OLB Group, Inc. — Q3 2015 Form 10-Q
Business context and reporting period. The filing covers the unaudited quarter and nine months ended September 30, 2015, with comparisons to the corresponding 2014 periods. OLB offered monthly subscription packages with health-related benefits and provided e-commerce development and consulting services. The company reported 11,300,434 common shares outstanding as of November 5, 2015.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net revenue | $15,411 | $30,910 | $45,432 | $119,524 |
| Gross margin dollars | $8,797 | $24,568 | $25,370 | $96,718 |
| Gross margin percentage | 57.1% | 79.5% | 55.8% | 80.9% |
| Operating expenses | $92,416 | $112,973 | $287,084 | $326,914 |
| Operating loss | $(83,619) | $(88,405) | $(261,714) | $(230,196) |
| Net loss | $(88,132) | $(93,349) | $(268,727) | $(241,959) |
| Basic and diluted loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.02) |
Cash flow and liquidity. For the nine months, operating cash use was $151,559, compared with $81,244 in 2014. Financing provided $152,687, including $153,000 borrowed from a related party; cash increased by $1,128 to $1,128 at quarter-end. At September 30, current assets were $1,128 and current liabilities were $291,583, a working capital deficit of $290,455. The balance sheet reported total assets of $6,093, total liabilities of $291,583, and stockholders’ deficit of $285,490.
Debt. The company owed Herzog & Co. $153,000 of principal and $5,587 of accrued interest. The related-party notes bear 10% interest and are due within one year. No interest was paid in cash during the nine-month period.
Material changes versus prior comparable periods
- Q3 revenue fell about 50%, primarily as insurance-program subscribers declined and some premiums were lower. Nine-month revenue declined about 62%.
- Nine-month gross margin dollars fell 73.7%, chiefly because 2014 included $50,000 of white-label software setup and implementation licensing revenue, with no licensing revenue reported in 2015.
- Despite lower operating expenses and interest expense, the nine-month net loss widened by $26,768, to $268,727, largely due to the absence of the prior-year licensing revenue. Q3 net loss narrowed by $5,217.
Outlook, risks, and unusual items
- Going concern: Management and the filing identify substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses, a $14,895,070 accumulated deficit, and the working capital deficit. Management was pursuing equity financing and investment opportunities, but success and availability of financing were uncertain. The statements include no adjustments that might be required if the company cannot continue.
- Management anticipated continued losses and said continued operations depend on generating additional revenue and obtaining financing. No quantified revenue or earnings guidance was provided.
- Management reported disclosure controls were effective, but internal control over financial reporting was not effective as of September 30, 2015. The cited material weakness was inadequate segregation of duties due to limited personnel; no material control changes occurred during the quarter.
- The filing reported no legal proceedings, unregistered equity sales, or defaults upon senior securities. The 75,000 warrants outstanding at year-end 2014 expired during the first nine months of 2015; none remained outstanding at September 30.
Important facts for investors to verify
- Whether OLB obtained sufficient financing after the reporting date, and the terms, maturity, and repayment capacity associated with related-party borrowing.
- Whether subscriber counts, insurance-program revenue, and customer retention stabilized or continued to decline.
- Whether the company generated new licensing or development revenue to replace the $50,000 recognized in 2014.
- Whether the disclosed segregation-of-duties weakness was remediated and whether subsequent filings report any changes in control effectiveness.
- The filing presents very limited liquidity—$1,128 cash against $291,583 of current liabilities—and states that the going-concern uncertainty remains unresolved.