Notes
to the Consolidated Financial Statements
March
31, 2022
NOTE
1 – BACKGROUND
Background
The
OLB Group, Inc. (“OLB” the “Company”) was incorporated in the State of Delaware on November 18, 2004 and provides
services through its wholly-owned subsidiaries and business segments.
Fintech
Services:
The
Company provides integrated financial and transaction processing services (“Fintech Services”) to businesses throughout the
United States. Through its eVance Capital, Inc. subsidiary (“eVance”), the Company provides an integrated suite of third-party
merchant payment processing services and related proprietary software enabling products that deliver credit and debit card-based internet
payment processing solutions primarily to small and mid-sized merchants operating in physical “brick and mortar” business
environments, on the internet and in retail settings requiring both wired and wireless mobile payment solutions. eVance operates as an
independent sales organization (“ISO”) generating individual merchant processing contracts in exchange for future residual
payments. As a wholesale ISO, eVance has a direct contractual relationship with the merchants and takes greater responsibility in the
approval and monitoring of merchants than do retail ISOs and as a result, receives additional consideration for this service and risk.
The Company’s Securus365, Inc. (“Securus365”) subsidiary operates as a retail ISO and receives residual income as commission
for merchants it places with third party processors.
CrowdPay.us,
Inc. (“CrowdPay”) is a Crowdfunding platform used to facilitate a capital raise anywhere from $1,000,000 -$50,000,000 of
various types of securities under Regulation D, Regulation Crowdfunding, Regulation A and the Securities Act of 1933. To date, the activities
of this subsidiary have been nominal.
OmniSoft.io,
Inc. (“OmniSoft”) operates a software platform for small merchants. The Omnicommerce applications work on an iPad, mobile
device and the web and allows customers to sell a store’s products in a physical, retail setting. To date, the activities of this
subsidiary have been nominal when compared to the overall business.
On
May 14, 2021, the Company formed OLBit, Inc., a wholly owned subsidiary (“OLBit”). The purpose of OLBit is to hold the Company’s
assets and operate its business related to its emerging cryptocurrency-related lending and transactional business.
Cryptocurrency
Business:
On
July 23, 2021, the Company formed DMINT, Inc., a wholly owned subsidiary (“DMINT”). The purpose of DMINT is to operate its
business related to cryptocurrency mining (“Cryptocurrency Business”).
On
July 28, 2021, the Company entered into an exclusive agreement with Cai Energy Blockchain, Inc. (“CAI”) whereby CAI provided
the Company with an exclusive natural gas supply agreement (the “Services”). In exchange for the Services, the Company granted
CAI options to purchase up to 767,918 shares of Common Stock, $0.0001 par value (with a fair value of approximately $4.5 million
on the date of grant) at an exercise price of $0.0001 per share. The natural gas is being used in connection with the Company’s,
newly launched, cryptocurrency mining business.
The
Company also provides ecommerce development and consulting services on a project-by-project basis.
The
Company generates its revenue through two business segments its Fintech Services and Cryptocurrency Business segments.
COVID-19
Impact
On
January 30, 2020, the World Health Organization declared the COVID-19 (coronavirus) outbreak a “Public Health Emergency of International
Concern” and on March 10, 2020, declared it to be a pandemic. The virus and actions taken to mitigate its spread have had and are
expected to continue to have a broad adverse impact on the economies and financial markets of many countries, including the geographical
areas in which the Company operates. In response to the pandemic, the Company has been working with merchants to address potential changes
to the purchase patterns of consumers. In addition, it has been focusing on servicing merchants that sell products with an extended delivery
time frame, that have products that are paid for in advance, and that work in the catering, ticketing, limo and travel related businesses
which have been directly impacted by the social distancing requirement of the pandemic. Further, for those of the Company’s employees
that are able to perform their job remotely, the Company implemented a “remote work” policy and provided employees with the
technology necessary to continue to do their jobs from home and for those employees that are unable to perform their job from a remote
location, the Company has taken steps to ensure appropriate distancing, continue to require wearing masks in the office and added sanitizing
stations along with requiring frequent hand washing and work station cleaning. In addition, the Company has been encouraging its employees
to get vaccinated, if possible. At March 31, 2022, most employees were no longer working remotely and had returned to the office. However,
the Company continues to monitor and follow the advice of federal and state authorities. The Company has not seen a material impact on
its business since states began to roll back restrictions on businesses in the United States.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Company’s unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management
believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the
three month period ending March 31, 2022 and not necessarily indicative of the results to be expected for the full year ending December
31, 2022. These unaudited financial statements should be read in conjunction with the financial statements and related notes included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company’s accounting estimates include the collectability of receivables, useful lives of long-lived assets and recoverability
of those assets, impairment in fair value of goodwill, valuation allowances for income taxes, stock-based compensation.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, eVance,
Securus, CrowdPay, Omnisoft, OLBit, DMINT and Crowd Ignition, Inc. All significant intercompany transactions and balances have been eliminated.
Reclassifications
Certain
reclassifications have been made to the prior year financial information to conform to the presentation used in the financial statements
for the three months ended March 31, 2022.
Concentration
of Credit Risk
Financial
instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and accounts receivable. The
Company’s cash is deposited with major financial institutions. At times, such deposits may be in excess of the Federal Deposit
Insurance Corporation insurable amount (“FDIC”). As of March 31, 2022, the Company had $2,831,494 of cash in excess
of the FDIC’s $250,000 insurance limit.
Operating
Segments
Operating
segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the
Chief Operating Decision Maker (“CODM”), or decision maker group, in deciding how to allocate resources to an individual
segment and in assessing performance. Our chief operating decision–making group is composed of the chief executive officer and
Vice President. The Company has two operating segments as of March 31, 2022. See Note 13, “Segment Information”.
Net
Loss per Share
Basic
net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding
during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock and dilutive potentially outstanding shares of common stock during the period. The weighted average number of common shares for
the year ended March 31, 2022 and 2021 does not include warrants to acquire 8,563,127 and 2,368,978 shares of common stock, respectively,
because of their anti-dilutive effect. The weighted average number of common shares for the three months ended March 31, 2022 and 2021
does not include 779,029 and 11,112 options, respectively, to purchase common stock because of their anti-dilutive effect.
Accounts
Receivable
Accounts
receivable represent contractual residual payments due from the Company’s processing partners or other customers. 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 for our residual payments to be fully collectible and accordingly, no allowance for doubtful accounts is required;
however, CrowdPay has a recorded an allowance of approximately $0 and $38,000 as of March 31, 2022 and December 31, 2021, respectively.
Reserve
for Chargeback Losses
Disputes
between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise
quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged
back” to the merchant, which means the purchase price is refunded to the customer through the merchant’s bank and charged
to the merchant. If the merchant has inadequate funds, the Company must bear the credit risk for the full amount of the transaction.
The Company evaluates the risk for such transactions and estimates the potential loss for chargebacks based primarily on historical experience
and records a loss reserve accordingly.
Revenue
Recognition and Cost of Revenues
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.
Disaggregation
of Revenue
The
following table presents the Company’s revenue disaggregated by revenue source:
| | |
For
the Three Months Ended
March 31, | |
| | |
2022 | | |
2021 | |
| Revenue from contracts with customers: | |
| | |
| |
| Wholesale contracts | |
$ | 7,706,208 | | |
$ | 1,445,857 | |
| Retail contracts | |
$ | 373,773 | | |
$ | 429,149 | |
| Other transaction and processing fees | |
$ | 442,138 | | |
$ | 351,398 | |
| Cryptocurrency mining
fees | |
$ | 264,340 | | |
$ | — | |
| Total fees | |
$ | 8,786,459 | | |
$ | 2,226,404 | |
The
Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines
revenue recognition through the following steps:
| |
● |
Identification of a contract
with a customer; |
| |
|
|
| |
● |
Identification of the performance
obligations in the contract; |
| |
|
|
| |
● |
Determination of the transaction
price; |
| |
|
|
| |
● |
Allocation of the transaction
price to the performance obligations in the contract; and |
| |
|
|
| |
● |
Recognition of revenue
when or as the performance obligations are satisfied. |
Revenue
is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods or services. Shipping and handling activities associated with outbound
freight after control over a product has transferred to a customer are accounted for as a fulfillment activity and recognized as revenue
at the point in time at which control of the goods transfers to the customer. As a practical expedient, the Company does not adjust the
transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment
and the transfer of goods or services is expected to be one year or less.
Transaction
and processing fees
Fees
for the Company’s transaction and processing arrangements are typically billed and paid on a monthly basis. 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. These
merchant services represent a single performance obligation satisfied over time and that the same measure of progress should be used
to measure the Company’s progress toward complete satisfaction of the performance obligation. The Company will recognize revenue
on a monthly basis as the services are transferred to the customer in short daily increments that qualify for series guidance as the
best measure of the transfer of control.
In
wholesale contracts, the Company recognizes transaction and processing fees on a gross basis as the Company is the principal in the merchant
services. The Company has concluded it is the principal because it has a direct contractual relationship with the merchant, is primarily
responsible for the delivery of services to the merchants, including performing underwriting, has discretion in setting prices, and bears
risk of chargebacks and other merchant losses. The Company also has the unilateral ability to accept or reject a transaction based on
criteria established by the Company. As the principal, the Company records the full discount charged to the merchant as revenue and the
related interchange and other processing fees within cost of revenues.
In
retail contracts, the Company is not responsible for merchant underwriting, has no chargeback liability and has no or limited contractual
relationship with the merchant. As such, the Company records the net amount it receives from the processor, after interchange and other
interchange and other processing fees, as revenue.
Merchant
equipment sales and other
The
Company generates revenue through the sale and rental of merchant equipment. The Company satisfies its performance obligation upon delivery
of equipment to merchants and recognizes revenue at a point in time. The Company allows for customer returns which are accounted for
as variable consideration. The Company estimates these amounts based on historical experience and reduces revenue recognized. The Company
invoices customers upon delivery of the equipment to merchants, and payments from such customers are due upon invoicing. The Company
offers hardware installment sales to customers with terms ranging from three to forty-eight months. The Company allocates a portion
of the consideration received from these arrangements to a financing component when it determines that a significant financing component
exists. The financing component is subsequently recognized as financing revenue separate from hardware revenue, within subscription and
services-based revenue, over the terms of the arrangement with the customer. Pursuant to practical expedients afforded under ASC 606,
the Company does not recognize a financing component for hardware installment sales that have a term of one year or less.
Cryptocurrency
mining
The
Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators
to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable
right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing
power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital
asset transaction fees to the mining pool operator which are immaterial and are recorded as a deduction from revenue), for successfully
adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed
to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
Providing
computing power to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving
a block”) is an output of the Company’s ordinary activities. The provision of providing such computing power is the only
performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives,
if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than
the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable.
Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the
mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of
the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair
value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.
Each individual unit of cryptocurrency held by the Company is a separate unit of account. There is currently no specific definitive guidance
under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management
has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted
by the Financial Accounting Standards Board (“FASB”), the Company may be required to change its policies, which could have
an effect on the Company’s consolidated financial position and results from operations.
NOTE
3 – LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2022, the Company had cash of approximately
$3.6 million and working capital of approximately $ 2.8 million. As such, the Company believes it has sufficient liquidity to fund
its future operations and capital requirements for a period of at least twelve months from the date these consolidated financial statements
are issued.
NOTE
4 – INTANGIBLE ASSETS
Intangible
assets, net, consist of the following as of:
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Merchant Portfolios | |
$ | 2,405,000 | | |
$ | 2,405,000 | |
| Less accumulated amortization | |
| (1,691,203 | ) | |
| (1,562,798 | ) |
| Net residual portfolios | |
$ | 713,797 | | |
$ | 842,202 | |
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Trade name | |
$ | 2,500,000 | | |
$ | 2,500,000 | |
| Less accumulated amortization | |
| (1,625,000 | ) | |
| (1,500,000 | ) |
| Net trade name | |
$ | 875,000 | | |
$ | 1,000,000 | |
| | |
March 31,
2022 | | |
December 31,
2021 | |
| CBD Merchant Portfolio | |
$ | 18,000,000 | | |
$ | 18,000,000 | |
| Less accumulated amortization | |
| (857,143 | ) | |
| (190,476 | ) |
| Net CBD merchant portfolio | |
$ | 17,142,857 | | |
$ | 17,809,524 | |
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Exclusive agreement to purchase
natural gas | |
$ | 4,499,952 | | |
$ | 4,499,952 | |
| Less accumulated amortization | |
| (262,497 | ) | |
| (187,498 | ) |
| Net mineral rights | |
$ | 4,237,455 | | |
$ | 4,312,454 | |
| | |
| | | |
| | |
| Total intangible assets,
net | |
$ | 22,969,109 | | |
$ | 23,964,180 | |
Amortization expense for the three months ended
March 31, 2022 and 2021 was $995,069 and $215,904, respectively.
The
Company’s merchant portfolios and tradename are being amortized over respective useful lives of 7 and 5 years.
The
Company’s agreement to purchase natural gas is being amortized over the useful life of 10 years.
The
following sets forth the estimated amortization expense related to amortizing intangible assets for the years ended December 31:
| 2022 | |
$ | 2,863,019 | |
| 2023 | |
| 3,834,281 | |
| 2024 | |
| 3,320,234 | |
| 2025 | |
| 3,021,424 | |
| 2026 | |
| 3,021,424 | |
| Thereafter | |
| 6,908,727 | |
| Total | |
$ | 22,969,109 | |
The
weighted average remaining useful life of amortizing intangible assets was 5.95 years at March 31, 2022.
NOTE
5 – PROPERTY AND EQUIPMENT
Long
lived assets, including property and equipment assets to be held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment losses are recognized if
expected future cash flows of the related assets are less than their carrying values. Measurement of an impairment loss is based on the
fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to
sell.
Property
and equipment are first recorded at cost. Depreciation and is computed using the straight-line method over the estimated useful lives
of the various classes of assets.
Maintenance
and repair expenses, as incurred, are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts. Cost
and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain or loss on
the disposition included as income.
Assets stated
at cost, less accumulated depreciation consisted of the following:
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Furniture and Fixtures | |
$ | 36,471 | | |
$ | 36,471 | |
| Office Equipment | |
| 474,873 | | |
| 474,873 | |
| Computer Software | |
| 182,345 | | |
| 182,345 | |
| Leasehold Improvements | |
| 17,877 | | |
| 17,877 | |
| Cryptocurrency Mining Equipment | |
| 9,410,000 | | |
| 9,410,000 | |
| Total | |
| 10,121,565 | | |
| 10,121,566 | |
| Less accumulated depreciation | |
| (2,054,929 | ) | |
| (1,154,470 | ) |
| Property and Equipment, net | |
$ | 8,066,637 | | |
$ | 8,967,096 | |
Depreciation
expense
Depreciation expense for the three months ended
March 31, 2022 and 2021 was $895,277 and $3,521, respectively.
NOTE
6 – NOTE PAYABLE
On
November 24, 2021, we entered into an Asset Purchase Agreement (the “Agreement”) dated as of November 15, 2021 with FFS Data
Corporation (“Seller”) whereby we acquired a portfolio of merchants in the Cannabidiol (or “CBD”) industry, along
with other merchants utilizing financial transaction processing services (the “Purchased Assets”). The purchase price
was $20 million, with $16 million paid at closing, $2 million payable within six months after closing, and a $2 million payment to be
transferred to an escrow account, contingent upon an Attrition Adjustment, as described in the Agreement. Company management has
recognized a liability for the contingent payment amount.
On November 29, 2021, the Company entered into a Master Equipment Finance
Agreement (the “MFA”) with VFS LLC (“VFS”) which would allow the Company to finance the purchase of certain equipment.
The collateral and interest rate are determined at the time the Company borrows funds. During the three months ended March 31, 2022, the
Company received, as an initial draw on the MFA, $875,000 from VFS (the “Equipment Loan”). The Equipment Loan is secured by
cryptocurrency mining computers being utilized by DMINT. The Equipment Loan requires monthly payments of $24,837.75 until the loan is
repaid in full or it matures on November 29, 2024 requiring a full payment of all principal and accrued and unpaid interest.
NOTE
7 – STOCK OPTIONS
A
summary of the status of the Company’s outstanding stock options and changes during the three months ended March 31, 2022 is presented
below:
| Stock Options | |
Options | | |
Weighted
Average
Exercise
Price | | |
Aggregate
Intrinsic
Value | |
| Options outstanding December 31, 2020 | |
| 285,173 | | |
$ | 0.0001 | | |
$ | 1,408,755 | |
| Granted | |
| 774,585 | | |
$ | 0.0001 | | |
| - | |
| Exercised | |
| (159,103 | ) | |
$ | - | | |
| - | |
| Expired | |
| (6,667 | ) | |
$ | - | | |
| - | |
| Options outstanding December 31, 2021 | |
| 893,988 | | |
$ | 0.0001 | | |
$ | 2,369,065 | |
| Granted | |
| - | | |
$ | - | | |
| - | |
| Exercised | |
| - | | |
$ | - | | |
| - | |
| Expired | |
| (112,736 | ) | |
$ | - | | |
| - | |
| Options outstanding March 31, 2022 | |
| 781,252 | | |
$ | 0.0001 | | |
| | |
| Shares exercisable at March 31, 2022 | |
| 779,029 | | |
$ | 0.0001 | | |
$ | 1,363,301 | |
NOTE 8
– WARRANTS
A
summary of the status of the Company’s outstanding stock warrants and changes during the three months ended March 31, 2022 is presented
below:
| | |
Number
of
Warrants | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contract
Term | |
| Outstanding, December 31, 2020 | |
| 3,353,698 | | |
| 4.61 | | |
| 4.81 | |
| Cancelled | |
| (40,000 | ) | |
$ | 7.50 | | |
| - | |
| Underwriter Warrants | |
| 8,881,333 | | |
$ | 3.62 | | |
| - | |
| Warrant A Exercised | |
| (742,220 | ) | |
$ | 9.00 | | |
| - | |
| Warrant B Exercised | |
| (313,320 | ) | |
$ | 4.50 | | |
| - | |
| Underwriter Warrant
Exercised | |
| (1,176,364 | ) | |
$ | 0.0001 | | |
| - | |
| Outstanding, December 31, 2021 | |
| 9,963,127 | | |
$ | 5.02 | | |
| 4.55 | |
| Underwriter Warrant
Exercised | |
| (1,400,000 | ) | |
$ | 0.0001 | | |
| - | |
| Outstanding, March 31, 2022 | |
| 8,563,127 | | |
$ | 5.10 | | |
| 4.45 | |
NOTE
9 – OPERATING LEASES
On
June 24, 2020, eVance, Inc. (“eVance”) entered into a Lease Agreement (the “Lease”) with Pergament Lodi,
LLC (the “Lessor”) relating to approximately 4,277 square feet of property located at 960 Northpoint Parkway, Alpharetta,
Georgia, Suite 400. The term of the Lease is for thirty-nine (39) months commencing September 1, 2020. The monthly base rent is
$8,019 for the first twelve (12) months increasing thereafter to $8,768. The total rent for the entire lease term is $315,044 and
$8,768 is payable as a security deposit. The first three months of rent will be abated so long as eVance is not in default of any
portion of the Lease.
On
January 11, 2022, DMINT entered into two leases (the “Leases”) in Bradford, Pennsylvania relating to a combined 10,000 square
feet of property located at the Bradford Regional Airport Authority multi-tenant building in Lafayette Township. The facility is in the
process of being converted into a cryptocurrency mining data center powered on the local power grid in tandem with natural gas power.
The location will be used for DMINT’s mining operation with capacity for up to 2,000 Antminer S19j PRO machines. The Leases are
each for a term of five years, ending on the later of the date of occupancy and November 10, 2026. The monthly base rent for “Cell
3”, comprising 4,000 square feet, is $1,667 per month. The monthly base rent for “Cell 4”, comprising 6,000 square
feet, is $2,500 per month. The total rent for the entire lease term of the Leases is $250,00 and $8,768 is payable as a security deposit.
| | |
Balance
Sheet Classification | |
March 31,
2022 | |
| Asset | |
| |
| |
| Operating
lease asset | |
Right of
use asset | |
$ | 369,986 | |
| Total lease asset | |
| |
$ | 369,986 | |
| | |
| |
| | |
| Liability | |
| |
| | |
| Operating lease liability – current portion | |
Current operating lease liability | |
$ | 135,603 | |
| Operating lease liability
– noncurrent portion | |
Long-term operating
lease liability | |
| 238,190 | |
| Total lease liability | |
| |
$ | 373,793 | |
Lease
obligations at March 31, 2022 consisted of the following:
| For
the year ended December 31: | |
| |
| 2022 | |
$ | 112,854 | |
| 2023 | |
| 144,393 | |
| 2024 | |
| 50,000 | |
| 2025 | |
| 50,000 | |
| 2026 | |
| 41,667 | |
| Total payments | |
$ | 398,914 | |
| Amount representing
interest | |
$ | (25,121 | ) |
| Lease obligation, net | |
| 373,793 | |
| Less current portion | |
| (135,603 | ) |
| Lease obligation –
long term | |
$ | 238,190 | |
Rent
expense for the three months ended March 31, 2022 and 2021, was $42,409 and $24,909, respectively.
NOTE
10 - COMMON STOCK
In
January 2022, Armistice Capital, received 1,400,000 shares of common stock upon the exercise of 1,400,000 warrants at $0.0001.
NOTE
11 – PREFERRED STOCK
Our
certificate of incorporation authorizes the issuance of 50,000,000 shares of blank check preferred stock with such designation,
rights and preferences as may be determined from time to time by our board of directors. 4,633 shares of preferred stock are currently issued
and outstanding.
Series
A Preferred Stock
On
August 7, 2020, we filed a Certificate of Designations, Preferences and Rights of Series A Preferred Stock (the “Certificate of
Designations”) with the Secretary of State of Delaware. The Certificate of Designations will provide that the Company may
issue up to 10,000 shares of Series A Preferred Stock at a stated value (the “Stated Value”) of $1,000 per share. Holders
of Series A Preferred Stock are entitled to the following rights and preferences.
Dividends
The
Series A Preferred Stockholders are entitled to receive cash dividends at a rate per share (as a percentage of the Stated Value per share)
of 12% per annum. Dividends accrue quarterly. Dividends are to be paid to the holders from funds legally available for payment and
as approved for payment by the Board of Directors of the Company.
Conversion
The
Series A Preferred Stock holders may convert, at their option, on or after the date on which the Term Loan is repaid in full, each share
of Series A Preferred Stock (along with accrued but unpaid dividends thereon) into such number of shares of common stock as determined
by dividing the Stated Value by the conversion price. The conversion price for the Series A Preferred Stock will be equal to the offering
price per Unit in this offering and will be subject to adjustment for splits and the like. The holders of Series A Preferred Stock will
only be permitted to convert their shares of Series A Preferred Stock into shares of common stock at such time as the Term Loan has been
repaid in full and there is no further outstanding obligations regarding such indebtedness.
Voting
Each
holder of a share of Series A Preferred Stock will have the right to vote its shares of Series A Preferred Stock with the common stock
on an as-converted basis, and with respect to such votes, such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of common stock, and shall be entitled, to notice of any stockholders’ meeting in accordance with the
Company’s bylaws, and shall be entitled to vote, together with holders of common stock, with respect to any question upon which
holders of common stock have the right to vote. Fractional votes shall not be permitted, and such shares shall be rounded up.
Liquidation
Preference
Each
share of Series A Preferred Stock will have a liquidation preference equal to the Stated Value plus any accrued but unpaid dividends
thereon. In the event of a liquidation, dissolution or winding up of the Company (which include,s any merger, reorganization, sale of
assets in which control of the Company is transferred or event which results in all or substantially all of the Company’s assets
being transferred), the holders of Series A Preferred Stock shall be entitled to receive out of the assets of the Company, before any
payment is made to the holders of the Company’s common stock and either in preference to or pari pasu with the
holders of any other series of preferred stock that may be issued in the future, a per share amount equal to the liquidation preference.
NOTE
12 – RELATED PARTY TRANSACTIONS
On
January 3, 2022, the Company entered into a share exchange agreement with all of the shareholders of Crowd Ignition, Inc. (“Crowd
Ignition”) whereby the Company would purchase 100% of the equity of Crowd Ignition in exchange for 1,318,408 shares of the common
stock, par value $0.0001 of the Company (the “CI Issued Shares”). The value of the CI Issued Shares was, for purposes of
the Agreement, based on the closing trading price of the Company on October 1, 2021 (the date on which a third-party fairness opinion
was issued), resulting in an aggregate purchase price for Crowd Ignition of $5.3 million. The purchase price was used solely to establish
the price between the parties and not for accounting purposes.
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, collectively owned 100% of the equity of Crowd Ignition. The acquisition of Crowd Ignition., was determined to be a common
control transaction as each Company has the same two shareholders with a majority ownership. As a result, the assets and liabilities
assumed were recorded on the Company’s condensed consolidated financial statements at their respective carry-over basis; however,
as of January 3, 2022, Crowd Ignition has no assets, liabilities or other operations.
NOTE
13 – COMMITMENTS AND CONTINGENCIES
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course
of business. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable
settlements.
On
January 11, 2022, the Company entered into a new employment agreement with Mr. Yakov (the “Yakov Agreement”) and a new employment
agreement with Mr. Smith (the “Smith Agreement”). The Yakov Agreement maintains Mr. Yakov’s role as the Company’s
Chief Executive Officer through December 31, 2027 and extended for one-year terms thereafter. The Smith Agreement maintains Mr. Smith’s
role as the Company’s Vice President, Finance unless terminated or upon his resignation.
The Yakov Agreement increases Mr. Yakov’s base salary to $750,000
and he will continue to be eligible for insurance coverages and benefits available to the Company’s employees pursuant to the terms
of such plans. Mr. Yakov also received a $490,000 bonus for acquisitions closed by the Company in 2020 and 2021 and he will be eligible
to receive an acquisition bonus equal to two percent (2%) of the gross purchase price paid in connection with a future acquisition. Mr.
Yakov shall be eligible to receive an annual bonus of Three Hundred Thousand Dollars ($300,000) based on performance criteria established
by the Board. In addition, on an annual basis, Mr. Yakov shall receive options to purchase up to 200,000 shares of common stock of the
Company at an exercise price of $0.001 per share. The Company’s existing option plan will need to be amended to increase the number
of available shares before the options to Mr. Yakov can be granted.
The
Yakov Agreement also states that, if Mr. Yakov’s employment is terminated without cause or he voluntarily terminates his employment
for good reason, he will continue to receive his base salary for the remainder of the term along with all earned bonuses. In the event
the termination is in connection with Mr. Yakov’s death, disability or bankruptcy of the Company, he will receive the pro rata
amount of his base salary through the termination date and all bonuses earned through the termination date.
The Smith Agreement increases Mr. Smith’s base salary to $350,000.00
and he will continue to be eligible for insurance coverages and benefits available to the Company’s employees pursuant to the terms
of such plans. Mr. Smith shall be eligible to receive an annual bonus of One Hundred Fifty Thousand Dollars ($150,000) based on performance
criteria established by the Committee. In addition, Mr. Smith shall receive options (the “Options”) to purchase up to 275,000
shares of common stock of the Company at an exercise price of $0.001 per share. The Options vest equally over five years at the rate of
one-fifth (1/5th) beginning on the anniversary of the Effective Date of the Agreement. The Company’s existing option
plan will need to be amended to increase the number of available shares before the options to Mr. Smith can be granted.
The
Smith Agreement also states that, if Mr. Smith’s employment is terminated without cause or he voluntarily terminates his employment
for good reason, he will continue to receive his base salary for the remainder of the term along with all earned bonuses. In the event
the termination is in connection with Mr. Smith’s death, disability or bankruptcy of the Company, he will receive the pro rata
amount of his base salary through the termination date and all bonuses earned through the termination date.
The
Company had an adverse litigation judgment against it during the fiscal year which included damages and attorney fees in favor of the
Plaintiff. The Company has appealed the judgment of both the award of damages and attorney fees. The timeline for a ruling on the appeal
is unknown. The Company believes that it has sufficient grounds to prevail on its appeal. As the amount of the judgement is known the
Company has accounted for it as an accrued expense.
NOTE
14 - SEGMENTS
The
Company applies ASC 280, Segment Reporting, in determining its reportable segments. The Company has two reportable segments
during 2021: Cryptocurrency Mining and Fintech Services. The guidance requires that segment disclosures present the measure(s) used by
the Chief Operating Decision Maker (“CODM”) to decide how to allocate resources and for purposes of assessing such segments’
performance. The Company’s CODM is comprised of several members of its executive management team who use revenue and expenses of
our two reporting segments to assess the performance of the business of our reportable operating segments.
The
following tables details revenue, operating expenses, and assets for the Company’s reportable segments for the three months ended
March 31, 2022.
| | |
For the Three
Months ended
March 31,
2022 | | |
For the Three
Months ended
March 31,
2021 | |
| Reportable segment revenue: | |
| | |
| |
| Revenue, net - cryptocurrency mining | |
$ | 264,340 | | |
$ | 2,226,404 | |
| Fintech services revenue | |
| 8,522,119 | | |
| — | |
| Total segment and consolidated revenue | |
| 8,786,459 | | |
| 2,226,404 | |
| | |
March
31, 2022 | | |
December 31,
2021 | |
| Total Assets: | |
| | |
| |
| Cryptocurrency
mining | |
$ | 9,826,363 | | |
$ | 9,749,652 | |
| Fintech
services | |
| 35,123,545 | | |
| 33,779,839 | |
| | |
$ | 44,949,908 | | |
$ | 43,529,491 | |