OLB Group, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; comparisons are with FY2014. This is an annual filing, not a standalone fourth-quarter report. OLB offers monthly subscription packages that include health benefits and provides ecommerce development, consulting, and software licensing services. The company reported one full-time employee, its CEO, and uses contractors as needed.
Financial performance and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $66,290 | $136,488 |
| Gross margin | $42,438 (64.0% of revenue) | $106,573 (78.1%) |
| Operating expenses | $373,539 | $448,823 |
| Operating loss | $(331,101) | $(342,250) |
| Interest expense | $11,247 | $18,051 |
| Net loss | $(342,348) | $(360,301) |
| Basic loss per share | $(0.03) | $(0.03) |
| Cash used in operating activities | $(199,812) | $(136,132) |
| Cash provided by financing activities | $202,687 | $133,313 |
- At December 31, 2015, cash was $2,875, total assets were $7,840, current liabilities were $18,333, and stockholders’ deficit was $10,493. Reported working-capital deficiency was $15,458.
- The balance sheet shows no notes payable at year-end; related-party debt and accrued officer compensation were converted into shares on December 31, 2015. The company reported no off-balance-sheet arrangements.
Changes, outlook, and risks
- Revenue fell about 51%: subscription revenue declined to $63,790 from $74,626, development revenue to $2,500 from $11,862, and no licensing revenue was recorded versus $50,000 in FY2014. Management attributed the subscription decrease to fewer subscribers and lower premiums; the licensing decline reflected the absence of the prior-year setup and implementation fee.
- Gross margin declined $64,135, primarily because the 2014 licensing fee did not recur. G&A expense fell $75,284 to $98,539, mainly due to lower website-development costs. Officer compensation remained $275,000. Management attributed the smaller net loss chiefly to lower G&A expense.
- Operating cash use increased despite the lower net loss. FY2015 financing included $203,000 in proceeds from related-party notes; the filing also reports conversion of $212,820 of related-party principal and interest into 1,330,125 shares, and conversion of $135,798 of accrued officer compensation into 848,738 shares.
- Management said related parties had confirmed in writing their intention to support operations and projected sufficient capital for the next 12 months. The support is not binding, however; management said it may need to reduce operating costs if support is withdrawn. The auditor’s report also refers to a March 15, 2016 written commitment from the two largest shareholders to provide necessary support for the next 12 months.
- Key risks include very limited liquidity, reliance on related-party support, declining revenue, a single full-time employee, and thin trading in the OTC market. The company reported no pending or threatened legal proceedings. It has never paid cash dividends and does not expect to do so in the foreseeable future.
- The auditor issued an unqualified opinion on the financial statements and did not audit internal control over financial reporting. Management reported ineffective disclosure controls and ineffective internal controls at year-end, citing inadequate segregation of duties and untimely recording of certain transactions; post-closing procedures were performed. The filing also contains an earlier statement that disclosure controls were effective, creating an inconsistency to clarify.
Important facts for investors to verify
- Whether the largest shareholders’ stated funding support was provided, on what terms, and whether it remains available; it is not contractually binding.
- How the company plans to address its cash shortfall and recurring operating losses, and whether projected cash needs were met after the filing date.
- The status of remedial actions for the reported control weaknesses and the conflicting statements about disclosure-control effectiveness.
- The treatment and balance of related-party borrowings after the year-end share conversions, including the filing’s reported 10% interest rate and one-year maturity terms.
- Whether subscriber levels, revenue, and gross margins improved after FY2015; FY2014 licensing revenue was nonrecurring, and FY2015 total revenue was $66,290.