OLB Group, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are to the three months ended March 31, 2013 unless otherwise noted. The company describes itself as an omnichannel e-commerce business developing ShopFast and related cloud-based retail and payment products.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $75,596 | $22,408; up $53,188 |
| Revenue mix | $25,596 insurance program; $50,000 licensing | $22,408 insurance program; no licensing revenue reported |
| Gross profit (filing labels this “gross margin”) | $66,998 | $12,054 |
| Gross margin as a percentage of revenue | Approximately 88.6% | Approximately 53.8% |
| Operating expenses | $109,755 | $98,528 |
| Operating loss | $42,757 | $86,474 |
| Interest expense | $2,963 | $1,214 |
| Net loss | $45,720 | $87,688 |
| Basic loss per share | $0.01 | $0.01 |
| Operating cash flow | $(18,565) | $(32,646) |
| Financing cash flow | $25,000 | $25,000 |
Management attributed the revenue and loss improvement primarily to the first white-label software licensing agreement, which generated $50,000 of setup and implementation fees. G&A rose $11,227, or 38%, to $41,005, mainly due to travel, trade shows, and website development. Officer salaries were $68,750, unchanged year over year.
At March 31, 2014, cash was $9,254, accounts receivable was $25,000, and total current assets were $34,254. Current liabilities were $205,415, producing a working capital deficit of $171,161. Total assets were $39,219; stockholders’ deficit was $166,196. Liabilities included $75,000 of related-party notes payable and $52,095 of accrued officer compensation. The notes bear 10% interest, are due within one year, and had $3,274 of accrued interest at quarter-end. The company reported no investing cash flows and paid no cash interest or income taxes during the quarter.
Cash increased by $6,435 during the quarter, from $2,819 at December 31, 2013 to $9,254. Operating cash use included a $25,000 increase in accounts receivable; financing included an additional $25,000 borrowing from the majority shareholder. No common shares were issued during Q1; 11,300,434 shares were outstanding at May 5, 2014.
Material changes, outlook, and risks
- The new licensing agreement was the principal change in revenue composition and drove the improved results; the filing does not establish whether similar licensing revenue will recur.
- Management describes plans to launch ShopFast mobile-commerce and white-label services, and reports a pilot with a major U.S. merchant bank. These are plans and pilot activity, not quantified guidance or guaranteed commercial outcomes.
- The company expects to continue incurring losses and anticipates needing additional financing. Management is pursuing equity financing and investment opportunities, but there is no assurance that financing will be obtained; the majority shareholder has no binding commitment to provide further loans.
- The filing states that the accumulated deficit was $14,311,762 and that the working capital deficit and operating losses raise substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Management concluded disclosure controls were effective, but internal control over financial reporting was not effective at March 31, 2014. The stated material weakness was insufficient personnel to maintain adequate segregation of duties.
- The filing reports no legal proceedings and no reportable subsequent events. It provides no quantified forward guidance.
Key facts for investors to verify
- Whether the $50,000 licensing arrangement produces ongoing revenue, and the timing and commercial status of the merchant-bank pilot and planned products.
- Available liquidity and financing plans, including repayment terms for related-party notes and whether additional shareholder or external funding is secured.
- How management plans to address the going-concern uncertainty and the material weakness in financial-reporting controls.
- Collection of the $25,000 receivable and whether cash needs, accrued officer compensation, or liabilities changed after quarter-end.