OLB Group, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014; financial statements are unaudited. OLB describes itself as an omni-channel e-commerce company developing ShopFast software and mobile-commerce services for small retailers, merchant banks, and ISOs.
Financial results
| Metric | Three months ended Sept. 30, 2014 | Three months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2014 | Nine months ended Sept. 30, 2013 |
|---|---|---|---|---|
| Revenue | $30,910 | $24,111 | $119,524 | $74,752 |
| Gross profit | $24,568 | $18,674 | $96,718 | $48,608 |
| Operating expenses | $112,973 | $108,366 | $326,914 | $310,939 |
| Operating loss | $(88,405) | $(89,692) | $(230,196) | $(262,331) |
| Net loss | $(93,349) | $(92,089) | $(241,959) | $(267,800) |
| Basic loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.03) |
- Gross margins were approximately 79.5% for Q3 2014 and 80.9% for the first nine months of 2014.
- Cash was $1,575 at September 30, 2014, down from $2,819 at year-end 2013. Nine-month operating cash use was $81,244; financing provided $80,000, entirely from related-party borrowing. No investing cash flows were reported.
- Current liabilities totaled $368,975, including $78,806 of accounts payable and accrued expenses, $130,000 of related-party notes, and $160,169 of accrued officer compensation. The company reported a $367,400 working-capital deficit and a $362,435 stockholders’ deficit.
- Related-party notes bear 10% interest and are due within one year. At September 30, principal was $130,000 and accrued interest was $8,100. Total liabilities were $368,975.
- Accumulated deficit was $14,508,001. Common shares issued and outstanding were 11,300,434.
Material changes and business developments
- Nine-month revenue increased $44,772 year over year. A $50,000 white-label software licensing setup and implementation fee and $11,862 of software-development revenue more than offset a $17,090 decline in insurance-program revenue, which management attributed to fewer subscribers.
- Nine-month gross profit increased $48,110, primarily due to the licensing agreement. G&A expense rose $15,975, with management citing higher travel, trade-show, and website-development costs. Net loss narrowed by $25,841.
- For Q3, revenue rose $6,799, attributed to software-development services, while net loss increased $1,260. G&A expense increased $4,607.
- The company said it had started a pilot involving a leading U.S. merchant bank and was pursuing ShopFast mobile-commerce and white-label offerings. The filing does not provide a clear forecast of expected revenue or timing of broader commercial launches.
Outlook, risks, and other notable matters
- Going concern: Management cited substantial doubt about the company’s ability to continue as a going concern, given recurring losses, the accumulated deficit, and working-capital deficit. It expects continued losses and says additional financing will be needed. Management was pursuing equity financing and investment opportunities, but success and funding were uncertain; the CEO/shareholder had no binding commitment to provide further loans.
- Controls: Management concluded disclosure controls were effective, but internal control over financial reporting was not effective as of September 30, 2014. The identified material weakness was insufficient segregation of duties due to the company’s small staff.
- The company reported no legal proceedings, defaults upon senior securities, or reportable subsequent events. Its deferred tax assets were fully reserved.
Important facts for investors to verify
- Whether the company secured financing after the quarter and can meet near-term obligations, including the related-party notes due within one year.
- Whether the white-label agreement and bank pilot generate recurring revenue, and how much reported licensing and development revenue is nonrecurring.
- Whether subscriber declines in the insurance program continued and whether ShopFast products achieved commercial adoption.
- What remediation, if any, was planned for the material weakness in financial-reporting controls.
- The filing’s reported cash-flow, balance-sheet, and liability figures, given the very low cash balance relative to current obligations.