Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operation
The following discussion and analysis of our
consolidated financial condition and results of operations for years ended December 31, 2023 and 2023 should be read in conjunction
with the consolidated financial statements and notes related thereto included elsewhere in this report.
Overview
We are a FinTech company that focuses on a suite
of products in the merchant services marketplace that seeks to provide integrated business solutions to merchants throughout the United States.
We seek to accomplish this by providing merchants with a wide range of products and services through our various online platforms, including
financial and transaction processing services. We also have products that provide support for crowdfunding and other capital raising initiatives.
We supplement our online platforms with certain hardware solutions that are integrated with our online platforms. Our business functions
primarily through three wholly-owned subsidiaries, eVance, OmniSoft, and CrowdPay, though substantially all of our revenue has been
generated from our eVance business (we began generating revenue from our OmniSoft and CrowdPay businesses in the second half of 2019).
We expect to build out our OmniSoft software business and to rely more on individualized merchant services offerings for revenue so that
we are not dependent on our revenue from our eVance business but there is no guarantee that we will be able to do so.
With respect to our eVance business, our merchants
are currently processing over $100,000,000 in gross transactions monthly and average approximately 1,400,000 transactions a month. These
transactions come from a variety of sources including direct accounts and ISO channels. The accounts consist of businesses across the
United States with no concentration of industries or merchants.
We have integrated all the applications for OmniSoft
and the ShopFast Omnicommerce solution with the eVance mobile payment gateway, SecurePay.comTM. SecurePay.comTM, is currently used by
approximately 3,000 merchants processing over 32,000 transactions and approximately $9,000,000 of monthly gross transactions (though our
revenue from these transactions is limited). In July 2019, we launched a new merchant and ISO boarding system that will be able to onboard
merchants instantly. This provides the merchant with an automated approval and ISOs will have the ability to see all their merchants and
their residuals as they load to the system.
45
On May 22, 2020, the Company purchased certain
assets from POSaBIT Inc. (“POSaBIT”), including its contracts and arrangements with the Doublebeam merchant payment processing
platform (the “POSaBIT Asset Acquisition”). The assets included, but were not limited to, software source codes, customer
lists, customer contracts, hardware and website domains.
On May 14, 2021, the Company formed OLBit, Inc.,
a wholly owned subsidiary (“OLBit”). The purpose of OLBit is to hold the Company’s assets and operate its business related
to its emerging money transmission and transactional business.
On July 23, 2021, we formed DMINT, Inc., a wholly
owned subsidiary (“DMINT”) to operate in the Bitcoin mining industry, specifically the mining of Bitcoin. DMINT initiated
the first phase of the Bitcoin mining operation by placing data centers and ASIC-based Antminer S19J Pro mining computers specifically
configured to mine Bitcoin in Pennsylvania. As of December 31, 2022, DMINT has purchased 1,000 computers. In February 2023, it re-deployed
all of the computers to its Selmer, Tennessee location. At December 31, 2023, DMINT had mined 31.06 Bitcoin.
On January 3, 2022, the Company entered into a
share exchange agreement with all of the shareholders of Crowd Ignition, Inc. (“Crowd Ignition”) whereby the Company would
purchase 100% of the equity of Crowd Ignition in exchange for 1,318,408 shares of the common stock, par value $0.0001 of the Company (the
“CI Issued Shares”). The value of the CI Issued Shares was, for purposes of the Agreement, based on the closing trading price
of the Company on October 1, 2021 (the date on which a third-party fairness opinion was issued), resulting in an aggregate purchase price
for Crowd Ignition of $5.3 million.
Crowd Ignition is a web-based crowdfunding software
system. Ronny Yakov, Chairman and CEO of the Company and John Herzog, a significant shareholder of the Company, own 100% of the equity
of Crowd Ignition. The software provides broker-dealer, merchant banks and law firms a platform to market crowdfunding offerings, collect
payments and issue securities. The software has been developed in response to, and to comply with, recent changes in investment regulations
including Regulation D 506(b) and 506(v), Regulation A+ and Title III of the Jobs Act (Regulation CF), including raising the crowdfunding
limit from $1.07 million to $5.0 million. Crowd Ignition is one of only about 50 companies registered with the SEC to provide the services
permitted under Regulation CF.
Results of Operations
Year Ended December 31, 2023 Compared to
the Year Ended December 31, 2022
For the year ended December 31, 2023, we had total
revenue of $30,571,637 compared to $30,368,979 of revenue for the year ended December 31, 2022, an increase of $202,658 or 0.1%. We earned
$27,096,245 in transaction and processing fees, $89,532 in merchant equipment sales, $312,565 in revenue from monthly recurring subscriptions,
$538,718 of revenue from the Bitcoin Mining segment, and $2,534,577 of digital product revenue; compared to $28,950,785 in transaction
and processing fees, $64,900 in merchant equipment sales, $627,1115 in revenue from monthly recurring subscriptions and $726,179 of revenue
from the Bitcoin Mining Segment. We had a decrease of revenue for our transaction and processing fees of $1,854,540, a decrease of $187,461
of bitcoin mining revenue and a decrease of $314,550 from the monthly recurring subscriptions. These decreases were offset with an increase
in our digital product revenue of $2,534,577. Transaction and processing revenue decreased due to a decrease in the in merchants and volume
processed. Bitcoin revenue decreased due to the price of bitcoin dropping in 2023 compared to 2022. Monthly recurring subscription revenue
decreased due to less subscriptions.
For the year ended December 31, 2023, we had processing
and servicing costs of $21,181,499 compared to $23,152,397 of processing and servicing costs for the year ended December 31, 2022, a decrease
of $1,970,898 or 8.5%. Processing and servicing costs decreased in conjunction with the decreased revenue.
46
Amortization and depreciation expense for the
year ended December 31, 2023 was $4,172,117 compared to $3,664,488 for the year ended December 31, 2022, an increase of $507,629 or 13.9%.
We record amortization expense on our merchant portfolio, trademarks and natural gas purchase rights. Our amortization expense for the
year ended December 31, 2023, was higher due to a onetime adjustment.
Depreciation expense for our Bitcoin Mining Segment
was $2,560,015 for the year ended December 31, 2023 compared to $3,193,683 for the year ended December 31, 2022, a decrease of $633,668
or 19.8%. The majority of the decrease was due to reclassing items to construction in process and not deprecating miners until the
construction on the Selmer, TN building is completed.
Salary and wage expense for the year ended December
31, 2023 was $3,817,508 compared to $3,073,598 for the year ended December 31, 2022, an increase of $743,910 or 24.2%. The increase is
due to an increase in staff from the Cuentas SDI acquisition and also accrued bonus expense.
Professional fees for the year ended December
31, 2023 were $2,336,785 compared to $964,541 for the year ended December 31, 2022, an increase of $1,372,244 or 142%. Professional fees
consist mainly of audit and legal fees. The increase in the current period is due to an increase in legal fees of approximately $1,333,600
and auditor expenses of approximately $45,800. Our increase in legal fees can be attributed to the ongoing litigation relating to the
FFS Acquired Merchant Portfolio. Our increase in audit fees is primarily due to the stand-alone audit of our DMINT subsidiary in connection
with the planned spin-off of the entity.
General and Administrative (“G&A”)
expense for the year ended December 31, 2023, was $7,078,947 compared to $4,490,731 for the year ended December 31, 2022, an increase
of $2,588,216 or 57.6%. Some of our larger G&A expenses include insurance policy expense of $404,400 from $319,500 in the prior year.
Insurance expense has increased as a result of the cost to insure the Bitcoin mining machines and the increase in the size of the Company’s
business. We had credit card processing and bank fees of $1,137,000 from $39,000 in the prior year, contracted services of $913,000 from
$656,000 in the prior year, utilities of $679,500 from $565,000 in the prior year and computer and internet expense of $933,700 from $730,000
in the prior year. We also had an increase in stock-based compensation of $104,000 for stock option expense.
For the year ended December 31, 2023, we had
total impairment expense of $12,902,787. $12,642,857 was for the write down of the Acquired Merchant Portfolio. There was also an
impairment of $259,931 related to the Bitcoin miners owned by DMINT.
For the year ended December 31, 2023, we recognized
a realized gain from the sale of bitcoin of $288,584 and an unrealized gain on investment of $23,662. We also had other income of $40,320
and interest expense of $148,483. In the prior year we had other income of $383,190.
Our net loss for year ended December 31, 2023,
was $23,273,939 compared to $7,787,269 for year ended December 31, 2022. We had an increase in our net loss of $15,486,670 for the reasons
discussed above.
Liquidity and Capital Resources
Changes in Cash Flows
For the year ended December 31, 2023, we received
$2,046,922 of cash in operating activities, which included our net loss offset by $6,732,132 for amortization and depreciation expense,
$727,758 for stock-based compensation, impairment expense of $12,902,788, a realized gain of $288,584 from the sale of bitcoin
of $288,584 and an unrealized gain on investment of $23,662 and net changes in operating assets and liabilities of $5,274,238.
For the year ended December 31, 2022, we used
$1,921,318 of cash in operating activities, which included our net loss offset by $6,858,171 for amortization and depreciation expense,
$624,683 for stock-based compensation, stock to be issued for services of $164,999 and net changes in operating assets and liabilities
of ($1,781,965).
47
For the year ended December 31, 2023, we used
$2,080,113 of cash used for investing activities. We used $1,225,148 for property and equipment, $4,965 for purchase of intangible assets
and $850,000 the purchase of an 80.01% interest in Cuentas SDI, LLC.
For the year ended December 31, 2022, we used
$1,562,361 of cash used for investing activities to acquire property and equipment.
For the year ended December 31, 2023, we used
net cash of $221,829 in financing activities as a result of a cash overdraft obtained in an acquisition of $8,050 and payments on a note
payable of $226,457 along with $12,678 in advances from related parties.
For the year ended December 31, 2022, we received
net cash of $447,429 from financing activities. We received a loan payable of $875,000, of which we repaid $317,571 and used $110,000
in cash for the acquisition of treasury stock
Liquidity and Capital Resources
At December 31, 2023, the Company had cash of
$179,006 and negative working capital of $5,413,927.
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 March 2, 2021, the Company, utilizing a portion
of funds received from the exercise of outstanding warrants, paid approximately $7.7 million to the pay off the entire outstanding amount
of the Term Loan. In connection with the extinguishment of the obligations under the Term Loan, 40,000 warrants to purchase Common Stock
were cancelled.
In addition, the Company has received a Paycheck
Protection Program loan under the CARES Act for approximately $236,000 (the “PPP Loan”). On October 11, 2021, the Company
obtained forgiveness of all amounts due under the PPP Loan.
On November 2, 2021, the Company entered into
a series of securities purchase agreements with certain institutional accredited investors pursuant to which the Company issued and sold,
in a private placement (i) 1,969,091 shares (the “Shares”) of the Company’s Common Stock (ii) pre-funded warrants exercisable
for a total of 2,576,364 shares of Common Stock (the “Prefunded Warrant Shares”) with an exercise price of $0.0001 per Prefunded
Warrant Share, and (iii) warrants exercisable for a total of 4,545,455 shares of Common Stock (the “Common Warrant Shares”
and together with the Prefunded Warrant Shares, the “Warrant Shares”) with an exercise price of $6.50 per Common Warrant Share.
The offering closed on November 5, 2021 and the Company received net proceeds of approximately $22.9 million, after deducting placement
agent fees and other offering expenses. The Company intends to use the net proceeds from the offering to invest in or acquire companies
or technologies that are synergistic with or complimentary to its business, to expand and market its current products and for working
capital and general corporate purposes.
The Company has reviewed its cash flow activity
during 2023 and projected cash flow forecast for 2024 and performed an overall analysis of market trends to determine whether or not it
has sufficient liquidity to continue as a going concern for a period of at least twelve months from the date of this Annual Report. As
a result of (a) the improved transaction volume trends the Company experienced during 2022 and 2023, (b) the increase in the number of
merchants after the acquisitions of several portfolios during 2021 and 2023, and (c) the funds received from the capital raises and PPP
Loan, as discussed above, the Company believes it has sufficient liquidity in order to sustain operations for at least the twelve months
following the filing of this Annual Report.
Significant Accounting Policies
Refer to Note 2 of our financial statements
contained elsewhere in this Form 10-K for a summary of our significant accounting policies and recently adopting and issued
accounting standards.
Item 7A. 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 are not required to provide the information under this item.
48
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID # 6258) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID # 229) F-4
Consolidated Balance Sheets at December 31, 2022 and 2021 F-5
Notes to the Consolidated Financial Statements F-9
F-1
Report of Independent Registered Public Accounting
Firm
Board
of Directors and Shareholders
The
OLB Group, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of The OLB Group, Inc. as of December 31, 2023, and the related consolidated
statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of The OLB Group, Inc. as of December 31, 2023, and the results of its operations and its cash flows for the year
then ended in conformity accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on the entity’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to The OLB Group, Inc. in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The OLB
Group, Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Stock
Based Compensation (Note 9)
During
the year ended December 31, 2023, the Company was to grant stock options to their CEO, Ronny Yakov, to purchase 200,000 shares of common
stock pursuant to the terms of his employment agreement, however, there were delays that resulted in the options being issued and then
exercised subsequent to December 31, 2023. As a result of the delay, the Company failed to initially capture the option grant in their
books. Upon discovery of this oversight the Company used the Black Scholes Merton option pricing model to calculate the grant date fair
value of the aware which required a number of inputs based on management’s estimates.
In
order to audit the grant date fair value for Mr. Yakov’s option grant we had to review the specific terms of the award and had
to review the Company’s calculation of fair value and determine the reasonableness of each input into the calculation, which included
a determination of the grant date, along with estimates of expected life and volatility.
Also
during our audit we had to test the reasonableness of the stock-based compensation recorded by the Company and noted that in addition
to the value captured for Mr. Yakov’s options it included amounts the Company had to capture related to options granted in prior
years due to compensation expense being recognized over service periods and/or based on the expected timing of a performance, market,
or service condition being met. To audit this amount we had to obtain support for options issued as far back as 2018 and review the terms
and valuations of all grants.
Accordingly,
testing the Company’s stock-based compensation was challenging, time consuming, and there was subjectivity involved with complex
auditor judgment due to the estimates that had to be tested, all of which resulted in significant audit effort. As a result of our audit
procedures adjustments were recorded to ensure recorded equity and expense amounts were reasonable.
Business
Combination (Note 7)
During
the year ended December 31, 2023, the Company entered into a Membership Interest Purchase Agreement that was accounted as a business
combination under ASC 805 which required the Company to determine the fair market value of assets acquired, liabilities assumed, and
the non-controlling interest.
F-2
As
this disclosure was considered material to the financial statements, we identified a risk of material misstatement related to this transaction.
In order to audit the Company’s business combination, we reviewed managements analysis of the transaction, obtained an understanding
of all aspects of the transaction, and completed our own detailed analysis of the accounting literature governing business combinations
to ensure the accounting treatment was reasonable. We also reviewed the reasonableness of the fair value estimates for all recorded amounts.
Due
to the extensive analysis of the transaction as well as the judgment and subjectivity that was involved in applying audit procedures
there was significant audit effort required to ensure the transaction was properly accounted for.
Bitcoin
Mining Transactions (Note 2)
The
Company’s operations and activities include bitcoin mining and the exchange of bitcoin for U.S. dollars and such transactions have
inherent audit complexities associated with them. The Company has entered into a third-party subscription agreement to monitor their
bitcoin activity and has entered into a digital asset mining pool contract with a third-party to provide computing power in exchange
for earning bitcoin. The Company has used significant judgment to determine its accounting for its bitcoin mining revenue and it took
significant time, effort, and subjectivity during our audit to ensure revenue and exchange transactions were properly stated.
In
order to test the Company’s recognition of revenue we obtained a detailed understanding of the Company’s operations and its
third party-contracts and arrangements. We evaluated the Company’s compliance with accounting standards and we completed detailed
testing to ensure we could rely on third party reports. We corroborated recorded transactions with data recorded on public blockchain
networks and we independently calculated the value of bitcoin received to ensure recorded revenue amounts were reasonable. We also independently
calculated the gain/loss on all exchanges of bitcoin for U.S. dollars to ensure amounts were accurately recorded in accordance with the
Company’s policies and procedures. We ensured all bitcoin transactions were reasonably recorded and ensured the Company’s
disclosures in their financial statements regarding such were adequate.
Intangible
Assets and Goodwill Impairment (Note 2 and Note 4)
The
Company evaluates for impairment of intangible assets by first evaluating for impairment indicators, which requires significant judgment,
and then by completing a recoverability test to compare the carrying value of each asset with the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the assets, which can depend on estimates and assumptions. If the carrying
amount is in excess of the undiscounted cash flows the Company calculates a fair value for the asset, which can also be based on subjectivity,
estimates, and judgments, and ensures the carrying amount is not in excess of its fair value.
The
Company evaluates goodwill for impairment at least annually at the reporting unit level and compares the carrying amount of goodwill
to its fair value. Accordingly, the Company has to use significant judgment, assumptions, and subjectivity to determine it reporting
units and the fair value of their goodwill. As of December 31, 2023 the Company engaged a valuation specialist to assist with the fair
value calculations.
During
our audit we identified potential impairment as a risk of material misstatement, as the intangible assets and goodwill values had balances
and disclosures that were material to the financial statements. In order to test the Company’s intangible asset for impairment,
we had to analyze each material intangible asset and use significant auditor judgment and subjectivity to review impairment indicators
based on Company operations and the nature of the intangible assets, review undiscounted cash flow amounts where we noted no significant
amounts that were necessary to test, and had to test fair value amounts by obtaining third party market data, which required significant
audit effort.
In
order to test the Company’s goodwill impairment, we had to use significant auditor judgement to gain comfort in the Company’s
reporting unit(s) by completing an overall analysis of the Company’s business and operations. We also had to gain comfort with
the expertise and experience of the third-party valuation expert and review the techniques and valuation approach used by the expert
for reasonableness. Lastly, we reviewed all inputs and/or underlying data used by the valuation expert to ensure the fair value associated
with the goodwill was reasonable.
Property
and Equipment (Note 5)
During
the year ended December 31, 2023 the Company incurred significant costs related to the build out of their bitcoin mining warehouse and
an audit risk was identified related to the value and recoverability of their assets. Significant audit effort was required to ensure
the property and equipment was recorded properly, that depreciation expense was reasonable, and that asset values were recoverable.
During
our audit we had to obtain sufficient corroborating evidence regarding the timing of asset receipt and the assets existence at the reporting
date. We also had to recalculate all depreciation amounts and complete a detailed impairment analysis which required auditor subjectivity.
We ensured the Company’s property and equipment was reasonably stated at its recoverable value and ensured the disclosures for
such were accurate.
/s/
Mac Accounting Group & CPAs, LLP
We
have served as The OLB Group Inc.’s auditor since 2023.
Midvale,
Utah
April
12, 2024
F-3
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Stockholders
The OLB Group, Inc.
New York, New York
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of The OLB Group, Inc. (the “Company”) at December 31, 2022, and the related consolidated statements operations,
stockholders’ equity and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the
financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain
an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides
a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below
is a matter arising from the audit of the December 31, 2022 financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Intangible Assets Impairment Assessments
As described in Notes 2 and 4 to the consolidated
financial statements, the Company has goodwill and intangible assets of $27.2 million at December 31, 2022. In most cases, no directly
observable market inputs are available to measure the fair value to determine if the asset is impaired. Therefore, an estimate is derived
indirectly and is based on net present value techniques utilizing post-tax cash flows and discount rates. The estimates that management
used in calculating the net present values depend on assumptions specific to the nature of the management service activities with regard
to the amount and timing of projected future cash flows; long-term forecasts; actions of competitors (competing services), future tax
and discount rates.
The principal considerations for our determination
that performing procedures relating to the intangible assets impairment assessment is a critical audit matter are the significant judgment
by management when developing the net present value of the intangible assets. This in turn led to a high degree of auditor judgment, subjectivity,
and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of projected
future cash flows and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing
procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These
procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the net
present value techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions
used by management, including the amount and timing of projected future cash flows and the discount rate. Evaluating management’s
assumptions related to the amount and timing of projected future cash flows and the discount rate involved evaluating whether the assumptions
used by management were reasonable considering the current and past performance of the intangible assets, the consistency with external
market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ Daszkal Bolton LLP
Daszkal Bolton LLP
Boca Raton, Florida
March 29, 2023
We served as the Company’s auditor from
2020 to March 2023
F-4
The OLB Group, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
Current Assets:
Other Assets:
Operating lease right-of-use assets — 268,948
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Related party payable 12,678
Operating lease liability – current portion — 134,318
Long Term Liabilities:
Operating lease liability – net of current portion — 138,439
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Noncontrolling interest 119,224 —
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
The OLB Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31,
Revenue:
Other revenue from monthly recurring subscriptions 312,565 627,115
Operating expenses:
Other income (expense):
Realized gain on sale of bitcoin 288,584 —
Unrealized gain on investment 23,662 —
Income tax expense — —
Net loss attributed to noncontrolling interest 93,276 —
Net loss attributed to The OLB Group and Subsidiaries (23,180,663 ) (7,787,269 )
Net loss per common share, basic and diluted $ (0.65 ) $ (0.56 )
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
The OLB Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’
Equity
For the Years
Ended December 31, 2023 and 2022
Shares Amount Shares Amount In Capital Stock Deficit Interest Total
Common stock issued for exercise of warrants — — 1,400,000 140 (140 ) — — — —
Preferred stock dividends (related party) — — — — (401,903 ) — — — (401,903 )
Preferred stock dividends-related party — — — — (124,222 ) — — — (124,222 )
The accompanying notes
are an integral part of these consolidated financial statements.
F-7
The OLB Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Non-cash mining revenue — (726,179 )
Common stock to be issued for services to Directors — 164,999
Operating lease expense, net of repayment (3,809 ) —
Unrealized gain on investment (23,662 ) —
Realized gain on sale of bitcoin (288,584 ) —
Changes in assets and liabilities:
Net cash provided by (used in) operating activities 2,046,922 (1,921,381 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangible assets (4,965 ) —
Purchase of 80.01% interest in Cuentas SDI, LLC (850,000 ) —
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft acquired in acquisition (8,050 ) —
Advances from related party 12,678
Proceeds from note payable — 875,000
Cash used for acquisition of treasury stock (110,000 )
Net cash (used) provided by financing activities (221,829 ) 447,429
Cash paid for:
Interest $ — $ —
Income taxes $ — $ —
Non-cash investing and financing transactions:
Common stock issued for accrued liabilities $ 164,998 $ —
Cancellation of operating leases $ 174,090 $ —
The accompanying notes are an integral part
of these consolidated financial statements.
F-8
The OLB Group, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2023
NOTE 1 – BACKGROUND
Background
The OLB Group, Inc. (“OLB” the “Company”)
was incorporated in the State of Delaware on November 18, 2004 and provides services through its wholly-owned subsidiaries and business
segments. The Company generates its revenue through two business segments its Fintech Services and Bitcoin Mining Business segments.
Fintech Services:
The Company provides integrated financial and
transaction processing services (“Fintech Services”) to businesses throughout the United States. Through its eVance, Inc.
subsidiary (“eVance”), the Company provides an integrated suite of third-party merchant payment processing services and related
proprietary software enabling products that deliver credit and debit card-based internet payment processing solutions primarily to small
and mid-sized merchants operating in physical “brick and mortar” business environments, on the internet and in retail settings
requiring both wired and wireless mobile payment solutions. eVance operates as an independent sales organization (“ISO”) generating
individual merchant processing contracts in exchange for future residual payments. As a wholesale ISO, eVance has a direct contractual
relationship with the merchants and takes greater responsibility in the approval and monitoring of merchants than do retail ISOs and as
a result, receives additional consideration for this service and risk. The Company’s Securus365, Inc. (“Securus365”)
subsidiary operates as a retail ISO and receives residual income as commission for merchants it places with third party processors. The
Company’s eVance Capital, Inc subsidiary provides lending services to merchants processing with eVance, Inc.
CrowdPay.us, Inc. (“CrowdPay”) is
a Crowdfunding platform used to facilitate a capital raise anywhere from $1,000,000 -$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, Inc. (“OmniSoft”) operates
a software platform for small merchants. The Omnicommerce applications work on an iPad, mobile device and the web and allow customers
to sell a store’s products in a physical, retail setting. To date, the activities of this subsidiary have been nominal when compared
to the overall business.
On May 14, 2021, the Company formed OLBit,
Inc., a wholly-owned subsidiary (“OLBit”). The purpose of OLBit is to hold the Company’s assets and operate its
business related to its emerging lending and transactional business leveraging the Company’s Bitcoin Business and Fintech
Services business. To date, the activities of this subsidiary have been nominal.
On June 15, 2023, the Company entered into a Membership
Interest Purchase Agreement (the “Agreement”) with SDI Black 001, LLC (“Seller”) whereby it acquired 80.01% of
the membership interests of Cuentas SDI, LLC, a Florida limited liability company (the “LLC”). The LLC owns the platform of
Black011.com and the network serving over 31,000 convenience stores (“Bodegas”) in and around New York and New Jersey
(see Note 7).
The Company also provides ecommerce development
and consulting services on a project-by-project basis.
Bitcoin Mining Business:
On July 23, 2021, the Company formed DMINT, Inc.,
a wholly-owned subsidiary (“DMINT”). The purpose of DMINT is to operate its business related to Bitcoin mining (“Bitcoin
Business”).
On June 24, 2022 the Company formed DMINT Real
Estate Holdings, Inc., a wholly-owned subsidiary of DMINT. The purpose of DMINT Real Estate Holdings, Inc is to buy and hold real estate
related to DMINT. Currently, its only asset is the building and property located in Selmer, Tennessee where all of the mining computers
are located.
F-9
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 and stock-based compensation.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, eVance Inc, eVance Capital Inc, Securus365, Inc., CrowdPay.us,
Inc., OmniSoft, Inc., OLBit, Inc., DMINT, Inc., DMINT Real Estate Holdings. The Company owns 80.01% of Cuentas SDI, LLC, which has been
included in the consolidated financial statements and the Company has recorded a noncontrolling interest for the 19.99% interest that
they do not own.
All significant intercompany transactions and
balances have been eliminated.
Reclassifications
Certain reclassifications have been made to the prior year financial
information to conform to the presentation used in the financial statements for the year ended December 31, 2023.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of
the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of
the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments.
Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States
of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency and comparability in fair
value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The
three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available in active markets for identical
assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices
in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and
not corroborated by market data.
F-10
The carrying amount of the Company’s financial
assets and liabilities, such as cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses approximate their fair
value because of the short maturity of those instruments. The Company’s notes payable represents the fair value of such instruments
as the notes bear interest rates that are consistent with current market rates.
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 December 31, 2023 and 2022, the Company had no cash in excess of the FDIC’s $250,000 coverage limit.
Operating Segments
Operating segments are defined as components
of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”),
or decision maker group, in deciding how to allocate resources to an individual segment and in assessing performance. Our chief operating
decision–making group is composed of the Chief Executive Officer and Vice President. The Company has two operating segments as
of December 31, 2023 and 2022. (see Note 17).
Stock-based Compensation
We account for equity-based transactions with
employees and non-employees under the provisions of FASB ASC Topic 718, “Compensation – Stock Compensation” (“Topic
718”), which establishes that equity-based payments to employees and non-employees are recorded at the grant date the fair value
of the equity instruments the entity is obligated to issue when the employees and non-employees have rendered the requisite service and
satisfied any other conditions necessary to earn the right to benefit from the instruments. Topic 718 also states that observable market
prices of identical or similar equity or liability instruments in active markets are the best evidence of fair value and, if available,
should be used as the basis for the measurement for equity and liability instruments awarded in these share-based payment transactions.
However, if observable market prices of identical or similar equity or liability instruments are not available, the fair value shall
be estimated by using a valuation technique or model that complies with the measurement objective, as described in Topic 718.
Net Loss per Share
Basic net loss per share of common stock is computed
by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common
share is computed by dividing net loss by the weighted average number of shares of common stock and dilutive potentially outstanding shares
of common stock during the period. The weighted average number of common shares for the years ended December 31, 2023 and 2022 does not
include warrants to acquire 8,563,127 shares of common stock because of their anti-dilutive effect. The weighted
average number of common shares for years ended December 31, 2023 and 2022, does not include 1,254,683 and 2,362,321 options, respectively,
to purchase common stock because of their anti-dilutive effect.
Investments in Equity Securities
The Company accounts for its investments under
ASC 321, “Investments – Equity Securities,” which requires that investments in equity securities be measured at fair
value with changes in value recorded as unrealized gains and losses in current period operations.
Bitcoin
The Company obtains bitcoin through our mining
activities, which is accounted for in connection with our revenue recognition policy. The bitcoin held is recorded as other assets in
the Consolidated Balance Sheets and is accounted for as indefinite-lived intangible assets initially measured at cost, in accordance with
ASC 350 – “Intangibles-Goodwill and Other” (“ASC 350”). The use of bitcoin is accounted for in accordance
with the first in first out method of accounting. We do not amortize our bitcoin but assess the value for impairment as further discussed
in our impairment policy.
F-11
At December 31, 2023 and 2022, the carrying value
of the Company’s bitcoin was $312,565 and $1,030,183, respectively. As of December 31, 2023, the Company had 11.14 bitcoin on hand
which had a fair value of $470,633 based on the price of bitcoin of approximately $42,265. For the year ended December 31, 2023, we recorded
a realized gain on our bitcoin transactions of $288,584. We recorded no realized gains or losses on our bitcoin transactions for the year
ended December 31, 2022.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Depreciation is calculated once the asset has been received and is
ready for its intended use, using half of the monthly depreciation in the first month and half of the monthly depreciation in the last
month. Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain
or loss on the disposition included in the statement of operations. Expenditures for repairs and maintenance are expensed as incurred.
The Company capitalizes
all capital assets utilizing the following criteria:
● All land acquisitions;.