OLB Group, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited, consolidated results. OLB operates Fintech Services and Cryptocurrency Mining businesses. Its payment-processing business generated most revenue.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $6.623 million | $8.786 million |
| Operating loss | $2.402 million | $1.456 million |
| Net loss | $2.615 million | $1.456 million |
| Net loss applicable to common shareholders | $2.646 million | $1.595 million |
| Basic and diluted loss per share | $0.17 | $0.11 |
| Cash from operating activities | $570,783 provided | $594,697 used |
| Cash | $64,627 | $434,026 at Dec. 31, 2022 |
| Current assets / current liabilities | $3.438 million / $5.262 million | $3.388 million / $3.618 million at Dec. 31, 2022 |
| Total liabilities | $5.447 million | $4.016 million at Dec. 31, 2022 |
Revenue fell 24.6% year over year; operating loss and net loss widened. Calculated operating and net margins were approximately negative 36.3% and negative 39.5%, respectively, versus negative 16.6% for each in Q1 2022. Processing and servicing costs declined 18.9% to $5.077 million, less than the revenue decline. Salary and wage expense rose 29.3% to $690,352, and professional fees rose 13.9% to $369,344, primarily due to litigation-related legal costs.
Operating cash flow turned positive, but was supported in part by a $1.477 million increase in accounts payable and other noncash adjustments. Investing activities used $937,621, primarily for property and equipment. Management reported a working-capital deficit of $1.824 million. Notes payable totaled approximately $482,915, including current and long-term portions; a separate $2.0 million merchant-portfolio installment obligation is included in current liabilities.
Material changes and unusual items
- Management attributed the revenue and related processing-cost decline primarily to removing approximately 700 merchants from the acquired CBD merchant portfolio for non-compliance with card-processing rules.
- OLB recorded a $327,925 realized loss on bitcoin sales and $114,654 of other income from a shareholder’s disgorgement of short-swing trading profits.
- The company reported 20.73 bitcoin with a stated fair value of $577,932; cryptocurrency was carried at cost of $534,887 in other current assets.
- Three directors received a total of 136,363 common shares for previously accrued service liabilities. Stock-based compensation was $132,788.
- DMINT ended its Bradford, Pennsylvania leases on March 31, 2023, paid $50,000 for early termination, and moved its mining computers to Selmer, Tennessee.
- Preferred stock dividends accrue at 12% annually. Q1 dividends were $30,630, and approximately $325,014 was accrued as of March 31, 2023.
- Comparative Q1 2022 common-shareholder loss and loss per share were revised to reflect $138,990 of previously unrecorded preferred dividends; reported net loss was unchanged.
Outlook, risks, and contingencies
Management stated that resources should fund planned expenditures for at least 12 months, citing improving transaction-volume trends, positive cash flow in Q2, and an increase in merchants processing payments. It cautioned that additional capital may be needed and that there is no assurance it can be raised on acceptable terms. The filing does not provide numerical forward guidance.
The company is pursuing a breach-of-contract claim against the seller of the acquired merchant portfolio, while the seller has filed a counterclaim. OLB has recorded a $2.0 million contingent payment liability and is seeking reduction or cancellation of the final payment and potentially the purchase price. The dispute was in early stages, with no hearing date scheduled. Management reported no material subsequent events.
Management concluded that disclosure controls and procedures were not effective at quarter-end. It reported no material changes in internal control over financial reporting during the quarter. Other disclosed risks include merchant-processing and chargeback exposure, bitcoin price and mining economics, and the possibility of needing additional financing.
Important facts for investors to verify
- Reconcile revenue: the income statement and segment table report $6.623 million, while the revenue-disaggregation note reports total customer-contract revenue of $6.737 million. The filing text does not explain the difference.
- Track cash, working capital, operating cash flow, and accounts payable growth; Q1 operating cash generation included a substantial increase in payables.
- Follow the merchant-portfolio litigation, the $2.0 million installment obligation, and the effect of the merchant removals on processing revenue.
- Assess whether management’s stated Q2 improvement and 12-month liquidity expectation are borne out by subsequent results and financing needs.
- Monitor remediation of ineffective disclosure controls and potential dilution from outstanding options and warrants.