UNITED STATES
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Washington, D.C. 20549
FORM
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As of November 13, 2023,
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THE OLB GROUP, INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2023
INDEX
| PART I | Financial Information | 1 |
| Item 1. | Financial Statements (unaudited) | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 27 |
| Item 4. | Controls and Procedures | 27 |
| PART II | Other Information | 28 |
| Item 1. | Legal Proceedings | 28 |
| Item 1A. | Risk Factors | 28 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 28 |
| Item 3. | Defaults Upon Senior Securities | 28 |
| Item 4. | Mine Safety Disclosures | 28 |
| Item 5. | Other Information | 28 |
| Item 6. | Exhibits | 28 |
| Signatures | 29 | |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
1
The OLB Group, Inc. and Subsidiaries
Consolidated Balance Sheets
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Other Assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other long-term assets | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Customer deposits | ||||||||
| Accrued expenses | ||||||||
| Preferred dividend payable (related parties) | ||||||||
| Merchant portfolio purchase installment obligation | ||||||||
| Operating lease liability – current portion | ||||||||
| Note payable – current portion | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities: | ||||||||
| Notes payable, net of current portion | ||||||||
| Operating lease liability – net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ | ||||||||
| Series A Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity of The OLB Group and Subsidiaries | ||||||||
| Noncontrolling interest | ||||||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
The OLB Group, Inc. and Subsidiaries
Consolidated Statements of Operations
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: | ||||||||||||||||
| Transaction and processing fees | $ | $ | $ | $ | ||||||||||||
| Merchant equipment rental and sales | ||||||||||||||||
| Revenue, net - cryptocurrency mining | ||||||||||||||||
| Other revenue from monthly recurring subscriptions | ||||||||||||||||
| Digital product revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Processing and servicing costs, excluding merchant portfolio amortization | ||||||||||||||||
| Amortization and depreciation expense | ||||||||||||||||
| Depreciation expense – cryptocurrency mining | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Professional fees | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Realized gain (loss) on sale of cryptocurrency | ( | ) | ||||||||||||||
| Unrealized loss on investment | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributed to noncontrolling interest | ||||||||||||||||
| Net loss attributed to The OLB Group and Subsidiaries | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred dividends (related parties) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Applicable to Common Shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
The OLB Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
For the Three and Nine Months ended September 30, 2023 and 2022
| Preferred Stock | Common Stock | Additional Paid | Treasury | Accumulated | Non-Controlling | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | In Capital | Stock | Deficit | Interest | Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Common stock issued for director services | ||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Recognition of noncontrolling interest in acquisition | — | — | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | In Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||
| Common stock issued for common control acquisitions | ( | ) | ||||||||||||||||||||||||||
| Common stock issued for exercise of warrants | ( | ) | ||||||||||||||||||||||||||
| Preferred stock dividends (Revised) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 (Revised) | ( | ) | ||||||||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||
| Preferred stock dividends (Revised) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2022 (Revised) | ( | ) | ||||||||||||||||||||||||||
| Stock based compensation | — | — | ||||||||||||||||||||||||||
| Preferred stock dividends (Revised) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 (Revised) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
The OLB Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by and used in operations: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Operating lease expense, net of repayment | ( | ) | ||||||
| Loss on sale of cryptocurrency | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other long-term assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Other accrued liabilities | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Purchase of | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Cash overdraft acquired in acquisition | ( | ) | ||||||
| Proceeds from note payable | ||||||||
| Payments on note payable | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash – beginning of period | ||||||||
| Cash – end of period | $ | $ | ||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Common stock issued for accrued liabilities | $ | $ | ||||||
| Preferred stock dividends | $ | $ | ||||||
| Cancellation of operating leases | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
The OLB Group, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements
September 30, 2023
NOTE 1 – BACKGROUND
Background
The OLB Group, Inc. (“OLB” the “Company”) was incorporated in the State of Delaware on November 18, 2004 and provides services through its wholly-owned subsidiaries and business segments. The Company generates its revenue through two business segments its Fintech Services and Cryptocurrency Mining Business segments.
Fintech Services:
The Company provides integrated financial and transaction processing services (“Fintech Services”) to businesses throughout the United States. Through its eVance, Inc. subsidiary (“eVance”), the Company provides an integrated suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet payment processing solutions primarily to small and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. eVance operates as an independent sales organization (“ISO”) generating individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance has a direct contractual relationship with the merchants and takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and as a result, receives additional consideration for this service and risk. The Company’s Securus365, Inc. (“Securus365”) subsidiary operates as a retail ISO and receives residual income as commission for merchants it places with third party processors. The Company’s eVance Capital, Inc subsidiary provides lending services to merchants processing with eVance, Inc.
CrowdPay.us, Inc. (“CrowdPay”) is
a Crowdfunding platform used to facilitate a capital raise anywhere from $
OmniSoft, Inc. (“OmniSoft”) operates a software platform for small merchants. The Omnicommerce applications work on an iPad, mobile device and the web and allow customers to sell a store’s products in a physical, retail setting. To date, the activities of this subsidiary have been nominal when compared to the overall business.
On May 14, 2021, the Company formed OLBit, Inc., a wholly-owned subsidiary (“OLBit”). The purpose of OLBit is to hold the Company’s assets and operate its business related to its emerging lending and transactional business leveraging the Company’s Cryptocurrency Business and Fintech Services business.
On June 15, 2023, the Company entered into a
Membership Interest Purchase Agreement (the “Agreement”) with SDI Black 001, LLC (“Seller”) whereby it acquired
The Company also provides ecommerce development and consulting services on a project-by-project basis.
6
Cryptocurrency Mining Business:
On July 23, 2021, the Company formed DMINT, Inc., a wholly-owned subsidiary (“DMINT”). The purpose of DMINT is to operate its business related to Bitcoin mining (“Cryptocurrency Business”).
On July 28, 2021, the Company entered into an
exclusive agreement with Cai Energy Blockchain, Inc. (“CAI”) whereby CAI provided the Company with an exclusive natural gas
supply agreement (the “Services”). In exchange for the Services, the Company granted CAI options to purchase up to
On June 24, 2022 the Company formed DMINT Real Estate Holdings, Inc., a wholly-owned subsidiary of DMINT. The purpose of DMINT Real Estate Holdings, Inc is to buy and hold real estate related to DMINT.
On November 22, 2022, Mr. Ronny Yakov purchased
the CAI Options, in a privately negotiated transaction, for $
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the nine month period ending September 30, 2023 and not necessarily indicative of the results to be expected for the full year ending December 31, 2023. These unaudited financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s accounting estimates include the collectability of receivables, useful lives of long-lived assets and recoverability of those assets, impairment in fair value of goodwill, valuation allowances for income taxes and stock-based compensation.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, eVance Inc, eVance Capital Inc, Securus365, Inc., CrowdPay.us,
Inc., OmniSoft, Inc., OLBit, Inc., DMINT, Inc., DMINT Real Estate Holdings. The Company owns
All significant intercompany transactions and balances have been eliminated.
7
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable represents the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
Revision for Correction of Immaterial Error
Subsequent to the initial issuance of the Company’s
March 31, 2022 financial statements, management discovered it did not record the accrual for dividends on its Series A Preferred Stock.
The Series A Preferred Stockholders are entitled to receive cash dividends at a rate per share (as a percentage of the Stated Value per
share) of
In accordance with Staff Accounting Bulletin
(“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the error and determined that the related
impact did not materially misstate previously issued consolidated financial statements. Although the Company concluded that the
misstatement was not material to its previously issued consolidated financial statements, the Company has determined it is appropriate
to adjust its previously issued consolidated financial statements to correct for the error in the context of comparative financial statements.
| Impact of correction of error - quarter | Impact of correction of error - year to date | |||||||||||||||||||||||
| As Previously | As Previously | |||||||||||||||||||||||
| Quarter ended September 30, 2022 | Reported | Adjustments | As Revised | Reported | Adjustments | As Revised | ||||||||||||||||||
| Net Loss | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||
| Preferred stock dividends | ( | ) | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||
| Net loss allocable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ) | |||||||
| Loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||||||
| Statement of Cash Flows | As Previously | As | ||||||||||
| Nine Months Ended September 30, 2022 | Reported | Adjustments | Revised | |||||||||
| Supplemental non-cash disclosure: | ||||||||||||
| Preferred stock dividends | $ | $ | ( | ) | $ | ( | ) | |||||
8
Concentration of Credit Risk
Financial instruments that potentially expose
the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company’s cash is deposited
with major financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount
(“FDIC”). As of September 30, 2023 and December 31, 2022, the Company had no cash in excess of the FDIC’s $
Operating Segments
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”), or decision maker group, in deciding how to allocate resources to an individual segment and in assessing performance. Our chief operating decision–making group is composed of the chief executive officer and Vice President. The Company has two operating segments as of September 30, 2023 and December 31, 2022. See Note 16, “Segment Information”.
Stock-based Compensation
We account for equity-based transactions with employees and non-employees under the provisions of FASB ASC Topic 718, “Compensation – Stock Compensation” (Topic 718), which establishes that equity-based payments to employees and non-employees are recorded at the grant date the fair value of the equity instruments the entity is obligated to issue when the employees and non-employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. Topic 718 also states that observable market prices of identical or similar equity or liability instruments in active markets are the best evidence of fair value and, if available, should be used as the basis for the measurement for equity and liability instruments awarded in these share-based payment transactions. However, if observable market prices of identical or similar equity or liability instruments are not available, the fair value shall be estimated by using a valuation technique or model that complies with the measurement objective, as described in FASB ASC Topic 718.
Net Loss per Share
Basic net loss per share of common stock is computed by dividing net
loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed
by dividing net loss by the weighted average number of shares of common stock and dilutive potentially outstanding shares of common stock
during the period. The weighted average number of common shares for the nine months ended September 30, 2023 and 2022 does not include
warrants to acquire
Investments in Equity Securities
The Company accounts for its investments under ASC 321, “Investments – Equity Securities,” which requires that investments in equity securities be measured at fair value with changes in value recorded as unrealized gains and losses in current period operations.
Cryptocurrency
The Company obtains cryptocurrency through our mining activities, which is accounted for in connection with our revenue recognition policy. The cryptocurrency held is recorded as other assets in the Consolidated Balance Sheets and is accounted for as indefinite-lived intangible assets initially measured at cost, in accordance with ASC 350, Intangibles-Goodwill and Other (“ASC 350”). The use of cryptocurrencies is accounted for in accordance with the first in first out method of accounting. We do not amortize our cryptocurrency but assess the value for impairment as further discussed in our impairment policy.
Impairment of cryptocurrency assets is tested
annually or more frequently if events or circumstances change. At September 30, 2023, the Company had
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized over the lesser of the remaining term of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are expensed as incurred.
9
Intangible Assets
The Company accounts for its intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 350-30, General Intangibles Other Than Goodwill. ASC Subtopic 350-30, which requires assets to be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. Under ASC Subtopic 350-30 any intangible asset with a useful life is required to be amortized over that life and the useful life is to be evaluated every reporting period to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimate of useful life is changed the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Costs to renew or extend the term of an intangible assets are recognized as an expense when incurred.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying value of its long-lived assets held and used at least annually or when events and circumstances warrant such a review. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. Cash flow projections are sometimes based on a group of assets, rather than a single asset. If cash flows cannot be separately and independently identified for a single asset, the Company determines whether impairment has occurred for the group of assets for which it can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, it measures any impairment by comparing the fair value of the asset group to its carrying value. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in the amount of the difference is recorded.
Merchant Portfolios
Merchant portfolios are valued at fair value of
merchant customers on the date of acquisition and are amortized over their estimated useful lives (
Goodwill
The Company accounts for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
The Company tests for indefinite-lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the Company performed a quantitative assessment of indefinite-lived intangibles and goodwill and determined there was no impairment at September 30, 2023 and December 31, 2022.
| December 31, 2022 | $ | |||
| Add: | ||||
| September 30, 2023 | $ |
10
Accounts Receivable
Accounts receivable represent contractual residual
payments due from the Company’s processing partners or other customers. Residual payments are determined based on transaction fees
and revenues from the credit and debit card processing activity of merchants for which the Company’s processing partners pay the
Company. Based on collection experience and periodic reviews of outstanding receivables, management considers all accounts receivable
for our residual payments to be fully collectible and accordingly, no allowance for doubtful accounts is required; however, CrowdPay has
a recorded allowance of approximately $
Reserve for Chargeback Losses
Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s bank and charged to the merchant. If the merchant has inadequate funds, the Company must bear the credit risk for the full amount of the transaction. The Company evaluates the risk for such transactions and estimates the potential loss for chargebacks based primarily on historical experience and records a loss reserve accordingly.
Other Current Assets
| September 30, 2023 | December 31, 2022 | |||||||
| Cryptocurrency | $ | $ | ||||||
| Investment in cryptocurrency-based fund | ||||||||
| Other current assets | ||||||||
| Total | $ | $ | ||||||
Revenue Recognition
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Transaction and processing fees from wholesale contracts | $ | $ | $ | $ | ||||||||||||
| Transaction and processing fees from retail contracts | $ | $ | $ | $ | ||||||||||||
| Other transaction and processing fees, revenue from monthly recurring subscriptions, and merchant equipment rental and sales | $ | $ | $ | $ | ||||||||||||
| Cryptocurrency mining revenues | $ | $ | $ | $ | ||||||||||||
| Digital product revenue | $ | $ | $ | $ | ||||||||||||
| Total revenue from contracts with customers | $ | $ | $ | $ | ||||||||||||
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; |
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| ● | Identification of the performance obligations in the contract; | |
| ● | Determination of the transaction price; | |
| ● | Allocation of the transaction price to the performance obligations in the contract; and | |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Shipping and handling activities associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment activity and recognized as revenue at the point in time at which control of the goods transfers to the customer. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
Transaction and processing fees
Fees for the Company’s transaction and processing arrangements are typically billed and paid on a monthly basis. The Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. Fees are calculated on either a percentage of the dollar, volume of the transaction or a fixed fee or a hybrid of the two and are recognized at the time of the transaction. These merchant services represent a single performance obligation satisfied over time and that the same measure of progress should be used to measure the Company’s progress toward complete satisfaction of the performance obligation. The Company will recognize revenue on a monthly basis as the services are transferred to the customer in short daily increments that qualify for series guidance as the best measure of the transfer of control.
In wholesale contracts, the Company recognizes transaction and processing fees on a gross basis as the Company is the principal in the merchant services. The Company has concluded it is the principal because it has a direct contractual relationship with the merchant, is primarily responsible for the delivery of services to the merchants, including performing underwriting, has discretion in setting prices, and bears risk of chargebacks and other merchant losses. The Company also has the unilateral ability to accept or reject a transaction based on criteria established by the Company. As the principal, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees within cost of revenues.
In retail contracts, the Company is not responsible for merchant underwriting, has no chargeback liability and has no or limited contractual relationship with the merchant. As such, the Company records the net amount it receives from the processor, after interchange and other interchange and other processing fees, as revenue.
Merchant equipment rental and sales
The Company generates revenue through the sale and rental of merchant equipment. The Company satisfies its performance obligation upon delivery of equipment to merchants and recognizes revenue at a point in time. The Company allows for customer returns which are accounted for as variable consideration. The Company estimates these amounts based on historical experience and reduces revenue recognized. The Company invoices customers upon delivery of the equipment to merchants, and payments from such customers are due upon invoicing. The Company offers hardware installment sales to customers with terms ranging from three to forty-eight months. The Company allocates a portion of the consideration received from these arrangements to a financing component when it determines that a significant financing component exists. The financing component is subsequently recognized as financing revenue separate from hardware revenue, within subscription and services-based revenue, over the terms of the arrangement with the customer. Pursuant to practical expedients afforded under ASC 606, the Company does not recognize a financing component for hardware installment sales that have a term of one year or less.
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Monthly recurring subscriptions
The Company generates recurring revenue through monthly subscriptions for software services. This service is provided based on an agreement with the customer regarding software services. Performance obligations are promises in a contract to a customer. In the subscription model, each billing period represents a performance obligation. The transaction price is the amount of consideration the company expects to receive in exchange for transferring goods or services. For recurring revenue, this is the subscription fee. The Company allocates to the performance obligated based on the selling price for the subscription. If the criteria for recognizing revenue over time are met, revenue is recognized over the period of performance. For subscription and recurring fee, this means recognizing revenue each billing period.
Bitcoin mining
The Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed Bitcoin award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are immaterial and are recorded as a deduction from revenue), for successfully adding a block to the Bitcoin blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
Providing computing power to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different from the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Digital product revenue
The Company generates revenue through electronic
distribution and sale of digital products that range from prepaid wireless SIM activation, international mobile recharge services and
international long distance phone service. The Company generally obtains payment upfront and its performance obligation is to provide
products and/or calling services. When products are provided at the point of sale, revenue is recognized immediately and at the
time of payment. When a customer purchases a prepaid telecom product, such as a prepaid mobile phone plan, the revenue is initially
recorded as a customer deposit and revenue is recognized over the relevant performance period as customers utilize the prepaid telecom
services. As of September 30, 2023, customer deposits were $
Leases
The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.
For leases with a term exceeding 12 months, an operating lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding operating lease right-of-use asset equal to the initial lease liability is also recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company’s incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease.
For the Company’s operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less, any fixed lease payments are recognized on a straight-line basis over the lease term and are not recognized on the Company’s consolidated balance sheet as an accounting policy election. Leases qualifying for the short-term lease exception were insignificant. Variable lease costs are recognized as incurred and primarily consist of common area maintenance and utility charges not included in the measurement of right of use assets and operating lease liabilities.
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Recent Accounting Pronouncements
On March 23, 2023, the Financial Accounting Standards Board issued an Exposure Draft “Intangibles – Goodwill and Other – Crypto Assets” (Subtopic 350-60), Accounting for and Disclosure of Crypto Assets. Under the provisions of this Exposure Draft, an entity would be required to present crypto assets separately from other intangible assets in the balance sheet, and measure crypto assets at fair value with changes recognized in net income each reporting period. Upon effectiveness, an entity would reflect a cumulative-effect adjustment to the opening balance of retained earnings. Issuance of the final standard is subject to public comment and deliberations.
NOTE 3 – LIQUIDITY AND CAPITAL RESOURCES
The Company’s consolidated financial statements
have been prepared in accordance with US GAAP, which assumes that the Company’s management will evaluate whether it will be able
to meet its obligations and continue its operations in the normal course of business. At September 30, 2023, the Company had cash of approximately
$
Management believes that its current available resources will be sufficient to fund the Company’s planned expenditures over the next 12 months. However, management recognizes that it may be required to obtain additional resources to successfully execute its business plans. No assurances can be given that management will be successful in raising additional capital, if needed, or on acceptable terms. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company determine it shall be unable to continue as a going concern.
NOTE 4 – INTANGIBLE ASSETS
| September 30, 2023 | December 31, 2022 | |||||||
| Merchant Portfolios | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net residual portfolios | $ | $ | ||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Trade name | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net trade name | $ | $ | ||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Merchant Portfolio | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net trade name | $ | $ | ||||||
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| September 30, 2023 | December 31, 2022 | |||||||
| Exclusive agreement to purchase natural gas | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net mineral rights | $ | $ | ||||||
| Total intangible assets, net | $ | $ | ||||||
Amortization expense for the nine months ended
September 30, 2023 and 2022 was $
The Company’s merchant portfolios and tradename
are being amortized over respective useful lives of
The Company’s agreement to purchase natural
gas is being amortized over the useful life of
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ |
The weighted average remaining useful life of
amortizing intangible assets was
NOTE 5 – PROPERTY AND EQUIPMENT
Long-lived assets, including property and equipment assets to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected future cash flows of the related assets are less than their carrying values. Measurement of an impairment loss is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Property and equipment are first recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets.
Maintenance and repair expenses, as incurred, are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts. Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain or loss on the disposition included as income.
| September 30, 2023 | December 31, 2022 | |||||||
| Furniture and Fixtures | $ | $ | ||||||
| Office Equipment | ||||||||
| Computer Software | ||||||||
| Leasehold Improvements | ||||||||
| Bitcoin Mining Equipment | ||||||||
| Plant and Machinery | ||||||||
| Total | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and Equipment, net | $ | $ | ||||||
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Depreciation expense
Depreciation expense for the nine months ended
September 30, 2023 and 2022 was $
NOTE 6 – INVESTMENT IN EQUITY SECURITIES
The Company owns
NOTE 7 — BUSINESS COMBINATIONS
On June 15, 2023, the Company entered into a Membership
Interest Purchase Agreement (the “Agreement”) with SDI Black 001, LLC (“Seller”) whereby it acquired
The Company accounted for the transaction as a
business combination under ASC 805 and as a result, allocated the fair value of the book value of identifiable assets acquired and liabilities
assumed as of the acquisition date as outlined in the table below. Although the accounting is not yet complete, the results of operations
of the business acquired by the Company have been included in the consolidated statements of operations since the date of acquisition.
All amounts are considered provisional until a more thorough analysis of the acquisition can be completed. The consolidated income statement
for the three and nine months ended September 30, 2023, includes $
The excess of the purchase price over the estimated
fair values of the underlying identifiable assets acquired, liabilities assumed, and non-controlling interest was allocated to goodwill.
The provisional estimated fair value of the noncontrolling interest was based on the price the Company paid for their
| Consideration | ||||
| Consideration issued | $ | |||
| Identified assets, liabilities, and noncontrolling interest | ||||
| Property and equipment, net | ||||
| Cash overdraft | ( |
) | ||
| Customer deposits | ( |
) | ||
| Accounts payable | ( |
) | ||
| Accrued Expenses | ( |
) | ||
| Noncontrolling interest | ( |
) | ||
| Total identified assets, liabilities, and noncontrolling interest | ( |
) | ||
| Excess purchase price allocated to goodwill | $ | |||
Proforma information representing the revenue and earnings of the combined company as if the business combination had occurred on January 1, 2022 has not been supplied as of the date of this filing, therefore we are unable to include those amounts here.
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NOTE 8 – NOTE PAYABLE
On November 29, 2021, the Company entered into
a Master Equipment Finance Agreement (the “MFA”) with VFS LLC (“VFS”) which would allow the Company to finance
the purchase of certain equipment. The collateral and interest rate are determined at the time the Company borrows the funds. During the
year ended December 31, 2022, the Company received, as an initial draw on the MFA, $
NOTE 9 – STOCK OPTIONS
On January 1, 2021, the Company granted stock
options to purchase
On July 28, 2021, the Company entered into an
exclusive agreement with Cai Energy Blockchain, Inc. (“CAI”) whereby CAI provided the Company with an exclusive natural gas
supply agreement (the “Services”). In exchange for the Services, the Company granted CAI options to purchase up to
On December 23, 2022, the Company granted stock
options to purchase
On December 23, 2022, the Company granted stock
options to purchase
| Stock Options | Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||
| Options outstanding December 31, 2021 | $ | $ | ||||||||||
| Granted | $ | |||||||||||
| Exercised | $ | |||||||||||
| Expired | $ | |||||||||||
| Options outstanding December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | $ | |||||||||||
| Expired | $ | |||||||||||
| Options outstanding September 30, 2023 | $ | |||||||||||
| Shares exercisable at September 30, 2023 | $ | $ | ||||||||||
During the nine months ended September 30, 2023
and 2022 the Company recognized $
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NOTE 10 – WARRANTS
On August 18, 2021, the Company sold,
in a registered direct offering, an aggregate of
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)
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contract Term | ||||||||||
| Outstanding, December 31, 2021 | $ | |||||||||||
| Underwriter Warrant Exercised | ( | ) | $ | |||||||||
| Outstanding, December 31, 2022 | $ | |||||||||||
| Warrants Exercised | $ | |||||||||||
| Outstanding, September 30, 2023 | $ | |||||||||||
NOTE 11 – OPERATING LEASES
On June 24, 2020, eVance, Inc. (“eVance”)
entered into a Lease Agreement (the “Lease”) with Pergament Lodi, LLC (the “Lessor”) relating to approximately
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On January 11, 2022, DMINT entered into two leases
(the “Leases”) in Bradford, Pennsylvania relating to a combined
On March 29, 2023, DMINT entered into a Surrender
and Release Agreement with Bradford Regional Airport Authority relating to the property in Bradford, Pennsylvania whereby DMINT agreed
to pay $
| Balance Sheet Classification | September 30, 2023 | |||||
| Asset | ||||||
| Operating lease asset | Right of use asset | $ | ||||
| Total lease asset | $ | |||||
| Liability | ||||||
| Operating lease liability – current portion | Current operating lease liability | $ | ||||
| Operating lease liability – noncurrent portion | Long-term operating lease liability | |||||
| Total lease liability | $ | |||||
Lease expense for the three months ended September
30, 2023, was $
Lease expense for the three months ended September
30, 2022, was $
NOTE 12 – COMMON STOCK
On July 12, 2022, the Board of the Company authorized
a share repurchase program, pursuant to which the Company may repurchase up to
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Refer to Note 14 for common stock issued to related parties.
NOTE 13 – PREFERRED STOCK
Our certificate of incorporation, as amended,
authorizes the issuance of
Series A Preferred Stock
On August 7, 2020, we filed a Certificate of Designations,
Preferences and Rights of Series A Preferred Stock (the “Certificate of Designations”) with the Secretary of State of Delaware. The
Certificate of Designations will provide that the Company may issue up to
Dividends
The Series A Preferred Stockholders are entitled
to receive cash dividends at a rate per share (as a percentage of the Stated Value per share) of
Conversion
The Series A Preferred Stock holders may convert, at their option, on or after the date on which the Term Loan is repaid in full, each share of Series A Preferred Stock (along with accrued but unpaid dividends thereon) into such number of shares of common stock as determined by dividing the Stated Value by the conversion price. The conversion price for the Series A Preferred Stock will be equal to the offering price per Unit in this offering and will be subject to adjustment for splits and the like. The holders of Series A Preferred Stock will only be permitted to convert their shares of Series A Preferred Stock into shares of common stock at such time as the Term Loan has been repaid in full and there are no further outstanding obligations regarding such indebtedness.
Voting
Each holder of a share of Series A Preferred Stock will have the right to vote its shares of Series A Preferred Stock with the common stock on an as-converted basis, and with respect to such votes, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock, and shall be entitled, to notice of any stockholders’ meeting in accordance with the Company’s bylaws, and shall be entitled to vote, together with holders of common stock, with respect to any question upon which holders of common stock have the right to vote. Fractional votes shall not be permitted, and such shares shall be rounded up.
Liquidation Preference
Each share of Series A Preferred Stock will have a liquidation preference equal to the Stated Value plus any accrued but unpaid dividends thereon. In the event of a liquidation, dissolution or winding up of the Company (which includes any merger, reorganization, sale of assets in which control of the Company is transferred or event which results in all or substantially all of the Company’s assets being transferred), the holders of Series A Preferred Stock shall be entitled to receive out of the assets of the Company, before any payment is made to the holders of the Company’s common stock and either in preference to or pari pasu with the holders of any other series of preferred stock that may be issued in the future, a per share amount equal to the liquidation preference.
NOTE 14 – RELATED PARTY TRANSACTIONS
On December 31, 2022, the Company granted
20
On December 31, 2022, the Company granted
On December 31, 2022, the Company granted
On February 14, 2023, a shareholder reported to
the Company that they had incurred short swing profits of $
During the nine months ended September 30, 2023,
the Company accrued $
Refer to Note 9 for options to purchase shares of common stock issued to related parties.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.
NOTE 16 – SEGMENTS
The Company applies ASC 280, Segment Reporting, in determining its reportable segments. The Company has two reportable segments: Cryptocurrency Mining and Fintech Services. The guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker (“CODM”) to decide how to allocate resources and for purposes of assessing such segments’ performance. The Company’s CODM is comprised of several members of its executive management team who use revenue and expenses of our two reporting segments to assess the performance of the business of our reportable operating segments.
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| For the Three Months ended September 30, | For the Nine Months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Reportable segment revenue: | ||||||||||||||||
| Revenue, net – cryptocurrency mining segment | $ | $ | $ | $ | ||||||||||||
| Fintech services revenue | ||||||||||||||||
| Total segment and consolidated revenue | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Cryptocurrency mining segment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fintech services | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| September 30, 2023 | December 31, 2022 | |||||||
| Total Assets: | ||||||||
| Cryptocurrency mining segment | $ | $ | ||||||
| Fintech services | ||||||||
| $ | $ | |||||||
NOTE 17 – SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward-looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, our actual results may differ significantly from management’s expectations. These risks and uncertainties include those factors described in greater detail in the risk factors disclosed in our Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents referred to or incorporated by reference, the date of those documents.
The following discussion and analysis should be read in conjunction with our unaudited financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Company Overview and Description of Business
Overview
We are a FinTech company that focuses on a suite of products in the merchant services and payment facilitator verticals that seek to provide integrated business solutions to merchants throughout the United States. We seek to accomplish this by providing merchants with a wide range of products and services through our various online platforms, including financial and transaction processing services. We also have products that provide support for crowdfunding and other capital raising initiatives. We supplement our online platforms with certain hardware solutions that are integrated with our online platforms. Our business functions primarily through three wholly-owned subsidiaries, eVance, OmniSoft, and CrowdPay, though substantially all of our revenue has been generated from our eVance business (we began generating revenue from our OmniSoft and CrowdPay businesses in the second half of 2019). We expect to build out our OmniSoft software business and to rely more on our payment processing model for revenue so that we are not dependent on our revenue from our eVance business but there is no guarantee that we will be able to do so.
With respect to our eVance business, our merchants are currently processing over $100,000,000 in gross transactions monthly and average approximately 1,400,000 transactions a month. These transactions come from a variety of sources including direct accounts and ISO channels. The accounts consist of businesses across the United States with no concentration of industries or merchants.
We have integrated all the applications for OmniSoft and the ShopFast Omnicommerce solution with the eVance mobile payment gateway, SecurePay.comTM. SecurePay.comTM, is currently used by approximately 3,000 merchants processing over 32,000 transactions and approximately $9,000,000 of monthly gross transactions (though our revenue from these transactions is limited). In July 2019, we launched a new merchant and ISO boarding system that will be able to onboard merchants instantly. This provides the merchant with an automated approval and ISOs will have the ability to see all their merchants and their residuals as they load into the system.
On May 22, 2020, the Company purchased certain assets from POSaBIT Inc. (“POSaBIT”), including its contracts and arrangements with the Doublebeam merchant payment processing platform (the “POSaBIT Asset Acquisition”). The assets included, but were not limited to, software source codes, customer lists, customer contracts, hardware and website domains.
On May 14, 2021, the Company formed OLBit, Inc., a wholly-owned subsidiary (“OLBit”). The purpose of OLBit is to hold the Company’s assets and operate its business related to its emerging lending and transactional business.
On July 23, 2021, we formed DMINT, Inc., a wholly-owned subsidiary (“DMINT”) to operate in the cryptocurrency mining industry. DMINT has initiated the first phase of the Bitcoin mining operation by placing purchase orders for data centers and ASIC-based Antminer S19J Pro mining computers specifically configured to mine Bitcoin. The first lot of equipment is being used to establish a proof of concept before DMINT expands the number of computers in operation. As of September 30, 2023, DMint has purchased 1,000 computers, of which all computers have been delivered with 250 online and mining for Bitcoin at the Company’s building in Selmer, Tennessee. As configured, it is expected that the computers purchased will have a combined computing power of approximately 100 petahash per second.
23
On November 24, 2021, we entered into an Asset Purchase Agreement (the “Agreement”) dated as of November 15, 2021 with FFS Data Corporation (“Seller”) whereby we acquired a portfolio of merchants utilizing financial transaction processing services (the “Acquired Merchant Portfolio”). The purchase price was $20 million, with $16 million paid at closing, $2 million payable within six months after closing, and a $2 million payment to be transferred to an escrow account, contingent upon an Attrition Adjustment, as described in the Agreement. However, on July 18, 2022, the Company notified the Seller of certain breaches of contract relating to, among other things, representations made by Seller in the Agreement, for which it will seek a reduction or cancellation of the final payment and a potential reduction in the overall purchase price. The matter is currently in litigation.
On January 3, 2022, the Company entered into a share exchange agreement with all of the shareholders of Crowd Ignition, Inc. (“Crowd Ignition”) whereby the Company purchased 100% of the equity of Crowd Ignition).
Crowd Ignition is a web-based crowdfunding software system. Ronny Yakov, Chairman and CEO of the Company and John Herzog, a shareholder of the Company, owned 100% of the equity of Crowd Ignition. The software provides broker-dealer, merchant banks and law firms a platform to market crowdfunding offerings, collect payments and issue securities. The software has been developed in response to, and to comply with, recent changes in investment regulations including Regulation D 506(b) and 506(v), Regulation A+ and Title III of the Jobs Act (Regulation CF), including raising the crowdfunding limit from $1.07 million to $5.0 million. Crowd Ignition is one of only about 50 companies registered with the SEC to provide the services permitted under Regulation CF.
On June 15, 2023, the Company acquired 80.01% of the membership interests of Cuentas SDI, LLC, a Florida limited liability company (“SDI”). SDI will enable the Company to focus on marketing to the underbanked communities utilizing the SDI debit and calling card platform’s ability for users to reload cash to their account and provide instant access to digital products to their customers’ Mobile App and digital wallet into its electronic portal. The Company plans to market to the SDI merchant network, which currently has approximately 31,600 locations in the United States, the ability of having one POS system that will allow the retail customer to purchase products using OLB’s payment processing solutions along with the ability to reload payment cards and their mobile phone minutes.
Results of Operations
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) includes a discussion of the consolidated results from operations of The OLB Group, Inc. and its subsidiaries for the three and nine months ended September 30, 2023 and 2022.
Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
For the three months ended September 30, 2023, we had total revenue of $9,694,440 compared to $6,246,551 of revenue for the three months ended September 30, 2022, an increase of $2,349,008 or 39.3%. We earned $8,331,185 in transaction and processing fees, $21,160 in merchant equipment rental and sales, $147,068 in other revenue from monthly recurring subscriptions, $95,667 of revenue from the Cryptocurrency Mining segment and $1,099,360 of revenue from the sale of digital products. For the three months ended September 30, 2022, we earned $5,982,177 in transaction and processing fees, $8,417 in merchant equipment rental and sales, $94,708 in other revenue from monthly recurring subscriptions and $161,249 of other revenue from the Cryptocurrency Mining segment. The increase in revenue was a result of the increase in the amount of fees earned from a greater number of merchant processing transactions compared to the prior year and the addition of the digital product revenue. Processing and servicing costs increased by $1,767,371 or 37.8%, from $4,679,192 in the prior period to $6,449,563.
Amortization and depreciation expense for the three months ended September 30, 2023, was $899,831 compared to $892,788 for the three months ended September 30, 2022, an increase of $7,043 or 0.8%, thus fairly consistent between periods. We record amortization expense on our merchant portfolio, trademarks and natural gas purchase rights. Depreciation expense for our Cryptocurrency Mining segment for the three months ended September 30, 2023 was $910,743 compared to $799,716 for the three months ended September 30, 2022, an increase of $111,027 or 13.9% due to depreciating more bitcoin mining equipment in the current period.
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Salary and wage expense for the three months ended September 30, 2023, was $687,456 compared to $649,012 for the three months ended September 30, 2022, an increase of $38,444 or 5.9%. Salary and wage expenses have increased due to an increase in salary and bonuses paid to our officers during the 2023 period.
Professional fees for the three months ended September 30, 2023, were $707 900 compared to $174,472 for the three months ended September 30, 2022, an increase of $533,424 or 305.7%. Professional fees consist mainly of audit and legal fees. The increase was due to increased litigation-related legal expenses and auditor and legal expenses relating to the preparation of a spin-off of DMINT during the 2023 period.
General and administrative expenses for the three months ended September 30, 2023, was $1,901,850 compared to $753,944 for the three months ended September 30, 2022, an increase of $1,147,906 or 152.3%. Some of our larger G&A expenses included insurance policy expense of $109,000 as a result of the cost to insure the cryptocurrency mining machines and the increase in the size of the Company’s business, bank and credit card charges of $336,000, contracted services of $299,000 from $45,000 in the same period of 2022 and utilities of $228,00 from $175,000 in the same period of 2022.
For the three months ended September 30, 2023, we had total other expense of $24,974 from an unrealized loss on investment, compared to total other expense of $9,989 for the three months ended September 30, 2022.
For the three months ended September 30, 2023, we had $83,112 of net loss attributed to the non-controlling interest of Cuentas SDI, LLC, due to the acquisition of 80.01% interest of the entity during the quarter ended June 30, 2023.
Our net loss for the three months ended September 30, 2023, after the reduction for minority interest, was $1,801,738 compared to $1,712,562 for the three months ended September 30, 2023. This was an increase in our net loss of $89,176 for the reasons discussed above.
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
For the nine months ended September 30, 2023, we had total revenue of $24,661,041 compared to $23,405,445 of revenue for the nine months ended September 30, 2022, an increase of $230,329 or 1%. We earned $22,439,904 in transaction and processing fees, $68,443 in merchant equipment rental and sales, $295,941 in other revenue from monthly recurring subscriptions, $399,957 of other revenue from the Cryptocurrency Mining segment and $1,456,796 of revenue from the sale of digital products during the nine months ended September 30, 2023, compared to $22,209,575 in transaction and processing fees, $43,759 in merchant equipment rental and sales, $518,556 in other revenue from monthly recurring subscriptions and $633,555 of other revenue from the Cryptocurrency Mining segment during the nine months ended September 30, 2022. The increase in revenue was a result of the increase in the amount of fees earned from a greater number of merchant processing transactions compared to the prior year and the addition of the digital product revenue.
Amortization and depreciation expense for the nine months ended September 30, 2023, was $2,699,496 compared to $2,794,731 for the nine months ended September 30, 2022, a decrease of $694,798 or 3.9% due to fully depreciating certain assets in the prior year. We record amortization expense on our merchant portfolio, trademarks and natural gas purchase rights. Depreciation expense for our cryptocurrency mining segment was $2,510,176 in the current period compared to $2,393,966 in the prior period, an increase of $116,210 or 4.9%, thus fairly consistent between periods.
Salary and wage expense for the nine months ended September 30, 2023 was $2,070,288 compared to $1,805,785 for the nine months ended September 30, 2022 an increase of $264,503 or 14.6%. Salary and wage expenses have increased due to an increase in salary and bonuses paid to our officers during the 2023 period.
Professional fees for the nine months ended September 30, 2023 were $1,297,026 compared to $793,626 for the nine months ended September 30, 2022, an increase of $503,400 or 63.4%. Professional fees consist mainly of audit and legal fees. The increase was due to increased litigation-related legal expenses and auditor and legal fees related to the preparation of the spin-off of DMINT during the 2023 period.
General and administrative expenses (“G&A”) for the nine months ended September 30, 2023 was $4,063,159 compared to $2,997,169 for the nine months ended September 30, 2022, an increase of $1,065,990 or 35.6%. Some of our larger G&A expenses included insurance policy expense of $333,400 as a result of the cost to insure the cryptocurrency mining machines and the increase in the size of the Company’s business, travel of $130,000 from $250,000 in the same period of 2022, marketing and promotion of $88,000 from $180,000 in the same period of 2022, contracted services of $624,000 from $511,000 in the same period of 2022, utilities of $510,00 from $406,000 in the same period of 2022 and computer and internet expense of $670,000 from $515,000 in the same period of 2022.
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For the nine months ended September 30, 2023, we had total other expense of $196,025 compared to other income $383,190 for the nine months ended September 30, 2022. In the current period we had a loss of $279,242 from the sale of cryptocurrency, an unrealized loss on investment of $31,437, and other income of $114,654, compared to other income of $383,190 for the nine months ended September 30, 2022. In the prior period we recognized a gain of $383,190 from the reversal of a liability associated with a prior adverse judgement on appeal.
For the nine months ended September 30, 2023, we had $81,387 of net loss attributed to the non-controlling interest of Cuentas SDI, LLC, due to the acquisition of 80.01% interest of the entity during the quarter ended June 30, 2023.
Our net loss for the nine months ended September 30, 2023, after the reduction for minority interest, was $5,008,411 compared to $4,606,112 for the nine months ended September 30, 2022. We had an increase in our net loss of $402,299 for the reasons discussed above.
Liquidity and Capital Resources
Changes in Cash Flows
For the nine months ended September 30, 2023, we received $1,964,977 of cash from operating activities, which included our net loss of $5,089,798 plus our operating lease expense, net of repayment of $8,444 offset by $5,209,669 for amortization and depreciation expense, $161,605 for stock-based compensation, $279,242 from the loss on sale of cryptocurrency and net changes in operating assets and liabilities of $1,412,703.
For the nine months ended September 30, 2023, we used net cash of $231,590 in financing activities as a result of a cash overdraft obtained in an acquisition of $8,050 and payments on a note payable of $223,540 and used $2,079,630 in investing activities as a result of the acquisition of property and equipment of $1,229,630 and the purchase of an 80.01% interest in Cuentas SDI, LLC for $850,000.
Liquidity and Capital Resources
At September 30, 2023, the Company had cash of $87,783, $123,466 of bitcoins and a working capital deficit of $2,329,626. The Company has approximately $5,899,000 of outstanding liabilities.
The Company has reviewed its projected operating cash flows for the remainder of 2023 and performed an overall analysis of market trends to determine whether or not it has sufficient liquidity to continue as a going concern for a period of at least twelve months from the date of this Quarterly Report. As a result of (a) continued improving transaction volume trends and positive cash flow in the third quarter, and (b) an increase in revenues created from the purchase of Cuentas SDI, LLC in June 2023, the Company believes it has and will continue to have sufficient liquidity in order to sustain operations for at least the twelve months following the filing of this Quarterly Report.
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Critical Accounting Policies
Refer to our Form 10-K for the year ended December 31, 2022, for a full discussion of our critical accounting policies.
Subsequent Events
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
ITEM 4. CONTROLS AND PROCEDURES
During the third quarter ended September 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized and reported within the required time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2023, that have materially or are reasonably likely to materially affect our internal controls over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no claims, actions, suits, proceedings, or investigations that are currently pending or, to the Company’s knowledge, threatened by or against the Company or respecting its operations or assets, or by or against any of the Company’s officers, directors, or affiliates.
ITEM 1A. RISK FACTORS
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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 14, 2023 | By: | /s/ Ronny Yakov |
| Name: | Ronny Yakov | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Rachel Boulds |
| Name: | Rachel Boulds | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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