OLB Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. OLB provides merchant payment processing and related services; it also began investing in cryptocurrency mining and related initiatives. Financial statements are unaudited.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.824 million | $2.308 million | $7.884 million | $6.922 million |
| Operating loss | $0.900 million | $0.425 million | $2.550 million | $0.846 million |
| Net loss | $0.900 million | $0.657 million | $2.666 million | $1.710 million |
| Net loss per share, basic and diluted | $0.11 | $0.11 | $0.37 | $0.31 |
- Transaction and processing fees were $2.680 million in Q3 and $7.436 million for the nine-month period; they accounted for most revenue.
- Processing and servicing costs rose 49.6% in Q3 and 30.4% year over year for the nine months, faster than revenue. Revenue less these costs was approximately $0.600 million in Q3 (21.3% of revenue), versus $0.822 million (35.6%); for nine months, approximately $2.014 million (25.5%) versus $2.421 million (35.0%). These are calculated measures, not reported GAAP margins.
- Cash used in operating activities was $1.602 million for the nine months, compared with $0.529 million in 2020. Investing activities used $6.068 million, including $5.910 million for mining equipment. Financing activities provided $5.009 million.
Balance sheet and liquidity
- At September 30, cash was $1.163 million, working capital was $0.869 million, total assets were $21.561 million, and total liabilities were $1.078 million.
- Notes payable totaled $236,231, compared with $7.891 million at December 31, 2020. OLB repaid its GACP term loan in March 2021. The remaining PPP loan was forgiven in October 2021, after quarter-end.
- Cash declined from $3.824 million at year-end 2020. Management said it believed liquidity, including subsequent financing proceeds, would support operations for at least 12 months.
Changes, outlook and risks
- Revenue increased, but losses widened: nine-month net loss grew to $2.666 million from $1.710 million. Higher processing costs, payroll, amortization and general and administrative expenses contributed. Management attributed much of the nine-month G&A increase to legal costs, including litigation-related expenses.
- OLB issued options valued at approximately $4.5 million to CAI for an exclusive natural-gas supply arrangement supporting cryptocurrency mining. The balance sheet reports $4.446 million of net mineral rights; the cash-flow statement identifies the options as a noncash transaction. Management described an initial mining deployment expected to have approximately 100 petahash per second, with possible expansion to 500 petahash by the end of 2022 if initial results meet expectations.
- A nonbinding letter of intent contemplated acquiring CBD and other merchant accounts with reported annual transaction volume above $300 million; closing was not assured. A proposed Crowd Ignition acquisition for 1,318,408 shares, valued at approximately $5.3 million, was approved after quarter-end and involved entities owned by OLB’s CEO and a significant shareholder.
- After quarter-end, OLB’s November 2021 private placement generated approximately $22.9 million in net proceeds, alongside substantial share and warrant issuance. This provides additional capital but creates potential dilution. The August 2021 registered direct offering generated approximately $6.1 million gross; the filing’s net-proceeds figure is blank.
- Management cited continued uncertainty from COVID-19 and warned that future mining, acquisitions and cryptocurrency initiatives may require additional capital, with no assurance that funding will be available. The filing provides no formal revenue or earnings guidance.
- Management concluded disclosure controls and procedures were ineffective at September 30, 2021. It reported using additional review procedures and accounting consultants; no material changes to internal control over financial reporting were reported during the quarter.
Key facts for investors to verify
- The MD&A’s stated revenue growth figures do not reconcile with the financial statements: statement totals imply growth of $515,884 (22.4%) for Q3 and $961,832 (13.9%) for nine months, while MD&A states $551,233 and $1,139,171 (18.1%), respectively.
- The Q3 MD&A reports net loss of $900,351, while the financial statements report $900,354. Confirm the correct amount and any related presentation corrections.
- Reconcile the MD&A’s statement that a $4.500 million warrant fair-value loss was recognized with the financial statements’ capitalization of $4.500 million as mineral rights and the noncash options disclosure.
- Assess the underlying economics, funding needs and execution risks of the mining operation, the natural-gas arrangement, and the proposed acquisitions, including related-party terms and dilution from stock and warrants.
- Clarify the extent and status of litigation-related costs: MD&A cites ongoing litigation matters, while the legal proceedings section says no claims or proceedings were pending or known to be threatened.