Business context and reporting period
The OLB Group, Inc. filed this Form 10-K for the fiscal year ended December 31, 2020; it is an annual report, not a stand-alone fourth-quarter filing. OLB provides merchant payment processing, payment-facilitator and commerce software, and crowdfunding services through eVance, OmniSoft and CrowdPay. eVance generated most revenue; the filing describes CrowdPay and OmniSoft activity as nominal relative to the overall business.
The company reported Q4 2020 revenue of $2.220 million and a net loss of $66,755. It began trading on Nasdaq under OLB in August 2020.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $9.767 million | $10.292 million |
| Operating loss | $(734,705) | $(268,863) |
| Net loss | $(1.777) million | $(1.343) million |
| Basic and diluted loss per share | $(0.31) | $(0.25) |
| Cash from (used in) operations | $(326,661) in the cash flow statement | $244,868 |
Transaction and processing fees were $8.358 million, down from $10.178 million. Recurring subscription revenue rose to $1.320 million from $24,796; $99,594 of 2020 revenue related to services billed in 2019 and previously deferred. Equipment revenue was approximately $89,000 in both years.
Processing and servicing costs fell 10.7% to $6.004 million. Revenue less those costs was $3.763 million, or approximately 38.5% of revenue, compared with $3.568 million, or 34.7%, in 2019; these are calculated measures and exclude amortization and other operating expenses. Total operating expenses were $10.501 million, including $2.290 million of general and administrative costs, up 49.3%, and $844,423 of amortization. Interest expense was $1.044 million, down from $1.249 million.
At year-end, cash was $3.824 million, working capital was $3.206 million, and current assets and liabilities were $4.205 million and $999,200, respectively. Current and long-term notes payable totaled approximately $7.891 million, in addition to lease liabilities. Total liabilities were $8.625 million, versus $14.669 million a year earlier; stockholders’ equity was $5.752 million, compared with a deficit of $2.800 million. Goodwill and intangible assets totaled approximately $9.5 million. The auditor reported no impairment at year-end, identifying the impairment assessment as a critical audit matter.
Cash from financing activities was $3.794 million, principally reflecting approximately $5.2 million of stock and warrant proceeds, a $236,231 PPP loan, and $1.845 million of loan repayments. Investing activities used $150,000 for the POSaBIT asset acquisition.
Material changes versus 2019
- Revenue declined 5.1%; management attributed lower processing fees primarily to merchant attrition and pandemic-related transaction declines.
- Operating loss widened, and net loss increased by approximately $433,000 based on the financial statements. Lower processing costs, salaries and interest expense were offset by higher general and administrative costs and lower revenue.
- Subscription revenue increased substantially, though the filing does not establish how much of the increase represents a sustainable recurring run rate.
- Liquidity improved following the August 2020 public offering and conversion of approximately $4.6 million of related-party indebtedness into Series A preferred stock and warrants.
Outlook, risks and unusual items
COVID-19 reduced transaction volume: management reported month-over-month declines of approximately 15% in March 2020 and 30% in April, followed by monthly recoveries in May and June. Q3 revenue was $2.308 million and Q4 revenue was $2.220 million; Q4 net loss was $66,755. Management anticipated continued uncertainty and possible transaction volatility from business closures and reopenings, but stated it did not expect a material pandemic impact on liquidity and believed resources were sufficient for at least 12 months.
On March 2, 2021, OLB paid approximately $7.712 million to discharge its Credit Agreement, using funds that included warrant exercise proceeds. The filing says approximately $549,200 of liabilities remained after that repayment and the related-party debt conversions. The company also had a $236,231 PPP loan; management expected forgiveness but stated it was not assured. The filing reports prior credit covenant defaults and amendments, including a minimum controlled-account cash balance requirement before the debt was discharged.
Key risks include dependence on eVance, merchant attrition and small-business exposure, payment-network and financial-services regulation, chargebacks, cybersecurity and service interruptions, competition, and potential financing or dilution needs. OLB reported material weaknesses in internal control over financial reporting and ineffective disclosure controls at December 31, 2020, citing limited accounting resources, inadequate segregation of duties, no independent audit committee at the time of the assessment, and incomplete control documentation. The financial statement audit opinion was unqualified; the auditor did not express an opinion on internal controls.
The company reported no material pending or threatened legal proceedings. It reported no off-balance-sheet arrangements at year-end. No numerical 2021 revenue or earnings guidance was provided.
Important facts for investors to verify
- Reconcile the cash flow figures: MD&A reports operating cash use of $327,267 and financing cash of $3,794,142, while the cash flow statement reports $326,661 and $3,793,536, respectively.
- Reconcile the MD&A’s stated $428,332 increase in net loss with the audited statements, which show an increase of $433,315.
- Confirm the post-March 2021 debt and liquidity position, including the source and cash impact of the $7.712 million Credit Agreement payoff and the remaining liabilities.
- Check PPP loan forgiveness status and the terms and dividends of Series A preferred stock.
- Assess dilution and control: 3.354 million warrants were outstanding at year-end; common shares outstanding were 6.170 million at year-end and 7.115 million as of March 22, 2021. The filing also reports substantial CEO voting control.
- Track remediation of the disclosed internal-control weaknesses and the sustainability of subscription growth and transaction-volume recovery.