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. 24 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 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 September 30, 2024, DMINT had mined 31.06 Bitcoin. On October 21, 2024, DMINT filed a Registration Statement on Form S-1 with the Securities and Exchange Commission (the "SEC"), relating to the proposed spinoff from the Company and resulting issuance of equity of DMINT to OLB shareholders. 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 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 Moola Cloud, LLC, a Florida limited liability company (formerly Cuentas SDI, LLC, the “LLC”).. The LLC will enable the Company to focus on marketing to the underbanked communities utilizing the LLC’s 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 LLC’s 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. 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. 25 On May 20, 2024, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) dated as of May 20, 2024 with the minority member of the LLC whereby it acquired the remaining 19.99% of the membership interests of the LLC for a purchase price of $215,500. As a result, effective May 20, 2024, the Company owns 100% of the LLC. On August 14, 2024, the LLC changed its name to Moola Cloud, 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. 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, 2024 and 2023. Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023 For the three months ended September 30, 2024, we had total revenue of $3,083,922 compared to $9,694,440 of revenue for the three months ended September 30, 2023, a decrease of $6,610,518 or 68.2%. We earned $2,569,596 in transaction and processing fees, $16,120 in merchant equipment rental and sales, $43,349 in other revenue from monthly recurring subscriptions, $88,078 of revenue from the Cryptocurrency Mining segment and $366,779 of revenue from the sale of digital products. For the three months ended September 30, 2023, 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. The decrease in revenue was mainly a result of the loss of the CBD portfolio. Processing and servicing costs decreased by $3,842,149 or 59.6%, from $6,446,563 in the prior period to $2,604,414. Amortization and depreciation expense for the three months ended September 30, 2024, was $112,499 compared to $933,053 for the three months ended September 30, 2023, a decrease of $820,554 or 87.9%. 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 September 30, 2024. Depreciation expense for our Cryptocurrency Mining segment for the three months ended September 30, 2024, was $656,017 compared to $877,521 for the three months ended September 30, 2023, a decrease of $221,504 or 25.2%. We had a decrease of our amortization expense in the current period due to assets being fully amortized during the second quarter of 2024. Salary and wage expense for the three months ended September 30, 2024, was $604,784 compared to $687,456 for the three months ended September 30, 2023, a decrease of $82,672 or 12%. The decrease to our salary and wage expense is due to reduction in head count. 26 Professional fees for the three months ended September 30, 2024, were $453,672 compared to $707,900 for the three months ended September 30, 2023, a decrease of $254,228 or 35.9%. Professional fees consist mainly of audit and legal fees. The decrease was due to a $218,224 decrease in legal fees. General and administrative expenses for the three months ended September 30, 2024, was $282,794 compared to $1,901,850 for the three months ended September 30, 2023, a decrease of $1,619,056 or 85.13%. The decrease was mainly due to $333,815 decrease in Bank Fees, a decrease of $263,814 in Computer & Software Expenses, $179,938 decrease in Utility Expense, $308,326 decrease in Contracted Services & $97,363 decrease in Depreciation Expense. For the three months ended September 30, 2024, we had no other income or expense compared to total other expense of $24,947 for an unrealized loss on investment for the three months ended September 30, 2023. Our net loss for the three months ended September 30, 2024, was $1,630,258 compared to $1,884,850 for the three months ended September 30, 2023. This was a decrease in our net loss of $254,592 for the reasons discussed above. Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023 For the nine months ended September 30, 2024, we had total revenue of $10,101,258 compared to $24,661,041 of revenue for the nine months ended September 30, 2023, a decrease of $14,559,783 or 59%. For the nine months ended September 30, 2024, we earned $7,341,998 in transaction and processing fees, $64,243 in merchant equipment rental and sales, $307,285 in other revenue from monthly recurring subscriptions, $341,972 of revenue from the Bitcoin Mining segment and $2,045,760 of revenue from the sale of digital products. During the nine months ended September 30, 2023, 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. The decrease in revenue was a result of the loss of the CBD portfolio. Processing and servicing costs decreased by $8,583,986 or 50.7%, from $16,914,672 in the prior period to $8,330,686. Amortization expense for the nine months ended September 30, 2024, was $421,307 compared to $2,732,715 for the nine months ended September 30, 2023 a decrease of $2,311,408 or 84.6%. 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 nine months ended September 30, 2024. Depreciation expense for cryptocurrency mining equipment for the nine months ended September 30, 2024 was $2,249,208 compared to $2,476,954 for the nine months ended September 30, 2023, a decrease of $227,746 or 9.2%. We had a decrease of our amortization expense in the current period due to assets being fully amortized during the second quarter of 2024. Salary and wage expense for the nine months ended September 30, 2024, was $2,310,320 compared to $2,070,288 for the nine months ended September 30, 2023, an increase of $240,032 or 11.6%. Salary and wage expenses have increased due to additional expense for Cuentas SDI, LLC employees. Professional fees for the nine months ended September 30, 2024, were $1,666,970 compared to $1,297,026 for the nine months ended September 30, 2023, an increase of $369,944 or 28.5%. 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. General and administrative expenses for the nine months ended September 30, 2024, was $2,255,673 compared to $4,063,159 for the nine months ended September 30, 2023, a decrease of $1,807,486 or 44.5%. The decrease was mainly due to a $662,234 decrease in Bank Fees, a decrease of $550,203 in Computer & Software Expenses and $510,041 decrease in Utility Expense. For the nine months ended September 30, 2024, we had total other income of $454,018 from a realized gain on investment of $274,731, a $225,229 gain on the sale of bitcoin, and $45,942 of interest expense. For the nine months ended September 30, 2023, we had total other expense of $196,025 from an unrealized loss on investment of $31,437, a $279,242 loss on the sale of bitcoin offset by other income of $114,654. Our net loss for the nine months ended September 30, 2024, was $6,678,888 compared to $5,089,798 for the nine months ended September 30, 2023. This was an increase in our net loss of $1,589,090 for the reasons discussed above. 27 Liquidity and Capital Resources Changes in Cash Flows Operating Activities For the nine months ended September 30, 2024, we used $1,588,547 of cash in operating activities, which included our net loss of $6,678,888 offset by $2,670,515 for amortization and depreciation expense, $372,624 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 $2,547,162. 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. Investing Activities For the nine months ended September 30, 2024, we received $548,393 from the sale of investment and used $215,500 to purchase the remaining 19.99% interest in the LLC. For the nine months ended September 30, 2023, we purchased property and equipment of $1,229,630 and used $850,000 for the purchase of an 80.01% interest in the LLC. Financing Activities For the nine months ended September 30, 2024, we received net cash of $1,117,936 in financing activities as a result of receiving $1,191,282 from our CEO, $44,323 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 $30,735. We made repayments on our note payable of $155,244. 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. Liquidity and Capital Resources At September 30, 2024, the Company had cash of $41,288 and negative working capital of $7,458,987. 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 September 30, 2024, the ATM Offering has resulted in net proceeds of $44,323. During the nine months ended September 30, 2024, Mr. Yakov made payments on behalf of the company in the amount of $1,191,282. As of September 30, 2024, the Company owes Mr. Yakov $1,203,960. On August 12, 2024, the Company entered into an agreement with Yakov Holdings LLC, an entity controlled by Mr. Yakov (the “Yakov LLC”) whereby the Yakov LLC committed to loan to the Company up to Five Million Dollars ($5,000,000) (the "Yakov LLC Loan"). The Yakov LLC Loan is revolving in nature, allowing the Company to borrow, repay, and re-borrow amounts under the terms and conditions set forth herein, provided that the total outstanding amount shall not exceed Five Million Dollars ($5,000,000). The interest rate of the Yakov LLC Loan is twelve percent (12%) and it matures on June 18, 2025. In addition, the Yakov LLC Loan is secured by a first priority security interest for the benefit of the Yakov LLC over all of the assets of the Company. The Company has reviewed its cash flow activity during 2023 and the first nine months ended September 30, 2024 and projected cash flow forecast for the remainder of 2024. At September 30, 2024, the Company had cash of approximately $41,000, accounts receivable of approximately $87,000, and other prepaids and receivables of approximately $506,000. 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 and the the Yakov LLC Loan creates sufficient liquidity in order to sustain operations for at least the twelve months following the filing of this Quarterly Report. 28 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. 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.