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, 2021 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 and PayFac that focuses on a suite of products in the
merchant services and payment facilitator verticals 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 our PayFac 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.
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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.
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 cryptocurrency-related 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 cryptocurrency 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 June 30, 2022, DMint has purchased 1,000 computers, of which
650 computers have been delivered with 250 online and mining for Bitcoin, 400
computers are in process of being installed and 350 additional computers are
scheduled for delivery in 2022. It has six data centers located in Pennsylvania
where it has mined ten Bitcoin. It has entered into an exclusive agreement
whereby it has rights to all of the natural gas produced by 15 mines in
Bradford, Pennsylvania. The natural gas is taken directly from the well heads to
generate electricity required to power the mining computers. As configured, it
is expected that the computers purchased will have a combined computing power of
approximately 100 petahash per second. If the initial mining operation results
are as anticipated, DMINT plans to expand the number of mining computers every
quarter, whereby it would aim to have the computing power of 500 petahash per
second by the end of 2022.
On January 3, 2022, the Company entered into a share exchange agreement with all
of the shareholders of Crowd Ignition, Inc. ("Crowd Ignition") whereby the
Company purchased 100% of the equity of Crowd Ignition).
Crowd Ignition is a web-based crowdfunding software system. Ronny Yakov,
Chairman and CEO of the Company and John Herzog, a shareholder of the Company,
owned 100% of the equity of Crowd Ignition. The software provides broker-dealer,
merchant banks and law firms a platform to market crowdfunding offerings,
collect payments and issue securities. The software has been developed in
response to, and to comply with, recent changes in investment regulations
including Regulation D 506(b) and 506(v), Regulation A+ and Title III of the
Jobs Act (Regulation CF), including raising the crowdfunding limit from $1.07
million to $5.0 million. Crowd Ignition is one of only about 50 companies
registered with the SEC to provide the services permitted under Regulation CF.
Results of Operations
Management's discussion and analysis of financial condition and results of
operations ("MD&A") includes a discussion of the consolidated results from
operations of The OLB Group, Inc. and its subsidiaries for the three and six
months ended June 30, 2022 and 2021.
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Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30,
2021
For the three months ended June 30, 2022, we had total revenue of $8,372,435
compared to $2,833,572 of revenue for the three months ended June 30, 2022, an
increase of $5,538,863 or 195.5%. We earned $7,813,969 in transaction and
processing fees, $18,174 in merchant equipment rental and sales, $332,326 in
other revenue from monthly recurring subscriptions and $207,966 of other revenue
from the Cryptocurrency Mining segment during the three months ended June 30,
2022, compared to $2,666,049 in transaction and processing fees, $46,896 in
merchant equipment sales and $120,627 in other revenue during the three months
June 30, 2021. The increase in revenue was a result of an increase in the amount
of fees earned from merchant processing transactions primarily due to the
revenue attributed to the merchant portfolio acquired in the fourth quarter
ended December 31, 2021 and to revenue from cryptocurrency mining, which we did
not have in the prior period. Processing and servicing costs increased by
$4,573,396 or 217.9%
Amortization and depreciation expense for the three months ended June 30, 2022
was $903,353 compared to $215,903 for the three months ended June 30, 2021, an
increase of $687,450 or 318.4%. We record amortization expense on our merchant
portfolio, trademarks and natural gas purchase rights. Our amortization expense
for the three months ended June 30, 2022, increased in the current year period
due to the agreement with Cai Energy to purchase natural gas to operate the
cryptocurrency mining computers used in the Cryptocurrency Mining segment.
Depreciation expense for our cryptocurrency mining segment was $702,494 in the
current period due to the acquisition of Cryptocurrency Mining equipment.
Salary and wage expense for the three months ended June 30, 2022, was $622,914
compared to $336,703 for the three months ended June 30, 2021 an increase of
$286,211 or 85%. Salary and wage expense has increased due to the hiring of new
employees during the latter part of 2021 and to an increase in salary for our
officers.
Professional fees for the three months ended June 30, 2022, were $292,747
compared to $383,383 for the three months ended June 30, 2021, a decrease of
$90,636 or 23.6%. Professional fees consist mainly of audit and legal fees. The
decrease in the current period is mainly due to a decrease in legal expense.
General and administrative expenses ("G&A") for the three months ended June 30,
2022, was $1,007,908 compared to $464,985 for the three months ended June 30,
2021, an increase of $542,923 or 116.8%. Some of our larger G&A expenses
included insurance policy expense of $130,000 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 $71,000 from $11,000 in the same period of 2021, marketing
and promotion of $58,000 from $7,400 in the same period of 2021, contracted
services of $180,000 from $61,000 in the same period of 2021, utilities of
$133,00 from $0 in the same period of 2021 and computer and internet expense of
$131,000 from $68,000 in the same period of 2021.
For the three months ended June 30, 2022, we had other income of $393,168
compared to $11 for the three months ended June 30, 2021. In the current period
we recognized a gain of $393,158 from the elimination of a liability associated
with a prior adverse judgement which was reversed on appeal.
Our net loss for the three months ended June 30, 2022 was $1,437,954 compared to
$666,136 for the three months ended June 30, 2021. We had an increase in our net
loss of $577,374 for the reasons discussed above.
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Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
For the six months ended June 30, 2022, we had total revenue of $17,158,894
compared to $5,059,976 of revenue for the six months ended June 30, 2022, an
increase of $12,098,918 or 239.1%. We earned $16,227,398 in transaction and
processing fees, $35,342 in merchant equipment rental and sales, $423,848 in
other revenue from monthly recurring subscriptions and $472,306 of other revenue
from the Cryptocurrency Mining segment during the six months ended June 30,
2022, compared to $4,756,313 in transaction and processing fees, $65,403 in
merchant equipment sales and $238,260 in other revenue during the six months
June 30, 2021. The increase in revenue was a result of an increase in the amount
of fees earned from merchant processing transactions primarily due to the
revenue attributed to the merchant portfolio acquired in the fourth quarter
ended December 31, 2021 and to revenue from cryptocurrency mining, which we did
not have in the prior period. Processing and servicing costs increased by
$9,284,259 or 254.6%
Amortization and depreciation expense for the six months ended June 30, 2022,
was $1,901,943 compared to $431,807 for the six months ended June 30, 2021, an
increase of $1,470,136 or 340.5%. We record amortization expense on our merchant
portfolio, trademarks and natural gas purchase rights. Our amortization expense
for the six months ended June 30, 2022, increased in the current year period due
to the agreement with Cai Energy to purchase natural gas to operate the
cryptocurrency mining computers used in the Cryptocurrency Mining segment.
Depreciation expense for our cryptocurrency mining segment was $1,594,250 in the
current period due to the acquisition of Cryptocurrency Mining equipment.
Salary and wage expense for the six months ended June 30, 2022 was $1,156,773
compared to $1,156,794 for the six months ended June 30, 2021 a decrease of only
$21. There were $275,000 in salary increases in 2022. However, bonuses of
$400,000 paid in the first quarter of 2021 which were one-time payments resulted
in a year-over-year decrease in the total salary and wage expense for the six
months period.
Professional fees for the six months ended June 30, 2022 were $619,154 compared
to $610,3217 for the six months ended June 30, 2021, an increase of $8,827 or
1.4%. Professional fees consist mainly of audit and legal fees. The increase in
the current period is mainly due to an increase in legal expense during the
second three months of 2022.
General and administrative expenses ("G&A") for the six months ended June 30,
2022 was $2,243,225 compared to $864,310 for the six months ended June 30, 2021,
an increase of $1,378,915 or 159.5%. Some of our larger G&A expenses included
insurance policy expense of $166,000 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 $179,000 from $14,000 in the same period of 2021, marketing
and promotion of $183,000 from $7,400 in the same period of 2021, contracted
services of $439,000 from $126,000 in the same period of 2021, utilities of
$231,00 from $0 in the same period of 2021and computer and internet expense of
$277,000 from $161,000 in the same period of 2021.
For the six months ended June 30, 2022, we incurred $0 of interest expense,
compared to $116,736 for the six months ended June 30, 2021, a decrease of
$116,736. The decrease in interest expense is due the conversion of all related
party debt and the repayment of the Term Loan in March 2021.
For the six months ended June 30, 2022, we had other income of $393,179 compared
to $24 for the six months ended June 30, 2021. In the current period we
recognized a gain of $393,158 from the reversal of a liability associated with a
prior adverse judgement on appeal.
Our net loss for the six months ended June 30, 2022 was $2,893,550 compared to
$1,765,993 for the six months ended June 30, 2021. We had an increase in our net
loss of $933,113 for the reasons discussed above.
Liquidity and Capital Resources
Trends and Uncertainties
The Company's financial condition and results of operations may be adversely
affected by a further prolonging of the COVID-19 pandemic.
The New York and Atlanta areas, including the location of the Company's
corporate headquarters and its operations business, continued to experience
impacts of the COVID-19 pandemic in the U.S. as some workers were forced to
quarantine or convalesce as a result of the spread of the COVID-19 virus. The
Company is currently following the recommendations of local health authorities
to minimize exposure risk for its employees and visitors. During the first six
months of 2022, the Company did not attribute any material impact on its
business as a result of the pandemic. However, the duration of this pandemic
continues to remain unknown. If there was another increase in cases requiring
quarantines or closures of businesses by our merchants, the duration of the
business disruption and related financial impact cannot be reasonably estimated
at this time. While the Company has specific business continuity plans to reduce
the potential impact of COVID-19 during 2022 and believe that its business being
principally operated using digital platforms, in the long-term, will suffer
minimal ongoing negative impact, there is no guarantee that the Company's
continuity plans will be successful or that the Company's merchants will meet
the number of forecasted transactions.
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In 2021 and the first six months of 2022, the Company experienced some
disruptions to its business and disruptions for the Company's customers and
merchants that had an impact on the number of transactions processed by the
Company. The extent to which COVID-19 or any other health epidemic may impact
the Company's results for 2022 and beyond will depend on future developments and
impacts of variants of the virus, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning the severity of
the continuing economic impact of the response to the COVID-19 pandemic.
Accordingly, COVID-19 could still have a material adverse effect on the
Company's business, results of operations, financial condition and prospects
during the second half of 2022 and beyond.
Changes in Cash Flows
For the six months ended June 30, 2022, $556,820 of cash was used by operating
activities, which included our net loss, offset by $3,334,499 for amortization
and depreciation expense, $142,526 for stock-based compensation $65,674 of
operating lease expense and net changes in operating assets and liabilities of
$1,205,969.
For the six months ended June 30, 2022, we received net cash of $706,455 in
financing activities from a loan payable.
Liquidity and Capital Resources
At June 30, 2022, the Company had cash of $3,619,974 and working capital of
$2,807,441. The Company has approximately $3.8 million of outstanding
liabilities.
On March 2, 2021, the Company, utilizing a portion of funds received from the
exercise of outstanding warrants, paid approximately $7.7 million to the pay off
the entire outstanding amount of the Term Loan. In connection with the
extinguishment of the obligations under the Term Loan, 40,000 warrants to
purchase Common Stock were cancelled.
In addition, the Company has received a Paycheck Protection Program loan under
the CARES Act for approximately $236,000 (the "PPP Loan"). On October 11, 2021,
the Company obtained forgiveness of all amounts due under the PPP Loan.
On November 2, 2021, the Company entered into a series of securities purchase
agreements with certain institutional accredited investors pursuant to which the
Company issued and sold, in a private placement (i) 1,969,091 shares (the
"Shares") of the Company's Common Stock (ii) pre-funded warrants exercisable for
a total of 2,576,364 shares of Common Stock (the "Prefunded Warrant Shares")
with an exercise price of $0.0001 per Prefunded Warrant Share, and (iii)
warrants exercisable for a total of 4,545,455 shares of Common Stock (the
"Common Warrant Shares" and together with the Prefunded Warrant Shares, the
"Warrant Shares") with an exercise price of $6.50 per Common Warrant Share. The
offering closed on November 5, 2021 and the Company received net proceeds of
approximately $22.9 million, after deducting placement agent fees and other
offering expenses. The Company intends to use the net proceeds from the offering
to invest in or acquire companies or technologies that are synergistic with or
complimentary to its business, to expand and market its current products and for
working capital and general corporate purposes.
The Company has reviewed its cash flow for 2022, projected operating cash flows
for 2022 and 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) the improved transaction volume trends the Company
experienced during 2021 and the first six months ended June 30, 2022, (b) the
increase in the number of merchants after the acquisitions of several portfolios
during 2021, and (c) the funds received from the capital raises and PPP Loan, as
discussed above, the Company believes it has sufficient liquidity in order to
sustain operations for at least the twelve months following the filing of this
Quarterly Report.
Critical Accounting Policies
Refer to our Form 10-K for the year ended December 31, 2021, for a full
discussion of our critical accounting policies.
Subsequent Events
On July 12, 2022, the Board of the Company authorized a share repurchase
program, pursuant to which the Company may repurchase up to 1 million shares of
its outstanding shares of common stock. The Board authorized the Company to
purchase its common stock from time to time on a discretionary basis through
open market purchases, privately negotiated transactions or other means,
including trading plans intended to qualify under Rule 10b5-1 of the Exchange
Act, in accordance with applicable federal securities laws and other applicable
legal requirements. The Company expects to fund these repurchases through
existing cash balances. Decisions regarding the amount and the timing of
purchases under the program will be influenced by the Company's cash on hand,
cash flows from operations, general market conditions and other factors. The
Company is not obligated to acquire any particular amount of its common stock.
This program has no set termination date and may be suspended or discontinued by
the Board at any time.
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THE OLB GROUP, INC. 