Business Context and Reporting Period
The OLB Group, Inc. (a smaller reporting company) filed its Form 10-Q for the quarterly and nine-month periods ended September 30, 2009. The Company operates as an e-commerce service provider, offering resources and support services for internet sellers. Its primary planned products include "ShopFast PC" and "ShopFast DSD," which are currently in various stages of development and testing.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 | Three Months Ended Sep 30, 2009 |
|---|---|---|---|
| Revenues | $241,709 | $0 | $63,453 |
| Gross Profit | $105,766 | $0 | $35,820 |
| Net Loss | $(200,104) | $(333,369) | $(67,589) |
| Cash (End of Period) | $119 | $362 | $119 |
| Total Assets | $5,084 | $5,635 | $5,084 |
| Total Liabilities | $710,386 | $510,833 | $710,386 |
| Working Capital Deficit | $(710,267) | $(510,163) | $(710,267) |
| Accumulated Deficit | $(11,746,453) | $(11,546,349) | $(11,746,453) |
Debt and Liquidity: The Company reported a cash overdraft of $2,849 and significant accrued liabilities, including $308,718 in accrued salary and $188,790 in judgment payable with accrued interest. A loan payable to an officer increased to $30,640. Net cash used in operating activities was $32,567 for the nine-month period, partially offset by $32,016 provided by financing activities (primarily officer loans).
Material Changes vs. Prior Period
- Revenue Generation: The Company generated $241,709 in revenue for the nine months ended September 30, 2009, compared to zero revenue in the same period in 2008. This resulted in a gross profit of $105,766.
- Reduced Net Loss: Net loss decreased by $133,265 (40%) to $200,104, driven by the new revenue stream and a $35,444 reduction in General and Administrative (G&A) expenses due to lower professional fees and software development costs.
- Liability Growth: Total current liabilities increased by approximately $200,000, primarily due to a rise in accrued salary (from $125,000 to $308,718) and the officer loan balance.
- Cash Position: Cash on hand declined from $670 to $119, reflecting continued operating cash burn despite the reduction in the rate of cash usage compared to the prior year.
Outlook, Risks, and Management Commentary
- Going Concern: The filing includes a "Going Concern" warning. The Company has a working capital deficit of approximately $710,267 and has incurred significant losses. Management states that the ability to continue as a going concern is dependent on obtaining additional equity or debt financing, which is not guaranteed.
- Operational Plan: Management plans to launch the marketing of the "ShopFast PC" software component by the end of the fourth quarter of 2009. This includes producing a 30-minute infomercial and a two-minute commercial, contingent on available funds. The Company aims to achieve a media spending return ratio of at least $1.50 in orders for every $1.00 spent.
- Product Development: The Company is redesigning ShopFast PC to allow clients to create their own internet storefronts without administrative assistance. ShopFast DSD is in the quality assurance testing phase.
- Financing Needs: Future liquidity requirements will necessitate additional financing. The primary source of funding to date has been loans from the CEO and principal stockholder, Ronny Yakov, who has no binding commitment to continue such financing.
- Risks: The Company faces risks related to its inability to raise capital, the success of its marketing campaigns, and the realization of its product development goals. There are no material legal proceedings disclosed.
Investor Verification Checklist
- Capital Adequacy: Verify the Company's ability to secure the additional financing required to continue operations, given the $710,000+ working capital deficit and minimal cash on hand ($119).
- Revenue Sustainability: Assess whether the $241,709 in revenue for the nine-month period is sustainable or a one-time occurrence, and if it is sufficient to cover the $206,250 in officer salaries and other operating expenses.
- Related Party Transactions: Review the terms of the loans and accrued salaries owed to the President/CEO, which constitute a significant portion of the Company's liabilities.
- Product Launch Timeline: Confirm the status of the "ShopFast PC" and "ShopFast DSD" product launches and the availability of funds for the planned marketing campaigns (infomercials).
- Judgment Payable: Investigate the nature of the $188,790 judgment payable with accrued interest and any potential impact on future cash flows.