OLB Group, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. Comparative results are for the three months ended March 31, 2014; balance-sheet comparisons are with December 31, 2014. The company offers monthly health-benefit subscriptions and ecommerce development, consulting, and software licensing services.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $18,242 | $75,596 |
| Cost of revenue | $7,108 | $8,598 |
| Gross margin | $11,134 (61.0% of revenue) | $66,998 (88.6% of revenue) |
| Operating expenses | $104,495 | $109,755 |
| Operating loss | $(93,361) | $(42,757) |
| Interest expense | $836 | $2,963 |
| Net loss | $(94,197) | $(45,720) |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Cash used in operating activities | $(49,533) | $(18,565) |
At March 31, 2015, cash was $154, total assets were $5,119, and current liabilities were $116,079, resulting in a working-capital deficit of $115,925. Total liabilities were $116,079 and stockholders’ deficit was $110,960. The company reported $50,000 of related-party notes payable, due within one year and bearing 10% interest, plus $836 of accrued interest. It borrowed $50,000 from Herzog & Co. during the quarter. Financing cash inflow was $49,687; investing cash flow was zero.
Changes versus the prior comparable period
- Revenue fell $57,354, or about 75.9%. Insurance-program revenue declined $9,854 to $15,742, attributed to fewer subscribers and lower premiums for some subscribers.
- Q1 2014 included $50,000 of white-label software licensing setup and implementation revenue; no licensing revenue was recorded in Q1 2015. Q1 2015 included $2,500 from software development services.
- Gross margin declined $55,864, or 83.4%, primarily because the prior-year licensing revenue did not recur.
- Operating expenses decreased $5,260, while net loss increased $48,477. Lower interest expense reflected elimination of interest on credit-card debt.
- Operating cash use increased from $18,565 to $49,533. Cash at quarter-end was $154 versus $9,254 at March 31, 2014.
Outlook, risks, and other notable disclosures
- Going concern: The company reported significant operating losses, an accumulated deficit of $14,720,540, and a working-capital deficit of $115,925, raising substantial doubt about its ability to continue as a going concern. Management is pursuing equity financing and investment opportunities, but their availability and the company’s ability to achieve its operating goals are uncertain. The company anticipates continued losses for some time and depends on additional revenue and financing.
- Controls: Management concluded disclosure controls were effective as of March 31, 2015, but internal control over financial reporting was not effective. The identified material weakness was insufficient personnel to maintain adequate segregation of duties. No material change in internal controls during the quarter was reported.
- Related-party transactions: In Q1 2015, the company borrowed $50,000 from Herzog & Co. In December 2014, certain debts and accrued compensation were extinguished in exchange for fully amortized domain names and software code; the company said the assets were non-revenue-generating and would require further investment to produce revenue.
- Other matters: The company reported no legal proceedings and no reportable subsequent events. It excluded 75,000 warrants from diluted loss per share as anti-dilutive; the warrants have a $1.00 exercise price and a two-year term from July 2013.
Key facts for investors to verify
- Whether the company secured financing after the quarter and has adequate cash to fund operations, given the $154 cash balance and substantial going-concern doubt.
- Whether subscription enrollment and insurance-program revenue stabilized, and whether new software licensing or development contracts generated meaningful revenue after Q1.
- The repayment status and terms of the $50,000 related-party note, including accrued interest.
- Whether the identified segregation-of-duties weakness was remediated and internal control over financial reporting became effective.
- The status and expiration or exercise of the 75,000 warrants, whose disclosed remaining contractual life was approximately 0.28 years at March 31, 2015.