OLB Group, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter report. Comparisons require care: OLB acquired the eVance-related Excel assets in April 2018 and brought Omnisoft and CrowdPay under common control in May 2018. The reported 2017 OLB results therefore do not include the acquired Excel business; the filing also presents pro forma figures to help illustrate a more comparable business perimeter.
Business context
OLB provides merchant payment processing and related technology through eVance, a payment facilitator/independent sales organization; Omnisoft, a cloud-based merchant management and commerce platform; and CrowdPay, a white-label capital-raising platform. Management said the company would remain substantially dependent on eVance for revenue for at least the next 12 months. CrowdPay revenue was $91,161 in 2018, down from $132,205 in 2017; the filing describes Omnisoft and CrowdPay activity as insignificant to date.
Financial highlights
| Metric | 2018 reported | Comparable context / prior period |
|---|---|---|
| Revenue | $9.020 million | Pro forma combined 2018 revenue was $12.194 million versus $15.092 million in 2017, a decline of about 19%. |
| Processing and servicing costs | $5.993 million, or 66.4% of reported revenue | Pro forma combined 2018 processing costs were $7.741 million, or 63.5% of revenue; 2017 predecessor costs were $9.396 million, or 63.0%. |
| Operating result | Loss of $533,066 | Pro forma combined operating loss was $124,442 in 2018 versus $3.024 million in 2017. |
| Net result | Loss of $1.394 million | Pro forma combined net loss was $1.817 million in 2018 versus $6.979 million in 2017. Reported 2017 OLB net loss of $662,297 is not directly comparable because it excludes Excel. |
| Cash flow | Operating cash use of $131,092; investing cash inflow of $217,678; financing cash inflow of $25,000; year-end cash of $111,586 | The MD&A gives operating cash use as $131,902, while the cash-flow statement reports $131,092; the filing text does not reconcile the difference. |
| Liquidity | Current assets of $547,109 and current liabilities of $1.221 million; working-capital deficit of $674,203 by balance-sheet calculation | A liquidity note states a deficit of $649,203, which conflicts with the balance-sheet amounts. |
| Debt | $9.5 million GACP term loan, net, and $3.0 million in related-party notes; $12.5 million total stated principal balances | The GACP loan bears 9% interest and matures April 2021. Related-party notes bear 12% interest; a post-year-end amendment extended the $3 million note’s maturity to September 2020. |
| Assets and equity | Total assets of $11.999 million, including $6.858 million goodwill; stockholders’ deficit of $1.722 million | 2018 goodwill arose from the Excel asset acquisition; no goodwill impairment was recorded for 2018. The 2017 predecessor recorded a $7.914 million goodwill impairment. |
Reported processing costs imply approximately $3.027 million of revenue remaining before amortization and other operating expenses, or about 33.6% of reported revenue. This is a simple calculation, not a company-reported gross margin.
Changes, outlook and risks
- Management attributed the decline in pro forma revenue to the absence of a sales team and customer-retention program to replace lost merchants and attract new ones. Its plans included building a sales team, cross-selling Omnisoft services to eVance merchants, integrating platforms, and expanding CrowdPay offerings. These are plans, not quantified guidance.
- The April 2018 Excel asset acquisition was completed through a foreclosure sale and financed with a $12.5 million GACP term loan. OLB made $3 million of scheduled principal payments using loans from significant stockholder John Herzog. The year-end loan balance was $9.5 million.
- At year-end, OLB reported only $111,586 of cash and a substantial working-capital deficit. It said the CEO would defer $610,976 of accrued payroll and other amounts until working capital was sufficient, and a significant stockholder committed to provide financial support if needed through April 2020. Management said debt amendments and that support alleviated previously reported substantial doubt about going concern; continued liquidity nevertheless depends on operating cash generation and access to support or financing.
- The GACP debt is secured by company and subsidiary assets and includes restrictive covenants. The filing reports that defaults were waived or covenants amended, including a February 2019 waiver of certain financial-covenant defaults. Failure to refinance or repay the term loan could result in acceleration or foreclosure.
- Disclosure controls and internal control over financial reporting were deemed ineffective at December 31, 2018. Management identified material weaknesses involving limited accounting staffing and segregation of duties, no independent audit committee, and incomplete documentation of control assessments. The auditor issued an unqualified opinion on the 2018 financial statements but did not audit internal-control effectiveness.
- Key business risks include dependence on eVance and merchant-processing partners, merchant attrition and chargebacks, competition, cybersecurity and service interruptions, evolving payments and crowdfunding regulation, and limited resources. CrowdPay was not registered as a funding portal; the filing discusses potential registration and compliance risks. The company also disclosed substantial share issuance in the affiliate share exchanges, concentrated ownership, and penny-stock trading constraints.
- The filing reports no pending or threatened legal proceedings and no off-balance-sheet arrangements. OLB changed auditors in January 2019; the filing reports no disagreements or reportable events related to the prior auditor’s departure.
Investor facts to verify
- Reconcile the $649,203 working-capital deficit stated in the liquidity note with the $674,203 deficit calculated from reported current assets and liabilities.
- Confirm operating cash use: the cash-flow statement reports $131,092, while MD&A reports $131,902.
- Review the GACP loan balance, covenant status, repayment schedule, collateral and the terms and maturity of related-party financing, including the post-year-end amendments and support commitment.
- Assess the pro forma revenue decline, merchant retention and sales-team progress, and whether OLB can reduce its dependence on eVance while integrating and monetizing Omnisoft and CrowdPay.
- Monitor remediation of the disclosed control weaknesses and the impact of the acquisition accounting, including goodwill and future amortization of acquired intangible assets.
- Evaluate dilution and governance: 162,350,364 common shares were outstanding as of April 12, 2019; the two largest stockholders were reported to control approximately 93% at December 31, 2018, with additional options and warrants outstanding.