Notes to the Condensed Consolidated Financial
Statements
September 30, 2021
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.
The Company provides integrated financial and
transaction processing 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. 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 $1,000,0000 -$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.
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.
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 will be 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.
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 September 30, 2021, 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 consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The Company’s accounting estimates include the collectability
of receivables, useful lives of long-lived assets and recoverability of those assets, impairment in fair value of goodwill, valuation
allowances for income taxes, stock-based compensation.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, eVance, Securus, CrowdPay, Omnisoft. OLBit and DMINT. All significant
intercompany transactions and balances have been eliminated.
Reclassifications
Certain reclassifications have been made to the
prior period financial information to conform to the presentation used in the financial statements for the three and nine months ended
September 30, 2021.
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 September 30, 2021, the Company had $913,055 of cash above the FDIC’s $250,000 coverage limit.
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 three and nine months ended September 30, 2021
and 2020 does not include warrants to acquire up to 3,778,533 and 3,353,698 shares of common stock, respectively, because
of their anti-dilutive effect. The weighted average number of common shares for the three and nine months ended September 30, 2021 and
2020 does not include up to 11,112 and 172,437 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 $38,000 as of both September 30, 2021 and December 31, 2020.
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
September 30,
|
|
|
For the Nine Months
Ended
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale contracts
|
|
$
|
2,053,772
|
|
|
$
|
1,293,217
|
|
|
$
|
5,504,044
|
|
|
$
|
3,759,822
|
|
|
Retail contracts
|
|
$
|
417,158
|
|
|
$
|
601,118
|
|
|
$
|
1,288,111
|
|
|
$
|
1,768,720
|
|
|
Other transaction and processing fees
|
|
$
|
352,991
|
|
|
$
|
413,702
|
|
|
$
|
1,091,742
|
|
|
$
|
1,393,523
|
|
|
Total transactions and processing fees
|
|
$
|
2,823,921
|
|
|
$
|
2,308,037
|
|
|
$
|
7,883,897
|
|
|
$
|
6,922,065
|
|
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.
NOTE 3 – LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2021, the Company had cash of
approximately $1.2 million and working capital of approximately $869,000. 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 condensed consolidated
financial statements are issued.
NOTE 4 – INTANGIBLE ASSETS
Intangible assets, net, consist of the following
as of:
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Merchant Portfolios
|
|
$
|
2,405,000
|
|
|
$
|
2,340,000
|
|
|
Less Accumulated Amortization
|
|
|
(1,471,895
|
)
|
|
|
(1,199,184
|
)
|
|
Net residual portfolios
|
|
$
|
933,105
|
|
|
$
|
1,140,816
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Trade name
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
|
Less Accumulated Amortization
|
|
|
(1,375,000
|
)
|
|
|
(1,000,000
|
)
|
|
Net trade name
|
|
$
|
1,125,000
|
|
|
$
|
1,500,000
|
|
|
Total intangible assets, net
|
|
$
|
2,058,105
|
|
|
$
|
2,640,816
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
Mineral rights for natural gas
|
|
$
|
4,499,952
|
|
|
$
|
-
|
|
|
Less Accumulated Amortization
|
|
|
(53,570
|
)
|
|
|
-
|
|
|
Net mineral rights
|
|
$
|
4,446,382
|
|
|
$
|
-
|
|
|
Total intangible assets, net
|
|
$
|
6,504,487
|
|
|
$
|
-
|
|
Amortization expense for the three months ended
September 30, 2021 and 2020 was $269,475 and $222,090, respectively.
Amortization expense for the nine months ended
September 30, 2021 and 2020 was $701,280 and $628,519, respectively.
The Company’s merchant portfolios and tradename
are being amortized over respective useful lives of 7 and 5 years.
The following sets forth the estimated amortization
expense related to amortizing intangible assets for the years ended December 31:
|
2021 (three months)
|
|
$
|
441,617
|
|
|
2022
|
|
|
1,506,465
|
|
|
2023
|
|
|
1,139,293
|
|
|
2024
|
|
|
955,707
|
|
|
2025
|
|
|
747,138
|
|
|
Thereafter
|
|
|
1,714,267
|
|
|
Total
|
|
$
|
6,504,487
|
|
The weighted average remaining useful life of
amortizing intangible assets was 2.33 years at September 30, 2021.
NOTE 5 – NOTE PAYABLE
On April 8, 2018, eVance, Omnisoft, and CrowdPay,
(collectively, the “Borrowers”), entered into a term loan of $12,500,000 with GACP (the “Term Loan”) which obligations
are guaranteed by the Company (collectively with the Borrowers, the “Loan Parties”), under the Loan and Security Agreement
(the “Credit Agreement”).
On March 2, 2021, the Company transferred
cash in the amount of $7,712,256.28 to the Agent under the Credit Agreement (the “Prepayment”). The Prepayment facilitated
the discharge in full of all of the obligations under the Credit Agreement. In connection with the extinguishment of the obligations under
the Credit Agreement, 40,000 warrants to purchase Common Stock were cancelled.
On May 6, 2020, the Company received a Paycheck
Protection Program loan under the CARES Act for $236,231 (the “PPP Loan”). The PPP Loan matures on May
7, 2022 and bears interest at 1% per annum. Monthly amortized principal and interest payments are deferred for 6 months after the
date of the agreement. The Paycheck Protection Program provides that the use of PPP Loan proceeds were limited to certain
qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The Company
believes it has used the PPP Loan for permitted uses, although no assurance can be given that the Company will obtain forgiveness
of all or any portion of amounts due under the PPP Loan. The loan has been accounted for as long-term debt, which, if forgiven
will result in a gain on forgiveness of debt in the period forgiveness is obtained. The bank that funded the loan has not yet started
the process to have the loan forgiven.
NOTE 6 – STOCK OPTIONS
On January 1, 2021, the Company granted stock
options to purchase 6,667 shares of common stock pursuant to the terms on the Company’s employment agreement with Mr.
Yakov. The grant shall vest at the rate of 1/3 beginning on each anniversary of the effective date of grant. The options have an
exercise price of $0.001per share and expire in three years after each vest date. The aggregate fair value of the options
totaled $32,793 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $0.001, 0.16%
risk free rate, 35.03% volatility and expected life of the options of 3 years. The fair value is being amortized over the
applicable vesting period and credited to additional paid in capital.
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 market value equal to $4.5 million on the date of grant) at an exercise price
of $0.0001 per share. The aggregate fair value of the options totaled $4,499,952 based on the Black Scholes Merton pricing model
using the following estimates: exercise price of $0.0001, 1.26% risk free rate, 143.3% volatility and expected life of the options
of 10 years.
A summary of the status of the Company’s
outstanding stock options and changes during the nine months ended September 30, 2021 is presented below:
|
Stock Options
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Options outstanding at January 1, 2020
|
|
|
278,506
|
|
|
$
|
0.0001
|
|
|
|
-
|
|
|
Granted
|
|
|
6,667
|
|
|
$
|
0.001
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
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 September 30, 2021
|
|
|
893,988
|
|
|
$
|
0.0001
|
|
|
|
$
|
|
|
Shares exercisable at September 30, 2021
|
|
|
772,361
|
|
|
$
|
0.0001
|
|
|
$
|
3,116,112
|
|
NOTE 7 – WARRANTS
On August 6, 2020, the Company entered into an
underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp., acting as representative of the underwriters
(“Aegis”), pursuant to which the Company agreed to sell to the underwriters in a firm commitment underwritten public offering
(the “Offering”) an aggregate of 700,000 units (the “Units”), with each Unit consisting of: (a) one
share of our common stock; (b) two Series A warrants (the “Series A Warrants”), with each Series A Warrant entitling the holder
thereof to purchase one share of our common stock at an exercise price equal to $9.00 per share, exercisable until the fifth anniversary
of the issuance date, subject to their earlier redemption as described therein; and (c) one-half of one Series B warrant (the “Series
B Warrants,” and together with the Series A Warrants, the “Warrants”), with each whole Series B Warrant entitling the
holder thereof to purchase one share of common stock at an exercise price equal to $4.50 per share, exercisable until the fifth anniversary
of the issuance date and subject to their earlier redemption as described therein. The Company also granted the underwriters a 45-day
option to purchase up to an additional 105,000 shares of common stock, and/or an additional 210,000 Class A Warrants
to purchase shares of common stock and/or an additional 52,500 Class B Warrants to purchase shares of common stock as may be
necessary to cover over-allotments in connection with the Offering. The Offering, including the exercise in full of the over-allotment
option for the Warrants, closed on August 11, 2020.
The Units and the securities underlying the Units
were offered by the Company pursuant to a registration statement on Form S-1, as amended (File No. 333-232368), filed with the Securities
and Exchange Commission (the “Commission”), which was declared effective by the Commission on August 6, 2020 (the “Registration
Statement”).
The net proceeds to the Company from the Offering,
after deducting the underwriting discount, the underwriters’ fees and expenses and the Company’s Offering expenses, was approximately
$4.9 million. The Company utilized $1,120,155 of the net proceeds to repay a portion of the Company’s long-term indebtedness
(the “Term Loan”) and anticipates using the remainder of the net proceeds from the Offering to invest in or acquire companies
or technologies that are synergistic with or complimentary to our business, expand and market our current products and for working capital
and other general corporate purposes (including payment of outstanding accounts payable).
Warrants
The Warrants were issued in registered form under
separate warrant agent agreements (each a “Warrant Agent Agreement”) between us and our warrant agent, Transfer Online, Inc.
(the “Warrant Agent”).
Each Series A Warrant entitles the registered
holder to purchase one share of our common stock at a price equal to $9.00 per share, subject to adjustment as discussed below, terminating
at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance. No fractional warrants will be issued and only
whole warrants are exercisable. The exercise price and number of shares of common stock issuable upon exercise of the Series A Warrants
may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization,
merger or consolidation. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable upon the exercise
of the Series A Warrants, such holders may exercise their Series A warrants on a “cashless” basis pursuant to a formula set
forth in the terms of the Series A Warrants.
Each whole Series B Warrant entitles the holder
thereof to purchase one share of our common stock at an exercise price of $4.50 per share, subject to adjustment as discussed below,
terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance. No fractional warrants will be issued
and only whole warrants are exercisable. The exercise price and number of shares of common stock issuable upon exercise of a whole Series
B Warrant may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization,
reorganization, merger or consolidation. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable
upon the exercise of the Series B Warrants, such holders may exercise their Series B warrants on a “cashless” basis pursuant
to a formula set forth in the terms of the Series B Warrants.
Each holder of the Warrants will be subject to
a requirement that they will not have the right to exercise the Warrants to the extent that, after giving effect to such exercise, such
holder (together with its affiliates) would beneficially own in excess of 4.99% (subject to increase to 9.99%) of the shares of our common
stock outstanding immediately after giving effect to such exercise.
The Warrants are callable in the event that the
last sales price of our common stock for any twenty (20) consecutive trading day period on or after the date of issuance (the “Measurement
Period”) exceeds $9.00. The Company may, within ten (10) trading days of the end of such Measurement Period, call for the redemption
of all or any portion of the outstanding and unexercised Warrants for consideration equal to the Black Scholes Value (as defined therein)
of the remaining unexercised portion of the Warrants called for redemption on such date.
Pursuant to the Underwriting Agreement, the Company
issued to Aegis a warrant (the “Representative’s Warrants”) to purchase 35,000 shares of common stock. The
Representative’s Warrants will be exercisable at a per share exercise price equal to $11.25 and is exercisable at any time
and from time to time, in whole or in part, during the four-year period commencing twelve months from the effective date of the Registration
Statement. The Representative’s Warrants also provide for one demand registration right of the shares underlying the Representative’s
Warrants, and unlimited “piggyback” registration rights with respect to the registration of the shares of common stock underlying
the Representative’s Warrants and customary anti-dilution provisions.
The aggregate fair value of the 35,000 warrants,
totaled $363,958 based on the Black Scholes Merton pricing model using the following estimates: exercise price of $11.25, 0.21%
risk free rate, 315.6% volatility and expected life of the warrants of 6 years. The value of the warrants has been netted
against the proceeds of the offering proceeds and accounted for in additional paid in capital.
On August
18, 2021, the Company sold, in a registered direct offering, an aggregate of 1,418,605 shares of common stock and in a concurrent
private placement, warrants to purchase up to 1,418,605 shares of common stock, at an aggregate purchase price of $4.30 per Share and
associated Warrant. The Warrants will be exercisable six months from the date of issuance at an exercise price of $5.42 per share and
will expire five and one-half years following the initial date of issuance.
|
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contract
Term
|
|
|
Outstanding, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
40,000
|
|
|
$
|
7.50
|
|
|
|
0.52
|
|
|
Outstanding, December 31, 2019
|
|
|
40,000
|
|
|
$
|
7.50
|
|
|
|
0.52
|
|
|
Warrant A Granted (1)
|
|
|
2,639,848
|
|
|
$
|
9.00
|
|
|
|
9.00
|
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Warrant B Granted (2)
|
|
|
659,970
|
|
|
$
|
4.50
|
|
|
|
4.50
|
|
|
Warrant B Exercised
|
|
|
(21,150
|
)
|
|
$
|
4.50
|
|
|
|
-
|
|
|
Underwriter Warrant
|
|
|
35,000
|
|
|
$
|
11.25
|
|
|
|
11.25
|
|
|
Underwriter Warrant Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, December 31, 2020
|
|
|
3,353,698
|
|
|
|
4.61
|
|
|
|
4.81
|
|
|
Cancelled
|
|
|
(40,000
|
)
|
|
$
|
7.50
|
|
|
|
-
|
|
|
Underwriter Warrants
|
|
|
1,418,605
|
|
|
$
|
5.42
|
|
|
|
5.5
|
|
|
Warrant A Exercised
|
|
|
(647,200
|
)
|
|
$
|
9.00
|
|
|
|
-
|
|
|
Warrant B Exercised
|
|
|
(306,570
|
)
|
|
$
|
4.50
|
|
|
|
-
|
|
|
Outstanding, September 30, 2021
|
|
|
3,778,533
|
|
|
$
|
4.25
|
|
|
|
4.91
|
|
|
(1)
|
Includes 210,000 Warrant
A granted to Underwriters upon exercise of overallotment in connection with the Offering
|
|
(2)
|
Includes 525,000 Warrant
B granted to Underwriters upon exercise of overallotment in connection with the Offering
|
NOTE 8 – OPERATING LEASE
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.
|
|
|
Balance Sheet Classification
|
|
September 30,
2021
|
|
|
Asset
|
|
|
|
|
|
|
|
Operating lease asset
|
|
Right of use asset
|
|
$
|
204,152
|
|
|
Total lease asset
|
|
|
|
$
|
204,152
|
|
|
|
|
|
|
|
|
|
|
Liability
|
|
|
|
|
|
|
|
Operating lease liability – current portion
|
|
Current operating lease liability
|
|
$
|
91,087
|
|
|
Operating lease liability – noncurrent portion
|
|
Long-term operating lease liability
|
|
|
149,058
|
|
|
Total lease liability
|
|
|
|
$
|
240,145
|
|
Lease obligations at September 30, 2021 consisted
of the following:
|
For the year ended December 31:
|
|
|
|
|
2021 – three months
|
|
$
|
24,785
|
|
|
2022
|
|
|
100,139
|
|
|
2023
|
|
|
127,207
|
|
|
Total payments
|
|
$
|
252,131
|
|
|
Amount representing interest
|
|
$
|
(11,986
|
)
|
|
Lease obligation, net
|
|
|
240,145
|
|
|
Less current portion
|
|
|
(91,087
|
)
|
|
Lease obligation – long term
|
|
$
|
149,058
|
|
Rent expense for the three months ended September
30, 2021 and 2020, was $24,909 and $26,848, respectively.
Rent expense for the nine months ended September
30, 2021 and 2020, was $74,726 and $83,300, respectively.
At September 30, 2021, the weighted average remaining
lease term is 2.17 years and the weighted average discount rate is 5%.
NOTE 9 – 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. No shares of preferred stock are currently issued or 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 $1,000.00 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 includes 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 10 – 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 October 20, 2017, the Company entered into
a 7-year term employment agreement with its founder and President, 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 and an acquisition
bonus equal to two (2%) percent of the gross purchase price paid in connection therewith upon the closing of any acquisition directly
or indirectly by the Company or its subsidiaries during the Employment Period of any company or business (including purchases of all or
substantially all of the assets of any such entity) having then existing sales of not less than three million five hundred thousand dollars
($3,500,000). During the year ended December 31, 2020, Mr. Yakov was paid a $400,000 bonus ($200,000 per year for 2019 and 2020).
NOTE 11 – SUBSEQUENT EVENTS
On October 25, 2021, the Board of Directors of
the Company approved entry by the Company into a share exchange agreement (“Agreement”) between the Company and all of the
shareholders of Crowd Ignition, Inc. (“Crowd Ignition”) whereby the Company would purchase 100% of the equity of Crowd Ignition
in exchange for 1,318,408 shares of the common stock, par value $0.0001 of the Company (the “Shares”). The value of the Shares
was, for purposes of the Agreement, based on the closing trading price of the Company on October 1, 2021 (the date on which a third-party
fairness opinion was issued), resulting in an aggregate purchase price for Crowd Ignition of $5.3 million.
On November 2, 2021, the Company entered into a securities purchase
agreement (the “Purchase Agreement”) with certain institutional accredited investors (the “Investors”) pursuant
to which the Company issued and sold, in a private placement (the “Private Placement”), (i) 1,969,091 shares (the “Shares”)
of its common stock, par value $0.0001 per share (the “Common Stock”),(ii) pre-funded warrants (the “Prefunded Warrants”)
exercisable for a total of up to 2,576,364 shares of Common Stock (the “Prefunded Warrant Shares”) with an exercise price
of $0.0001 per Prefunded Warrant Share, and (iii) warrants (the “Common Warrants”) exercisable for a total of 4,545,455 shares
of Common Stock (the “Common Warrant Shares” and together with the Prefunded Warrant Shares, the “Warrant Shares”)
with an exercise price of $6.50 per Common Warrant Share. The purchase price of each share of Common Stock and associated Common Warrant
is $5.50 and the purchase price of each Prefunded Warrant and associated Common Warrant is $5.4999. Subject to certain ownership limitations,
the Common Warrants are immediately exercisable upon issuance and will expire on the five-year anniversary of the effective date of the
initial registration statement filed with respect to the Common Shares. The Prefunded Warrants are immediately exercisable upon issuance
and may be exercised at any time until all of the Prefunded Warrants are exercised in full.
The Company received notice on October 11, 2021
that the $236,000 PPP Loan had been entirely forgiven.