UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO 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)
1120
Avenue of the Americas, 4th Floor, New York, NY10036
(Address
of Principal Executive Offices with Zip Code)
Registrant’s
telephone number, including area code (212)278-0900
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $.0001 par value
Title
of Class
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
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 and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State
the aggregate market value of the voting and non-voting common equity held by non-affiliates: $18,348,131 based on 9,656,911 non
affiliate shares outstanding at $1.90 per share, which is the price at which the common shares were last sold on the last business day
of the registrant’s most recently completed second fiscal quarter.
As
of March 28, 2023, there were 15,344,077 shares of the issuer’s common stock outstanding.
THE
OLB GROUP, INC.
TABLE
OF CONTENTS
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 46
Item 2. Property 46
Item 3. Legal Proceedings 47
Item 4. Mine Safety Disclosures 47
PART II
Item 6. [Reserved] 49
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 52
Item 8. Financial Statements and Supplementary Data F-1
Item 9A. Controls and Procedures 53
Item 9B. Other Information 54
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 54
PART III
Item 10. Directors, Executive Officers and Corporate Governance 55
Item 11. Executive Compensation 59
Item 14. Principal Accountant Fees and Services 65
PART IV
Item 15. Exhibits, and Financial Statement Schedules 66
Signatures 68
i
PART
I
Item
1. Business.
Forward-Looking
Statements
Unless
the context indicates otherwise, as used in this Annual Report, the terms “OLB,” “we,” “us,” “our,”
“our company” and “our business” refer, to The OLB Group, Inc., including its subsidiaries named herein. Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives,
and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.”
These forward-looking statements generally are identified by the words “believes,” “project,” “expects,”
“anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,”
“will,” “would,” “will be,” “will continue,” “will likely result,” and similar
expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and
future prospects include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital,
interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in
evaluating forward-looking statements and undue reliance should not be placed on such statements.
Overview
We
are a FinTech company that focuses on a suite of products in the merchant services marketplace and seeks to provide integrated business
solutions to merchants throughout the United States. We seek to provide 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, Inc., a Delaware corporation
(“eVance”), OmniSoft.io, Inc., a Delaware corporation (“OmniSoft”), and CrowdPay.Us, Inc., a New York corporation
(“CrowdPay”).
OmniSoft
operates a cloud-based business management platform that provides turnkey solutions for merchants to enable them to build and manage
their retail businesses, whether online or at a “brick and mortar” location. The OmniSoft platform, which can be accessed
by merchants through any mobile and computing device, allows merchants to, among other features, manage and track inventory, track sales
and process customer transactions and can provide interactive data analysis concerning sales of products and need for additional inventory.
Merchants generally utilize the platform by uploading to the platform information about their inventory (description of units, number
of units, price per unit, and related information). Once such information has been uploaded, merchants, either with their own device
or with hardware that we sell directly to them, are able to utilize the platform to monitor inventory and process and track sales of
their products (including coordinating shipping of their products with third party logistics companies). We manage and maintain the OmniSoft
platform through a variety of domain names or a merchant can integrate our platform with their own domain name. Using the OmniSoft platform,
merchants can “check-out” their customers at their “brick and mortar” stores or can sell products to customers
online, in both cases accepting payment via a simple credit card or debit card transaction (either swiping the credit card or entering
the credit card number), a cash payment, or by use of a QR code or loyalty and reward points, and then print or email receipts to the
customer. For more information regarding our OmniSoft platform, see “Description of our OmniSoft Business.”
1
eVance
provides competitive payment processing solutions to merchants which enable merchants to process credit and debit card-based internet
payments for sales of their products at competitive prices (whether such sales occur online or at a “brick and mortar” location).
eVance is an independent sales organization (an “ISO”) that signs up new merchants on behalf of acquiring banks and processors
that provides financial and transaction processing solutions to merchants throughout the United States. eVance differentiates itself
from other ISOs by focusing on both obtaining and maintaining new merchant contracts for its own account (including, but not limited
to, merchants that utilize the OmniSoft platform) and also obtaining and maintaining merchant contracts obtained by third-party ISOs
(for which we negotiate a shared fee arrangement) and utilizing our own software and technology to provide merchants and other ISOs differentiating
products and software. In particular, we (i) own our own payments gateway, (ii) have proprietary omni-commerce software platform,
(iii) have in-house underwriting and customer service, (iv) have in-house sub-ISO management system which offers sub-ISOs and
agents tools for online boarding, account management, residual reports among other tools, and (v) offer a suite of products in the
financial markets (through CrowdPay). Leveraging our relationship with three of the top five merchant processors in the United States
(representing a majority of the merchant processing market) and with the use of our proprietary software, our payment gateway (which
we call “SecurePay”) enables merchants to reduce the cost of transacting with their customers by removing the need for a
third-party payment gateway solution. eVance operates as both a wholesale ISO and a retail ISO depending on the risk profile of the merchant
and the applicable merchant processor and acquiring bank. As a wholesale ISO, eVance underwrites the processing transactions for merchants,
establishing a direct relationship with the merchant and generating individual merchant processing contracts in exchange for future residual
payments. As a retail ISO, eVance primarily gathers the documents and information that our partners (acquiring banks and acquiring processors)
need to underwrite merchants’ transactions and as a result receives only residual income as commission for merchants it places
with our partners. For more information regarding the electronic payment industry, see “Business — Description of our
eVance Business — Our Industry.”
We
expect to build out our OmniSoft software business and to rely more on our individualized merchant services offerings to transition away
from our reliance on our eVance business but there is no guarantee that we will be able to do so.
2
3
SecurePay
SecurePay
is a payment gateway and virtual terminal with proprietary business management tools that is in compliance with the Payment Card Industry
(PCI).
SecurePay
has been certified by Visa and MasterCard (certified Level II and Level III) and finalized implementation of “3D Secure”
in 2019 (a feature that is unique to what we offer in order to provide for more secure environment for E-commerce and mobile payments
in-store and online).
On
May 22, 2020, we purchased certain assets from POSaBIT Inc., including its contracts and arrangements with the Doublebeam merchant
payment processing platform. The assets included, but were not limited to, software source codes, customer lists, customer contracts,
hardware and website domains.
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 “Purchased Assets”). In addition to the Purchased Assets, the Company purchased customer lists,
intellectual property, residuals, rebates, or credits relating to the Purchased Assets accruing from October 1, 2021. The group of
merchants acquired have reported annual transaction volume of greater than $300 million.
Crowdpay
CrowdPay.usTM
operates a white label capital raising platform that targets small and midsized businesses seeking to raise capital and registered broker-dealers
seeking to host capital raising campaigns for such businesses by integrating the platform onto such company’s or broker-dealer’s
website. Our CrowdPay platform is tailored for companies seeking to raise money through a crowdfunding offering of between $1 million
and $50 million pursuant to Regulation CF under Title III of the Jumpstart Our Business Startups (the “JOBS Act”), offerings
pursuant to Rule 506(b) and Rule 506(c) under Regulation D of the Securities Act of 1933, as amended (the “Securities
Act”), and offerings pursuant to Regulation A+ of the Securities Act. Our platform, which can be used for multiple offerings at
once, provides companies and broker-dealers with an easy-to-use, turnkey solution to support company offerings, allowing companies and
broker-dealers to easily present online to potential investors relevant marketing and offering materials and by aiding in the accreditation
and background check processes to ensure investors meets the applicable requirements under the rules and regulations of the Securities
Exchange Commission (the “SEC”). CrowdPay charges a fee to each company and broker-dealer for the use of its platform under
a fee structure that is agreed to between CrowdPay and the Company and/or broker-dealer prior to the initiation of the offering. CrowdPay
also generates revenues by providing ancillary services to the companies and broker-dealers utilizing our platform, including running
background checks and providing anti-money laundering and know-your-customer compliance. CrowdPay is not a registered funding portal
or a registered broker-dealer.
4
On
January 3, 2022, the the Company entered into a share exchange agreement with all of the shareholders of Crowd Ignition, Inc. (“Crowd
Ignition”) whereby the Company would purchase 100% of the equity of Crowd Ignition in exchange for 1,318,408 shares of the common
stock, par value $0.0001 of the Company (the “CI Issued Shares”). The value of the CI Issued Shares was, for purposes of
the Agreement, based on the closing trading price of the Company on October 1, 2021 (the date on which a third-party fairness opinion
was issued), resulting in an aggregate purchase price for Crowd Ignition of $5.3 million.
Crowd
Ignition is a web-based crowdfunding software system. Ronny Yakov, Chairman and CEO of the Company and John Herzog, a significant shareholder
of the Company, own 100% of the equity of Crowd Ignition. The software provides broker-dealer, merchant banks and law firms a platform
to market crowdfunding offerings, collect payments and issue securities. The software has been developed in response to, and to comply
with, recent changes in investment regulations including Regulation D 506(b) and 506(v), Regulation A+ and Title III of the Jobs Act
(Regulation CF), including raising the crowdfunding limit from $1.07 million to $5.0 million. Crowd Ignition is one of only about 50
companies registered with the SEC to provide the services permitted under Regulation CF.
OLBit
and DMINT
On
May 14, 2021, the Company formed OLBit, Inc., a wholly owned subsidiary (“OLBit”). The purpose of OLBit is to hold the Company’s
assets and operate its business related to its emerging money transmission and transactional business. OLBit has been in the process
of applying for money transmission licenses in all 50 states along with New York Bitlicense.
On July 23, 2021, we formed DMINT, Inc., a wholly owned subsidiary
(“DMINT”) to operate in the cryptocurrency mining industry. DMINT initiated the first phase of the cryptocurrency mining operation
by establishing data centers and ASIC-based Antminer S19J Pro mining computers specifically configured to mine Bitcoin in Bradford, Pennsylvania.
As of December 31, 2022, DMINT had 1,000 computers online and mining for Bitcoin. It has six data centers located in Pennsylvania and
Tennessee. Since February 2023, DMINT has been working to redeploy the computers from the Pennsylvania location and focus the mining efforts
at the Selmer, TN location because of the lower cost of operations in the location. It still continues to retain its natural gas rights
in Pennsylvania and, in the event that the operating cost projections lower, it may either redeploy existing computers back to Pennsylvania
or place newly purchased machines at the location.
On
August 16, 2022, DMINT Real Estate Holdings, Inc. (“DREH”), a wholly owned subsidiary of purchased 4.73 acres of land and
a building located at 565 Industrial Park Drive, Selmer, McNairy County, Tennessee for a purchase price of $408,000.00. DMINT established
a Bitcoin mining data center powered on the local power grid. The location is expected to have capacity for up to 5,000 mining machines.
5
Synergies
between the subsidiaries
The
success of our business model is dependent on the synergies between the business segments operated by our subsidiaries. We have created
and developed products that we believe, form an ecosystem of e-commerce to provide a variety of clients, from online equity financing
companies or merchants selling online or in brick and mortar stores, with multiple product offerings and ancillary services from underwriting
with the banks and merchant billing from the cloud software. We expect that these synergies will create additional revenue by charging
transaction fees on each service provided to clients by our partnerships with Merchant Acquiring Banks and PCI Compliance.
We
believe that our wholly-owned subsidiaries combine to create an ecosystem where each subsidiary benefits the other. Starting with the
services provided by eVance, we enable each of our products and platforms to communicate with each other and create an ecosystem among
our products and, potentially, third-party products.
The
product environment created with a new registered merchant or issuer enables all merchant information to be stored in a single, centralized
location but utilized by all subsidiaries. For example, merchant services utilizing eVance provide electronic payment processing services
that can be utilized for payments on the Crowdfunding platform. The platform is used by merchant services to allow mobile and online
processing to merchants.
The
Omni commerce platform will be offered to all of the merchant services clients. The offered Merchant Services products we provide will
enable all processing needs for the OmniCommerce system. The gateway will allow merchants that are using the platform to accept online
eCommerce transactions.
6
Competitive
Advantages
We
believe that our platform of services will provide the following key advantages.
Risks
Associated with our Business
Our
business and ability to execute our business strategy are subject to a number of risks of which you should be aware before you decide
to buy our securities. In particular, you should consider the following risks, which are discussed more fully in the section entitled
“Risk Factors” in this Annual Report:
7
● The properties included in our mining network may experience damages;
Regulations
Various
aspects of our service areas are subject to U.S. federal, state, and local regulation. Certain of our services also are subject to rules
promulgated by various card networks and banking and other authorities as more fully described below.
The
Dodd-Frank Act
In
July 2010, the Dodd-Frank Act was signed into law in the United States. The Dodd-Frank Act has resulted in significant structural and
other changes to the regulation of the financial services industry. Among other things, Title X of the Dodd-Frank Act established a new,
independent regulatory agency known as the Consumer Financial Protection Bureau (the “CFPB”) to regulate consumer financial
products and services (including some offered by our customers). The CFPB may also have authority over us as a provider of services to
regulated financial institutions in connection with consumer financial products. Separately, under the Dodd-Frank Act, debit interchange
transaction fees that a card issuer receives and are established by a payment card network for an electronic debit transaction are now
regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing,
clearing, and settling the transaction. Effective October 1, 2011, the Federal Reserve capped debit interchange rates for card issuers
operating in the United States with assets of $10 billion or more at the sum of $0.21 per transaction and an ad valorem component of
5 basis points to reflect a portion of the issuer’s fraud losses plus, for qualifying issuers, an additional $0.01 per transaction
in debit interchange for fraud prevention costs. In addition, the new regulations contain non-exclusivity provisions that ban debit card
networks from prohibiting an issuer from contracting with any other card network that may process an electronic debit transaction involving
an issuer’s debit cards and prohibit card issuers and card networks from inhibiting the ability of merchants to direct the routing
of debit card transactions over any network that can process the transaction. Beginning April 1, 2012, all debit card issuers in the
United States were required to participate in at least two unaffiliated debit card networks. On April 1, 2013, the ban on network exclusivity
arrangements became effective for prepaid card and healthcare debit card issuers, with certain exceptions for prepaid cards issued before
that date.
Effective
July 22, 2010, merchants were allowed to set minimum dollar amounts (not to exceed $10) for the acceptance of a credit card (while federal
governmental entities and institutions of higher education may set maximum amounts for the acceptance of credit cards). They were also
allowed to provide discounts or incentives to entice consumers to pay with an alternative payment method, such as cash, checks or debit
cards.
8
Association
and network rules
We
are subject to the rules of credit card associations and other credit and debit networks. In order to provide processing services, a
number of our subsidiaries are registered with Visa or Mastercard as service providers for member institutions. Various subsidiaries
of ours are also processor level members of numerous debit and electronic benefits transaction networks or are otherwise subject to various
network rules in connection with processing services and other services we provide. As such, we are subject to applicable network rules.
Card networks and their member financial institutions regularly update and generally expand security expectations and requirements related
to the security of cardholder data and environments. We are also subject to network operating rules promulgated by the National Automated
Clearing House Association relating to payment transactions processed by us using the Automated Clearing House Network and to various
state federal and foreign laws regarding such operations, including laws pertaining to electronic benefits transactions.
Privacy
and information security regulations
We
provide services that may be subject to various state, federal, and foreign privacy laws and regulations, including, among others, the
Financial Services Modernization Act of 1999 (the “Gramm-Leach-Bliley Act”). These laws and their implementing regulations
restrict certain collection, processing, storage, use, and disclosure of personal information, require notice to individuals of privacy
practices, and provide individuals with certain rights to prevent use and disclosure of protected information. These laws also impose
requirements for the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines.
Certain federal, state and foreign laws and regulations impose similar privacy obligations and, in certain circumstances, obligations
to notify affected individuals, state officers or other governmental authorities, the media, and consumer reporting agencies, as well
as businesses and governmental agencies, of security breaches affecting personal information. In addition, there are state and foreign
laws restricting the ability to collect and utilize certain types of information such as Social Security and driver’s license numbers.
Unfair
trade practice regulations
We
and our clients are subject to various federal and state laws prohibiting unfair or deceptive trade practices, such as Section 5 of the
Federal Trade Commission Act. Various regulatory agencies, including the Federal Trade Commission, the Consumer Financial Protection
Bureau, and state attorneys general, have authority to take action against parties that engage in unfair or deceptive trade practices
or violate other laws, rules, and regulations, and to the extent we are processing payments for a client that may be in violation of
laws, rules, and regulations, we may be subject to enforcement actions and incur losses and liabilities that may impact our business.
Anti-money
laundering, anti-bribery, sanctions, and counter-terrorist regulations
We
are subject to anti-money laundering laws and regulations, including certain sections of the USA PATRIOT Act of 2001. We are also subject
to anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Act (the “FCPA”) and other laws, that
prohibit the making or offering of improper payments to foreign government officials and political figures and includes anti-bribery
provisions enforced by the Department of Justice and accounting provisions enforced by the SEC. The FCPA has a broad reach and requires
maintenance of appropriate records and adequate internal controls to prevent and detect possible FCPA violations. Many other jurisdictions
where we conduct business also have similar anticorruption laws and regulations. We have policies, procedures, systems, and controls
designed to identify and address potentially impermissible transactions under such laws and regulations.
We
are also subject to certain economic and trade sanctions programs that are administered by the Office of Foreign Assets Control (“OFAC”)
which prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances,
their nationals, and with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers,
and terrorists or terrorist organizations. Other group entities may be subject to additional local sanctions requirements in other relevant
jurisdictions.
9
Securities
Act
Since
the JOBS Act was passed, Crowdfunding, Regulation D offerings and Regulation A and A+ offerings rapidly became a familiar concept among
investment firms, venture capitalists, real estate developers and small to medium sized businesses as a way to facilitate and democratize
financing. We believe it has created, and continues to create, a profound shift in the world of investments. Below is a brief overview
of the rules that permit the offer and sale of securities through such platforms. This overview is in no way intended to be a comprehensive
review of all the rules and regulations associated with the above mentioned offerings and should not be relied upon by anyone.
Regulation
D under the Securities Act is the most common regulatory exemption used small businesses to raise capital through equity financing. It
exempts private placement offerings under Rule 506(b) and 506(c) when sold to accredited investors, as defined under Rule 501 of Regulation
D. Companies relying on the Rule 506 exemptions can raise an unlimited amount of money, so long as they comply with the rule’s
requirements. Regulation A and Regulation A+ are more similar to a public offerings, and require filing Form 1-A with the SEC. Regulation
A and Regulation A+ offer two tiers of offerings; the first tier is for offerings of up to $20 million within any 12 month period and
the second tier is for offerings of up to $50 million, within any 12 month period. Regulation CF allows a company to raise up to $1.07
million from non-accredited investors.
Intellectual
property
Our
products and services utilize a combination of proprietary software and hardware that we own and license from third parties. Over the
last few years, we have developed a payment gateway, merchant boarding system, E-commerce platform, recurring billings and a crowdfunding
platform. We generally control access to and use of our proprietary software and other confidential information through the use of internal
and external controls, including entering into non-disclosure and confidentiality agreements with both our employees and third parties.
As of the date of this report, we have a patent pending on transferable QR codes on Omni Commerce devices.
Employees
As
of December 31, 2022, we had six key employees as part of our overall staff of 26 full-time employees. Our risk, compliance, underwriting
and analyst’s accounting and customer service functions are primarily located in Georgia. In addition, we have operations in India
where we retain 35 developers at any given time depending on our requirements and scope of projects. None of our employees are represented
by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Corporate
Information
We
were incorporated in the State of Delaware on November 18, 2004 for the purpose of merging with OLB.com, Inc., a New York corporation
incorporated in 1993 (“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 assets of Excel Corporation and its subsidiaries
Payprotec Oregon, LLC, Excel Business Solutions, Inc. and eVance Processing, Inc. (such assets are the foundation of our eVance business).
In connection with the Asset Acquisition, in May 2018, we entered into share exchange agreements with CrowdPay and OmniSoft, affiliate
companies owned by Mr. Yakov and John Herzog, an affiliate of our company, pursuant to which each of CrowdPay and OmniSoft became wholly
owned subsidiaries of our company.
Our
Company’s headquarters is located at 1120 Avenue of the Americas, 4th Floor, New York, NY 10036. Our telephone number
is (212) 278-0900.
Implications
of Being an Emerging Growth Company
We
qualify as an “emerging growth company” as defined under the Securities Act. As a result, we are permitted to, and intend
to, rely on exemptions from certain disclosure requirements that are otherwise applicable to public companies. These provisions include,
but are not limited to:
In
addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting
standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards
would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period. We will remain an
emerging growth company until the earliest to occur of: (i) our reporting $1.07 billion or more in annual gross revenues; (ii) the end
of fiscal year 2024; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of
the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of
our second fiscal quarter.
10
Item
1A. Risk Factors
Investing
in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together
with all of the other information contained in this annual report, before deciding to invest in our common stock. If any of the following
risks materialize, our business, financial condition, results of operation and prospects will likely be materially and adversely affected.
In that event, the market price of our common stock could decline and you could lose all or part of your investment.
Risks
Related to Our Company
Our
acquisition of assets of Excel and its subsidiaries Payprotec Oregon, LLC, Excel Business Solutions, Inc. and eVance Processing, Inc.
and share exchange with OmniSoft and CrowdPay has collectively formed a new business platform which we are continuing to integrate into
our overall operations, and which may create certain risks and may adversely affect our business, financial condition or results of operations.
On
April 9, 2018, we acquired substantially all of the assets of Excel and its subsidiaries Payprotec Oregon, LLC, Excel Business Solutions,
Inc. and eVance Processing, Inc. for $12.5 million through a foreclosure sale conducted under the Uniform Commercial Code of the State
of New York (“Asset Acquisition”). Since closing the Asset Acquisition, we have been in the process of integrating our operations
with the acquired assets.
On
May 9, 2018, we entered into separate share exchange agreements with the stockholders of OmniSoft and CrowdPay, affiliate companies of
our company’s majority stockholder. Pursuant to the share exchange agreement with OmniSoft, the stockholders of OmniSoft transferred
to us all of the issued and outstanding shares of OmniSoft common stock in exchange for an aggregate of 1,833,333 shares of our common
stock. Pursuant to the share exchange agreement with CrowdPay, the stockholders of CrowdPay transferred to us all of the issued and outstanding
shares of CrowdPay common stock in exchange for an aggregate of 2,916,667 shares of our common stock. The share exchange transactions
closed on May 9, 2018, on which date OmniSoft and CrowdPay became wholly owned subsidiaries of the Company (the “Share Exchange”).
Since
the consummation of the Asset Acquisition and the Share Exchange, we have a limited history upon which an evaluation of our performance
and future prospects can be made. Our current and proposed operations are subject to all the business risks associated with new enterprises.
These include likely fluctuations in operating results as we manage our growth and react to competitors and developments in the markets
in which we compete. As we can be considered an early stage company and have not yet generated any profits, there is no assurance that
we will be profitable in the near term or generate sufficient revenues to meet our capital requirements.
As
a result, we may experience interruptions of, or loss of momentum in, the activities of one or more of our combined businesses and the
possible loss of key personnel. The diversion of our management’s attention and any delays or difficulties encountered in connection
with the integration of Excel could adversely affect our business, financial condition or results of operations.
11
The
substantial and continuing losses, and significant operating expenses incurred in the past few years may cause us to be unable to pursue
all of our operational objectives if sufficient financing and/or additional cash from revenues is not realized.
We have limited cash resources and operating losses throughout our
history. As of December 31, 2022 we had a working capital deficit of $64,503 and a net loss of $7,974,168 . Our cash flow used by operating
activities for the year ended December 31, 2022 was $1,921,381. Notwithstanding the foregoing, management has concluded that it has sufficient
liquidity to continue operations for a period of at least twelve months from the date of this Annual Report, which conclusion would not
have been possible without close monitoring of the Company’s projected cash flow and operating expenses for a period of at least
the next twelve months.
In
considering the anticipated impact of the COVID-19 pandemic on the Company’s business, the Company does not anticipate that the
pandemic will have a material impact on the Company’s business or liquidity and believes that 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
of this Annual Report (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations). However,
any additional closings and reopenings of businesses in the future will likely result in a month over month decline and then increase
similar to what occurred in March through June 2020.
If
there are unanticipated expenses, insufficient cash from operations or the impact of the COVID-19 pandemic, including but not limited
to losses arising from a second wave of businesses closing in response to the ongoing pandemic, which results in a larger than anticipated
decline in transactions, we may not be able to attract financing as needed, or if available, on reasonable terms as required and therefore
may not be able to accomplish our business goals or repay certain of our debts. Further, the terms of any such financing may be dilutive
to existing stockholders or otherwise on terms not favorable to us or existing stockholders. If we are unable to secure financing, as
circumstances require, or do not succeed in meeting our sales objectives, we may be required to change, significantly reduce our operations
or ultimately may not be able to continue our operations and there will be substantial doubt as to our ability to continue as a going
concern.
We
have historically relied on related parties and affiliates to finance our operations, but there is no guarantee that these parties will
continue to finance our operations in the future.
While
we will be able to fund future liquidity and capital requirements through cash flows generated from our operating activities alone for
a period of twelve months, we previously have financed our operations from short-term loans from Ronny Yakov, our Chief Executive Officer
and John Herzog, a significant shareholder of the Company. It is not assured that Mr. Yakov or Mr. Herzog would continue to provide such
assistance if the Company were to require it in the future.
We
may be subject to liabilities arising prior to the Asset Acquisition under certain “successor liability” theories.
We
acquired our business by means of a foreclosure of the relevant secured lender’s security interest in the assets in the Asset Acquisition
through an auction under Article 9 of the Uniform Commercial Code. Although the general rule in the context of transactions such as the
Asset Acquisition is that a purchaser of assets does not assume the seller’s liabilities, various courts have established exceptions
to this general rule, including where the purchaser is a ‘mere continuation’ of the seller and there is a ‘continuity
of enterprise.’ To date, we have had one lawsuit whereby we have been found to have successor liability. However, we are currently
appealing the decision. This is a highly fact specific inquiry, and there can be no assurance that any interested creditor, the United
States (through the Internal Revenue Service) or state or local taxing agencies will not seek to hold us responsible for any existing
liabilities at the time of the Asset Acquisition under one or more of these successor liability theories, for which we have no indemnification
protection under the agreements relating to the Asset Acquisition.
We
operate in a complex regulatory environment, and failure to comply with applicable laws and regulations could adversely affect our business.
Our
operations are subject to a broad range of complex and evolving laws and regulations. As a result, we must perform our services in compliance
with the legal and regulatory requirements of multiple jurisdictions. Some of these laws and regulations may be difficult to ascertain
or interpret and may change from time to time. Violation of such laws and regulations could subject us to fines and penalties, damage
our reputation, constitute a breach of our client agreements, impair our ability to obtain and renew required licenses, and decrease
our profitability or competitiveness. If any of these effects were to occur, our operating results and financial condition could be adversely
affected.
12
We
may not be able to integrate new technologies and provide new services in a cost-efficient manner.
The
online E-commerce industry is subject to rapid and significant changes in technology, frequent new service introductions and evolving
industry standards. We cannot predict the effect of these changes on our competitive position, our profitability or the industry generally.
Technological developments may reduce the competitiveness of our networks and our software solutions and require additional capital expenditures
or the procurement of additional products that could be expensive and time consuming. In addition, new products and services arising
out of technological developments may reduce the attractiveness of our services. If we fail to adapt successfully to technological advances
or fail to obtain access to new technologies, we could lose customers and be limited in our ability to attract new customers and/or sell
new services to our existing customers. In addition, delivery of new services in a cost-efficient manner depends upon many factors, and
we may not generate anticipated revenue from such services.
Disruptions
in our networks and infrastructure may result in customer dissatisfaction, customer loss or both, which could materially and adversely
affect our reputation and business.
Our
systems are an integral part of our customers’ business operations. It is critical for our customers, that our systems provide
a continued and uninterrupted performance. Customers may be dissatisfied by any system failure that interrupts our ability to provide
services to them. Sustained or repeated system failures would reduce the attractiveness of our services significantly and could result
in decreased demand for our services.
We
face the following risks to our networks, infrastructure and software applications:
Disruptions
may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers and/or incur expenses,
and thereby adversely affect our business, revenue and cash flow.
Our
positioning in the marketplace as a smaller provider places a significant strain on our resources, and if not managed effectively, could
result in operational inefficiencies and other difficulties.
Our
positioning in the marketplace may place a significant strain on our management, operational and financial resources, and increase demand
on our systems and controls. To manage this position effectively, we must continue to implement and improve our operational and financial
systems and controls, invest in development and engineering, critical systems and network infrastructure to maintain or improve our service
quality levels, purchase and utilize other systems and solutions, and train and manage our employee base. As we proceed with our development,
operational difficulties could arise from additional demand placed on customer provisioning and support, billing and management information
systems, product delivery and fulfilment, sales and marketing and administrative resources.
For
instance, we may encounter delays or cost overruns or suffer other adverse consequences in implementing new systems when required. In
addition, our operating and financial control systems and infrastructure could be inadequate to ensure timely and accurate financial
reporting.
13
We
must attract and retain skilled personnel. If we are unable to hire and retain technical, technical sales and operational employees,
our business could be harmed.
Our
ability to integrate our acquired assets and to grow will be particularly dependent on our ability to hire, develop and retain an effective
sales force and qualified technical and managerial personnel. We need software development specialists with in-depth knowledge of a blend
of IT and telecommunications or with a blend of security and telecom. We intend to hire additional necessary employees, including software
engineers, communication engineers, project managers, sales consultants, employees and operational employees, on a permanent basis. The
competition for qualified technical sales, technical, and managerial personnel in the communications and software industry is intense
in the markets where we operate, and we may not be able to hire and retain sufficient qualified personnel. In addition, we may not be
able to maintain the quality of our operations, control our costs, maintain compliance with all applicable regulations, and expand our
internal management, technical, information and accounting systems in order to support our desired growth, which could have an adverse
impact on our operations. Volatility in the stock market and other factors could diminish our use, and the value, of our equity awards
as incentives to employees, putting us at a competitive disadvantage or forcing us to use more cash compensation.
We
are dependent on the continued services and performance of our senior management and other key employees, the loss of any of whom could
adversely affect our business, operating results and financial condition.
Our
future performance depends on the continued services and contributions of our senior management, including our Chief Executive Officer,
Ronny Yakov, Vice President, Finance, Patrick Smith and other key employees to execute on our business plan and to identify and pursue
new opportunities and product innovations. The loss of services of senior management or other key employees could significantly delay
or prevent the achievement of our strategic objectives. In addition, some of the members of our current senior management team have only
been working together for a short period of time, which could adversely impact our ability to achieve our goals. From time to time, there
may be changes in our senior management team resulting from the hiring or departure of executives, which could disrupt our business.
We do not maintain key person life insurance policies on any of our employees other than a policy providing limited coverage on the life
of our Chief Executive Officer. The loss of the services of one or more of our senior management or other key employees for any reason
could adversely affect our business, financial condition and operating results and require significant amounts of time, training and
resources to find suitable replacements and integrate them within our business, and could affect our corporate culture.
Our
Chief Financial Officer is currently employed on a part-time basis.
Given
the size of the Company and our operational needs, we initially hired our Chief Financial Officer, Rachel Boulds, on a part-time basis.
While we have discussed with Ms. Boulds the possibility of becoming our full-time Chief Financial Officer, it is anticipated that Ms.
Boulds will continue to be employed on a part-time basis for the next twelve months. In addition to her role as Chief Financial Officer,
Ms. Boulds is also operating her solo accounting practice providing services for clients unrelated to the Company. While we believe that
Ms. Boulds currently devotes adequate time to the Company to perform the role and duties of our Chief Financial Officer, we cannot guarantee
that she will be able to continue to do so until she is with the Company on a fulltime basis. If Ms. Boulds cannot devote adequate time
to our Company to fulfil her role and duties as Chief Financial Officer or if any conflicts of interest arise during this time, it could
have a material adverse impact on our Company.
Our
success depends on our continued investment in research and development, the level and effectiveness of which could reduce our profitability.
We
intend to continue to make investments in research and development and product development in seeking to sustain and improve our competitive
position and meet our customers’ needs. These investments currently include streamlining our suite of software functionalities,
including modularization and improving scalability of our integrated solutions. To maintain our competitive position, we may need to
increase our research and development investment, which could reduce our profitability and cash flows. In addition, we cannot assure
you that we will achieve a return on these investments, nor can we assure you that these investments will improve our competitive position
or meet our
14
Risks
Related to Our Business
CROWDPAY.US,
INC.
We
operate in a regulatory environment that is evolving and uncertain.
The
regulatory framework for online capital formation or crowdfunding is very new. The regulations that govern the companies and broker-dealers
that utilize our platform and the investors that find investment opportunities on our platform have been in existence for a very few
years. Further, there are constant discussions among legislators and regulators with respect to changing this regulatory environment.
New laws and regulations could be adopted in the United States and abroad. Further, existing laws and regulations may be interpreted
in ways that would impact our platform, including our ability to communicate and work with investors, broker-dealers and the companies
that use our platforms’ services. For instance over the past year, there have been several attempts to modify the current regulatory
regime. Some of those suggested reforms could make it easier for anyone to sell securities (without using our platform), or could increase
our regulatory burden, including requiring us to register as a broker-dealer or funding portal before we choose to do so. Any such changes