OLB Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. OLB provides merchant payment processing and related software and services; substantially all revenue came from its eVance business. The financial statements are unaudited.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $2.226 million | $2.614 million; down 14.8% |
| Processing and servicing costs | $1.547 million | $1.720 million |
| Revenue less processing costs | $679,130; 30.5% of revenue | $893,580; 34.2% of revenue |
| Operating expenses | $3.210 million | $2.839 million |
| Operating loss | $983,134 | $225,189 |
| Interest expense | $116,736 | $317,441, including related-party interest |
| Net loss | $1.100 million; $0.17 per share | $542,207; $0.10 per share |
| Cash used in operating activities | $939,764 | $50,268 |
| Cash | $2.391 million at March 31 | $3.824 million at December 31, 2020 |
| Working capital | $2.326 million | — |
| Total assets / liabilities | $12.779 million / $891,880 | $14.378 million / $8.625 million at December 31, 2020 |
Revenue comprised $2.090 million in transaction and processing fees, $18,507 in equipment rental and sales, and $117,633 in other revenue. Revenue from wholesale contracts increased to $1.446 million from $1.420 million; retail contract revenue fell to $429,149 from $646,517.
Material changes and financing
- Transaction and processing fee revenue declined $246,215, which management attributed primarily to COVID-19 effects and reduced transaction activity. Other subscription-related revenue also fell, by $139,619.
- Salaries and wages increased $419,903 to $820,091, mainly due to bonuses paid to the CEO and President for 2019 and 2020 performance. General and administrative expense increased $110,902; management cited approximately $146,000 of legal expenses related to ongoing litigation matters and the term-loan prepayment, partly offset by lower audit fees.
- On March 2, 2021, OLB paid approximately $7.7 million to extinguish the GACP term loan, using cash that included proceeds from warrant exercises. The cash flow statement reports $7.655 million in note payments and $7.161 million in warrant-exercise proceeds. The remaining reported note payable was $236,231, identified as the PPP loan.
- Warrant exercises issued 944,720 common shares during the quarter and generated $7.161 million. Common shares outstanding were 7,114,774 at March 31. The company reported 2,368,978 warrants outstanding at quarter-end.
- The company reported $4.633 million of stated value in Series A preferred stock outstanding. The shares carry a 12% annual dividend and have conversion and liquidation-preference rights described in the filing.
Outlook, risks and other notable matters
- Management said transaction volume increased 2% in Q1 2021 from Q4 2020, but was down 11% year over year. It expects volume to continue recovering as restrictions ease, while cautioning that transaction activity and revenue may remain below pre-pandemic levels. No quantified revenue or earnings guidance is provided.
- Management stated that cash and projected operating cash flows, together with prior capital raises, should fund operations and capital requirements for at least 12 months. This outlook is subject to uncertainty, including the ongoing effects of COVID-19 on merchants, consumer activity, and business capacity.
- Operating cash use was $939,764 in the quarter. Cash declined $1.434 million overall, reflecting operating cash use and net financing outflows after the term-loan repayment and warrant proceeds. No investing cash flows were reported.
- OLB disclosed that $2.041 million of cash exceeded the FDIC insurance limit. The company also stated that forgiveness of its approximately $236,000 PPP loan was not assured.
- In April 2021, the company filed a registration statement for the sale of securities of up to $75 million; the filing does not state that this amount was raised.
- Management concluded disclosure controls and procedures were ineffective at quarter-end. It reported using additional post-closing procedures and accounting consultants to assist with financial statement preparation.
- COVID-19 remains a material business uncertainty. The filing describes legal expenses related to ongoing litigation matters, while its Legal Proceedings section says no claims or proceedings were pending or, to the company’s knowledge, threatened.
Important facts for investors to verify
- Whether transaction volumes, merchant activity, and revenue continued recovering after March 31, 2021, and how much pandemic-related weakness remained.
- Cash burn and liquidity against management’s 12-month funding assessment, including the effects of the $7.7 million term-loan payoff.
- The status and potential dilution from outstanding warrants, options, and Series A preferred stock, including preferred dividends and conversion rights.
- The status of PPP loan forgiveness and the use or potential proceeds of the April 2021 securities registration.
- The nature and status of litigation referenced in expense commentary, and management’s remediation of ineffective disclosure controls.