UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

Commission File Number: 000-52994

 

 

THE OLB GROUP, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE		13-4188568
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

200 Park Avenue, Suite 1700, New York, NY		10166
(Address of principal executive offices)		(Zip Code)

 

(212) 278-0900

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.0001 par value		OLB		The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of May 12, 2021, there were 7,114,774 shares of the issuer’s common stock issued and outstanding. 

 

 

 

THE OLB GROUP, INC.

 

FORM 10-Q

 

For the Quarterly Period Ended March 31, 2021

 

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	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II	Other Information	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		22

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INDEX TO FINANCIAL STATEMENTS

 

Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020		2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)		3
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Ended March 31, 2021, and 2020 (unaudited)		4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)		5
Notes to the Condensed Consolidated Financial Statements (unaudited)		6

 

 

The OLB Group, Inc. and Subsidiaries

Consolidated Balance Sheets

 

		March 31, 2021				December 31, 2020
ASSETS		(Unaudited)
Current Assets:
Cash		$	2,390,822			$	3,824,491
Accounts receivable, net			343,973				355,994
Prepaid expenses			19,429				15,754
Other current assets			8,768				8,768
Total Current Assets			2,762,992				4,205,007
Other Assets:
Property and equipment, net			16,286				19,807
Intangible assets, net			2,489,912				2,640,816
Goodwill			6,858,216				6,858,216
Operating lease right-of-use asset			247,896				269,508
Other long-term assets			403,853				384,148
TOTAL ASSETS		$	12,779,155			$	14,377,502
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	292,360			$	359,968
Accrued expenses			57,273				103,634
Operating lease liability – current portion			87,402				85,598
Note payable – current portion			-				450,000
Total Current Liabilities			437,035				999,200
Long Term Liabilities:
Notes payable, net of current portion			236,231				7,441,076
Operating lease liability – net of current portion			218,614				185,045
Total Liabilities			891,880				8,625,321
Commitments and contingencies (Note 9)
Stockholders’ Equity (Deficit):
Preferred stock, ($0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding at March 31, 2021 and December 31, 2020)			-				-
Series A Preferred stock, ($0.01 par value, 10,000 shares authorized, 4,633 shares issued and outstanding at March 31, 2021 and December 31, 2020)			46				46
Common stock, $0.0001 par value; 200,000,000 shares authorized, 7,114,774 and 6,170,054 shares issued and outstanding at March 31, 2021 and December 31, 2020			711				617
Additional paid-in capital			33,614,981				26,380,124
Accumulated deficit			(21,728,463	)			(20,628,606	)
Total Stockholders’ Equity (Deficit)			11,887,275				5,752,181
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	12,779,155			$	14,377,502

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

The OLB Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

		For the Three Months Ended March 31,
		2021				2020
Revenue:
Transaction and processing fees		$	2,090,264			$	2,336,479
Merchant equipment rental and sales			18,507				20,262
Other revenue from monthly recurring subscriptions			117,633				257,252
Total revenue			2,226,404				2,613,993
Operating expenses:
Processing and servicing costs, excluding merchant portfolio amortization			1,547,274				1,720,413
Amortization expense			215,904				203,214
Salaries and wages			820,091				400,188
General and administrative expenses			626,269				515,367
Total operating expenses			3,209,538				2,839,182
Loss from operations			(983,134	)			(225,189	)
Other Income (Expense):
Interest expense			(116,736	)			(216,125	)
Interest expense, related party			-				(101,316	)
Other income			13				423
Total other expense			(116,723	)			(317,018	)
Net Loss		$	(1,099,857	)		$	(542,207	)
Net loss per share, basic and diluted		$	(0.17	)		$	(0.10	)
Weighted average shares outstanding, basic and diluted			6,299,857				5,478,272

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

The OLB Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)

For the Three Months ended March 31, 2021 and 2020

(Unaudited)

 

		Preferred Stock								Common Stock								Additional Paid				Accumulated
		Shares				Amount				Shares				Amount				In Capital				Deficit				Total
Balance at January 1, 2021			4,633			$	46				6,170,054			$	617			$	26,380,124			$	(20,628,606	)		$	5,752,181
Stock based compensation			-				-				-				-				74,011				-				74,011
Common stock issued for the exercise of Warrants			-				-				944,720				94				7,160,846				-				7,160,940
Net loss			-				-				-				-				-				(1,099,857	)			(1,099,857	)
Balance at March 31, 2021			4,633			$	46				7,114,774			$	711			$	33,614,981			$	(21,728,463	)		$	11,887,275

 

		Preferred Stock								Common Stock								Additional Paid				Accumulated
		Shares				Amount				Shares				Amount				In Capital				Deficit				Total
Balance at January 1, 2020			-			$	-				5,411,905			$	541			$	16,050,938			$	(18,851,879	)		$	(2,800,400	)
Stock based compensation			-				-				-				-				74,596				-				74,596
Net loss			-				-				-				-				-				(542,207	)			(542,207	)
Balance at March 31, 2020			-			$	-				5,411,063			$	541			$	16,125,534			$	(19,394,086	)		$	(3,268,011	)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

The OLB Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the Three Months Ended March 31,
		2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,099,857	)		$	(542,207	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operations:
Depreciation and amortization			154,425				208,731
Stock based compensation			74,011				74,596
Operating lease expense			56,986				-
Changes in assets and liabilities:
Accounts receivable			12,021				94,434
Prepaid expenses and other current assets			(3,675	)			(219	)
Other long-term assets			(19,706	)			19,619
Accounts payable			(67,608	)			(149,895	)
Accrued expenses – related party			-				101,316
Other accrued liabilities			(46,361	)			242,951
Deferred revenue			-				(99,594	)
Net Cash used in Operating Activities			(939,764	)			(50,268	)
CASH FLOWS FROM INVESTING ACTIVITIES:			-				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable			(7,654,845	)			-
Proceeds from exercise of warrants			7,160,940				-
Payment of offering costs			-				(22,815	)
Net Cash used in Financing Activities			(493,905	)			(22,815	)
Net Change in Cash			(1,433,669	)			(73,083	)
Cash – Beginning of Period			3,824,491				507,616
Cash – End of Period		$	2,390,822			$	434,533
Cash Paid For:
Interest		$	116,736			$	216,125
Income taxes		$	-			$	-

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

The OLB Group, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2021

 

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.

 

The Company provides integrated financial and transaction processing services to businesses throughout the United States. Through its eVance Capital, 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. subsidiary operates as a retail ISO and receives residual income as commission for merchants it places with third party processors.

 

CrowdPay.us, Inc. (“CrowdPay”) is a Crowdfunding platform used to facilitate a capital raise anywhere from $1,000,0000 -$50,000,000 of various types of securities under Regulation D, Regulation Crowdfunding, Regulation A and the Securities Act of 1933. To date, the activities of this subsidiary have been nominal.

 

OmniSoft.io, Inc. (“OmniSoft”) operates a software platform for small merchants. The Omnicommerce applications work on an iPad, mobile device and the web and allows you 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.

 

The Company also provides ecommerce development and consulting services on a project by project basis.

 

COVID-19 Impact

 

On January 30, 2020, the World Health Organization declared the COVID-19 (coronavirus) outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. The virus and actions taken to mitigate its spread have had and are expected to continue to have a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates. In response to the pandemic, the Company has been working with merchants to address potential changes to the purchase patterns of consumers. In addition, it has been focusing on servicing merchants that sell products with an extended delivery time frame, that have products that are paid for in advance, and that work in the catering, ticketing, limo and travel related businesses which have been directly impacted by the social distancing requirement of the pandemic. Further, for those of the Company’s employees that are able to perform their job remotely, the Company implemented a “remote work” policy and provided employees with the technology necessary to continue to do their jobs from home and for those employees that are unable to perform their job from a remote location, the Company has taken steps to ensure appropriate distancing, continue to require wearing masks in the office and added sanitizing stations along with requiring frequent hand washing and work station cleaning. In addition, the Company has been encouraging its employees to get vaccinated, if possible. At March 31, 2021, most employees were no longer working remotely and had returned to the office. However, the Company continues to monitor and follow the advice of federal and state authorities.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

 

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, stock-based compensation.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, eVance, Securus, CrowdPay, and OMNISOFT. All significant intercompany transactions and balances have been eliminated.

 

Reclassifications

 

Certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the three months ended March 31, 2021.

 

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 March 31, 2021, the Company had $2,041,150 of cash above the FDIC’s $250,000 coverage limit.

 

Net Loss per Share

 

Basic net loss per common share 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 potentially outstanding shares of common stock during the period. The weighted average number of common shares for the three months ended March 31, 2021 and 2020 does not include warrants to acquire up to 2,368,978 and 40,000 shares of common stock, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the three months ended March 31, 2021 and 2020 does not include up to 11,112 and 225,471 options, respectively, to purchase common stock because of their anti-dilutive effect.

 

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 an allowance of approximately $38,000 as of both March 31, 2021 and December 31, 2020, respectively.

 

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.

 

 

Revenue Recognition and Cost of Revenues

 

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. In the case of “wholesale” residual revenue in which the Company has a direct contractual relationship with the merchant, bears risk of chargebacks and performs underwriting on the merchants, the Company records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses. In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability and has no or limited contractual relationship with the merchant, the Company records the amount it receives from the processor net of interchange and other processing fees as revenue.

 

Disaggregation of Revenue

 

The following table presents the Company’s revenue disaggregated by revenue source:

 

		For the Three Months Ended March 31,
		2021				2020
Revenue from contracts with customers:
Wholesale contracts		$	1,445,857			$	1,420,039
Retail contracts		$	429,149			$	646,517
Other transaction and processing fees		$	351,398			$	547,437
Total Revenue		$	2,226,404			$	2,613,993

 

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;
	●	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 sales and other

 

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.

 

Recently Adopted Accounting Standards

 

In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivative and Hedging (Topic 815), and Leases (Topic 842). This new guidance became effective for us on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

On January 1, 2020 the Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU eliminates Step 2 of the goodwill impairment test and the qualitative assessment for any reporting unit with a zero or negative carrying amount. The ASU also requires an entity to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount. The adoption did not have an impact on the Company’s consolidated financial statements.

 

NOTE 3 – LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2021, the Company had cash of approximately $2.4 million and working capital of approximately $2.3 million. As such, the Company believes it has sufficient liquidity to fund its future operations and capital requirements for a period of at least twelve months from the date its consolidated financial statements are issued.

 

 

NOTE 4 – INTANGIBLE ASSETS

 

Intangible assets, net, consist of the following as of:

 

		March 31, 2021				December 31, 2020
Merchant Portfolios		$	2,405,000			$	2,340,000
Less Accumulated Amortization			(1,290,088	)			(1,199,184	)
Net residual portfolios		$	1,114,912			$	1,140,816

 

		March 31, 2021				December 31, 2020
Trade name		$	2,500,000			$	2,500,000
Less Accumulated Amortization			(1,125,000	)			(1,000,000	)
Net trade name		$	1,375,000			$	1,500,000

 

Amortization expense for the three months ended March 31, 2021 and 2020 was $215,904 and $203,214, respectively.

 

The Company’s merchant portfolios and tradename are being amortized over respective useful lives of 7 and 5 years.

 

The following sets forth the estimated amortization expense related to amortizing intangible assets for the years ended December 31:

 

2021 (nine months)			$	712,711
2022				863,615
2023				496,443
2024				312,857
2025				104,286
Total			$	2,489,912

 

The weighted average remaining useful life of amortizing intangible assets was 2.83 years at March 31, 2021.

 

NOTE 5 – NOTE PAYABLE

 

On April 8, 2018, eVance, Omnisoft, and CrowdPay, (collectively, the “Borrowers”), entered into a term loan of $12,500,000 with GACP (the “Term Loan”) which obligations are guaranteed by the Company (collectively with the Borrowers, the “Loan Parties”), under the Loan and Security Agreement (the “Credit Agreement”).

 

On March 2, 2021, the Company transferred cash in the amount of $7,712,256.28 to the Agent under the Credit Agreement (the “Prepayment”). The Prepayment facilitated the discharge in full of all of the obligations under the Credit Agreement. In connection with the extinguishment of the obligations under the Credit Agreement, 40,000 warrants to purchase Common Stock were cancelled.

 

 On May 6, 2020, the Company received a Paycheck Protection Program loan under the CARES Act for $236,231 (the “PPP Loan”). The PPP Loan matures on May 7, 2022 and bears interest at 1% per annum. Monthly amortized principal and interest payments are deferred for 6 months after the date of the agreement. The Paycheck Protection Program provides that the use of PPP Loan proceeds were limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The Company believes it has used the PPP Loan for permitted uses, although no assurance can be given that the Company will obtain forgiveness of all or any portion of amounts due under the PPP Loan. The loan has been accounted for as long-term debt, which, if forgiven will result in a gain on forgiveness of debt in the period forgiveness is obtained.

 

 

NOTE 6 – STOCK OPTIONS

 

On January 1, 2021, the Company granted stock options to purchase 6,667 shares of common stock pursuant to the terms on the Company’s employment agreement with Mr. Yakov. The grant shall vest at the rate of 1/3 beginning on each anniversary of the effective date of grant. The options have an exercise price of $0.001per share and expire in three years after each vest date. The aggregate fair value of the options totaled $32,793 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.001, 0.16% risk free rate, 35.03% volatility and expected life of the options of 3 years. The fair value is being amortized over the applicable vesting period and credited to additional paid in capital.

 

A summary of the status of the Company’s outstanding stock options and changes during the three months ended March 31, 2021 is presented below:

 

Stock Options		Options				Weighted Average Exercise Price				Aggregate Intrinsic Value
Options outstanding at January 1, 2019			271,839			$	0.0001				-
Granted			6,667			$	0.001				-
Exercised			-			$	-
Forfeited			-			$	-				-
Options outstanding at January 1, 2020			278,506			$	0.0001				-
Granted			6,667			$	0.001				-
Exercised			-			$	-				-
Forfeited			-			$	-				-
Options outstanding December 31, 2020			285,173			$	0.0001			$	1,408,755
Granted			6,667				0.001				-
Exercised			-			$	-
Forfeited			-			$	-
Options outstanding March 31, 2021			291,840			$	0.0001			$
Shares exercisable at March 31, 2021			117,179			$	0.0001			$	578,863

 

NOTE 7 – WARRANTS

 

On August 6, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp., acting as representative of the underwriters (“Aegis”), pursuant to which the Company agreed to sell to the underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 700,000 units (the “Units”), with each Unit consisting of: (a) one share of our common stock; (b) two Series A warrants (the “Series A Warrants”), with each Series A Warrant entitling the holder thereof to purchase one share of our common stock at an exercise price equal to $9.00 per share, exercisable until the fifth anniversary of the issuance date, subject to their earlier redemption as described therein; and (c) one-half of one Series B warrant (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”), with each whole Series B Warrant entitling the holder thereof to purchase one share of common stock at an exercise price equal to $4.50 per share, exercisable until the fifth anniversary of the issuance date and subject to their earlier redemption as described therein. The Company also granted the underwriters a 45-day option to purchase up to an additional 105,000 shares of common stock, and/or an additional 210,000 Class A Warrants to purchase shares of common stock and/or an additional 52,500 Class B Warrants to purchase shares of common stock as may be necessary to cover over-allotments in connection with the Offering. The Offering, including the exercise in full of the over-allotment option for the Warrants, closed on August 11, 2020.

 

The Units and the securities underlying the Units were offered by the Company pursuant to a registration statement on Form S-1, as amended (File No. 333-232368), filed with the Securities and Exchange Commission (the “Commission”), which was declared effective by the Commission on August 6, 2020 (the “Registration Statement”).

 

The net proceeds to the Company from the Offering, after deducting the underwriting discount, the underwriters’ fees and expenses and the Company’s Offering expenses, was approximately $4.9 million. The Company utilized $1,120,155 of the net proceeds to repay a portion of the Company’s long-term indebtedness (the “Term Loan”) and anticipates using the remainder of the net proceeds from the Offering to invest in or acquire companies or technologies that are synergistic with or complimentary to our business, expand and market our current products and for working capital and other general corporate purposes (including payment of outstanding accounts payable).

 

 

Warrants

 

The Warrants were issued in registered form under separate warrant agent agreements (each a “Warrant Agent Agreement”) between us and our warrant agent, Transfer Online, Inc. (the “Warrant Agent”).

 

Each Series A Warrant entitles the registered holder to purchase one share of our common stock at a price equal to $9.00 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance. No fractional warrants will be issued and only whole warrants are exercisable. The exercise price and number of shares of common stock issuable upon exercise of the Series A Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable upon the exercise of the Series A Warrants, such holders may exercise their Series A warrants on a “cashless” basis pursuant to a formula set forth in the terms of the Series A Warrants.

 

Each whole Series B Warrant entitles the holder thereof to purchase one share of our common stock at an exercise price of $4.50 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance. No fractional warrants will be issued and only whole warrants are exercisable. The exercise price and number of shares of common stock issuable upon exercise of a whole Series B Warrant may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable upon the exercise of the Series B Warrants, such holders may exercise their Series B warrants on a “cashless” basis pursuant to a formula set forth in the terms of the Series B Warrants.

 

Each holder of the Warrants will be subject to a requirement that they will not have the right to exercise the Warrants to the extent that, after giving effect to such exercise, such holder (together with its affiliates) would beneficially own in excess of 4.99% (subject to increase to 9.99%) of the shares of our common stock outstanding immediately after giving effect to such exercise.

 

The Warrants are callable in the event that the last sales price of our common stock for any twenty (20) consecutive trading day period on or after the date of issuance (the “Measurement Period”) exceeds $9.00. The Company may, within ten (10) trading days of the end of such Measurement Period, call for the redemption of all or any portion of the outstanding and unexercised Warrants for consideration equal to the Black Scholes Value (as defined therein) of the remaining unexercised portion of the Warrants called for redemption on such date.

 

Pursuant to the Underwriting Agreement, the Company issued to Aegis a warrant (the “Representative’s Warrants”) to purchase 35,000 shares of common stock. The Representative’s Warrants will be exercisable at a per share exercise price equal to $11.25 and is exercisable at any time and from time to time, in whole or in part, during the four-year period commencing twelve months from the effective date of the Registration Statement. The Representative’s Warrants also provide for one demand registration right of the shares underlying the Representative’s Warrants, and unlimited “piggyback” registration rights with respect to the registration of the shares of common stock underlying the Representative’s Warrants and customary anti-dilution provisions.

 

The aggregate fair value of the 35,000 warrants, totaled $363,958 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $11.25, 0.21% risk free rate, 315.6% volatility and expected life of the warrants of 6 years. The value of the warrants has been netted against the proceeds of the offering proceeds and accounted for in additional paid in capital.

 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contract Term
Outstanding, December 31, 2018			-			$	-				-
Granted			40,000			$	7.50				0.52
Outstanding, December 31, 2019			40,000			$	7.50				0.52
Warrant A Granted (1)			2,639,848			$	9.00				9.00
Expired			-			$	-				-
Warrant B Granted (2)			659,970			$	4.50				4.50
Warrant B Exercised			(21,150	)		$	4.50				-
Underwriter Warrant			35,000			$	11.25				11.25
Underwriter Warrant Exercised			-				-				-
Outstanding, December 31, 2020			3,353,698				4.61				4.81
Cancelled			(40,000	)		$	7.50				-
Warrant A Exercised			(647,200	)		$	9.00				-
Warrant B Exercised			(297,520	)		$	4.50				-
Outstanding, March 31, 2021			2,368,978				4.61				4.32

 

(1)	Includes 210,000 Warrant A granted to Underwriters upon exercise of overallotment in connection with the Offering

 

(2)	Includes 525,000 Warrant B granted to Underwriters upon exercise of overallotment in connection with the Offering

 

 

NOTE 8 – OPERATING LEASE

 

On June 24, 2020, eVance, Inc. (“eVance”), a Delaware corporation and an indirect, wholly owned subsidiary of The OLB Group, Inc. (the “Company”), entered into a Lease Agreement dated June 24, 2020 (the “Lease”) with Pergament Lodi, LLC (the “Lessor”) relating to approximately 4,277 square feet of property located at 960 Northpoint Parkway, Alpharetta, Georgia, Suite 400. The term of the Lease is for thirty-nine (39) months commencing September 1, 2020. The monthly base rent is $8,019 for the first twelve (12) months increasing thereafter to $8,768. The total rent for the entire lease term is $315,044 and $8,768 is payable as a security deposit. The first three months of rent will be abated so long as eVance is not in default of any portion of the Lease.

 

		Balance Sheet Classification		March 31, 2021
Asset
Operating lease asset		Right of use asset		$	247,896
Total lease asset				$	247,896
Liability
Operating lease liability – current portion		Current operating lease liability		$	87,402
Operating lease liability – noncurrent portion		Long-term operating lease liability			218,614
Total lease liability				$	306,016

 

Lease obligations at March 31, 2021 consisted of the following:

 

For the year ended December 31:
2021		$	129,279
2022			100,139
2023			94,393
Total payments		$	323,811
Amount representing interest		$	(17,795	)
Lease obligation, net			306,016
Less current portion			(87,402	)
Lease obligation – long term		$	218,614

 

Rent expense for the three months ended March 31, 2021 and 2020, was $24,909 and $27,818, respectively.

 

At March 31, 2021, the weighted average remaining lease term is 2.67 years and the weighted average discount rate is 5%.

 

 

NOTE 9 – PREFERRED STOCK

 

Our certificate of incorporation authorizes the issuance of 50,000,000 shares of blank check preferred stock with such designation, rights and preferences as may be determined from time to time by our board of directors. No shares of preferred stock are currently issued or outstanding.

 

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 10,000 shares of Series A Preferred Stock at a stated value (the “Stated Value”) of $1,000.00 per share. Holders of Series A Preferred Stock are entitled to the following rights and preferences:

 

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 12% per annum. Dividends accrue quarterly. Dividends are to be paid to the holders from funds legally available for payment and as approved for payment by the Board of Directors of the Company.

 

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 is 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 10 – 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.

 

On October 20, 2017, the Company entered into a 7-year term employment agreement with its founder and President, effective January 1, 2018 through December 31, 2024. The agreement provides for an annual salary of $375,000, fringe benefits ($2,500 monthly automobile allowance, any benefit plans of the Company and 4 weeks paid vacation), an incentive bonus of $200,000 based on the achievement of certain performance criteria and an acquisition bonus equal to two (2%) percent of the gross purchase price paid in connection therewith upon the closing of any acquisition directly or indirectly by the Company or its subsidiaries during the Employment Period of any company or business (including purchases of all or substantially all of the assets of any such entity) having then existing sales of not less than three million five hundred thousand dollars ($3,500,000). During the year ended December 31, 2020, Mr. Yakov was paid a $400,000 bonus ($200,000 per year for 2019 and 2020).

 

NOTE 11 – SUBSEQUENT EVENTS

 

During April 2021, the Company files a registration statement for the sale of securities of up to $75,000,000.

 

 

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, 2020 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

 

We were incorporated in the State of Delaware on November 18, 2004 for the purpose of merging with OLB.com. The merger was done for the purpose of changing our state of incorporation from New York to Delaware. In April 2018, we completed an acquisition of substantially all of the net assets of Excel and its subsidiaries Payprotec Oregon, LLC, Excel Business Solutions, Inc. and eVance Processing, Inc. (such assets are the foundation of our eVance business). In May 2018, we entered into share exchange agreements with Crowdpay and Omnisoft, affiliate companies of our company’s majority stockholder, pursuant to which each of Crowdpay and Omnisoft became solely owned subsidiaries of our Company. Our Company’s headquarters is located at 200 Park Avenue, Suite 1700, New York, NY 10166. Our telephone number is (212) 278-0900.

 

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 $82,000,000 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 will provide 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. The total purchase price was $215,000 (the “Purchase Price”) following post-closing adjustments.

 

Results of Operations

 

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) includes a discussion of the consolidated results from operations of The OLB Group, Inc. and its subsidiaries for the three months ended March 31, 2021 and 2020.

 

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

 

For the three months ended March 31, 2021, we had total revenue of $2,226,404 compared to $2,613,993 of revenue for the three months ended March 31, 2020, a decrease of $387,589 or 14.8%. We earned $2,090,264 in transaction and processing fees, $18,507 in merchant equipment rental and sales and $117,633 in other revenue during the three months ended March 31, 2021, compared to $2,336,479 in transaction and processing fees, $20,262 in merchant equipment sales and $257,252 in other revenue during the three months ended March 31, 2020.

 

Our transaction and processing fee revenue decreased $246,215 compared with the prior period, primarily due to initial impact of the COVID-19 pandemic and the reduction in the number of transactions processed while businesses were not at full capacity and customers stayed home in during the period. As more businesses reopen and expand capacity, transaction volume has continued to increase. The Company expects volume to continue to increase but still remain at a depressed level compared to pre-COVID volumes. The depressed level can be attributed to the fact numerous businesses are still operating at a limited capacity and that business have closed down. In addition, the Company provides processing services to businesses all across the United States. Some areas of the United States continue to remain at lower-than-normal operating capacity more than other regions.

 

For the three months ended March 31, 2021, we had processing and servicing costs of $1,547,274 compared to $1,720,413 of processing and servicing costs for the three months ended March 31, 2020. Processing and servicing costs decreased by $173,139 or 10.1% because of the decrease in the number of transactions processed during the period and the reasons discussed above relating to the COVID-19 pandemic.

 

 Amortization expense for the three months ended March 31, 2021 was $215,904 compared to $203,214 for the three months ended March 31, 2020, an increase of $12,690 or 6.2%. We recorded amortization expense on our merchant portfolio and trademarks.

 

Salary and wage expense for the three months ended March 31, 2021 was $820,091 compared to $400,188 for the three months ended March 31, 2020, an increase of $419,903 or 104.9%. Salary and wage expense increased in the current period due to bonuses paid to our CEO and President for the Company’s performance in 2019 and 2020.

 

 

General and administrative expenses (“G&A”) for the three months ended March 31, 2021 was $626,269 compared to $515,367 for the three months ended March 31, 2020, an increase of $110,902 or 21.5%. In the current period we had increases of our legal expense of approximately $146,000 relating to ongoing litigation matters and the prepayment of the Term Loan. This was offset by a decrease in our audit fees of $116,626.

 

For the three months ended March 31, 2021, we incurred $116,736 of interest expense, compared to $317,441 for the three months ended March 31, 2020, a decrease of $200,705 or 146%. The decrease in interest expense is due the conversion of all related party debt and the repayment of the Term Loan.

 

Our net loss for the three months ended March 31, 2021 was $1,099,857 compared to $542,207 for the three months ended March 31, 2020. We had an increase in our net loss of $557,650 for the reasons discussed above. 

 

Liquidity and Capital Resources

 

Trends and Uncertainties

 

The Company’s future financial condition and results of operations may be adversely affected by the prolongation of theCOVID-19 pandemic and any need to institute additional business capacity restrictions or temporary closures.

 

The New York and Atlanta areas, which include the location of the Company’s corporate headquarters and its operations business, have experienced and continue to experience a significant impact of the COVID-19 pandemic in the U.S. In New York, certain types of businesses continue to remain at a reduced capacity. The Company is continues to follow the recommendations of local health authorities to minimize exposure risk for its employees and visitors. However, the scale and scope and duration of the ongoing pandemic remains unknown, and the ongoing business disruption and related financial impact cannot be reasonably estimated at this time as different states have different regulations relating to business capacity. While the Company has implemented specific business continuity plans to reduce the potential impact of the ongoing COVID-19 pandemic during 2021 and believe that its business being principally operated using digital platforms, in the long-term, will suffer minimal negative impact, there is no guarantee that the Company’s continuity plan will be successful, that the Company’s merchants will meet the number of forecasted transactions due to a change in consumer activity around point of sale purchasing resulting from the temporary closure of businesses.

 

In 2020 and the first three months of 2021, the Company continued to experience certain disruptions to its business and disruptions for the Company’s customers and merchants, along with closures, that may materially affect the number of transactions processed by the Company. Similarly, the COVID-19 pandemic could have a long-term impact on the Company’s customers and/or merchants during 2021 which could reduce their demand for Company products, if pre-pandemic levels of purchasing activity does not resume. The extent to which the COVID-19 pandemic or any other health epidemic may impact the Company’s results for 2021 and beyond will depend on future developments, which are highly uncertain and cannot be predicted, including the impact of vaccinations, the impact of the reopening of international travel and new information which may emerge concerning the severity of the economic impact of the response to the COVID-19 pandemic on the retail and service industries where the Company has many customers and merchants. Accordingly, the COVID-19 pandemic could continue to have a material adverse effect on the Company’s business, results of operations, financial condition and prospects during 2021 and beyond.

 

Changes in Cash Flows

 

For the three months ended March 31, 2021, $939,764 of cash was used by operating activities, which included our net loss, offset by $154,425 for amortization and depreciation expense, $74,011 for stock-based compensation and net changes in operating assets and liabilities of $68,343.

 

For the three months ended March 31, 2021 and 2020, no cash was used for investment activities.

 

For the three months ended March 31, 2021, we used net cash of $493,903 in financing activities. $7,654,845 was repaid on our loan to GACP. We received a total of $7,160,940 from the exercise of warrants issued in the Offering.

 

 

Liquidity and Capital Resources

 

At March 31, 2021, the Company had cash of $2,390,822 and working capital of $2,325,957. For the three months ended March 31, 2021, the Company’s net loss was $1,099,857. In connection with the response to the COVID-19 pandemic in the United States, the Company has experienced disruptions to its business and has observed disruptions with its customers and merchants, which has resulted in a decline in transaction volume. Compared to the first three months of 2020, the first three months of 2021 volume declined by 11%. This decrease began in March 2020 as COVID-19 restrictions and business capacity rules were implemented across the United States. After a decrease during March through June of 2020, transaction volume began to increase throughout 2020 as third quarter 2020 transaction volume increased by 16% compared to the second quarter of 2020. During the first quarter of 2021, transaction volume increased by 2% compared to the fourth quarter of 2020 reflecting continued recovery of transaction volume, despite the year over year decrease of 11% during the first three months of 2021 compared with 2020. As COVID-19 restrictions and business capacity rules ease across the country, the Company expects transactions volume to continue to increase.

 

The Company’s revenue during the period of time decreased and then increased in the amount similar to the percentage of month-to-month transaction volume. Despite recent increases in volume, the Company estimates that the number of transactions will continue to stay at a depressed level, along with revenues, until the economic impact of and response to the COVID-19 pandemic allows customers to make more point of purchase transactions for merchants, customers become more comfortable shopping in stores and/or more merchants provide for additional contactless and online purchase options. The anticipated amount of decline from prior year is unknown, but it will be impacted by when consumers return to the level of purchasing that occurred in the prior year and before the pandemic. However, additional closing and reopening of businesses or if additional businesses cease to operate in the future will likely result in a month over month decline and then increase similar to what occurred in March through June 2020.

 

On August 11, 2020, the Company closed an offering of its securities (the “Offering”) for gross proceeds of $6.45 million. The Company sold 700,000 units consisting of (a) one share of our common stock; (b) two Series A Warrants, and (c) one-half of one Series B warrant. In addition, the underwriter fully exercised its option to purchase 210,000 Series A warrants and 52,500 Series B warrants. While 20% of the net proceeds of $5.5 million was used to repay a portion of our outstanding Term Loan, immediately following the Offering, the Company had cash of $5.6 million on hand. As such, the Company believes it will be able fund future liquidity and capital requirements through cash flows generated from its operating activities for a period of at least twelve months from the date its condensed consolidated financial statements are issued.

 

On August 11, 2020, Mr. Herzog converted $3,612,940 of indebtedness into 3,612 shares of Series A Preferred Stock (the terms of which are described below) and 802,875 Series A Conversion Warrants with an exercise price of $9.00 and 200,719 Series B Conversion Warrants with an exercise price of $4.50.

 

Also, on August 11, 2020, Mr. Yakov converted $1,021,512 of indebtedness into 1,021 shares of Series A Preferred Stock (the terms of which are described below) and 227,003 Series A Conversion Warrants with an exercise price of $9.00 and 56,751 Series B Conversion Warrants with an exercise price of $4.50.

 

On March 2, 2021, the Company, utilizing a portion of funds received upon the exercise of outstanding warrants, paid approximately $7.7 million to the Agent under the Credit Agreement (the “Prepayment”). This Prepayment resulted in the discharge in full of all of the obligations under the Credit Agreement. In connection with the extinguishment of the obligations under the Credit Agreement, 40,000 warrants to purchase Common Stock were cancelled.

 

Following the payment and discharge of the Term Loan and conversion of indebtedness held by Messrs. Herzog and Yakov, the Company has approximately $549,200 of outstanding liabilities.

 

In addition, the Company has received a Paycheck Protection Program loan under the CARES Act for approximately $236,000 (the “PPP Loan”). The Paycheck Protection Program provides that the use of PPP Loan proceeds was limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The Company believes it has used the PPP Loan for permitted uses whereby it will be forgiven in full, although no assurance can be given that the Company will obtain forgiveness of all or any portion of amounts due under the PPP Loan.

 

 

The Company has reviewed projected operating cash flows for 2021 and 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 the improved transaction volume trends the Company experienced in the three month period ended March 31, 2021, as well as the funds received from the capital raises discussed above, the Company believes it has sufficient liquidity in order to sustain operations for at least of the following twelve months.

 

Other Indebtedness

 

On July 24, 2020, the terms of the agreement whereby Mr. Herzog agreed to convert, concurrently with the public offering of the Company’s securities, $3,522,191 in principal amount of indebtedness (plus any additional accrued interest and other fees thereon that accrues prior to the offering) into shares of convertible Series A Preferred were amended such that Mr. Herzog agreed to convert such an aggregate of $3,582,355 of indebtedness and accrued interest into Series A Preferred Stock and Conversion Warrants, which Series A Preferred Stock and Conversion Warrants would be issued concurrently with the closing of the public offering. On August 11, 2020, Mr. Herzog converted $3,612,940 of indebtedness into 3,612 shares of Series A Preferred Stock (the terms of which are described below) and 802,875 Series A Conversion Warrants with an exercise price of $9.00 and 200,719 Series B Conversion Warrants with an exercise price of $4.50.

 

On July 24, 2020, the terms of the agreement whereby Mr. Yakov agreed to convert, concurrently with the public offering of the Company’s securities, $1,011,016 in principal amount of indebtedness and accrued interest, which includes deferred salary and unreimbursed expenses (plus any additional accrued interest and other fees thereon that accrues prior to the offering), into shares of convertible Series A Preferred Stock to be designated concurrently with the offering such conversion were amended such that Mr. Yakov agreed to convert an aggregate of $1,017,573 of accrued salary, indebtedness and accrued interest into Series A Preferred Stock and conversion warrants, which Series A Preferred Stock and conversion warrants would be issued concurrently with the closing of the offering. On August 11, 2020, Mr. Yakov converted $1,021,512 of indebtedness into 1,021 shares of Series A Preferred Stock (the terms of which are described below) and 227,003 Series A Conversion Warrants with an exercise price of $9.00 and 56,751 Series B Conversion Warrants with an exercise price of $4.50.

 

Critical Accounting Policies

 

Refer to our Form 10-K for the year ended December 31, 2020, for a full discussion of our critical accounting policies.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

During the quarter ended March 31, 2021, 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 ineffective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is 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 error 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. 

 

 

To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. In addition, we engaged accounting consultants to assist in the preparation of our financial statements. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented. 

 

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 March 31, 2021, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

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

 

Exhibit Number		Exhibit Description
31.1		Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
31.2		Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
32		Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)
101		Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in Extensible Business Reporting Language (XBRL).

 

 

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: May 13, 2021	By:	/s/ Ronny Yakov
	Name:	Ronny Yakov
	Title:	Chief Executive Officer (Principal Executive Officer)
Date: May 13, 2021	By:	/s/ Rachel Boulds
	Name:	Rachel Boulds
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

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