OLB Group, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; balance-sheet amounts are as of March 31, 2012, compared with December 31, 2011 unless stated otherwise. The company is a small e-commerce software and services provider, also earning revenue from a health-related discount benefit program. Financial statements are unaudited.
Financial results and position
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Revenue | $28,581 | $47,463; down 40% |
| Gross profit | $13,996 | $30,015 |
| Gross margin | 48.9% | 63.2% |
| Operating expenses | $167,918 | $167,879 |
| Operating loss | $(153,922) | $(137,864) |
| Net loss | $(148,313) | $(137,929) |
| Basic loss per share | $(0.02) | $(0.02) |
| Net cash used in operations | $(50,676) | $(10,049) |
Management attributed lower revenue and gross profit primarily to reduced revenue from the insurance/benefit program; operating expenses were essentially flat. A $5,609 gain on debt settlement partially offset the operating loss in 2012. The filing does not report a separate debt balance at March 31; a stockholder note and accrued interest had been converted into shares in December 2011.
At March 31, cash was $169, total assets were $210,087, current liabilities were $318,799, and stockholders’ deficit was $108,712. Working capital was negative $318,630. Liabilities included $262,934 of accrued officer compensation. Cash fell from $845 at year-end despite $50,000 of stock-sale proceeds, as operating outflows were $50,676. The accumulated deficit was $13,078,383.
Outlook, risks, and other notable disclosures
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses and the accumulated deficit. Additional financing is needed; management was pursuing financing and investment opportunities, but success was uncertain. The CEO/principal stockholder had provided financing previously but had no binding commitment to continue.
- Business plans: Management planned to market ShopFast Profit Center in Q4 2012, subject to available funding, and described a staged advertising test targeting at least $1.50 in orders per $1.00 of advertising spend before considering broader promotion. The ShopFast Direct Shopping Database redevelopment was in final quality-assurance stages. These are plans, not financial guidance.
- Intangibles: Net intangible assets were $204,953, down from $273,021 at December 31, 2011, reflecting amortization. The filing reports quarterly amortization of $68,068 in the statements of operations and cash flows but $60,068 in Note 5; the text does not resolve this discrepancy.
- Controls: Management concluded internal control over financial reporting was not effective, citing insufficient segregation of duties and untimely recording of certain transactions. The disclosure-controls discussion says controls were effective “at December 31, 2011,” rather than clearly stating a conclusion as of March 31, 2012.
- The company reported no legal proceedings, defaults upon senior securities, or reportable subsequent events. Its interim results are not necessarily indicative of full-year results.
Investor verification priorities
- Confirm available financing, near-term cash needs, and plans to address the going-concern uncertainty and negative working capital.
- Track revenue trends and the health-benefit program’s contribution, including whether software launches generate meaningful revenue.
- Reconcile the conflicting Q1 amortization figures and confirm the appropriate intangible-asset carrying value and impairment assessment.
- Clarify the period covered by management’s disclosure-controls conclusion and progress remediating the disclosed internal-control weaknesses.
- Verify the status and collectability of accrued officer compensation and any related-party funding arrangements.