OLB Group, Inc. — Q2 2014 Form 10-Q
Business context and period: The OLB Group describes itself as an omnichannel e-commerce company developing ShopFast software and related cloud-based commerce, point-of-sale, inventory, and payment solutions. This filing covers the three and six months ended June 30, 2014; financial statements are unaudited. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Three months ended June 30, 2014 | Three months ended June 30, 2013 | Six months ended June 30, 2014 | Six months ended June 30, 2013 |
|---|---|---|---|---|
| Revenue | $13,018 | $28,233 | $88,614 | $50,641 |
| Gross margin | $5,152 | $17,880 | $72,150 | $29,934 |
| Operating expenses | $104,186 | $104,045 | $213,941 | $202,573 |
| Operating loss | $(99,034) | $(86,165) | $(141,791) | $(172,639) |
| Net loss | $(102,890) | $(88,023) | $(148,610) | $(175,711) |
- Q2 revenue declined $15,215 year over year, which management attributed to fewer insurance-program subscribers. Net loss widened by $14,867, reflecting lower revenue while expenses were largely unchanged.
- First-half revenue rose $37,973, primarily from a $50,000 setup and implementation fee under the company’s first white-label software licensing agreement. Insurance-program revenue fell from $50,641 to $38,614. The licensing revenue helped reduce the first-half net loss by $27,101.
- Cash used in operating activities was $52,246 in the first half, compared with $75,412 in the prior-year period. Financing provided $55,000, all from additional borrowing from a majority shareholder; there was no investing cash flow. Cash was $5,573 at June 30, 2014, up from $2,819 at year-end 2013.
- At June 30, current assets were $5,573 and current liabilities were $279,624, a working-capital deficit of $274,051. Total liabilities were $279,624; stockholders’ deficit was $269,086. Related-party notes payable were $105,000, bearing 10% interest and due within one year; accrued interest was $5,330.
- Accumulated deficit was $14,414,652. The company reported 11,300,434 common shares outstanding as of August 4, 2014. No preferred shares were outstanding.
Outlook, risks, and other notable items
- Management said it expects continued losses and anticipates needing additional financing. It was pursuing equity financing and investment opportunities, but stated that the availability of financing and execution of its plans were uncertain. The majority shareholder had no binding commitment to provide further loans.
- The filing states there is substantial doubt about the company’s ability to continue as a going concern, citing significant operating losses, accumulated deficit, and working-capital deficit. The financial statements include no adjustments that might result if the company cannot continue as a going concern.
- Management described plans to expand ShopFast and launch white-label and mobile commerce services, and reported a pilot with a major U.S. merchant bank. These are forward-looking statements; the filing provides no quantified revenue or earnings guidance.
- Disclosure controls were deemed effective at June 30, 2014, but internal control over financial reporting was deemed ineffective. The disclosed material weakness was insufficient personnel to maintain adequate segregation of duties.
- The company reported no legal proceedings and no reportable subsequent events. It stated that deferred tax assets were fully reserved.
Important facts for investors to verify
- Whether the $50,000 licensing agreement produces recurring revenue, and the status and commercial results of the merchant-bank pilot.
- Near-term cash needs, access to financing, and the terms, repayment, and continued availability of related-party borrowing.
- Whether subscriber declines in the insurance program continue and whether new product launches can offset them.
- Progress addressing the disclosed internal-control material weakness and maintaining reliable financial reporting.
- The company’s ability to improve liquidity and operating results sufficiently to address the stated going-concern uncertainty.