OLB GROUP, INC. - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SEPTEMBER 30, 2017

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______to _______

Commission File Number: 000-52994

THE OLB GROUP, INC.

(Exact name of small business issuer as specified in its charter)

200 Park Avenue, Suite 1700, New York, NY 10166

 (Address of principal executive offices)

(212) 278-0900

(Registrant's telephone number)

(Former name, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

As of November 7, 2017 the Company had outstanding 13,479,297 shares of its common stock, par value $0.0001.

THE OLB GROUP, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2017

INDEX

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

The OLB Group, Inc.

Condensed Balance Sheets

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

The OLB Group, Inc.

Notes to the Condensed Financial Statements

September 30, 2017

(Unaudited)

NOTE 1 - BACKGROUND

The Company incorporated in the State of Delaware on November 18, 2004 for the purpose of merging with OLB.com (On-line Business), Inc., a New York corporation incorporated in 1993 (“OLB.com”). The merger was done for the purpose of changing our state of incorporation from New York to Delaware.

As result of the merger, the Company acquired all of the assets of OLB.com, including its intellectual property assets. In connection with the merger, each of the former common and preferred stockholders of OLB.com received five shares of our common stock in exchange for each outstanding share of OLB.com

We currently offer monthly subscription packages which includes a health benefits package. These arrangements are generally renewable monthly and revenue is recognized over the renewal period. 

We also provide ecommerce development and consulting services on a project by project basis.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2016 included on the Company’s Form 10-K. The results of the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

Liquidity and Dependency of Related Parties

As of September 30, 2017, the Company had a working capital deficiency of $638,198 and a net loss of $309,788 for the nine months ended September 30, 2017. The Company’s cash flow used in operating activities was $54,556, while $53,500 was provided by financing from a related party.

As discussed in Note 3, one of our Directors and his affiliated company has funded the Company with related party loans. The Company plans to continue to use the financial resources of its related parties, if necessary; however, there are no assurances that the Director, or the Company, will be in a financial position to do so.  Despite the fact that the Director has confirmed in writing his intention to provide financial support, the Company does not have any written agreements now or in the past with the Director obligating him to fund the future debt or any other obligations.  The Director is not otherwise under any legal obligation to provide the Company with capital.

If the Director withdraws his financial support to enable the company to fund its current activities, management will be required to reduce the Company’s cash from operations by reducing operating costs. In addition, the Company is working to manage its current liabilities while it continues to make changes in operations to further improve its cash flow and liquidity position. Based upon current cash flow projections, management believes the Company will have sufficient capital resources to meet projected cash flow requirements through the year ended 2017.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue and cost recognition

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company will recognize revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

Revenue is accounted for gross as a principal versus net as an agent. Revenue is recognized on a gross basis since our company has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk.

The Company recognizes revenue on its Omni Commerce Solution licensing when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collection is reasonably assured.

Costs are recorded at the time the related revenue is recorded. Payment processing costs are recorded in the period the costs are incurred and customer acquisition costs are comprised primarily of telemarketing costs and service costs and other additional benefit services.

Membership Fees

The Company recognizes revenues from membership fees for the sales of health-related discount benefit plans as earned as part of the ShopFast program. These arrangements are generally renewable monthly and revenue is recognized over the renewal period. As these products often include elements sold through contracts with third-party providers, the Company considers each contractual arrangement in accordance with the Revenue Recognition topic of the FASB ASC 605. The Company’s current contracts meet these requirements for reporting revenue on a gross basis. The Company records a reduction in revenue for refunds, chargebacks from credit card companies, and allowances based upon actual history and management’s evaluation of current facts and circumstances.

Recent Accounting Pronouncements

The Company has reviewed other recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position. 

NOTE 3 - RELATED PARTY TRANSACTIONS

During the year ended December 31, 2016, the Company borrowed $163,000 from Mr. John Herzog under the terms of a promissory note dated July 12, 2016. The notes are secured by 3,850,000 shares of common stock and mature in three years. Interest accrues at 18% with 12% due and payable on the last day of each month. The Company is currently in default on making its required interest payments. The remaining 6% of interest is due at maturity. During the nine months ended September 30, 2017 Mr. Herzog loaned an additional $53,500. As of September 30, 2017, $216,500 of principal and $34,224 of accrued interest is due.

NOTE 4 - COMMITMENT

On December 27, 2012 the Company extended the employment agreement with its founder and president for another 5 years to February 28, 2018. The agreement provides for an annual salary of $275,000, fringe benefits ($1,500 monthly automobile allowance, any benefit plans of the Company and 2 weeks paid vacation) and an incentive bonus of $100,000 based on the achievement of certain performance criteria. The extended employment agreement does not provide for stock options. The extended employment agreement also includes a covenant not to compete with the Company for a period of one (1) year after employment ceases.

NOTE 5 - SUBSEQUENT EVENTS

In accordance with ASC 855-10, Subsequent Events¸ we have analyzed our operations subsequent to September 30, 2017, through the date the financial statements were available to be issued, and have determined that we do not have any material subsequent events to disclose in these financial statements.

Forward-Looking Statements

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our unaudited financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview and Description of Business

We were incorporated in the State of Delaware on November 18, 2004 for the purpose of merging with OLB.com (On-line Business), Inc., a New York corporation incorporated in 1993 (“OLB.com”). The merger was done for the purpose of changing our state of incorporation from New York to Delaware.

As a result of the merger, we acquired all of the assets of OLB.com, including its intellectual property. In connection with the merger, each of the former common and preferred stockholders of OLB.com received five shares of our common stock in exchange for each outstanding share of OLB.com common and preferred stock and, in addition, the former holders of the Series A stock of OLB.com received one warrant for each such preferred share and the former holders of the Series B Preferred Stock of OLB.com received two warrants for each such preferred share, to purchase shares of our common stock. An aggregate of 1,345,098 shares of common stock were issued in connection with the merger.

We are authorized to issue 200,000,000 shares of common stock, par value $0.0001 per share, and 50,000,000 shares of preferred stock, par value $0.01 per share. We currently have 13,479,297 shares of common stock issued and outstanding. No shares of preferred stock are currently outstanding.

Our Business

We currently offer monthly subscription packages which includes a health benefits package. These arrangements are generally renewable monthly and revenue is recognized over the renewal period.  

We also provide ecommerce development and consulting services on a project by project basis.

Results of Operations for the Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016

REVENUE

Revenue from our subscription program for the three months ended September 30, 2017 increased $1,789 to $9,941 from $8,152 for the three months ended September 30, 2016. The increase can be attributed to an increase in the number of subscribers to our insurance program.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased $22,047, to $43,023 for the three months ended September 30, 2017 from $20,976 for the three months ended September 30, 2016. A majority of G&A expense consists of professional fees and travel expense; however, the increase was due to increased spending on computer and internet expense.

OTHER INCOME AND EXPENSE

Interest expense increased from $2,972 for the three months ended September 30, 2016 to $9,787 for the three months ended September 30, 2017. All interest expense is from the related party loans (Note 3).

NET LOSS

The net loss increased by $26,376 from a loss of $89,768 for the three months ended September 30, 2016, to a loss of $116,144 for the three months ended September 30, 2017.

Results of Operations for the Nine Months Ended September 30, 2017 compared to the Nine Months Ended September 30, 2016

REVENUE

Revenue from our subscription program for the nine months ended September 30, 2017 increased $812 to $40,601 from $39,789 for the nine months ended September 30, 2016. We also recognized $2,975 of revenue from development services provided for the nine months ended September 30, 2017 as compared to $13,656 for the nine months ended September 30, 2016. 

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased $35,595, to $106,100 for the nine months ended September 30, 2017 from $70,505 for the nine months ended September 30, 2016. A majority of G&A expense consists of professional fees and travel expense; however, the increase was due to increased spending on computer and internet expense.

OTHER INCOME AND EXPENSE

Interest expense increased from $3,317 for the nine months ended September 30, 2016 to $26,020 for the nine months ended September 30, 2017. All interest expense is from the related party loans (Note 3).

NET LOSS

The net loss increased by $67,340 from a loss of $242,448 for the nine months ended September 30, 2016, to a loss of $309,788 for the nine months ended September 30, 2017.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 2017, the Company used $54,556 of cash for operating activities, as compared to $111,186 cash used through the nine months ended September 30, 2016.

Cash provided from financing activities during the nine months ended September 30, 2017 was $53,500 as compared to $110,000 for the nine months ended September 30, 2016.

As discussed in Note 3, one of our Directors and his affiliated company has funded the Company with related party loans. The Company plans to continue to use the financial resources of its related parties, if necessary; however, there are no assurances that the Director, or the Company, will be in a financial position to do so. Despite the fact that the related parties have confirmed in writing the intention to provide financial support, the Company does not have any binding agreements now or in the past with the related parties obligating them to fund the future debt or any other obligations.  The related parties are not otherwise under any legal obligation to provide the Company with capital.

If the related parties withdraw their financial support to enable the company to fund its current activities, management will be required to reduce the Company’s cash from operations by reducing operating costs. In addition, the Company is working to manage its current liabilities while it continues to make changes in operations to further improve its cash flow and liquidity position. Based upon current cash flow projections, management believes the Company will have sufficient capital resources to meet projected cash flow requirements through the next twelve months. 

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.

Revenue

The Company recognizes revenue on its Omni Commerce Solution licensing when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collection is reasonably assured.

Costs are recorded at the time the related revenue is recorded. Payment processing costs are recorded in the period the costs are incurred and customer acquisition costs are comprised primarily of telemarketing costs and service costs and other additional benefit services.

Membership Fees

The Company recognizes revenues from membership fees for the sales of health-related discount benefit plans as earned as part of the ShopFast program. These arrangements are generally renewable monthly and revenue is recognized over the renewal period. As these products often include elements sold through contracts with third-party providers, the Company considers each contractual arrangement in accordance with the Revenue Recognition topic of the FASB ASC 605. The Company’s current contracts meet these requirements for reporting revenue on a gross basis. The Company records a reduction in revenue for refunds, chargebacks from credit card companies, and allowances based upon actual history and management’s evaluation of current facts and circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Control and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Interim Chief Financial Officer.

Based upon that evaluation, the Chief Executive Officer and the Interim Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective at September 30, 2017 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Interim Financial officer as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting

Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is a process designed by, or under the supervision of, our principal executive and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The management is responsible for establishing and maintaining adequate internal control over our financial reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the Internal Control – Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Interim Financial Officer have concluded that our internal control over financial reporting were not effective as of September 30, 2017.

We are aware of the following material weaknesses in internal control that could adversely affect the Company’s ability to record, process, summarize and report financial data:

Due to the size of the Company, we lack the personnel to maintain an adequate level of separation of duties.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to material affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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