OLB Group, Inc. — FY2011 Form 10-K
Reporting period: Year ended December 31, 2011; the filing does not provide a separate set of fourth-quarter results. OLB is a development-stage e-commerce services provider offering ShopFast software, storefront hosting, order processing, and health-related discount benefit plans. It had one full-time employee at year-end and relied on outside contractors.
Financial performance
| Metric | 2011 | 2010 | Change / context |
|---|---|---|---|
| Revenue | $184,758 | $218,338 | Down $33,580, or 15%; primarily attributed to lower health-plan fees. |
| Gross profit | $120,824 | $121,758 | Down $934. Gross margin was approximately 65.4%, versus 55.8% in 2010. |
| Operating expenses | $714,203 | $589,806 | Up $124,397, mainly reflecting $273,021 of amortization; G&A declined 21% to $166,182. |
| Operating loss | $(593,379) | $(468,048) | Loss widened. |
| Net loss | $(679,491) | $(381,161) | Loss widened by $298,330. 2010 included an $86,887 lawsuit-settlement gain; 2011 included $20,025 interest expense and a $66,087 derivative-liability loss. |
| Basic loss per share | $(0.10) | $(0.10) | Weighted-average shares increased to 6,423,861 from 4,022,053. |
| Cash from operations | $(60,063) | $(131,647) | Lower cash use, alongside reduced G&A and increased accrued liabilities. |
| Cash from financing | $57,000 | $135,000 | 2011 proceeds were convertible notes, subsequently converted to stock. |
Financial position and liquidity
- Year-end cash was $845, down from $3,908. Current assets were $845 and current liabilities were $289,230, resulting in a $288,385 working-capital deficit.
- Total assets were $278,831, including $273,021 of net intangible assets. Total liabilities were $289,230; stockholders’ equity was a deficit of $10,399.
- The $57,000 of principal and $3,358 of accrued interest on notes were converted into 402,385 shares in December 2011. The balance sheet reports no year-end note payable. A separate $50,000 stock issuance was recorded as a receivable at year-end and collected January 10, 2012.
- The company reported no cash interest or taxes paid and no off-balance-sheet arrangements. Deferred tax assets were fully reserved.
Outlook, risks, and unusual items
- Management planned to begin broader ShopFast PC marketing in the second quarter of 2012 and promote it through infomercials, subject to available funding. ShopFast DSD promotion was planned thereafter. These are plans, not revenue or profitability guidance.
- Management stated cash and investment balances would not support the next 12 months’ development and general expenses, and that additional financing would be needed. It warned that failure to obtain funding could lead to reduced operations or curtailment of product development.
- The auditor issued an unqualified opinion but included a going-concern paragraph, citing recurring losses and a working-capital deficit that raise substantial doubt about continued operations. The financial statements include no adjustments for this uncertainty.
- Revenue declined while net losses worsened; 2011 amortization of $273,021 related to acquired intangible assets. The filing reported a $104,008 impairment charge in 2010 and none in 2011.
- Supplier concentration is substantial: the company reported one supplier arrangement, Baker & Taylor Fulfillment, and depends on third parties for product fulfillment. It bears certain credit, delivery, returns, and chargeback risks.
- Ronny Yakov was CEO, president, sole director, secretary, and interim CFO; he beneficially owned approximately 61% of outstanding shares. His agreement provides annual salary of $275,000 plus a $1,500 monthly car allowance and expires February 28, 2013. The balance sheet reports $205,175 of accrued officer compensation.
- Management concluded disclosure controls were effective but internal control over financial reporting was not effective, citing limited segregation of duties and untimely recording of certain transactions. There were no independent directors or audit committee.
- Other risks include intense competition, limited trading liquidity, dependence on the CEO, no product-liability or errors-and-omissions insurance, and the need for additional suppliers, marketing resources, and financing.
Important facts for investors to verify
- Whether OLB obtained sufficient financing after year-end to fund operations, development, and the planned marketing launch.
- Whether ShopFast PC and ShopFast DSD launched as planned, and whether customer adoption and advertising returns support a path to positive cash flow.
- Whether the $50,000 stock-sale proceeds received in January 2012 and any subsequent financing are reflected in later filings, including their terms and dilution effects.
- Whether supplier diversification, fulfillment reliability, and the company’s ability to manage returns and chargebacks improved.
- Whether accrued officer compensation, internal-control weaknesses, and governance concentration were addressed in subsequent reporting.