Notes
to the Financial Statements
December
31, 2017 and 2016
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The
Company incorporated in the State of Delaware on November 18, 2004 for the purpose of merging with OLB.com (On-line Business),
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.
As
result of the merger, the Company acquired all of the assets of OLB.com, including its intellectual property assets. In connection
with the merger, each of the former common and preferred stockholders of OLB.com received five shares of our common stock in exchange
for each outstanding share of OLB.com
We
currently offer monthly subscription packages which includes a health benefits package. These arrangements are generally renewable
monthly and revenue is recognized over the renewal period.
We
also provide ecommerce development and consulting services on a project by project basis.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Management further acknowledges that it
is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control,
and preventing and detecting fraud. Our system of internal accounting control is designed to assure, among other items, that: (1)
recorded transactions are valid; (2) valid transactions are recorded; and (3) transactions are recorded in the proper period in
a timely manner to produce financial statements that present fairly our financial condition, results of operations, and cash flows
for the respective periods being presented.
Going Concern
The accompanying financial statements have been prepared assuming the company will continue as a going
concern. The company has limited cash resources, recurring cash used in operations and operating losses history. As shown in the
accompanying financial statements, as of December 31, 2017, the Company had a working capital deficiency of $92,541 and a
net loss of $398,738 for the year ended December 31, 2017. The Company’s cash flow used in operating activities was $54,080,
while $53,500 was provided by financing from a related party. These factors among others, raise substantial doubt about the company’s
ability to continue as a going concern. The accompanying financial statements do not reflect any adjustments that might result
if the company is unable to continue as a going concern.
As discussed in Note 3, one of our Directors
and his affiliated company has funded the Company with related party loans which have been all converted to common stock. Similarly,
the Company plans to use the financial resources of its related parties in the future, if necessary; however, there are no assurances
that the Director, or the Company, will be in a financial position to do so. Despite the fact that the Director has
confirmed in writing his intention to provide financial support, the Company does not have any written agreements now or in the
past with the Director obligating him to fund the future debt or any other obligations. The Director is not otherwise
under any legal obligation to provide the Company with capital.
If the Director withdraws his financial
support to enable the company to fund its current activities, management will be required to reduce the Company’s cash from
operations by reducing operating costs. In addition, the Company is working to manage its current liabilities while it continues
to make changes in operations to further improve its cash flow and liquidity position.
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.
Concentration
of credit risk
Financial
instruments which potentially subject the Company to concentration of credit risk consist of cash deposits and customer receivables. The
Company maintains cash with various major financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. To reduce risk, the Company performs credit evaluations of its customers
and maintains reserves for potential credit losses.
Cash
and cash equivalents
We
consider all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. There
were no cash equivalents as of December 31, 2017 and 2016.
Revenue
and cost recognition
The
Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company
will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has
been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability
is reasonably assured.
Revenue
is accounted for gross as a principal versus net as an agent. Revenue is recognized on a gross basis since our company has the
risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk.
The
Company recognizes revenue on its Omni Commerce Solution licensing when persuasive evidence of an arrangement exists, services
have been rendered, the sales price is fixed or determinable, and collection is reasonably assured.
Costs
are recorded at the time the related revenue is recorded. Payment processing costs are recorded in the period the costs are incurred
and customer acquisition costs are comprised primarily of telemarketing costs and service costs and other additional benefit services.
Membership
Fees
The
Company recognizes revenues from membership fees for the sales of health-related discount benefit plans as earned as part of the
ShopFast program. These arrangements are generally renewable monthly and revenue is recognized over the renewal period. As
these products often include elements sold through contracts with third-party providers, the Company considers each contractual
arrangement in accordance with the Revenue Recognition topic of the FASB ASC 605. The Company’s current contracts meet these
requirements for reporting revenue on a gross basis. The Company records a reduction in revenue for refunds, chargeback’s
from credit card companies, and allowances based upon actual history and management’s evaluation of current facts and circumstances.
Stock-based
Compensation
We
account for equity-based transactions with nonemployees under the provisions of ASC Topic No. 505-50,
Equity-Based Payments
to Non-Employees
(“ASC 505-50”). ASC 505-50 establishes that equity-based payment transactions with nonemployees
shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever
is more reliably measurable. The fair value of common stock issued for payments to nonemployees is measured at the market price
on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option
valuation model. In general, we recognize the fair value of the equity instruments issued as deferred stock compensation and amortize
the cost over the term of the contract.
We
account for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718,
Compensation—Stock
Compensation,
which requires all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation
expense and credited to additional paid-in capital over the period during which services are rendered.
Net
Loss per Share
Net
income (loss) per common share is computed pursuant to section ASC 260-10-45 of the FASB Accounting Standards Codification. Basic
net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss)
by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period.
The weighted average number of common shares outstanding and potentially outstanding common shares assumes that the Company
incorporated as of the beginning of the first period presented.
The
Company’s diluted loss per share is the same as the basic loss per share for the years ended December 31, 2017 and 2016,
as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
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 observable inputs and not corroborated by market data.
|
The carrying amount of the Company’s
financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued expenses approximate their fair
value because of the short maturity of those instruments. The Company’s notes and loans payable approximate the fair
value of such instruments based upon management’s best estimate of interest rates that would be available to the Company
for similar financial arrangements at December 31, 2017.
The
Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis as of December
31, 2017 and 2016.
Income
Taxes
We
follow ASC 740-10-30, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in
effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance
to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the Statements of Income in the period that includes the enactment date.
On December 22, 2017, the Tax Cuts and
Jobs Act (TCJA) was signed into law by the President of the United States. TCJA is a tax reform act that among other things, reduced
corporate tax rates to 21 percent effective January 1, 2018. FASB ASC 740, Income Taxes, requires deferred tax assets and liabilities
to be adjusted for the effect of a change in tax laws or rates in the year of enactment, which is the year in which the change
was signed into law. Accordingly, the Company adjusted its deferred tax assets and liabilities at December 31,2017, using the
new corporate tax rate of 21 percent. See Note 5.
We
adopted ASC 740-10-25 (“ASC 740-10-25”) with regard to uncertainty income taxes. ASC 740-10-25 addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
Under ASC 740-10-25, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740-10-25 also provides guidance on derecognition,
classification, interest and penalties on income taxes, and accounting in interim periods and requires increased disclosures.
We had no material adjustments to our liabilities for unrecognized income tax benefits according to the provisions of ASC
740-10-25.
Recent
Accounting Pronouncements
The
Company has reviewed other recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company
does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
Reclassification
Certain amounts in the 2016 Financial statements have been reclassified to conform to the presentation
used in the 2017 Financial statements.
NOTE
3 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2016,
the Company borrowed $163,000 from Mr. John Herzog under the terms of a promissory note dated July 12, 2016. The notes are secured
by 3,850,000 shares of common stock and mature in three years. Interest accrues at 18% with 12% due and payable on the last day
of each month. The remaining 6% of interest is due at maturity. During the year ended December 31, 2017 Mr. Herzog loaned an additional
$53,500. On November 20, 2017, $216,500 of principal and $35,105 of accrued interest was converted into 2,516,050 shares of common
stock.
On October 31, 2017, the Company received
an advance of $3,481 from OLBPAY, Inc. Ronny Yakov is also the CEO of OLBPay, Inc. The advance was used for operating expenses,
is unsecured, non-interest bearing and due on demand.
On December 31, 2017, the Company converted
$380,502 of accrued salary due to the CEO into 3,805,017 shares of common stock.
NOTE
4 – COMMON STOCK
On December 31, 2017, the Company issued
25,000 shares of common stock to a third party for accounting services. The shares were valued at $0.10 per shares for total non-cash
expense of $2,500.
NOTE
5 – INCOME TAXES
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment. The U.S. federal income tax rate of 21% is being used in the current year due to the
new tax law recently enacted.
Net
deferred tax assets consist of the following components as of December 31:
|
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2017
|
|
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2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
NOL carryover
|
|
$
|
818,000
|
|
|
$
|
1,267,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
None
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(818,000
|
)
|
|
|
(1,267,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income
from continuing operations for the years ended December 31, 2017 and 2016 due to the following:
|
|
2017
|
|
|
2016
|
|
Book loss
|
|
$
|
(125,000
|
)
|
|
$
|
(124,000
|
)
|
Meals and entertainment
|
|
|
3,800
|
|
|
|
2,000
|
|
Stock based compensation and accrued officer salary
|
|
|
125,000
|
|
|
|
48,600
|
|
Valuation allowance
|
|
|
(3,800
|
)
|
|
|
73,400
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2017, the Company had
net operating loss carry forwards of approximately $3.9 million that maybe offset against future taxable income. No
tax benefit has been reported in the December 31, 2017 or 2016 financial statements since the potential tax benefit is offset
by a valuation allowance of the same amount. The change in the valuation allowance for the year ended December 31, 2017 was
a decrease of $449,000.
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act
establishes new tax laws that affects 2018 and future years, including a reduction in the U.S. federal corporate income tax rate
to 21% effective January 1, 2018. For certain deferred tax assets and deferred tax liabilities, we have recorded a provisional
decrease of $701,000, with a corresponding adjustment to valuation allowance of $701,000 as of December 31, 2017.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax
reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards
may be limited as to use in future years.
ASC
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements.
Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination
based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax
position to determine the amount to recognize in the financial statements.
The
Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision
for income taxes. As of December 31, 2017, the Company had no accrued interest or penalties related to uncertain tax positions.
The
Company files income tax returns in the U.S. federal jurisdiction and in the state of New York. With few exceptions, the Company
is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before
2012.
NOTE
6 – COMMITMENT
On
October 20, 2017, the Company entered into a new employment agreement with its founder and president for 7 years effective January
1, 2018 through December 31, 2024. The agreement provides for an annual salary of $375,000, fringe benefits ($2,500 monthly automobile
allowance, any benefit plans of the Company and 4 weeks paid vacation), an incentive bonus of $200,000 based on the achievement
of certain performance criteria.
NOTE
7 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10,
Subsequent Events
¸ management has analyzed our operations from the balance sheet date
through the date the financial statements were available to be issued.
Memorandum of Sale
On April 9, 2018, Securus365,
Inc., a Delaware corporation (“
Securus
”), eVance Capital, Inc., a Delaware corporation (“
eVance Capital
”),
and eVance Inc., a Delaware corporation (“
eVance
”, and collectively with Securus and eVance Capital, the “
Purchasers
”),
each of which Purchaser is a newly formed wholly-owned subsidiary of The OLB Group, Inc., a Delaware corporation (the “
Company
”),
entered into a Memorandum of Sale (the “
Memorandum of Sale
”) by and among the Purchasers and GACP Finance Co.,
LLC, a Delaware limited liability company (“
GACP
”), in its capacity as administrative agent and collateral agent
to certain secured lenders of the Debtors (as defined below), pursuant to which the Purchasers acquired substantially all of the
assets of the Debtors (the “
Asset Acquisition
”) through a foreclosure sale arranged by GACP under the Uniform
Commercial Code of the State of New York (“
UCC
”) of the collateral of Excel Corporation (“
Excel
”)
and its subsidiaries Payprotec Oregon, LLC, Excel Business Solutions, Inc. and eVance Processing, Inc. (Excel and such subsidiaries,
collectively, the “
Debtors
”) under the Loan and Security Agreement, dated as of November 2, 2016, by and among
GACP, the lenders thereunder and the Debtors and related loan documents, as amended (the “
Excel Loan and Security Agreement
”).
GACP exercised its
post-default remedies and realized on the collateral securing the Debtors’ obligations under the Excel Loan and Security
Agreement by conducting a public auction of certain assets of the Debtors on April 9, 2018 in accordance with the UCC. The Purchasers
submitted the Memorandum of Sale at such auction, which constituted the Purchasers’ bid for substantially all of the assets
of the Debtors (“
Acquired Assets
”), which bid was accepted by GACP on April 9, 2018 in connection with the simultaneous
signing and closing (the “
Closing
”) of the transactions contemplated under the Memorandum of Sale and the Credit
Agreement (defined below).
In consideration for
the sale and transfer of the Acquired Assets at the Closing, the Purchasers assumed certain post-Closing obligations under assigned
contracts and paid to GACP the sum of $12,500,000, through the deemed simultaneous financing of such purchase price to the Purchasers
under the Credit Agreement. Pursuant to the Memorandum of Sale, the Purchasers purchased from GACP and accepted all of the Debtors’
right, title and interest in and to the Acquired Assets “as is”, “where is” and “with all faults”
and without any representations or warranties, express or implied, of any nature whatsoever. Any representations made by the parties
in the Memorandum of Sale did not survive the Closing, and there is no indemnification rights for either party’s breach.
Credit Agreement
In order to finance
the Asset Acquisition, GACP, as administrative agent and collateral agent (“
Agent
”), and as the initial sole
lender thereunder, provided a term loan of $12,500,000 (the “
Term Loan
”) to the Purchasers, Omnisoft, Inc.,
a Delaware corporation (“
Omnisoft
”), and CrowdPay.us, Inc., a New York corporation (“
CrowdPay
”
and, collectively with the Purchasers and Omnisoft, the “
Borrowers
”), each of Omnisoft and Crowdpay being affiliates
of the Company’s majority stockholder, which obligations are guaranteed by the Company (collectively with the Borrowers,
the “
Loan Parties
”), under the Loan and Security Agreement (the “
Credit Agreement
”), dated
as of April 9, 2018, by and among the Loan Parties, the lenders from time to time party thereto as lenders (the “
Lenders
”)
and the Agent.
The Term Loan matures
in full on April 9, 2021, the third anniversary of the Closing. $1,000,000 of the principal amount under the Term Loan must be
repaid on or prior to July 15, 2018, and an additional $2,000,000 in principal due on or prior to October 31, 2018 (in each case
subject to earlier repayment under certain circumstances, including if a Loan Party consummates an equity financing), with the
remaining principal due upon maturity. The Term Loan can be prepaid without penalty in part by the Loan Parties with ten days’
prior written notice to the Agent, and in full with thirty days’ prior written notice. The Term Loan is subject to an interest
rate of 9.0% per annum, payable monthly in arrears.
The obligations of
the Loan Parties under the Credit Agreement are secured by all of their respective assets and the Loan Parties pledged all of their
assets as collateral for their obligations under the Credit Agreement. Additionally, the Company pledged its ownership interests
in the Purchasers and any of its other subsidiaries that it may form or acquire from time to time.
The Credit Agreement
includes customary representations, warranties and financial and other covenants of the Loan Parties for the benefit of the Lenders
and the Agent. The obligations of the Loan Parties under the Credit Agreement are subject to customary events of default for a
secured term loan. Each Loan Party is jointly and severally liable for the obligations under the Credit Agreement.
Warrants
Pursuant to and as
additional consideration for the Term Loan under the Credit Agreement, on April 9, 2018 (the “
Issuance Date
”)
the Company issued to GACP a Warrant (the “
Warrant
”) to purchase 1,200,000 shares of common stock of the Company
(“
Warrant Shares
”) at an exercise price of $0.25 per share, subject to adjustment as set forth in the Warrant.
The Warrant is exercisable by GACP at any time from the Issuance Date until the later of (i) the third (3
rd
) anniversary
of the Issuance Date and (ii) the date on which all obligations under the Credit Agreement have been satisfied in full. The Warrant
may be redeemed for $0.0001 per Warrant Share, at the sole discretion of the Company, at any time after the six (6) month anniversary
of the Issuance Date if the closing sales price of the Company’s common stock equals or exceeds $5.00 per share on each of
the 20 trading days within any 30 day trading day period ending on the third (3
rd
) trading day prior to the date on
which the Company provides a notice of redemption. GACP has certain piggy-back registration rights as set forth in the Warrant
with respect to the Warrant Shares to be issued upon exercise of the Warrant. After the six (6) month anniversary of the Issuance
Date, GACP can exercise the Warrant using a “cashless exercise” feature to the extent that GACP exercises the Warrant
for a number of Warrant Shares in excess of the number Warrant Shares that have been registered for resale under U.S. securities
laws.
As additional consideration
for the Term Loan under the Credit Agreement, on April 9, 2018 the Company also entered into a letter agreement (the “
Additional
Warrants Agreement
”) with GACP, pursuant to which the Company agreed that if the Company at any time after the Closing
and prior to the satisfaction of all outstanding obligations under the Credit Agreement requests for GACP to provide debt financing
for the acquisition of a company or operating business by the Company or its subsidiaries, and GACP or its affiliates provide all
of the debt financing for such acquisition, the Company will issue to GACP a warrant to purchase 200,000 shares of the Company’s
common stock (an “
Additional Warrant
”) upon the closing of such debt-financing, with such Additional Warrant
in substantially the same form as the Warrant, up to a total of four (4) Additional Warrants for four debt-financed acquisitions
under the Additional Warrants Agreement. The exercise price of the Additional Warrants, if issued, will be $0.30 per share for
the first Additional Warrant, $0.35 per share for the second Additional Warrant, $0.40 per share for the third Additional Warrant
and $0.45 per share for the fourth Additional Warrant, with the number of shares and exercise price subject to adjustment as set
forth in the Additional Warrants Agreement and the Additional Warrant.