OLB Group, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; audited financial statements compare 2017 with 2016. OLB reported a small business focused on monthly health-benefit subscription packages and project-based e-commerce development and consulting. The April 2018 Excel asset acquisition described below occurred after the reporting period.
Financial results and liquidity
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $51,543 | $83,026 | Down $31,483 (about 38%) |
| Cost of revenue | $19,398 | $20,895 | Down $1,497 |
| Operating expenses | $423,380 | $386,524 | Up $36,856 |
| Operating loss | $371,837 | $303,498 | Loss widened |
| Interest expense | $26,901 | $9,454 | Up $17,447 |
| Net loss | $398,738 | $312,952 | Loss widened $85,786 |
| Cash used in operating activities | $54,080 | $164,715 | Use decreased |
| Cash provided by financing | $53,500 | $163,000 | Lower related-party funding |
Cash at year-end was $580, versus $1,160 a year earlier. Current assets were $580 and current liabilities $93,121, producing a reported working-capital deficiency of $92,541. Total assets were $5,545; total liabilities were $93,121; and stockholders’ deficit was $87,576. The balance sheet showed no notes payable at year-end, following conversion of related-party debt and accrued interest into shares; $3,481 remained as an unsecured, non-interest-bearing related-party loan due on demand. Gross margin was not stated as a percentage in the filing.
Material changes and financing
- Revenue fell due to fewer subscription-program subscribers and less software development services. General and administrative expense rose $38,353, primarily due to increased computer and internet expense; officer compensation remained $275,000.
- Related-party lender John Herzog advanced $53,500 in 2017. The company converted $216,500 of principal and $35,105 of accrued interest into 2,516,050 common shares. It also converted $380,502 of accrued CEO salary into 3,805,017 shares and issued 25,000 shares valued at $2,500 for accounting services.
- Shares outstanding increased from 13,479,297 at year-end 2016 to 19,825,364 at year-end 2017. The filing reports no cash dividends and says it intends to retain future earnings.
Outlook, risks and unusual items
- The auditor expressed substantial doubt about OLB’s ability to continue as a going concern, citing limited cash, recurring operating cash use, and a history of losses. Management said it expected support from existing or prospective investors and revenue from the Excel asset acquisition to help fund obligations, but related-party support was not contractually committed. If support is withdrawn, management said it may need to reduce operating costs.
- On April 9, 2018, wholly owned subsidiaries acquired substantially all assets of Excel Corporation and certain affiliates through a foreclosure sale for $12.5 million, financed by a $12.5 million term loan. The loan is guaranteed by OLB and affiliated borrowers; it matures April 9, 2021, bears 9% annual interest, and requires $1 million principal repayment by July 15, 2018 and another $2 million by October 31, 2018. The debt is secured by borrower assets, and OLB pledged its subsidiary ownership interests. Acquired assets were purchased “as is,” without surviving representations or indemnification rights.
- As additional loan consideration, OLB issued the lender a warrant for 1.2 million shares at $0.25 per share, subject to stated terms, and agreed to issue additional warrants in certain future lender-financed acquisitions.
- A new seven-year CEO employment agreement, effective January 1, 2018, provides annual salary of $375,000, a $2,500 monthly car allowance, benefits and a potential $200,000 incentive bonus subject to performance criteria. OLB had one full-time employee at year-end.
- Management found disclosure controls and internal control over financial reporting ineffective at December 31, 2017, citing inadequate segregation of duties and untimely recording of certain transactions. Management reported additional post-closing procedures but no remediation plan details.
- The company’s common stock was thinly traded on OTC markets. The filing identifies regulatory and consumer-protection oversight and general risks including access to capital, competition, economic conditions, interest rates, and regulatory or accounting changes. It reported no pending or threatened legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether OLB obtained sufficient funding to meet the near-term term-loan repayments and other obligations, and whether the lender or related parties provided further support.
- The Excel acquisition’s actual contribution to revenue, cash flow, profitability, and debt-service capacity; the filing provides no post-acquisition operating results.
- The status and terms of the $12.5 million loan, collateral, guarantees, covenants, and any additional warrants issued.
- Whether revenue stabilized after the subscriber and services declines, and how the increased CEO compensation affects cash needs.
- Whether the identified control weaknesses were remediated and whether future filings remain timely and reliable.
- The filing states that net operating loss carryforwards were approximately $3.9 million, but the tax benefit was fully offset by a valuation allowance; verify potential ownership-change limits on their use.