OLB Group, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2018. Financial statements are unaudited. The company reported its business as monthly health-benefit subscriptions and project-based e-commerce development and consulting.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $9,904 | $15,498 |
| Cost of revenue | $4,097 | $5,469 |
| Gross profit / margin | $5,807 / 58.6% | $10,029 / 64.7% |
| Operating expenses | $118,050 | $101,697 |
| Operating loss | $(108,146) | $(86,199) |
| Net loss | $(108,442) | $(93,728) |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Cash used in operating activities | $(31,227) | $(15,239) |
Revenue fell 36.1% year over year. Management attributed the subscription-program decline to fewer subscribers. Cost of revenue decreased 25.1%, also attributed to fewer subscribers; officer compensation rose 36.4% to $93,750, partly reflecting the CEO’s salary increase. Lower general and administrative expense and interest expense did not offset higher operating expenses, and the net loss widened by $14,714.
At March 31, cash was $353, current assets were $15,353, current liabilities were $216,336, and working capital deficit was $200,983. Total assets were $20,318 versus total liabilities of $216,336, leaving a stockholders’ deficit of $196,018. Related-party loans payable were $34,481; the company received $31,000 in related-party advances during the quarter. Cash declined by $227 during the quarter, as operating cash use was largely funded by those advances.
Material subsequent events, outlook and risks
- Going concern: The filing says recurring operating losses, limited cash and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for a potential failure to continue. Management said subsequent acquisitions and a planned capital raise may help, but gave no assurance that the raise would be completed.
- April 9 acquisition and financing: Newly formed subsidiaries acquired substantially all assets of Excel Corporation and certain subsidiaries for $12.5 million, financed by a $12.5 million secured term loan. OLB guaranteed the loan, and borrower obligations are jointly and severally liable and secured by assets. The loan bears 9% annual interest, matures April 9, 2021, and requires $1 million principal repayment by July 15, 2018 and another $2 million by October 31, 2018. The acquired assets were purchased “as is,” without surviving representations or indemnification rights described in the filing.
- Potential capital raise: The company said it was pursuing up to $5 million, which management expected would help fund scheduled loan payments. Completion was uncertain.
- Planned share exchanges and dilution: Agreements effective May 9 provided for issuing 87.5 million shares for CrowdPay.US and 55 million shares for Omnisoft; neither issuance had occurred by the filing date. The company also approved 25,000 shares for services, not yet issued. On April 9 it issued GACP a warrant for 1.2 million shares at $0.25 per share, with up to four additional 200,000-share warrants possible for qualifying debt-financed acquisitions.
- Compensation commitment: The CEO’s seven-year employment agreement effective January 1, 2018 provides annual salary of $375,000, benefits including a $2,500 monthly automobile allowance, and a potential $200,000 performance-based bonus.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at March 31, 2018. It identified inadequate segregation of duties due to limited personnel as a material weakness.
Key facts investors should verify
- Whether the planned capital raise was completed and whether the July and October 2018 loan principal payments were made.
- The acquired businesses’ subsequent revenue, cash generation, liabilities and integration costs; the filing does not provide post-acquisition operating results.
- Whether the CrowdPay.US and Omnisoft share exchanges closed and the resulting actual share count and dilution.
- Whether liquidity and going-concern uncertainty improved after the acquisitions and financing.
- What remediation, if any, addressed the disclosed control weaknesses.