OLB Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited, consolidated U.S. GAAP financial statements. OLB provides merchant payment processing and related fintech services and has begun cryptocurrency mining operations.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $8.79 million | $2.23 million | Up $6.56 million, or 294.6%, primarily reflecting the merchant portfolio acquired in Q4 2021; Q1 2022 also included $264,340 of cryptocurrency mining revenue. |
| Processing and servicing costs | $6.26 million | $1.55 million | Up 304.4%. Revenue less these costs was $2.53 million, or approximately 28.7% of revenue; this is a simple calculation, not a reported GAAP margin. |
| Operating expenses | $10.24 million | $3.21 million | Includes $998,590 of amortization and depreciation, plus $891,756 of cryptocurrency-mining depreciation. |
| Operating loss | $1.46 million | $983,134 | Operating loss increased approximately $472,000. |
| Net loss | $1.46 million | $1.10 million | Loss increased $355,739. Basic and diluted loss per share was $0.10 versus $0.17, with weighted-average shares of 14.51 million versus 6.30 million. |
| Operating cash flow | $(594,697) | $(939,764) | Cash used decreased year over year; Q1 2022 included substantial noncash depreciation and amortization. |
| Cash and working capital | $3.64 million cash; $2.80 million working capital | Cash was $3.47 million at Dec. 31, 2021 | Management said available liquidity should fund operations and capital needs for at least 12 months from issuance. |
| Total liabilities | $4.13 million | $3.32 million at Dec. 31, 2021 | Includes $762,162 of notes payable, $2.00 million merchant-portfolio installment obligation, and lease liabilities. |
Balance sheet, financing and material changes
- Total assets were $44.95 million at March 31, 2022, including $22.97 million of net intangible assets, $6.86 million of goodwill, and $8.07 million of property and equipment. Mining equipment had a reported cost of $9.41 million.
- Operating cash use was partly offset by $762,162 of net financing cash flow: OLB drew $875,000 under an equipment financing agreement and repaid $112,838. The loan is secured by mining computers, requires monthly payments of approximately $24,838, and matures in November 2024, when remaining principal and interest are due.
- No investing cash flow was reported for the quarter. Cash increased $167,465 to $3.64 million.
- Common shares outstanding rose from 11.98 million to 14.70 million. The increase included 1,318,408 shares issued in the Crowd Ignition acquisition and 1.4 million shares issued upon warrant exercise. Crowd Ignition was a related-party, common-control acquisition and had no assets, liabilities, or operations at acquisition.
- Revenue growth was driven primarily by the acquired merchant portfolio. The company also began recognizing cryptocurrency mining revenue; the comparable 2021 period had none according to the consolidated statements.
Outlook, risks and unusual items
- Outlook: No formal financial guidance was provided. Management said it expected to have sufficient liquidity for at least 12 months. DMINT reported 250 mining computers online, 400 being installed, and 350 scheduled for delivery in 2022. OLB said the planned computers could provide approximately 100 petahash per second and described a goal of reaching 500 petahash per second by year-end, conditional on initial results meeting expectations.
- Cryptocurrency execution and accounting risk: Mining expansion depends on equipment installation, power arrangements, and mining results. The company notes that authoritative U.S. GAAP guidance for cryptocurrency revenue and holdings is limited and that its accounting involves significant judgment.
- Liquidity and concentration: $2,831,494 of cash exceeded the FDIC insurance limit at March 31, 2022. Management’s liquidity assessment is forward-looking and depends in part on transaction trends and acquired merchant portfolios.
- COVID-19: Management reported no material impact since restrictions began to ease, but warned that renewed disruption could adversely affect merchants, transaction volumes, and results.
- Legal contingency: The company disclosed an adverse judgment for damages and attorney fees, which it accrued, and said it appealed. The appeal timeline is unknown; the filing does not clearly state the judgment amount. Separately, the legal proceedings section says no claims or proceedings are currently pending or threatened, a statement to reconcile with the accrued appealed judgment.
- Executive compensation commitments: New agreements increased the CEO’s base salary to $750,000 and the VP Finance’s to $350,000, with potential bonuses, equity awards, and specified severance terms. The filing says the option plan must be amended before the described grants can be made.
- Controls: Management concluded disclosure controls were effective at quarter-end and reported no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Reconcile the segment note’s comparative revenue presentation with the consolidated statements: the segment table appears to assign $2.23 million of 2021 revenue to cryptocurrency mining and shows no fintech revenue, unlike the consolidated results.
- Confirm the appealed judgment’s amount, accrual treatment, and current status, and reconcile the contingency disclosure with the statement that no proceedings are pending or threatened.
- Monitor merchant portfolio performance and the resulting revenue, processing costs, and cash conversion; reported revenue growth does not by itself establish improved profitability.
- Track mining equipment deployment, financing repayments, power supply, mining output, and progress toward the stated expansion targets.
- Assess dilution and potential obligations from outstanding warrants, preferred stock dividends, executive equity awards, and future share issuance; 8,563,127 warrants remained outstanding at quarter-end.