OLB Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. OLB provides merchant payment processing and related services, primarily through eVance. The company also described plans to expand into cryptocurrency-related businesses.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2.834 million | $2.000 million | $5.060 million | $4.614 million |
| Operating loss | $666,147 | $195,870 | $1.649 million | $421,059 |
| Net loss | $666,136 | $510,409 | $1.766 million | $1.053 million |
| Net loss per share, basic and diluted | $0.09 | $0.09 | $0.25 | $0.19 |
- Q2 revenue increased 41.7%; first-half revenue increased 14.1%. Transaction and processing fees drove the increase. Subscription revenue declined year over year in both periods.
- Processing and servicing costs rose 62.1% in Q2 and 20.9% for the first half, outpacing revenue growth. Revenue less processing and servicing costs was $735,000 (25.9% of revenue) in Q2, versus $705,000 (35.3%) in Q2 2020; first-half amounts were $1.414 million (27.9%) versus $1.599 million (34.6%).
- Q2 general and administrative expense more than doubled to $848,000, with increases including legal, audit, marketing/public relations and office costs. First-half salaries rose 61.2%, partly attributed to CEO and President bonuses.
- Cash was $2.051 million at June 30, down from $3.824 million at December 31, 2020. Working capital was approximately $1.924 million. Total liabilities were $967,000, including $236,231 of long-term notes payable and $229,000 of lease liabilities.
- The company reported first-half operating cash use of $1.215 million in the cash flow statement. MD&A instead states $1.280 million, an inconsistency to reconcile. Investing cash use was $65,000; financing cash use was $494,000. Financing included $7.655 million of debt payments and $7.161 million of warrant-exercise proceeds.
Material changes and capital structure
- OLB paid approximately $7.7 million in March 2021 to discharge its GACP term loan. The remaining note payable was the $236,231 PPP loan; forgiveness had not yet been processed, and forgiveness was not assured.
- Warrant exercises generated approximately $7.161 million and increased common shares outstanding to 7,273,877 at June 30, from 6,170,054 at year-end 2020. The filing reports 7,274,427 shares outstanding as of August 10, 2021.
- Stockholders’ equity increased to $11.301 million from $5.752 million, while accumulated deficit grew to $22.395 million.
Outlook, risks and other notable matters
- Management said cash and working capital were sufficient for at least 12 months from issuance of the statements. It also said additional capital would be needed to pursue cryptocurrency expansion and acquisitions; no assurance was given that financing could be obtained.
- OLB formed OLBit in May 2021 for cryptocurrency-related lending and transaction activities. After quarter-end, it formed DMINT for cryptocurrency mining and announced an initial mining-equipment plan, with potential expansion dependent on results.
- After quarter-end, OLB entered an exclusive natural-gas supply agreement for mining and granted CAI options to purchase up to 767,918 shares, with stated grant-date fair value of $4.5 million. A non-binding LOI to acquire a CBD and other merchant portfolio was expected to close in Q4 2021, but completion was uncertain.
- Management cited COVID-19-related uncertainty and possible effects on merchants and transaction volumes, despite reporting no material impact since restrictions began easing. Other risks include execution and funding needs for the new crypto initiatives.
- Disclosure controls and procedures were reported ineffective at quarter-end. Management described additional review procedures and use of accounting consultants; no material change in internal control over financial reporting was reported during the quarter.
- MD&A refers to legal expenses for ongoing litigation, while the legal-proceedings section says no claims or proceedings were pending or known to be threatened. The filing does not clearly reconcile these statements.
Key facts for investors to verify
- Reconcile the cash-flow discrepancy: $1.215 million of operating cash use in the statement versus $1.280 million in MD&A.
- Clarify the status and expected forgiveness of the $236,231 PPP loan.
- Assess the cost, funding requirements and execution risks of the cryptocurrency mining and lending plans, including the CAI option grant and subsequent equipment purchases.
- Confirm the status and terms of the proposed merchant-portfolio acquisition and whether it closes.
- Understand the reported ineffective disclosure controls and the company’s remediation progress, and reconcile the litigation-related expense discussion with the legal-proceedings disclosure.