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Nov. 12, 2021, 9:33 a.m. EST

10-Q: OLB GROUP, INC.

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(EDGAR Online via COMTEX) -- Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as "believes," "estimates," "could," "possibly," "probably," anticipates," "projects," "expects," "may," "will," or "should" or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management's current expectations and are inherently uncertain. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, our actual results may differ significantly from management's expectations. These risks and uncertainties include those factors described in greater detail in the risk factors disclosed in our Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents referred to or incorporated by reference, the date of those documents.

The following discussion and analysis should be read in conjunction with our unaudited financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Company Overview and Description of Business

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

We are a FinTech company and PayFac that focuses on a suite of products in the merchant services and payment facilitator verticals that seeks to provide integrated business solutions to merchants throughout the United States. We seek to accomplish this by providing merchants with a wide range of products and services through our various online platforms, including financial and transaction processing services. We also have products that provide support for crowdfunding and other capital raising initiatives. We supplement our online platforms with certain hardware solutions that are integrated with our online platforms. Our business functions primarily through three wholly-owned subsidiaries, eVance, OmniSoft, and CrowdPay, though substantially all of our revenue has been generated from our eVance business (we began generating revenue from our OmniSoft and CrowdPay businesses in the second half of 2019). We expect to build out our OmniSoft software business and to rely more on our PayFac model for revenue so that we are not dependent on our revenue from our eVance business but there is no guarantee that we will be able to do so.

With respect to our eVance business, our merchants are currently processing over $82,000,000 in gross transactions monthly and average approximately 1,400,000 transactions a month. These transactions come from a variety of sources including direct accounts and ISO channels. The accounts consist of businesses across the United States with no concentration of industries or merchants.

We have integrated all the applications for OmniSoft and the ShopFast Omnicommerce solution with the eVance mobile payment gateway, SecurePay.comTM. SecurePay.comTM, is currently used by approximately 3,000 merchants processing over 32,000 transactions and approximately $9,000,000 of monthly gross transactions (though our revenue from these transactions is limited). In July 2019, we launched a new merchant and ISO boarding system that will be able to onboard merchants instantly. This will provide the merchant with an automated approval and ISOs will have the ability to see all their merchants and their residuals as they load to the system.

On May 22, 2020, the Company purchased certain assets from POSaBIT Inc. ("POSaBIT"), including its contracts and arrangements with the Doublebeam merchant payment processing platform (the "POSaBIT Asset Acquisition"). The assets included, but were not limited to, software source codes, customer lists, customer contracts, hardware and website domains. The total purchase price was $215,000 (the "Purchase Price") following post-closing adjustments.

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 cryptocurrency-related lending and transactional business.

On July 2, 2021, the Company signed a non-binding letter of intent to acquire a portfolio of CBD and other merchants that will utilize the Company's SecurePay Payment Gateway to process payments. The group of merchants to be acquired have reported annual transaction volume of greater than $300 million. The transaction is anticipated to add an accomplished and experienced sales channel to the OLB team, enabling further penetration into this growing sector in the United States. The transaction is expected to close in the fourth quarter of 2021 however there can be no assurance that the company will close this acquisition.

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 cryptocurrency mining DMint has initiated the first phase of the cryptocurrency mining operation by placing purchase orders for data centers and ASIC-based Antminer S19J Pro mining computers specifically configured to mine Bitcoin. The first lot of equipment will be used to establish a proof of concept before DMint expands the number of computers in operation. As configured, it is expected that the computers purchased will have a combined computing power of approximately 100 petahash per second. If the initial mining operation results are as anticipated, DMint plans to expand the number of mining computers every quarter, whereby it would potentially have the computing power of 500 petahash per second by the end of 2022.

On October 25, 2021, the Board approved entry by the Company into a share exchange agreement ("Agreement") between the Company and 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 "Shares"). The value of the 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 U.S. Securities and Exchange Commission ("SEC") to provide the services permitted under Reg CF. The transaction is expected to close by the end of November 2021, subject to execution of the Agreement and customary closing conditions.

Results of Operations

Management's discussion and analysis of financial condition and results of operations ("MD&A") includes a discussion of the consolidated results from operations of The OLB Group, Inc. and its subsidiaries for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

For the three months ended September 30, 2021, we had total revenue of $2,823,921 compared to $2,308,037 of revenue for the three months ended September 30, 2020, an increase of $551,233 or 22.4%. We earned $2,680,004 in transaction and processing fees, $32,787 in merchant equipment rental and sales and $111,130 in other revenue during the three months ended September 30, 2021, compared to $2,128,771 in transaction and processing fees, $22,018 in merchant equipment sales and $157,248 in other revenue during the three months September 30, 2020. The increase in revenue was a result of an increase in the amount of fees earned from merchant processing transactions and an increase in the number of rentals and sales of merchant equipment. Processing and servicing costs increased by $737,463 or 49.6%. The increase was a result of the increase in the number of transactions processed during the period. Visa and Mastercard quarterly charges were higher than was accrued during the period. This was due to an increase in processing. Also, revenue for software, DoubleBeam and the net merchant portfolio decreased. There are no expenses related to these items. A decrease in revenue related to these items does not directly correspond to a decrease in expense.

Amortization expense for the three months ended September 30, 2021 was $269,475 compared to $222,090 for the three months ended September 30, 2020, an increase of $47,385 or 21.3%. We recorded amortization expense on our merchant portfolio acquired in April 2018, trademarks and mineral rights acquired in August 2021. Our amortization expense increased in the current period due to the acquisition of mineral rights of natural gas.

Salary and wage expense for the three months ended September 30, 2021 was $326,776 compared to $318,682 for the three months ended September 30, 2020, an increase of $8,094 or 2.5%.

General and administrative expenses ("G&A") for the three months ended September 30, 2021 was $904,314 compared to $706,430 for the three months ended September 30, 2020, an increase of $197,884 or 28%. In the current period, the increases were primarily due to increases of legal expenses of approximately $270,003 relating to ongoing litigation matters and legal advice relating to other Company business and was offset by a decrease of our auditor fees of approximately $74,940 and stock based compensation of $156,843. During 2021, the Company has expanded its public relations and marketing campaigns to increase visibility in the investor community and merchant marketplace. The Company has contracted with outside consultants to perform the investor relations and marketing work. It is anticipated that the Company will continue to use these services for the remainder of 2021 and into 2022.

For the three months ended September 30, 2021, we incurred $0 of interest expense, compared to $233,211 for the three months ended September 30, 2020, a decrease of $233,211. The decrease in interest expense is due the conversion of all related party debt and the repayment of the Term Loan in March 2021.

Our net loss for the three months ended September 30, 2021 was $900,351 compared to $657,358 for the three months ended September 30, 2020. We had an increase in our net loss of $242,993 for the reasons discussed above.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

For the nine months ended September 30, 2021, we had total revenue of $7,883,897 compared to $6,922,065 of revenue for the nine months ended September 30, 2020, an increase of $1,139,171 or 18.1%. We earned $7,436,317 in transaction and processing fees, $98,190 in merchant equipment rental and sales and $349,390 in other revenue from monthly recurring subscriptions, during the nine months ended September 30, 2021, compared to having earned $6,297,146 in transaction and processing fees, $60,828 in merchant equipment rental and sales and $564,091 in other revenue from monthly recurring subscriptions in the same period in the prior period. The increase was a result of an increase in the amount of fees earned from merchant processing transactions and an increase in the number of rentals and sales of merchant equipment.

For the nine months ended September 30, 2021, we had processing and servicing costs of $5,869,739_ compared to $4,501,274 of processing and servicing costs for the nine months ended September 30, 2020. Processing and servicing costs increased by $1,368,465 or 30.4% because of the increase in the number of transactions processed during the period.

Amortization expense for the nine months ended September 30, 2021 was $701,282 compared to $628,519 for the nine months ended September 30, 2020, an increase of $72,763 or 11.5%. We recorded amortization expense on our merchant portfolio, trademarks and mineral rights. Our amortization expense increased in the current period due to the acquisition of mineral rights of natural gas.

Salary and wage expense for the nine months ended September 30, 2021 was $1,483,570 compared to $1,036,068 for the nine months ended September 30, 2020, an increase of $447,502 or 43.2%. Salary and wage expense increased in the current period due to bonuses paid to our CEO and President for the Company's performance in 2020 and 2021.

G&A expense for the nine months ended September 30, 2021 was $2,378,951 compared to $1,602,685 for the nine months ended September 30, 2020, an increase of $776,266 or 33.6%. In the current period, the increases were primarily due to increases of legal expenses of approximately $682,000 relating to ongoing litigation matters, legal costs relating to the prepayment of the Term Loan and attorney fees relating to other Company business. This increase was partially offset by a decrease in our audit fees of approximately $324,000 during the current period compared with the prior period.

For the nine months ended September 30, 2021, we incurred $119,736 of interest expense, compared to $865,397 for the nine months ended September 30, 2020, a decrease of $748,661 or 198%. The decrease in interest expense is due to the conversion of all related party debt and the repayment of the Term Loan. We also recognized a loss of $4,499,952 for the fair value of warrants that were issued.

Our net loss for the nine months ended September 30, 2021 was $2,666,347 compared to $1,709,974 for the nine months ended September 30, 2020. We had an increase in our net loss of $956,373 for the reasons discussed above.

Liquidity and Capital Resources

Trends and Uncertainties

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

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

In 2020 and the first nine months of 2021, the Company continued to experience certain disruptions to its business and disruptions for the Company's customers and merchants, along with closures, that may materially affect the number of transactions processed by the Company. Similarly, the COVID-19 pandemic could have a long-term impact on the Company's customers and/or merchants during the remainder of 2021 which could reduce their demand for Company products, if pre-pandemic levels of purchasing activity does not resume. The extent to which the COVID-19 pandemic or any other health epidemic may continue to impact the Company's results for 2021 and beyond will depend on future developments, which are highly uncertain and cannot be predicted, including the impact of vaccinations, the impact of the reopening of international travel and new information which may emerge concerning the severity of the economic impact of the response to the COVID-19 pandemic on the retail and service industries where the Company has many customers and merchants. Accordingly, the COVID-19 pandemic could continue to have a material adverse effect on the Company's business, results of operations, financial condition and prospects during 2021 and beyond. Although the reopening of businesses did result in an increase in transactions using the Company's products to pre-pandemic levels, there can be no assurance that the business will continue to see transaction volume at or above pre-pandemic levels. However, any prolonged impact of the pandemic on the Company's other businesses is likely to have an immaterial or no impact.

Changes in Cash Flows

For the nine months ended September 30, 2021, $1,602,406 of cash was used by operating activities, which included our net loss, offset by $744,389 for amortization and depreciation expense, $232,965 for stock-based compensation $34,859 of operating lease expense and net changes in operating assets and liabilities of $51,728.

For the nine months ended September 30, 2021 and 2020, we used $6,068,300 and $125,000 for investment activities. During the current year we purchased $93,300 of office equipment and $5,910,000 of mining equipment for our DMINT subsidiary.

For the nine months ended September 30, 2021, we received net cash of $5,009,270 in financing activities. $7,654,845 was repaid on our loan to GACP. We received a total of $7,160,940 from the exercise of warrants issued in the Offering, $16 from the exercise of options and we netted $5,461,552 of cash from the sale of common stock and warrants.

Liquidity and Capital Resources

At September 30, 2021, the Company had cash of $1,163,055 and working capital of $869,443. For the three and nine months ended September 30, 2021, the Company's net loss was $900,354 and $2.666,347, respectively.

At September 30, 2021, the Company had approximately $838,000 of outstanding liabilities.

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

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

On August 18, 2021, the Company sold, in a registered direct offering, an aggregate of 1,418,605 shares of common stock and in a concurrent private placement, warrants to purchase up to 1,418,605 shares of Common Stock, at an aggregate purchase price of $4.30 per Share and associated Warrant. The Warrants will be exercisable six months from the date of issuance at an exercise price of $5.42 per share and will expire five and one-half years following the initial date of issuance. As a result of the transactions, the Company received gross proceeds of approximately $6.1 million and net proceeds of $[ ] million

On November 2, 2021, the Company sold, in a private placement (the "Private Placement"), (i) 1,969,091 shares (the "Shares") of the Company's common stock, par value $0.0001 per share (the "Common Stock"), (ii) pre-funded warrants (the "Prefunded 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 (the "Common 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 Private Placement closed on November 5, 2021. The purchase price of each share of Common Stock and associated Common Warrant was $5.50 and the purchase price of each Prefunded Warrant and associated Common Warrant was $5.4999. Subject to certain ownership limitations, the Common Warrants are immediately exercisable upon issuance and will expire on the five year anniversary of the effective date of the initial registration statement filed under the Registration Rights Agreement (as defined below). The Prefunded Warrants are immediately exercisable upon issuance and may be exercised at any time until all of the Prefunded Warrants are exercised in full. From the Private Placement, the Company received gross proceeds of approximately $25 million and net proceeds of $22.9 million.

In addition, the Company has received a Paycheck Protection Program loan under the CARES Act for approximately $236,000 (the "PPP Loan"). The Paycheck Protection Program provides that the use of PPP Loan proceeds was limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The Company received notice on October 11, 2021 that the PPP Loan had been entirely forgiven.

The Company has reviewed projected operating cash flows for 2021 and an overall analysis of market trends to determine whether or not it has sufficient liquidity to continue as a going concern for a period of at least twelve months from the date of this Quarterly Report. As a result of the improved transaction volume trends the Company experienced in the nine month period ended September 30, 2021, as well as the funds received from the capital raises discussed above, including those received following the nine month period ended September 30, 2021, the Company believes it has sufficient liquidity in order to sustain operations for at least of the following twelve months.

The Company has plans to grow its cryptocurrency business by purchasing more mining computers and contracting with parties to establish a cryptocurrency lending, wallet and exchange platform as a new product offering to merchants and other customers. It also plans to increase its customer base through acquisitions. In addition, the Company plans to expand its payment processing business with the CBD merchant acquisitions and expand its crowd funding platform with the acquisition of Crowd Ignition.

In order for the Company to execute all of its future plans to do business in the cryptocurrency marketplace and to make acquisitions, it may be necessary to obtain additional capital. This can be done by the sale of equity or debt securities or obtaining a loan. There can however be no assurances that the company will be able to raise additional funds to expand its cryptocurrency business or any of the acquired businesses.

Critical Accounting Policies

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

Nov 12, 2021

COMTEX_396789928/2041/2021-11-12T09:33:05

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