OLB Group, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; comparisons are with fiscal 2013. The company offered monthly health-benefit subscriptions and ecommerce development, consulting, and software licensing services. It reported one full-time employee, CEO Ronny Yakov.
Financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $136,488 | $103,795 |
| Gross margin | $106,573 (78.1%) | $65,687 (63.3%) |
| Operating expenses | $448,823 | $625,643 |
| Operating loss | $(342,250) | $(559,956) |
| Net loss | $(360,301) | $(552,116) |
| Basic loss per share | $(0.03) | $(0.05) |
| Cash used in operating activities | $(136,132) | $(131,064) |
Revenue rose 31% year over year, primarily reflecting a new white-label software licensing agreement that contributed $50,000 in setup and implementation fees, plus $11,862 from development services. Health-benefit program revenue fell $24,444 to $74,626 as subscriber numbers and some premiums declined. Gross margin increased 62%, largely due to licensing revenue.
Officer compensation expense declined to $275,000 from $489,137; 2013 included $214,137 of additional expense associated with the CEO’s conversion of accrued compensation into shares. General and administrative expense rose to $173,823 from $136,506, principally due to travel, trade shows, and website development. Other expense was $18,051, versus $7,840 of other income in 2013, reflecting higher interest expense and the absence of the prior-year debt-settlement gain.
At year-end, cash was zero, total assets were $4,965, current liabilities were $21,728, and stockholders’ deficit was $16,763. The balance sheet showed no notes payable at December 31, 2014, after debt was extinguished; the company subsequently borrowed another $50,000 from Herzog & Co. The filing reports $133,000 of related-party borrowing during 2014, bearing 10% interest and due within one year before the year-end debt settlement. Operating cash outflow exceeded financing cash inflow by $2,819, leaving no cash at year-end.
Material changes, outlook, and risks
- Debt and asset exchange: Fully amortized domain names and software code were transferred in connection with extinguishing $195,183 of Herzog & Co. principal and interest, $213,495 of accrued CEO compensation, and the CEO’s assumption of $55,336 of liabilities. The filing says the assets were non-revenue-generating and would require further investment to produce revenue.
- Going concern: The auditor and management cited recurring losses, a $14.6 million accumulated deficit, and a working-capital deficit as raising substantial doubt about the company’s ability to continue as a going concern. Management was pursuing equity financing and investment opportunities; success and sufficient financing were uncertain. The company anticipated continued losses for some time. The financial statements include no adjustments for a possible failure to continue as a going concern.
- Controls and audit: Management considered disclosure controls effective but concluded internal control over financial reporting was ineffective, citing insufficient segregation of duties and untimely recording of some transactions. The auditor gave an unqualified opinion on the financial statements with a going-concern explanatory paragraph; the auditor did not audit internal-control effectiveness.
- Governance and financing risk: Yakov was CEO, president, interim CFO, secretary, and sole director, and held approximately 61% of outstanding shares. The filing says thin trading and a low share price constrained the company’s ability to raise capital. No cash dividends had been paid, and none were planned for the foreseeable future.
- Other disclosures: The company reported no pending or threatened legal proceedings and no off-balance-sheet arrangements. It identified possible exposure to consumer-protection and advertising oversight. It provided no quantitative operating guidance.
Investor verification priorities
- Verify current cash, working-capital needs, and whether the company obtained financing after the disclosed subsequent $50,000 borrowing.
- Review the terms and related-party approvals for the asset-for-debt settlement, the liabilities assumed by the CEO, and the CEO’s employment agreement ($275,000 annual salary plus $1,500 monthly car allowance).
- Assess whether the white-label license generated recurring revenue or further customer contracts, and whether subscription declines continued.
- Confirm remediation of the disclosed material weaknesses and the status of financial reporting controls.
- Consider the thinly traded OTC shares, volatile quoted prices, concentrated ownership, and potential dilution from 75,000 outstanding warrants exercisable at $1.00.