OLB Group, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2018; filed August 21, 2018. The statements distinguish a predecessor period through April 8, 2018 from successor results beginning April 9, after the acquisition. Accordingly, 2018 figures are not directly comparable with 2017.
Business context and material changes
OLB provides merchant payment processing and related services through eVance and Securus, alongside software, crowdfunding, merchant cash advance, and other offerings. On April 9, 2018, subsidiaries acquired substantially all assets of Excel and related companies through a foreclosure sale, financed with a $12.5 million term loan. OLB also entered agreements to acquire CrowdPay and OmniSoft in common-control transactions; the filing says the share exchanges called for 87.5 million and 55 million shares, respectively.
Financial performance and position
| Metric | Reported amount |
|---|---|
| Successor revenue, April 9–June 30, 2018 | $3.217 million |
| Successor net loss, April 9–June 30, 2018 | $170,338 |
| Predecessor revenue, January 1–April 8, 2018 | $3.190 million |
| Predecessor net loss, January 1–April 8, 2018 | $413,446 |
| 2017 revenue / net loss, three months ended June 30 | $4.169 million / $1.437 million |
| 2017 revenue / net loss, six months ended June 30 | $8.183 million / $2.107 million |
Combining the two 2018 periods gives reported revenue of approximately $6.407 million and net loss of approximately $584,000 for the six months, but this combines predecessor and successor accounting periods and is not a like-for-like comparison. Successor processing costs were $2.183 million; revenue less those costs was approximately $1.033 million, or 32.1% of revenue. This is not a full-company gross margin measure.
For April 9–June 30, operating income was $16,725; interest expense was $187,063. Operating cash flow was $107,365 in the successor period and negative $200,445 in the January 1–April 8 predecessor period. Cash was $164,410 at June 30, versus $251,293 at December 31, 2017.
At June 30, total assets were $13.225 million and total liabilities were $13.505 million, leaving a stockholders’ deficit of $279,320. Current assets of $1.288 million were below current liabilities of $4.067 million, a working-capital deficit of $2.780 million. Notes payable were $12.423 million on the balance sheet, including $3.0 million current and $9.423 million long-term, net of debt discount.
Outlook, risks, and unusual items
- Going concern: Management said substantial doubt remained about the company’s ability to continue as a going concern. It was pursuing a capital raise of up to $5 million, but gave no assurance it would be completed or that the company could meet debt payments.
- Debt and covenant issues: The $12.5 million secured term loan bears 9% interest, matures April 9, 2021, and originally required $1 million principal by July 15, 2018 and another $2 million by October 31, 2018. On July 30, lenders waived defaults for missing the first payment and failing to provide specified financial statements and compliance certificates, extended deadlines, and permitted a $1 million subordinated loan from significant stockholder John Herzog. That loan bears 12% interest and matures March 31, 2019; its proceeds funded the initial term-loan payment.
- Acquisition accounting: The Excel asset purchase was made “as is,” without warranties or indemnification rights. The preliminary allocation recorded $9.876 million of goodwill and other intangible assets; valuations could change during the measurement period.
- Reporting and controls: The company indicated it had not filed all required reports during the preceding 12 months. It also disclosed that an amended 8-K/A containing Excel’s 2017 audited financial statements was delinquent. Management concluded disclosure controls and internal control over financial reporting were ineffective, citing inadequate segregation of duties due to limited staffing.
- Other: The company reported no legal proceedings. It issued a 1.2 million-share warrant to the lender at $0.25 per share and has a seven-year employment agreement with its founder and president, including $375,000 annual salary and a potential $200,000 incentive bonus.
The filing provides no specific operating guidance. Management’s statements about the capital raise, liquidity, and acquisitions are forward-looking and uncertain.
Important facts for investors to verify
- Whether the capital raise was completed and whether OLB can meet scheduled principal, interest, and other obligations.
- The status of the amended 8-K/A, audited predecessor financial statements, and ongoing lender reporting and covenant compliance.
- How many shares were actually issued for CrowdPay and OmniSoft, and the resulting dilution; the filing reports 162,350,364 shares outstanding as of August 17, 2018.
- Final purchase-price allocations, acquired-business performance, and the assumptions supporting goodwill and intangible-asset values.
- Whether liquidity and internal reporting controls improved after the disclosed defaults and material weaknesses.