OLB Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. Unaudited financial statements; amounts are in dollars, not thousands. OLB offers monthly subscription packages that include health benefits and provides e-commerce development and consulting services.
Financial performance
| Metric | Three months ended Sept. 30, 2017 | Three months ended Sept. 30, 2016 | Nine months ended Sept. 30, 2017 | Nine months ended Sept. 30, 2016 |
|---|---|---|---|---|
| Net revenue | $9,941 | $8,152 | $43,576 | $53,445 |
| Gross margin | $5,416 (54.5%) | $2,930 (36.0%) | $28,582 (65.6%) | $37,624 (70.4%) |
| Operating expenses | $111,773 | $89,726 | $312,350 | $276,755 |
| Operating loss | $(106,357) | $(86,796) | $(283,768) | $(239,131) |
| Interest expense | $9,787 | $2,972 | $26,020 | $3,317 |
| Net loss | $(116,144) | $(89,768) | $(309,788) | $(242,448) |
| Basic and diluted loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.02) |
- Quarterly subscription revenue rose $1,789, which management attributed to more subscribers. For the nine-month period, subscription revenue increased $812 to $40,601, but development revenue fell to $2,975 from $13,656, driving the decline in total revenue.
- Quarterly G&A increased $22,047 and nine-month G&A increased $35,595; management cited higher computer and internet spending. Officer compensation was unchanged year over year.
- Cash was $104 at September 30, 2017, versus $1,160 at December 31, 2016. Total assets were $5,069; current liabilities were $638,302, producing a working-capital deficiency of $638,198. Stockholders’ deficit was $633,233.
- For the first nine months, operating activities used $54,556 of cash, compared with $111,186 in 2016. Related-party financing provided $53,500, compared with $110,000; investing cash flows were zero.
Debt, liquidity and outlook
At September 30, 2017, the company owed a director $216,500 in principal and had $34,224 of accrued interest. The notes bear 18% interest, secured by 3,850,000 common shares, and mature in three years; the company was in default on required interest payments. The filing reports no cash paid for interest during the nine-month period.
Management said related parties had indicated in writing an intention to provide support, but there is no binding agreement or legal obligation to fund the company. Management planned to manage liabilities and improve cash flow, and stated it expected sufficient resources through the next twelve months in MD&A. The liquidity note instead says projections support requirements through year-end 2017. Support availability and the differing time horizons are important uncertainties; management said costs may need to be reduced if support is withdrawn. No revenue or earnings guidance was provided.
Other material disclosures and risks
- Disclosure controls and internal control over financial reporting were concluded to be ineffective as of September 30, 2017. The identified material weakness was insufficient personnel to maintain adequate segregation of duties; no material control changes were reported during the quarter.
- The founder/president’s employment agreement provides annual salary of $275,000 and runs through February 28, 2018; it also provides benefits and a potential incentive bonus subject to performance criteria.
- The filing reports no legal proceedings, unregistered equity sales, defaults upon senior securities, or material subsequent events. The company had 13,479,297 common shares outstanding as of November 7, 2017.
Important facts for investors to verify
- Whether related-party financing remains available, and the timing and terms of any additional funding.
- The status of the overdue interest, related-party loan balance, collateral, and any consequences of the payment default.
- Whether management’s liquidity forecast supports twelve months of operations, given the very low cash balance and the shorter period stated in the financial-statement note.
- Whether revenue trends—especially the reduction in development services—stabilize and whether subscription growth can support operating costs.
- What remediation steps, if any, address the disclosed control weakness and ineffective disclosure controls.