OLB Group, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016, with FY2015 comparisons. This is an annual report, not a standalone fourth-quarter report. Amounts are in U.S. dollars.
Business context
OLB offered monthly subscription packages that included health benefits and provided ecommerce development and consulting on a project basis. It reported one full-time employee, CEO and Interim CFO Ronny Yakov, and used contractors as needed.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $83,026 | $66,290 |
| Gross margin | $62,131 | $42,438 |
| Operating expenses | $365,629 | $373,539 |
| Operating loss | $(303,498) | $(331,101) |
| Interest expense | $9,454 | $11,247 |
| Net loss | $(312,952) | $(342,348) |
| Net cash used in operations | $(164,715) | $(199,812) |
| Cash provided by financing | $163,000 | $202,687 |
| Cash at year-end | $1,160 | $2,875 |
Subscription revenue rose to $71,847 from $63,790; development revenue rose to $11,179 from $2,500. Gross margin was approximately 74.8% of revenue, compared with 64.0% in FY2015. Basic loss per share was $0.02 versus $0.03; weighted-average shares were 13,479,297 versus 11,306,403.
At December 31, 2016, total assets were $6,125, current liabilities were $329,570, and stockholders’ deficit was $323,445. The reported working-capital deficiency was $328,410. Related-party debt included $163,000 principal and $8,204 accrued interest. The note bears 18% interest, with 12% payable monthly and the remaining 6% due at maturity; it matures in three years and is secured by 3,850,000 common shares.
Changes, outlook and risks
- Revenue increased by $16,736, gross margin by $19,693, and net loss narrowed by $29,396 year over year. Management attributed the improvement to subscriber growth, development work, lower website development costs, and lower interest expense.
- Operating cash use improved, but financing was largely dependent on related-party funding. Management said projected resources were sufficient through 2017, while warning that future related-party support was not legally assured and that losing it could require operating-cost reductions.
- The auditor’s report noted an April 6, 2017 written consent under which the two largest shareholders committed to provide necessary operating support for the next 12 months. Separately, the filing says there was no binding agreement obligating the director to provide future funding.
- Disclosure controls and internal control over financial reporting were deemed ineffective due to inadequate segregation of duties and untimely recording of certain transactions. Management reported additional post-closing procedures; the auditor did not audit internal-control effectiveness.
- The company reported no pending or threatened legal proceedings and no off-balance-sheet arrangements. Tax-loss carryforwards were approximately $3.3 million, subject to potential ownership-change limitations; the deferred tax asset was fully offset by a valuation allowance.
- The common stock was thinly traded on OTC markets. The filing cautions that quoted prices may not represent actual value. No cash dividends had been paid, and none were expected in the foreseeable future.
Important facts to verify
- Whether the shareholders’ stated support was delivered, its terms, and whether it covered the company’s actual cash needs.
- How the company planned to meet obligations given $1,160 of year-end cash, a $328,410 working-capital deficiency, and continuing operating losses.
- Current status and repayment terms of the 18% related-party note, including accrued interest and share collateral.
- Whether the control weaknesses were remediated and whether subsequent filings corrected the segregation-of-duties and transaction-recording issues.
- Subscriber growth, revenue collectability, and the sustainability of the reported gross-margin improvement.