023, therefore no amortization was recorded for the asset during the three months ended March 31, 2024. Depreciation expense for the three months ended March 31, 2024 was $749,520 compared to $799,717 for the three months ended March 31, 2023, a decrease of $50,197 or 6.3%. Our depreciation expense decrease is due to adjustments made in 2023 to depreciating the mining equipment. Salary and wage expense for the three months ended March 31, 2024, was $1,016,338 compared to $823,140 for the three months ended March 31, 2023, an increase of $193,198 or 23.5%. Salary and wage expenses have increased due to an additional expense of $172,086 for option expense and $73,149 for Cuentas SDI, LLC and additional employees. Professional fees for the three months ended March 31, 2024, were $648,443 compared to $369,344 for the three months ended March 31, 2023, an increase of $279,099 or 75.6%. 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 2024 period. 25 General and administrative expenses for the three months ended March 31, 2024, was $1,024,892 compared to $1,055,257 for the three months ended March 31, 2023, a decrease of $30,365 or 2.9%, an immaterial change period over period. For the three months ended March 31, 2024, we had total other income of $486,947 from an unrealized gain on investment of $274,731, a $225,229 gain on the sale of bitcoin, and $13,013 of interest expense. For the three months ended March 31, 2023, we had total other expense of $213,271 from a $327,925 loss on the sale of bitcoin offset by other income of $114,654. For the three months ended March 31, 2024, we had $29,022 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 March 31, 2024, after the reduction for minority interest, was $2,371,596 compared to $2,615,405 for the three months ended March 31, 2023. This was a decrease in our net loss of $243,810 for the reasons discussed above. Liquidity and Capital Resources Changes in Cash Flows For the three months ended March 31, 2024, we used $424,700 of cash in operating activities, which included our net loss of $2,400,618 offset by $940,481 for amortization and depreciation expense, $304,874 for stock-based compensation, $225,229 gain on sale of bitcoin, $274,731 gain on investment and net changes in operating assets and liabilities of $1,230,523. For the three months ended March 31, 2024, we received net cash of $249,013 in financing activities as a result of receiving $182,150 from our CEO, $9,775 from the sale of common stock, $6,840 in proceeds from exercise of options by related parties, and an increase in our cash overdraft of $91,020. We made repayments on our note payable of $40,772. Liquidity and Capital Resources At March 31, 2024, the Company had cash of $3,319 and negative working capital of $5,832,924. On February 16, 2024, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Maxim Group LLC (“Maxim”) to create an at-the-market equity program. Under the Agreement, the Company may offer and sell its common stock, par value $0.0001 per share, from time to time having an aggregate offering amount of up to $15,000,000 (the “Shares”) during the term of the Agreement through Maxim, as sales agent (the “ATM Offering”). The Company has agreed to pay Maxim a commission equal to 3.0% of the gross sales price from the sales of Shares pursuant to the Agreement. In addition, the Company has agreed to reimburse Maxim for its costs and out-of-pocket expenses incurred in connection with its services, including the fees and out-of-pocket expenses of its legal counsel. As of March 31, 2024, the ATM Offering has resulted in net proceeds of $9,775. During the three months ended March 31, 2024, Mr. Yakov made payments on behalf of the company in the amount of $182,150. As of March 31, 2024, the Company owes Mr. Yakov $194,828. The amount is non-interest bearing and due on demand. The Company has reviewed its cash flow activity during 2023 and the first quarter ended March 31, 2024 and projected cash flow forecast for the remainder of 2024. At March 31, 2024, the Company had cash of approximately $3,300, accounts receivable of approximately $207,000, invested funds of approximately $548,000 and bitcoin valued at $56,000. The Company has 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 Annual Report. Management believes that its current available resources, along with funds to be received from the ATM Offering, creates 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, 2023, for a full discussion of our critical accounting policies. 26 Subsequent Events On April 8, 2024, the Company entered into Amendment No. 1 (the “Amendment”) to the Employment Agreement with Mr. Yakov (the “Yakov Agreement”). The Amendment corrected a ministerial error in the terms relating to the exercise price of stock options awarded and automobile allowance for Mr. Yakov. The Amendment affirmed that the exercise price of stock options issued under the Agreement (the “Stock Options”) shall have a per share exercise price equal to One Cent ($0.01) and expire ten years after the date of grant. Each Stock Option granted shall become exercisable as follows: 50% upon the grant date, then 25% upon each of the second and third anniversary of the date on which it is granted. In addition, the notices provision of the Yakov Agreement was amended to the reflect the current business address of the Company. On April 26, 2024, the Company filed with the Delaware Secretary of State a Certificate of Amendment to Certificate of Incorporation (the “Certificate of Amendment”) which became effective on April 26, 2024 to effect a one-for-ten (1:10) reverse stock split (the “Reverse Stock Split”) of the shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) The Reverse Stock Split was approved by the Company’s stockholders at a special meeting on April 26, 2024. As a result of the Reverse Stock Split, every ten (10) shares of issued and outstanding Common Stock will be automatically combined into one (1) issued and outstanding share of Common Stock, without any change in the par value per share. No fractional shares were issued as a result of the Reverse Stock Split and any fractional shares resulting from the reverse stock split were rounded down to the nearest number of whole shares so that we will issue cash in lieu of any fractional shares that such stockholder would have received as a result of the Reverse Stock Split. Following the Reverse Stock Split, the number of shares of Common Stock outstanding was reduced from 18,103,462 shares to 1,810,346 shares. The shares of Common Stock underlying the Company’s outstanding stock options and warrants will be similarly adjusted along with corresponding adjustments to their exercise prices. The number of authorized shares of Common Stock under the Certificate of Incorporation will remain unchanged at 50,000,000 shares. On May 20, 2024, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) dated as of May 20, 2024 with Cuentas, Inc. (“Seller”) whereby it acquired 19.99% of the membership interests of Cuentas SDI, LLC, a Florida limited liability company (the “LLC”) for a purchase price of $215,500.00. As a result, effective May 20, 2024 the Company owns 100% of the LLC. The Agreement contains a restrictive covenant whereby for a period of three (3) years from the Closing, none of Seller, including its any of its principals, executives, officers, directors, managers, employees, salespersons, or entities in which such principal has any interest, will directly or indirectly (i) induce, attempt to induce, interfere with, disrupt or attempt to disrupt any past, present or prospective business relationship, solicit, market to, endeavor to obtain as a customer, or contract with any Merchant in order to provide services to such Merchant in competition with the Company; or (ii) solicit or interfere with, disrupt or attempt to disrupt any past, present or prospective business relationship, contractual or otherwise any person or entity that is a party to any contract assigned to the Company to terminate its contractual or business relationship with the Company. 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.