OLB Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. OLB operates in fintech/payment processing and cryptocurrency mining; the filing identifies fintech as the main source of revenue.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $8.37 million | $2.83 million | $17.16 million | $5.06 million |
| Operating loss | $1.83 million | $0.67 million | $3.29 million | $1.65 million |
| Net loss | $1.44 million | $0.67 million | $2.89 million | $1.77 million |
| Net loss per share, basic and diluted | $0.10 | $0.09 | $0.20 | $0.25 |
| Cash from (used in) operations, per cash flow statement | Not separately stated | Not separately stated | $(0.48) million | $(1.28) million |
Revenue increased 195.5% year over year in Q2 and 239.1% for the first half. Growth primarily reflects the CBD merchant portfolio acquired in late 2021; cryptocurrency mining contributed $0.21 million in Q2 and $0.47 million for the first half, versus none in 2021. Despite the revenue increase, net losses widened in dollars. Processing and servicing costs rose to $6.67 million in Q2 and $12.93 million for the first half. Revenue less those costs—before other operating expenses—was approximately 20.3% of revenue in Q2 and 24.6% for the first half, compared with 25.9% and 27.9%, respectively, in 2021.
Financial position and liquidity
- At June 30, cash was $3.62 million, working capital was $2.81 million, and current assets and current liabilities were $5.96 million and $3.16 million, respectively.
- Total assets were $43.22 million, total liabilities $3.76 million, and stockholders’ equity $39.45 million. Cash increased by $0.15 million from year-end 2021.
- Financing activities provided $0.71 million in the first half, including $875,000 borrowed under an equipment financing agreement; $168,545 of note principal was repaid. The equipment loan is secured by mining computers, requires monthly payments of about $24,838, and matures November 29, 2024.
- Current liabilities include a $2.0 million merchant portfolio purchase installment obligation. The balance sheet also reports $706,455 of notes payable and operating lease liabilities. Management said it had sufficient liquidity for at least 12 months after issuance of the statements.
- Operating cash flow was negative despite substantial noncash depreciation and amortization. The filing’s MD&A gives a different operating cash outflow from the cash flow statement; see verification items below.
Material changes and unusual items
- OLB’s new mining segment generated its first reported revenue in 2022. At June 30, DMINT had purchased 1,000 mining computers: 650 delivered, 250 online, 400 being installed, and 350 scheduled for delivery during 2022. Management described a potential expansion target of 500 petahash per second by year-end, conditional on initial operating results.
- Depreciation and amortization increased substantially, reflecting mining equipment and acquired merchant-related and natural-gas agreement assets. First-half depreciation and amortization totaled $3.33 million in the cash flow statement.
- Other income included a $393,158 gain from eliminating an accrued liability after a prior litigation judgment was reversed on appeal and the case remanded for retrial. The filing reports no currently pending or threatened legal proceedings.
- OLB acquired Crowd Ignition, a company owned by its CEO and a significant shareholder, in a common-control transaction for 1,318,408 shares. The filing says Crowd Ignition had no assets, liabilities, or operations at acquisition.
- Common shares outstanding increased from 11,984,396 at December 31, 2021 to 14,702,804 at June 30, following the issuance of 1,318,408 shares for the Crowd Ignition transaction and exercise of 1.4 million warrants.
Outlook, risks, and contingencies
- Management cited merchant portfolio growth and transaction-volume trends as support for its 12-month liquidity assessment, but provided no formal revenue, earnings, or cash-flow guidance.
- Bitcoin mining results depend on operating scale and conditions; OLB’s stated expansion plans were conditional. Cryptocurrency accounting also involves management judgment, and the filing notes that future authoritative guidance could require accounting-policy changes.
- OLB disclosed potential ongoing effects from COVID-19, including disruption to merchant activity, while stating it had not seen a material impact during the first half of 2022.
- On July 18, 2022, OLB notified the seller of the CBD merchant portfolio of alleged contract breaches and said it would seek a reduction or cancellation of the final payment and potentially a reduction in the purchase price. The $2.0 million installment obligation remained on the June 30 balance sheet.
- On July 12, the board authorized discretionary repurchases of up to 1 million shares, funded from existing cash if undertaken. The program has no set termination date and does not require OLB to repurchase shares.
- Management reported effective disclosure controls and procedures as of quarter-end and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Cash flow discrepancy: The cash flow statement reports first-half operating cash used of $483,320, while MD&A says $556,820. Confirm the correct figure and reconciliation.
- Other filing inconsistencies: The segment table gives December 31, 2021 total assets of $43,529,491, while the balance sheet gives $45,529,491. Lease-liability figures also differ between the balance sheet and lease note; confirm the applicable balances.
- MD&A comparison errors: The discussion contains apparent period and arithmetic errors, including descriptions of the comparison period and stated changes in net loss. Reconcile against the financial statements.
- CBD portfolio purchase: Track the seller dispute, the $2.0 million installment obligation, and any resulting adjustment to the purchase price or portfolio value.
- Mining execution and economics: Verify delivered and operating equipment, actual mining capacity, production costs, Bitcoin receipts, and progress against the conditional expansion plan.
- Liquidity and dilution: Monitor operating cash use, debt and other purchase obligations, the proposed share repurchases, and the effect of outstanding warrants and options on future share count.