OLB Group, Inc. — Q2 2023 Form 10-Q
Business and period. The filing covers the three and six months ended June 30, 2023. OLB provides merchant payment processing and related fintech services and operates a Bitcoin-mining business. On June 15, it acquired an 80.01% interest in Cuentas SDI, LLC, which owns the Black011.com platform and a reported network of more than 31,000 convenience-store locations. The acquisition contributed $357,436 of revenue from June 15 through June 30.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $8.344 million | $8.372 million | $14.967 million | $17.159 million |
| Operating loss | $(632,000) | $(1.831) million | $(3.034) million | $(3.287) million |
| Net loss | $(590,000) | $(1.438) million | $(3.205) million | $(2.894) million |
| Net loss applicable to common shareholders | $(619,000) | $(1.578) million | $(3.265) million | $(3.173) million |
| Basic and diluted loss per share | $(0.04) | $(0.11) | $(0.22) | $(0.22) |
Q2 revenue was down about 0.3% year over year; six-month revenue declined about 12.8%. Transaction and processing fees were $7.755 million in Q2 and $14.109 million for the first half. Mining revenue was $138,000 and $304,000, respectively. The filing reports no income-tax expense.
Processing and servicing costs fell to $5.391 million in Q2 from $6.672 million, and to $10.468 million for the first half from $12.930 million. Management attributed lower revenue and processing costs primarily to the removal of about 700 merchants from the acquired merchant portfolio after alleged non-compliance with card-processing rules. Salaries and wages rose year over year, partly because of higher officer salaries and bonuses. Depreciation of mining equipment was $1.599 million for the first half.
Cash, liquidity and obligations
- Cash was $134,000 at June 30, down from $434,000 at year-end. Current assets were $3.125 million versus current liabilities of $5.261 million, producing a $2.136 million working-capital deficit.
- Total liabilities were $5.371 million. These included a $2.000 million merchant-portfolio purchase installment obligation, $298,000 of current note payable, $110,000 of long-term notes payable, and $2.572 million of accounts payable and accrued expenses.
- For the six months, the cash-flow statement reports $1.852 million provided by operating activities, $1.995 million used in investing activities (including $1.145 million for property and equipment and $850,000 for the Cuentas SDI acquisition), and $157,000 used in financing activities. Cash declined by $300,000.
- The MD&A separately states operating cash flow of $1.002 million, which conflicts with the cash-flow statement’s $1.852 million. The filing text does not explain the discrepancy.
Management said improving transaction-volume trends, positive second-quarter cash flow, and Cuentas SDI revenue support its belief that resources are sufficient for at least 12 months from filing. It also said additional resources may be needed and gave no assurance that capital could be raised on acceptable terms. No specific revenue or earnings guidance was provided.
Material developments, risks and unusual items
- Acquisition: Cuentas SDI’s purchase price was $850,000. The purchase-price allocation is provisional and includes $1.282 million of goodwill; the acquired business reported $8,624 of net income for the brief post-acquisition period. Pro forma results were not supplied.
- Merchant-portfolio dispute: OLB is pursuing a claim against the seller of a merchant portfolio purchased for $20 million, seeking reduction or cancellation of a final $2 million payment and potentially a reduction in the overall price. The seller has counterclaimed. The matter was in discovery; no hearing date was stated. The $2 million installment obligation remains recorded.
- Other income and cryptocurrency: First-half results included a $279,242 loss on sale of cryptocurrency, a $6,490 unrealized investment loss, and $114,654 of other income from disgorged short-swing profits. The 2022 comparison included approximately $393,000 of income from reversal of a liability associated with a prior judgment. OLB reported 1.01 Bitcoin valued at approximately $31,000 at June 30.
- Preferred stock: Series A preferred shares carry a 12% annual dividend. Accrued dividends payable to the CEO were $355,984 at June 30. The filing also describes potential conversion rights, subject to repayment of specified debt.
- Controls: Management concluded disclosure controls and procedures were not effective as of June 30. It reported no material changes in internal control over financial reporting during the quarter.
- Reporting correction: Comparative 2022 common-shareholder losses and loss per share were revised to reflect previously unrecorded Series A preferred dividends; management characterized the prior error as immaterial to previously issued statements.
Key facts for investors to verify
- Reconcile the $1.002 million operating-cash-flow figure in MD&A with the $1.852 million reported in the cash-flow statement.
- Track liquidity, collection of receivables, working-capital needs, and whether additional financing is required.
- Monitor the merchant-portfolio litigation, the $2 million recorded obligation, and any resulting settlement or purchase-price adjustment.
- Assess Cuentas SDI’s ongoing revenue, integration, network activity, and final purchase-price allocation and goodwill.
- Seek updates on remediation of ineffective disclosure controls and on accrued preferred dividends and potential dilution.