Notes
to the Consolidated Condensed Financial Statements
September
30, 2018
(Unaudited)
NOTE
1 – BACKGROUND
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.
The
Company sells integrated financial and transaction processing services to businesses throughout the United States. These services
are provided through our wholly-owned subsidiaries, eVance and Securus. Through our eVance subsidiary, we provide an integrated
suite of third-party merchant payment processing services and related proprietary software enabling products that deliver credit
and debit card-based internet payments 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. We operate 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 we receive additional consideration
for this service and risk. Securus operates as a retail ISO and receives residual income as commission for merchants it places
with third party processors.
CrowdPay.us,
Inc. is a Crowdfunding platform used to facilitate a capital raise anywhere from $1,000,0000 -$50,000,000 of various types of
securities under 506c, Reg CF, Reg A+ and Form S1.
Omnisoft.io,
Inc. is a platform for small merchants The Omnicommerce applications works on an iPad mobile and the web allows you to sell a
store’s products in a physical, retail setting. It’s quick and easy: browse your store’s catalog, pick a customer’s products,
swipe their credit card, and print their receipt or send it through email. Integrated with 80% of the merchant processors.
We
also 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.
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.
Effective
May 9, 2018, the Company entered into a share exchange agreement with Crowdpay.US, Inc., a New York corporation (“Crowdpay”),
for which the Company issued 87,500,000 shares of common stock for all of the authorized stock of Crowdpay. Crowdpay became a
wholly owned subsidiary of OLB.
Effective
May 9, 2018, the Company entered into a share exchange agreement with OMNISOFT, Inc., a Delaware corporation (“OMNISOFT”),
for which the Company issued 55,000,000 shares of common stock for all of the authorized stock of OMNISOFT. OMNISOFT became a
wholly owned subsidiary of OLB.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). T
he accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are
necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results
to be expected for the full year ending December 31, 2018.
These unaudited financial statements
should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2017
included on the Company’s Form 10-K. The results of the nine months ended September 30, 2018 are not necessarily
indicative of the results to be expected for the full year ending December 31, 2018.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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.
Principles
of Consolidation
The
accompanying unaudited interim consolidated condensed financial statements include the accounts of the Company and its wholly-owned
subsidiaries, eVance, Securus, Crowdpay.US, and OMNISOFT, Inc. All financial information has been prepared in conformity with
accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances
have been eliminated.
The assets and liabilities of CrowdPay and Omnisoft in these financial statements
have been reflected on a historical cost basis because the transfer of CrowdPay and Omnisoft to the Company is considered a common control transaction.
When the Company acquired CrowdPay and Omnisoft, the Company, CrowdPay and Omnisoft were under direct control of Mr. Ronny Yakov,
CEO.
Cash
and Cash Equivalents
The
Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt
instruments purchased with a maturity of three months or less as cash and cash equivalents. The carrying amount of financial instruments
included in cash and cash equivalents approximates fair value because of the short maturities for the instruments held.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of net tangible and intangible assets acquired in connection with
an acquisition. Goodwill is assessed for impairment annually or more frequently if circumstances indicate impairment may have
occurred.
Accounts
Receivable
Accounts
receivable represent contractual residual payments due from the Company’s processing partners. These residual payments are determined
based on transaction fees and revenues from the credit and debit card processing activity of merchants for which the Company’s
processing partners pay the Company. Based on collection experience and periodic reviews of outstanding receivables, management
considers all accounts receivable to be fully collectible and accordingly, no allowance for doubtful accounts is required.
Property
and Equipment
Property
and equipment is stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated
using the straight-line method over the estimated useful lives of the assets, which range from five to ten years. Leasehold improvements
are amortized over the lesser of the expected term of the lease or the estimated useful life of the asset. Expenditures for repairs
and maintenance are expensed as incurred.
Residual
Portfolios
Residual
portfolios are valued at fair value on the date of acquisition and are amortized over their estimated useful lives (7 years).
Equity
Investments
Equity
investments are valued at fair value on the date of acquisition using the equity method of accounting and adjusted in subsequent
periods for the Company’s share of the investment’s earnings and distributions.
Indefinite
Lived Intangibles Assets and Goodwill
The
Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business
Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and
liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available,
and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset
valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the
tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
The
Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events
or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance
with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at September 30,
2018 and December 31, 2017, and determined there was no impairment of indefinite lived intangibles and goodwill.
Business
Combinations
Acquisitions
are accounted for using the acquisition method of accounting. The purchase price of an acquisition is allocated to the assets
acquired and liabilities assumed using the estimated fair values at the acquisition date. Transaction costs are expensed as incurred.
We
allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired
based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable
assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions,
especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not
limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant
perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to
be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and
liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent
adjustments are recorded to earnings.
Basis
of Presentation and Principles of Consolidation
The
acquisition of assets purchased from Great American Capital Partners (GACP) as well as OmniSoft and CrowdPay as a wholly subsidiaries
the GACP assets have been allocated to a new wholly owned subsidiary eVance, Inc. into The OLB Group are considered common control
transactions. Prior to the acquisition of the Assets, all 3 companies into The OLB Group, are GACP purchase assets OMNISOFT and
CrowdPay by Mr. Yakov and Mr. Herzog, the Company’s Chief Executive Officer, beginning on April 9, 2018. When businesses
that will be consolidated by the Company, is acquired from GACP, the transaction was accounted for as if the transfer had occurred
at the beginning of the period of transfer, with prior periods retrospectively adjusted to furnish comparative information. The
acquisitions of the assets were a transfer of businesses between entities under common control. Accordingly, the accompanying
unaudited consolidated condensed financial statements and related notes have been retrospectively adjusted to include the historical
results and financial position of the acquired entities prior to the effective dates of such acquisitions. The financial information
for the acquisition of assets has been included in the Company’s consolidated condensed financial statements beginning on
April 9, 2018 as OLB Group only had nominal activities from April 9, 2018, when Mr. Yakov acquired control of the Company.
The
accompanying consolidated condensed financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The consolidated financial
statements are comprised of the records of the Company and its wholly owned subsidiaries: eVance, CrowdPay and OmniSoft. All intercompany
transactions have been eliminated on consolidation. The assets and liabilities of all subsidiaries in these financial statements
have been reflected on a historical cost basis because the transfer of eVance, CrowdPay and OmniSoft to the Company is considered
a common control transaction. When the Company acquired assets from GACP and OMNISOFT and CrowdPay, the Company, CrowdPay and
OmniSoft were under direct control of Mr. Yakov and Mr. Herzog.
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 weighted average number of common shares for the three months ended September 30, 2018 and the period from April
9, 2108 through September 30, 2018 do not include warrants to acquire 1,200,000 shares of common stock because of their anti-dilutive
effect.
Acquisition
Reporting
As
discussed in Note 1, the Company entered into an Asset Purchase Agreement, pursuant to which the Company purchased certain assets
used in the integrated financial and transaction processing services business.
The
unaudited interim consolidated condensed financial statements herein are presented under predecessor entity reporting and because
the acquiring entity had nominal operations as compared with the acquired stations (“Predecessor Business”), prior historical
information of the acquirer is not presented.
This
new basis of accounting was created on April 9, 2018, the effective date of the Asset Purchase Agreement. In the following discussion,
the results of operations and cash flows for the periods ended on or prior to April 9, 2018, and the financial position of the
Predecessor Business as of balance sheet dates on or prior to April 9, 218 are referred to herein as “Predecessor” financial
information, and the results of operations and cash flows of the Company for periods beginning on April 9, 2018 and the financial
position of the Company as of September 30, 2018 and subsequent balance sheet dates are referred to herein as “Successor”
consolidated financial information.
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.
The
Company receives a percentage of recurring monthly transaction related fees comprised of credit and debit card fees charged to
merchants, net of association fees, otherwise known as Interchange, as well as certain service charges and convenience fees, for
payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions.
Fees are calculated on either a percentage of the dollar volume of the transaction or a fixed fee or a hybrid of the two and are
recognized at the time of the transaction. In the case of “wholesale” residual revenue in which the Company has a
direct contractual relationship with the merchant, bears risk of chargebacks and performs underwriting on the merchants, the Company
records the full discount charged to the merchant as revenue and the related interchange and other processing fees as expenses.
In cases of residual revenue where the Company is not responsible for merchant underwriting and has no chargeback liability and
has no or limited contractual relationship with the merchant, the Company records the amount it receives from the processor net
of interchange and other processing fees as revenue.
The Company acts as an ISO offering alternative
financing and working capital solutions (merchant cash advances) to small and medium sized businesses using a variety of third-party
funding sources. As an ISO, we earn commissions from capital funders by placing their financial products with our merchant customers.
This portion of our business does not yet represent a significant portion of our revenues, costs or assets.
The
Company recognizes revenue in accordance with FASB ASC 606,
Revenue From Contracts with Customers.
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, chargebacks from credit card companies, and allowances
based upon actual history and management’s evaluation of current facts and circumstances.
Income
Taxes
Income
taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent
the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities
are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the 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 income in the period that
includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management,
it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future
taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it
is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could
change in the near term.
Fair
Value Measurements
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. ASC Topic No. 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels, as described below:
Level
1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level
2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable
inputs other than quoted prices such as interest rates.
Level
3: Level 3 inputs are unobservable inputs.
The
following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available
market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data
to develop the estimates of fair value. Accordingly, the use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
The
methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:
Cash
and Cash Equivalents, Accounts Receivable, Other Current Assets, Accounts Payable, Accrued Compensation and Other Accrued Liabilities.
The
items are generally short-term in nature, and accordingly, the carrying amounts reported on the consolidated balance sheets are
reasonable approximations of their fair values.
Note
Receivable, Other Long Term Assets, Notes Payable, and Other Long Term Liabilities.
The
carrying amounts approximate the fair value as the notes bear interest rates that are consistent with current market rates.
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.
NOTE
3 – LIQUIDITY AND CAPITAL RESOURCES
On April 9, 2018, the Company consummated
a business acquisition and as discussed in Note 1, has also created three new subsidiaries, acquired certain assets, including
cash, and revenue generating operations. The Company has borrowed $1,000,000 from a private investor in order to make its
first scheduled payments on the Loan and Security Agreement (entered into on April 9, 2018) and is currently in the process of
a capital raise of up to $7,500,000. If the full $7,500,000 is raised, the Company will have enough liquidly for the next several
years and to make additional acquisitions as well as internal organic growth. This, along with the additional acquisitions of CrowdPay.US,
Inc, and Omnisoft, Inc. should provide the company with the assets and operations it requires to pursue profitable business operations.
Since the consummation of the Excel’s
subsidiaries’ Asset Acquisition and the share exchange, we have limited history upon which an evaluation of our performance
and future prospects can be made. Our current and proposed operations are subject to all the business risks associated with new
enterprises. These include likely fluctuation in operating results as we manage our growth and react to competitors and developments
in the markets in which we compete.
In order to mitigate the above risk,
the Company has obtained a written agreement from Mr. Herzog, a related party and significant stockholder, that he will provide any
additional financial support if needed, in order to satisfy any debt or other obligations over the next twelve months. Mr.
Herzog has a history of funding the company with related party loans. If necessary, the Company plans to continue to use the
financial resources of its related parties in the future.
For the period April 9, 2018 through
September 30, 2018 the Company had revenue of $6,192,130. Total revenue, including revenue from the predecessor company, from
January 1, 2018 through September 30, 2018 was $9,382,116. For the period April 9, 2018 through September 30, 2018 the
Company had a loss of $784,302 which included non-cash depreciation and amortization of $483,294. Currently management
believes that the monthly cash from operations is sufficient to meet operating expenses and interest costs for the next
twelve months.
As discussed in Note 12, the Company settled
the second scheduled note obligation of $2,000,000 on November 14, 2018 from additional financial support from a related party
investor.
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment are summarized as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Furniture and Fixtures
|
|
$
|
14,895
|
|
|
$
|
36,471
|
|
Office Equipment
|
|
|
73,208
|
|
|
|
180,576
|
|
Leasehold improvements
|
|
|
6,207
|
|
|
|
-
|
|
Computer Software
|
|
|
12,292
|
|
|
|
63,607
|
|
|
|
|
106,602
|
|
|
|
280,654
|
|
Accumulated depreciation
|
|
|
(27,941
|
)
|
|
|
(162,414
|
)
|
Property and equipment, net
|
|
$
|
78,661
|
|
|
$
|
118,240
|
|
Depreciation and amortization expense amounted to $27,941 and $63,739
for the period from April 9, 2018 through September 30, 2018, and for the nine months ended September 30, 2017, respectively.
NOTE
5 – RESIDUAL PORTFOLIO
Other
assets consist of the following as of:
|
|
September
30,
2018
|
|
|
December
31,
2017
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Residual Portfolios
|
|
$
|
6,374,947
|
|
|
$
|
2,540,690
|
|
Less Accumulated Amortization
|
|
|
(455,353
|
)
|
|
|
(756,158
|
)
|
Residual Portfolios, net
|
|
$
|
5,919,594
|
|
|
$
|
1,784,532
|
|
Amortization
expense amounted to $455,353 for the period from April 9, 2018 through September 30, 2018, and $636,831 for the nine months ended
September 30, 2017, respectively.
NOTE
6 – BUSINESS COMBINATION
We
allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired
based on their estimated fair values. Described in detail filed on May The excess of the fair value of purchase consideration
over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management
to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing
certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology,
and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value
are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual
results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments
to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement
period, any subsequent adjustments are recorded to earnings.
Goodwill
increased during the second quarter due to the acquisitions of eVance Inc, Securus356 and eVance Capital. OLB’s Form 8K
dated April 13, 2018 includes more complete description of the acquisition. OLB obtained a term loan in the amount of $12,500,000
to complete the acquisition. The value of the loan was greater than the acquired assets increasing the balance of Goodwill.
The
acquisition date estimated fair value of the consideration transferred consisted of the following:
Closing note payable
|
|
$
|
12,500,000
|
|
|
|
|
|
|
Tangible assets acquired
|
|
$
|
2,968,589
|
|
Liabilities assumed
|
|
|
(344,165
|
)
|
Net tangible assets
|
|
|
2,624,424
|
|
Residual values
|
|
|
4,353,070
|
|
Goodwill
|
|
|
5,522,506
|
|
Total purchase price
|
|
$
|
12,500,000
|
|
The
above estimated fair value of the intangible assets is based on a preliminary purchase price allocation prepared by management.
As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination
date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After
the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to
the purchase price allocation period in our operating results in the period in which the adjustments were determined.
NOTE
7 – NOTE PAYABLE
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 within thirty days’ prior written notice. The Term Loan is
subject to an interest rate of 9.0% per annum, payable monthly in arrears.
Pursuant
to the Note Agreement, the Company issued warrants to acquire 1,200,000 shares of common stock (see Note 8) and recorded a debt
discount of $159,026, During the nine months ended September 30, 2018, the Company recorded amortization expense of $27,289.
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.
On
July 30, 2018, the Company entered into Amendment No. 1 to the Loan and Security Agreement (the “
Amendment
”)
amending that certain Loan and Security Agreement, dated as of April 9, 2018 (the “
Original Credit Agreement
,”
and as amended by the Amendment, the “
Credit Agreement
”), by and among GACP Finance Co., LLC, as administrative
agent and collateral agent, the lenders party thereto, Securus365, Inc., eVance, Inc., eVance Capital, Inc., OMNISOFT, Inc., and
Crowdpay.us, Inc., as borrowers, and the Company, as parent guarantor. Pursuant to the Amendment, among other things, the lenders
(i) waived the Company’s existing defaults under the Original Credit Agreement for its failure to make payment of $1,000,000
(the “
initial payment
”) under the Original Credit Agreement on or prior to July 15, 2018 and to deliver to
the lenders unaudited monthly financial statements and compliance certificates of the Company, (ii) extended the date on which
the initial payment was required to be made to July 30, 2018 and extended the date on which the Company is required to provide
audited financial statements for the fiscal years ended December 31, 2016 and 2017, (iii) permitted the Company to enter into
a subordinated loan arrangement for the Note concurrently with the Amendment such that the Company could make the initial payment
under the terms of the Credit Agreement, and permitted the Note to be repaid either from the sale of the Note Collateral Shares
or at any time after the second payment under the Credit Agreement. The Company has borrowed $1,000,000 from a private investor
in order to make its first scheduled payment. At September 30, 2018, the principal amount due is $11,500,000 and the unamortized
debt discount is $131,737. The Company is in default of its debt covenants and has received a waiver from GACP.
NOTE
8 – WARRANTS
Pursuant
to and as additional consideration for the Term Loan under the Credit Agreement, on April 9, 2018 the Company issued to GACP a
Warrant to purchase 1,200,000 shares of common stock of the Company 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.
The
warrants have an exercise price of $0.25 and expire in three years. The aggregate fair value of the warrants, which was allocated
against the debt proceeds totaled $159,026 based on the Black Scholes Merton pricing model using the following estimates: exercise
price of $0.25, 2.43% risk free rate, 198.92% volatility, dividend yield of 0% and expected life of the warrants of 3 years. The fair value was credited
to additional paid in capital and debited to debt discount to be amortized over the term of the loan.
A
summary of the status of the Company’s outstanding stock warrants and changes during the periods is presented below:
|
|
Shares available to purchase with warrants
|
|
|
Weighted
Average
Price
|
|
|
Weighted
Average
Fair Value
|
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
1,200,000
|
|
|
$
|
0.25
|
|
|
$
|
0.15
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Outstanding, September 30, 2018
|
|
|
1,200,000
|
|
|
$
|
0.25
|
|
|
$
|
0.20
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2018
|
|
|
1,200,000
|
|
|
$
|
0.25
|
|
|
$
|
0.20
|
|
|
$
|
-
|
|
Range of Exercise Prices
|
|
Number Outstanding 9/30/2018
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
$0.25
|
|
|
1,200,000
|
|
|
|
2.61 years
|
|
|
$
|
0.25
|
|
The
aggregate intrinsic value represents the total pretax intrinsic value, based on warrants with an exercise price less than the
Company’s stock price of $0.20 as of September 30, 2018, which would have been received by the warrant holder had the warrant
holder exercised their warrants as of that date.
NOTE
9 – RELATED PARTY TRANSACTIONS
During
the nine months ended September 30, 2018, the Company received $30,000 from Mr. John Herzog. The advance was used for operating
expenses, is unsecured, bears interest at 18% and is due on demand. This loan was repaid in full as of September 30, 2018.
On
July 30, 2018, pursuant to the terms of the Amendment (Note 7), the Company issued to John Herzog, a significant stockholder of
the Company a subordinated promissory note in the principal amount of $1,000,000 (the “
Note
”) for cash proceeds
of $1,000,000. The Note matures on March 31, 2019 (though the Company has the right to prepay the Note, in whole or in part, at
any time prior to maturity) and bears interest at a rate of 12% per annum, compounding annually. The Note is secured by shares
of common stock of a publicly traded company held by the Company. The Note is subordinated to the Credit Agreement, other than
the Note Collateral Shares. The Company used the proceeds received by the Payee to make the initial payment under the Credit Agreement.
On
August 10, 2018, Ronny Yakov, the CEO, loaned the Company $25,000, in order to pay for audit services. The loan is unsecured,
bears interest at 12% and is due on demand.
As
of September 30, 2018, the Company had accrued expenses due to related parties of $81,694.
NOTE
10 – COMMON STOCK
During
the nine months September 30, 2018, the Company approved the issuance of 25,000 shares of common stock for services rendered,
the shares were issued at $0.15, the closing stock price on the date of grant, for total non-cash expense of $3,750.
Effective
May 9, 2018, the Company entered into a share exchange agreement with Crowdpay.US, Inc., a New York corporation (“Crowdpay”),
for which the Company issued 87,500,000 shares of common stock for all of the authorized stock of Crowdpay. Crowdpay will became
a wholly owned subsidiary of OLB.
Effective
May 9, 2018, the Company entered into a share exchange agreement with OMNISOFT, Inc., a Delaware corporation (“OMNISOFT”),
for which the Company issued 55,000,000 shares of common stock for all of the authorized stock of OMNISOFT. OMNISOFT will became
a wholly owned subsidiary of OLB.
NOTE
11 – COMMITMENTS
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.
Office
Lease
The
Company leases its Georgia office facilities under an operating lease expiring in November 2019. Monthly lease payments range
from $8,278 to $9,046 throughout the term of the lease.
The
future minimum lease payments required under the operating lease as of September 30, 2018 are as follows:
2018
|
|
$
|
12,000
|
|
2019
|
|
|
88,000
|
|
Total
|
|
$
|
100,000
|
|
NOTE
12 – 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 and has determined that it does not have any material subsequent
events to disclose in these financial statements.
On
November 14, 2018, the $2,000,000 second payment due under the Original Credit Agreement (Note 7) that was due by October 31,
2018 was paid. Some of the covenants from the lender will now be removed based on the original agreement from April 9, 2018 as
a result of the this payment having been made. There are no financial short-term obligations other than the monthly interest payment
and the company is not currently in default with the lender.
On
November 14, 2018, the Company issued to John Herzog, a related party and significant stockholder of the Company a subordinated
promissory note in the principal amount of $2,000,000 for cash proceeds of $2,000,000. The Note matures on November 14, 2019 (though
the Company has the right to prepay the Note, in whole or in part, at any time prior to maturity) and bears interest at a rate
of 12% per annum, compounding annually. The Note is secured by shares of common stock of a publicly traded company held by the
Company. The Note is subordinated to the Credit Agreement, other than the Note Collateral Shares. The Company used the proceeds
received by the Payee to make the payment under the Credit Agreement.