OLB Group, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; financial statements are unaudited. OLB describes itself as an e-commerce service provider developing software and related services for online and mobile selling.
Financial results
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $22,408 | $28,581 | Down $6,173 (22%); management attributes the decline mainly to lower insurance-program revenue. |
| Cost of revenue | $10,354 | $14,585 | Down $4,231. |
| Gross margin | $12,054 (53.8% of revenue) | $13,996 (49.0%) | Down $1,942; gross margin rate improved. |
| Operating expenses | $98,528 | $167,918 | Down $69,390, largely because amortization fell from $68,068 to zero. |
| Operating loss | $(86,474) | $(153,922) | Loss narrowed by $67,448. |
| Net loss | $(87,688) | $(148,313) | Loss narrowed by $60,625; management says the improvement primarily reflects no amortization expense. |
| Basic loss per share | $(0.01) | $(0.02) | Weighted-average shares rose to 10,237,571 from 7,155,548. |
| Cash used in operations | $(32,646) | $(50,676) | Operating cash use declined. |
| Financing cash provided | $25,000 | $50,000 | Q1 2013 proceeds were from a common-stock sale. |
Financial position and liquidity
- At March 31, cash was $1,237, down from $8,883 at December 31, 2012. Total assets were $6,202, including a $4,965 internet domain; net property and equipment and net intangible assets were zero.
- Current liabilities were $140,526, comprising $88,596 of accounts payable and accrued expenses and $51,930 of accrued officer compensation. The resulting working-capital deficit was $139,289.
- Stockholders’ deficit was $134,324, and accumulated deficit was $13,801,614. The balance sheet reports no debt at March 31; prior-year stockholder convertible notes had been converted in December 2012. Q1 interest expense was $1,214.
- Cash from operations plus financing resulted in a $7,646 net cash decrease for the quarter. The filing reports no investing cash flows.
Outlook, risks and notable items
- Going concern: The filing states that significant operating losses, the accumulated deficit and working-capital deficit raise substantial doubt about the Company’s ability to continue as a going concern. Management expects further losses and says additional financing will be needed; it is pursuing equity financing and investment opportunities, but success and availability of funding are uncertain. The CEO has no binding commitment to provide further financing.
- Business plans: Management describes plans for mobile commerce, POS, e-commerce and SaaS offerings, including a pilot with a leading U.S. merchant bank. The filing gives no revenue or profitability guidance, and the plans are subject to funding, development and market execution.
- Equity issuance: The Company sold 166,666 shares for $25,000 in February. After quarter-end, it issued another 166,666 shares for $25,000. Shares outstanding were 10,344,978 at March 31 and 10,511,644 as of May 1, 2013.
- Controls: Management concluded disclosure controls were effective, but internal control over financial reporting was ineffective. Cited material weaknesses included insufficient segregation of duties due to limited personnel and untimely recording of certain transactions.
- The filing reports no legal proceedings, defaults upon senior securities, or other reportable subsequent events beyond the post-quarter share issuance. No formal financial guidance is provided.
Key facts for investors to verify
- Whether OLB can secure sufficient financing to fund operations given its very low cash balance, operating cash use and stated going-concern uncertainty.
- Whether planned products and the merchant-bank pilot progress to commercial launches and generate material, recurring revenue.
- Whether revenue stabilizes after the reported decline, particularly insurance-program revenue, and whether improved gross margin rates persist.
- Whether management remediates the disclosed internal-control weaknesses and improves timely recording and segregation of duties.
- The extent of future equity issuance or other financing and its effect on shareholder dilution.