OLB Group, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed March 28, 2014. Comparisons are with fiscal 2012.
Business context and reporting period
OLB is a very small e-commerce software company developing ShopFast products for small retailers, including cloud-based commerce, point-of-sale, inventory, marketing, and white-label tools for merchant banks and independent sales organizations. The company reported one full-time employee, its CEO, and relied on contractors. A pilot with a major U.S. merchant bank was underway; the filing does not report resulting revenue.
Financial results and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $103,795 | $130,508 | Down $26,713 (21%) |
| Gross profit / margin | $65,687 / 63% | $83,078 / 64% | Gross profit down $17,391 |
| Operating loss | $(559,956) | $(669,200) | Loss narrowed |
| Net loss | $(552,116) | $(783,856) | Loss narrowed $231,740 |
| Basic loss per share | $(0.05) | $(0.11) | |
| Cash used in operations | $(131,064) | $(166,962) | Use decreased $35,898 |
| Cash from financing | $125,000 | $175,000 |
At year-end, cash was $2,819, total assets $7,784, current liabilities $128,260, and stockholders’ deficit $120,476. Working capital deficit was $125,441. Current liabilities included $78,260 of accounts payable and accrued expenses and $50,000 of notes payable to a major shareholder; those notes bear 10% interest and are due within one year. Accrued interest was $1,705. Cash fell from $8,883 at the end of 2012. The company reported no investing cash flows.
Operating expenses included $489,137 of officer compensation, $136,506 of general and administrative expense, and no amortization expense (versus $273,021 in 2012). Other expense was $7,840, compared with $114,656 in 2012; 2013 included a $16,110 gain on forgiveness of debt. The company raised $75,000 through stock sales and $50,000 through notes in 2013. The CEO converted accrued compensation into 713,790 shares.
Material changes versus 2012
- Revenue fell 21%, principally because fees from health-related discount benefit plans declined; gross margin decreased one percentage point.
- Net loss narrowed despite higher reported officer compensation, mainly alongside lower general and administrative expense, no amortization, and reduced other expense.
- Operating cash use improved, but financing proceeds declined and year-end cash remained very low.
- Shares outstanding rose from 10,178,312 to 11,300,434. The filing reports 2013 cash equity issuances of $75,000 and a CEO compensation conversion.
Outlook, risks, contingencies, and unusual items
Management planned to continue ShopFast development and begin marketing, but said existing cash and investment balances would not fund the next twelve months’ planned activity and overhead. It expected to seek additional equity or debt financing; availability and terms were uncertain. Management warned that failure to obtain funds could require workforce reductions or curtailment or cessation of product development. No quantified revenue or earnings guidance was provided.
- The auditor’s report includes a going-concern emphasis: recurring operating losses and a working capital deficit raise substantial doubt about the company’s ability to continue. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- The company had an accumulated deficit of $14,266,042 and stated that continued operations depended on generating revenue and securing financing. Subsequent to year-end, it borrowed another $25,000 from a major shareholder.
- The CEO is the sole director and officer, holds approximately 61% of common shares, and also serves as interim CFO. The company had no independent directors or audit committee. Management concluded internal control over financial reporting was ineffective, citing inadequate segregation of duties and untimely recording of certain transactions; disclosure controls were deemed effective.
- The CEO’s five-year employment agreement runs through February 28, 2018 and provides $275,000 annual salary plus a $1,500 monthly car allowance. The filing describes a 2013 conversion of accrued CEO compensation into stock at $0.30 per share, while the reported market closing price was $0.60; the company recorded additional compensation expense related to the difference.
- Risks include dependence on the CEO and additional financing, limited revenue and market acceptance, intense competition, reliance on suppliers and third-party fulfillment, technology and cybersecurity risks, and potential dilution. The company reported no pending legal proceedings and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether OLB obtained adequate financing after year-end, and whether the additional $25,000 shareholder loan was sufficient to meet near-term obligations.
- Current cash, payables, shareholder debt, and the company’s ability to fund operations without further insider support or dilutive financing.
- Whether ShopFast products were launched and marketed, and whether the merchant-bank pilot generated paying customers or recurring revenue.
- The accounting and disclosure for 2013 CEO compensation: the MD&A cites $214,137 of added compensation expense, while the financial statements report $214,138 of compensation expense and the equity statement records $428,275 for the salary conversion. Reconcile these figures and the stated conversion-price treatment.
- Whether control weaknesses were remediated and whether independent directors and an audit committee were appointed.