OLB Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 30, 2023. This is an annual report, not a standalone fourth-quarter report. OLB is a fintech company whose revenue is primarily from merchant payment processing, with smaller software, crowdfunding and Bitcoin-mining activities.
Financial performance and position
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Revenue | $30.37 million | $16.71 million |
| Operating loss | $8.17 million | $4.76 million |
| Net loss | $7.79 million | $4.98 million |
| Net loss per share, basic and diluted | $0.56 | $0.70 |
| Cash from operating activities | $(1.92) million | $(3.51) million |
| Cash and cash equivalents | $434,026 | $3.47 million |
| Total assets | $38.65 million | $45.53 million |
| Total liabilities | $4.02 million | $4.15 million |
- Payment transaction and processing fees were $28.95 million; mining revenue was $726,179, compared with $304,004 in 2021. Management attributed higher revenue mainly to the acquired merchant portfolio and increased Bitcoin-mining revenue.
- Processing and servicing costs were $23.15 million. Operating expenses totaled $38.54 million. The filing does not report a conventional gross-margin measure; revenue less processing and servicing costs was approximately $7.22 million before other operating expenses.
- Cash used in investing activities was $1.56 million. Financing provided $447,429 net, including an $875,000 equipment loan draw and $317,571 in loan repayments.
- Year-end notes payable were $557,429, including current and long-term portions. The balance sheet also includes a $2.0 million merchant-portfolio installment obligation and lease liabilities.
- Current assets were $3.39 million versus current liabilities of $3.62 million. The balance sheet therefore implies negative working capital of approximately $230,000; management separately states a $64,503 working-capital deficit.
- Bitcoin was carried at cost of $1.03 million; disclosed year-end fair value was approximately $515,710. DMINT reported mining 31.06 Bitcoin by year-end.
Material changes and unusual items
- Revenue increased year over year, while net loss widened by approximately $2.81 million. Higher costs included mining depreciation, amortization, salaries and general and administrative expense; professional fees declined.
- Amortization and depreciation expense totaled $6.86 million, including $3.19 million of cryptocurrency-mining depreciation. Mining revenue was noncash consideration under the company’s accounting policy.
- In January 2022, OLB acquired Crowd Ignition from entities owned by CEO Ronny Yakov and significant shareholder John Herzog, issuing 1,318,408 shares. The filing describes this as a common-control transaction; Crowd Ignition had no assets, liabilities or other operations as of the transaction date.
- The 2021 comparative statements were revised to record omitted Series A preferred dividends. The correction increased 2021 liabilities and reduced equity by $824,674; it did not change 2021 net loss, but revised loss attributable to common shareholders and loss per share.
- At year-end, DMINT had 1,000 mining computers. It subsequently moved operations from Pennsylvania to Selmer, Tennessee; in March 2023 it agreed to pay $50,000 to terminate the Pennsylvania leases.
- The company recorded no goodwill or indefinite-lived intangible impairment. The auditor identified impairment testing of intangible assets as a critical audit matter, citing significant judgment in projected cash flows and discount rates.
Outlook, risks and contingencies
- Management said available resources should fund planned expenditures for at least 12 months after the filing, based on operating trends and its cash-flow forecast. It also acknowledged possible need for additional debt or equity and gave no assurance financing would be available on acceptable terms.
- OLB remains substantially dependent on eVance for revenue. Its plans to grow OmniSoft and other offerings and reduce reliance on eVance are not assured.
- Key risks include limited cash and recurring losses; merchant attrition and chargebacks; regulatory and card-network requirements; cybersecurity and service interruptions; competition; and Bitcoin price, operating-cost, power-supply and regulatory risks.
- OLB is pursuing breach-of-contract claims against FFS Data Corporation relating to the 2021 merchant-portfolio acquisition; FFS has filed a counterclaim. The $2.0 million installment obligation remains on the balance sheet, and the filing does not provide a clear resolution or outcome.
- The auditor issued an unmodified opinion on the financial statements. Management reported effective disclosure controls and no material weaknesses in internal control at December 31, 2022; the auditor did not attest to internal-control effectiveness. The prior auditor had previously advised of material weaknesses for 2020 and 2021. Daszkal Bolton resigned after the 10-K filing, and OLB disclosed a new auditor engagement.
- Potential dilution includes 8.56 million outstanding warrants and 2.36 million options at year-end. The company does not expect to pay dividends for the foreseeable future.
Important facts for investors to verify
- Reconcile the revenue growth figures: the statements show an increase of about $13.66 million, while MD&A reports $13.14 million and 83.1%.
- Reconcile the stated $64,503 working-capital deficit with balance-sheet current assets and liabilities, which imply a deficit of about $230,000.
- Check the operating-loss inconsistency: the statement of operations reports $8.17 million, while the segment note reports $8.40 million for 2022.
- Confirm operating cash use: the cash-flow statement reports $1,921,381, while MD&A gives $1,921,318.
- Monitor liquidity, additional financing needs, FFS litigation and the merchant-portfolio payment obligation; assess Bitcoin holdings at disclosed fair value rather than cost.
- Review related-party transactions, executive compensation and potential share dilution, including warrants, options and shares issued in acquisitions.