OLB Group, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. OLB describes itself as an e-commerce services provider, with ShopFast products and related services among its planned offerings. Financial statements are unaudited.
Key financial results
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 |
|---|---|---|
| Revenue | $49,295, up 8% year over year | $96,758, down 6% year over year |
| Gross profit and margin | $32,558; 66.1% (2010: $19,044; 42.0%) | $62,573; 64.7% (2010: $20,118; 19.5%) |
| Operating loss | $141,437 (2010: $101,323) | $279,301 (2010: $211,339) |
| Net loss | $207,627 (2010: $101,323) | $345,556 (2010: $124,452) |
| Operating cash flow | Used $42,918 in the six-month period (2010: $57,459 used) |
Six-month operating expenses were $341,874, including $135,389 of amortization; interest expense was $1,427 and the reported derivative-liability loss was $64,828. Basic loss per share was reported as $0.00, rounded, for both comparison periods.
Financial position and liquidity
At June 30, 2011, cash was $17,990, total assets were $433,609, and current liabilities were $236,517, including $30,934 of accounts payable and accrued expenses, $41,246 of notes payable net of discount, a $64,828 derivative liability, $514 of accrued interest, and $98,995 of accrued salary. Current assets consisted entirely of cash; the resulting working-capital deficit was $218,527. Stockholders’ equity was $197,092, compared with $525,980 at December 31, 2010. Accumulated deficit was $12,596,135.
Six-month financing provided $57,000 of loan proceeds; cash increased by $14,082 to $17,990. No investing cash flows were reported. The company reported no cash paid for interest or income taxes.
Changes versus prior comparable periods
- Quarterly revenue rose $3,918, which management attributed mainly to Gift and Home Channel product sales. Six-month revenue fell $6,523, mainly due to fewer health-benefit-plan subscribers in the first quarter.
- Gross profit increased in both comparisons, which management attributed to lower administrative fees on the insurance program. Six-month cost of sales fell to $34,185 from $83,163.
- General and administrative expense declined 28% for the quarter and 27% for the six months, which management attributed to cost-reduction efforts. Officer salary remained $137,500 for the six-month period.
- Net losses widened. Management cited newly recorded intangible amortization and a derivative-liability loss; the six-month comparison was also affected by an $86,887 lawsuit-settlement gain recorded in 2010.
- Net intangible assets declined to approximately $410,654 from $546,042 at year-end, principally due to amortization. Certain acquired intangible assets had been deemed fully impaired in 2010.
Outlook, risks, and unusual items
Management planned to market ShopFast PC software in Q4 2011, subject to available funding, and described ShopFast DSD as in final quality-assurance stages. It outlined testing advertising economics before considering a broader media campaign, but gave no quantified revenue or earnings guidance. Management stated that product launches, customer uptake, and expected results were uncertain.
The filing explicitly says substantial doubt exists about the company’s ability to continue as a going concern, citing operating losses and the accumulated deficit. Continued operations depend on financing, operating efficiencies, and achieving profitability. Management was pursuing financing, but the CEO and principal stockholder had no binding commitment to provide further funding; additional financing might not be available or favorable.
In Q2, OLB issued a $50,000 convertible note bearing 10% annual interest, due within one year and convertible at a 25% discount to the closing bid price. The filing recorded a $16,667 beneficial-conversion-feature amount and a $64,828 Level 3 derivative liability using a stated volatility assumption of 429%; the derivative is to be revalued each reporting period. A separate $7,000 stockholder loan bears 10% interest and is due on demand. The company had 128,396,599 common shares outstanding at July 15, 2011, and 13,316,835 outstanding warrants exercisable at $0.40 per share.
The filing reported no legal proceedings or reportable subsequent events. Management concluded disclosure controls and procedures were effective as of June 30, 2011, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether OLB can secure additional financing and meet near-term obligations, given its cash balance, working-capital deficit, and explicit going-concern doubt.
- The terms, carrying values, maturity, and potential dilution associated with the convertible note, derivative liability, stockholder loan, and outstanding warrants.
- Whether ShopFast product testing and planned marketing proceed, and whether customer growth and advertising returns support management’s plans.
- The recoverability and remaining useful lives of acquired intangible assets, and the effect of continuing amortization or impairment on results.
- The reported revenue and cost trends, including the subscriber decline and management’s explanation for improved gross profit.