OLB Group, Inc. — Q3 2012 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. Financial statements are unaudited. OLB describes itself as an e-commerce software and services provider, offering ShopFast products and related services, including health-related discount benefit plans.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $31,431 | $39,214 | $98,640 | $135,972 |
| Gross profit | $19,121 | $24,040 | $60,315 | $86,613 |
| Gross margin | 60.8% | 61.3% | 61.1% | 63.7% |
| Operating expenses | $226,221 | $161,643 | $566,342 | $503,517 |
| Net loss | $(216,524) | $(131,173) | $(510,554) | $(476,729) |
| Basic loss per share | $(0.03) | $(0.02) | $(0.07) | $(0.08) |
| Operating cash flow | Not separately provided | Not separately provided | $(126,437) | $(60,841) |
At September 30, 2012, cash was $24,408, total assets were $97,442, and current liabilities were $535,062, including $385,084 of accrued officer compensation and a $71,461 related-party convertible note, net of discount. The resulting working capital deficit was approximately $510,654; stockholders’ deficit was $437,620. The company reported $150,000 of financing cash inflows in the first nine months, including $100,000 in related-party loans and $50,000 from stock issuance. Intangible assets, net, declined to $68,069 from $273,021 at year-end 2011, primarily reflecting amortization.
Changes and management commentary
- Nine-month revenue fell 27%, which management attributed mainly to lower insurance-program revenue. Gross profit declined $26,298.
- Q3 revenue was $7,783 below the prior-year quarter, while gross profit fell $4,919. General and administrative expense increased to $88,654 from $24,078; management attributed higher expenses and the increased quarterly and nine-month net losses largely to development spending.
- Management planned to begin marketing ShopFast PC in Q4 2012, subject to available funds, and described ShopFast Mobile POS as in final quality assurance. No quantified revenue or earnings guidance was provided.
- Management anticipated needing additional financing and was pursuing investment and financing opportunities. It noted that the principal stockholder had provided funding in the past but had no binding commitment to continue.
Risks, contingencies, and unusual items
- The filing states that significant losses and an accumulated deficit of $13,440,624 raise substantial doubt about the company’s ability to continue as a going concern. Additional financing and achievement of profitable operations are uncertain.
- Convertible notes issued to a stockholder in 2012 total $100,000 face value, bear 10% interest, are due within one year, and may convert at a 25% discount to the closing bid price. The balance sheet presents the note net of unamortized discount.
- Management concluded internal control over financial reporting was ineffective at September 30, 2012, citing inadequate segregation of duties and untimely recording of certain transactions. The disclosure-controls discussion refers to an effectiveness conclusion as of December 31, 2011, rather than clearly stating a quarter-end conclusion.
- No legal proceedings or reportable subsequent events were disclosed. The filing did not provide a specific market-risk disclosure because OLB qualified as a smaller reporting company.
Investor verification points
- Verify the Q3 revenue comparison: the MD&A says revenue declined 2%, but the reported values of $31,431 and $39,214 imply a decline of about 20%.
- Assess near-term liquidity, the going-concern uncertainty, and the availability and terms of further financing, including related-party support.
- Track ShopFast PC launch and Mobile POS readiness, and whether development and marketing spending translate into revenue.
- Review the disclosed material weaknesses and the inconsistent timing of the disclosure-controls conclusion.