OLB Group, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. OLB describes itself as an e-commerce service provider developing software and related services for online and mobile commerce, and also offers health-related discount benefit plans.
Financial performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2013 | $28,233 | $50,641 |
| Revenue, 2012 | $38,628 | $67,209 |
| Gross margin, 2013 | $17,880 (63.3%) | $29,934 (59.1%) |
| Gross margin, 2012 | $27,198 (70.4%) | $41,194 (61.3%) |
| Net loss, 2013 | $88,023 | $175,711 |
| Net loss, 2012 | $145,717 | $294,030 |
| Basic loss per share, 2013 | $0.01 | $0.02 |
For the six months, operating expenses were $202,573, including $137,500 in officer compensation and $65,073 in general and administrative costs. No amortization expense was recorded in 2013; the comparable 2012 periods included $68,068 for Q2 and $136,136 for the six months. The company attributed lower net losses primarily to the absence of amortization.
Liquidity, cash flow and debt
- Cash was $8,471 at June 30, 2013, versus $8,883 at December 31, 2012. Operating activities used $75,412 in the first half; financing provided $75,000, comprising $50,000 from common-stock sales and $25,000 from a related-party loan.
- Current liabilities were $210,782, including $78,693 in accounts payable and accrued expenses, a $25,000 related-party note, and $107,089 in accrued officer compensation. The resulting working-capital deficit was $202,311.
- The $25,000 stockholder note bears 10% annual interest and is due within one year. The company also reported $3,072 of interest expense for the first half.
- Stockholders’ deficit was $197,346. Common shares outstanding increased to 10,511,644 from 10,178,312 at year-end; the filing reports 10,511,644 shares outstanding as of July 15, 2013.
Changes versus prior period
Revenue fell 27% in Q2 and 25% in the first half year over year. Management attributed the declines to fewer subscribers and lower premiums in the insurance program. Gross margin dollars also declined in both periods. Net losses narrowed, but mainly because prior-year amortization did not recur; revenue and gross margin remained lower.
Outlook, risks and other notable items
- The filing gives no numerical earnings or revenue guidance. Management anticipates continued losses and says future liquidity depends on additional financing and revenue growth.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing significant operating losses, the accumulated deficit of $13,889,637, and the working-capital deficit. It was pursuing equity financing and investment opportunities, but financing was uncertain and the principal stockholder had no binding commitment to provide further funding.
- Plans include a mobile-commerce SaaS and unified POS/inventory platform, white-label services for merchant banks and ISOs, and PayAnywhereBills and PayAnywhereAnything offerings. The company reported a pilot with a leading U.S. merchant bank; commercial results or commitments are not quantified.
- Management concluded disclosure controls were effective, but internal control over financial reporting was not effective. Disclosed weaknesses included insufficient segregation of duties due to limited staffing and untimely recording of certain transactions.
- No legal proceedings or reportable subsequent events were disclosed. The filing says there were no defaults upon senior securities.
Important facts for investors to verify
- Whether OLB secured financing after the reporting date and can fund operations given minimal cash and substantial going-concern uncertainty.
- Whether the merchant-bank pilot and planned products produced paying customers, recurring revenue, or material costs.
- Whether subscriber and premium declines in the insurance program continued after Q2.
- The balance-sheet total-assets line is printed as $13,346, while assets are listed as $13,436 and liabilities plus equity also calculate to $13,436; verify the apparent $90 typographical error.
- Whether the disclosed control weaknesses were remediated and whether financial reporting remains timely and reliable.