OLB Group, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. The unaudited filing describes OLB as an e-commerce services provider, with products including ShopFast PC and ShopFast DSD and health-related discount benefit plans.
Key financial results
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $39,214 | $51,879 | $135,972 | $155,160 |
| Gross profit | $24,040 | $26,834 | $86,613 | $46,952 |
| Gross margin | 61.3% | 51.7% | 63.7% | 30.3% |
| Operating loss | $(137,603) | $(110,017) | $(416,904) | $(321,356) |
| Net loss | $(131,173) | $(110,017) | $(476,729) | $(234,469) |
| Basic loss per share | $(0.02) | $(0.03) | $(0.08) | $(0.06) |
| Operating cash flow | Not presented quarterly | $(60,841) | $(110,002) |
At September 30, 2011, cash was $600, total assets were $347,403, current liabilities were $281,486, and stockholders’ equity was $65,917. Current liabilities included $149,425 of accrued salary, $31,370 of accounts payable and accrued expenses, $7,000 of related-party demand debt, a $38,447 related-party convertible note net of discount, $52,774 of derivative liability, $1,937 of accrued interest, and a $533 cash overdraft. The convertible note’s face amount was $50,000. The filing does not provide a clear breakdown of conventional long-term debt; reported liabilities were current.
Changes versus prior periods
- Nine-month revenue fell 13% year over year, which management attributed mainly to fewer health-plan subscribers. Q3 revenue fell 25%, mainly due to lower insurance-program revenue.
- Nine-month gross profit increased by $39,661, attributed to lower administrative fees on the insurance program. Q3 gross profit declined by $2,794.
- Nine-month G&A expense declined 43% to $93,063; Q3 G&A declined 65% to $24,078, reflecting cost reductions. Officer salary remained $206,250 for the nine-month period.
- Nine-month net loss increased by $242,260. The filing attributes the change chiefly to $204,204 of intangible-asset amortization, a $52,774 derivative-liability loss, and the absence of the prior-year $86,887 lawsuit-settlement gain.
- Intangible assets, net, declined to $341,838 from $546,042 at year-end 2010, following $204,204 of amortization. Cash fell from $3,908 at December 31, 2010 to $600.
Liquidity, outlook, and risks
Operating activities used $60,841 of cash over nine months. The company received $57,000 in stockholder loans; financing activities provided $57,533 in total. Management says further financing will be needed and that the principal stockholder has no binding commitment to continue funding the company. The filing states that accumulated losses and dependence on additional financing raise substantial doubt about the company’s ability to continue as a going concern; financing and operating plans are uncertain.
Management planned to market the ShopFast PC software in Q4 2011, subject to available funds, with infomercial testing and a broader campaign only if advertising produced at least $1.50 in orders per $1.00 spent. ShopFast PC was being redesigned for customers to create storefronts themselves; ShopFast DSD was in final quality assurance. These are plans, not assured outcomes, and the filing gives no quantified revenue or earnings guidance.
The $50,000 related-party convertible note bears 10% interest, is due within one year, and converts at a 25% discount to the closing bid price. As of September 30, the filing says it was convertible into 6,666,667 common shares. The associated derivative liability is valued using Level 3 inputs. On October 12, 2011, the company effected a 1-for-20 reverse split and changed its par value; the filing says share amounts were retroactively restated. It reported 6,419,830 common shares outstanding as of October 25, 2011.
Management reported disclosure controls and procedures were effective as of September 30, 2011 and no material change in internal control over financial reporting during the quarter. The filing reports no legal proceedings or defaults upon senior securities.
Important facts for investors to verify
- Whether OLB can secure financing and meet obligations given $600 cash, substantial accrued salary, and the stated going-concern uncertainty.
- The convertible note’s conversion terms, potential dilution, derivative valuation, and how the 1-for-20 reverse split affects the reported share count and conversion shares.
- Whether ShopFast product launches and the proposed advertising economics can be achieved within available funding.
- The sustainability and economics of health-plan and insurance-related revenue, including subscriber trends and administrative costs.
- The useful lives, remaining recoverable value, and future amortization or impairment risk of the acquired intangible assets.