OLB Group, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. OLB operates Fintech Services and cryptocurrency mining businesses. The filing was signed November 14, 2022.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $6.25 million | $2.82 million | $23.41 million | $7.88 million |
| Operating loss | $(1.70) million | $(0.90) million | $(4.99) million | $(2.55) million |
| Net loss | $(1.71) million | $(0.90) million | $(4.61) million | $(2.67) million |
| Net loss per share, basic and diluted | $(0.12) | $(0.11) | $(0.31) | $(0.37) |
Revenue increased 123.2% in Q3 and 196.9% for the first nine months, principally due to the merchant portfolio acquired in late 2021 and newly reported mining revenue. Fintech revenue was $6.09 million in Q3 and $22.77 million year to date; mining revenue was $161,249 and $633,555, respectively. Q3 operating margin was approximately negative 27.3%, versus negative 31.9% a year earlier; nine-month operating margin was negative 21.3%, versus negative 32.3%. Despite improved margins, losses increased in absolute dollars.
For the nine months, processing and servicing costs rose to $17.61 million from $5.87 million. Depreciation and amortization increased to $5.19 million from approximately $0.70 million, including mining-equipment depreciation and amortization of merchant assets and natural-gas rights. General and administrative expense rose to $3.00 million from $1.41 million. Other income included a $393,158 reversal of a liability related to a prior judgment.
Cash, liquidity and obligations
- At September 30, cash was $2.30 million, working capital was $2.17 million, total assets were $41.18 million, and total liabilities were $3.37 million. Cash was down from $3.47 million at December 31, 2021.
- Nine-month operating cash use was $1.03 million, compared with $1.60 million in 2021. Investing cash use was $0.78 million, mainly equipment purchases; financing provided $0.63 million, including an $875,000 equipment loan draw net of repayments. Ending cash declined by $1.17 million.
- Debt included $631,942 of notes payable ($298,053 current) secured by mining computers. The balance sheet also reports a $2.00 million current merchant-portfolio purchase installment obligation and $307,176 of lease liabilities.
- Management stated that cash and working capital were sufficient for at least twelve months from issuance. The filing reports $1.55 million of cash above the FDIC insurance limit.
Material developments, outlook and risks
- Management attributed revenue growth largely to the acquired merchant portfolio. OLB reported that DMINT had purchased 1,000 mining computers; 350 were online and 400 were being installed. It reported mining 25 bitcoin. Management said it aimed to reach 500 petahash per second by year-end 2022 if initial results met expectations; this is a stated plan, not financial guidance.
- OLB disputes the seller’s contractual performance in the merchant-portfolio acquisition and seeks to reduce or cancel the final $2 million payment and potentially reduce the purchase price. The seller filed a counterclaim. The matter was at an early stage, with no hearing scheduled.
- The company authorized repurchases of up to 1 million shares, funded from existing cash, but disclosed no purchases in this filing. Common shares outstanding were 14,702,804 at September 30, versus 11,984,396 at year-end 2021.
- Series A preferred stock carries a 12% annual cash dividend rate, subject to available funds and board approval. The filing cites approximately $1.2 million in dividends at September 30; the amount is not reconciled in the provided text to the stated share count and rate.
- Cryptocurrency prices and mining economics, execution of the mining expansion, merchant retention and chargeback exposure, and the acquisition dispute are material uncertainties. The company held cryptocurrency at a reported cost of $937,559; disclosed fair value was approximately $503,585. Management reported no material COVID-19 impact during the period but warned that future disruption remained possible.
- No formal financial guidance was provided. Management’s forward-looking statements are subject to risks described in its prior annual report. The filing reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification points
- Reconcile the preferred-stock dividend figure with the 4,633 outstanding shares, $1,000 stated value per share and 12% rate.
- Review the status, potential outcome and accounting treatment of the $2 million portfolio installment and related seller dispute; the filing also says there are no pending legal proceedings in its separate legal-proceedings section.
- Verify mining capacity, operating-machine counts, bitcoin production, power costs and cash requirements against management’s expansion plans.
- Assess cryptocurrency valuation and impairment treatment, as well as the effect of continued operating losses and cash use on liquidity.
- Check subsequent share repurchase activity, dilution from outstanding warrants and options, and the terms and repayment schedule of the equipment loan.