Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
Note Regarding Forward Looking
Statements.
This quarterly report on Form 10-Q of Olie Inc. for the period
ended June 30, 2014 contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. To the extent that such statements
are not recitations of historical fact, such statements constitute
forward-looking statements which, by definition, involve risks and
uncertainties. In particular, statements under the Sections; Description of
Business, Management's Discussion and Analysis of Financial Condition and
Results of Operations contain forward-looking statements. Where, in any
forward-looking statement, the Company expresses an expectation or belief as to
future results or events, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The following are factors that could cause actual results or
events to differ materially from those anticipated, and include but are not
limited to: general economic, financial and business conditions, changes in and
compliance with governmental regulations, changes in tax laws, and the costs and
effects of legal proceedings.
You should not rely on forward-looking statements in this
quarterly report. This quarterly report contains forward-looking statements that
involve risks and uncertainties. We use words such as anticipates, believes,
plans, expects, future, intends, and similar expressions to identify
these forward-looking statements. Prospective investors should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this report. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the risks faced
by Olie Inc. For example, a few of the uncertainties that could affect the
accuracy of forward-looking statements include:
1.
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Our business strategy;
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2.
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Our financial position;
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3.
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The extent to which we are leveraged;
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4.
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Our cash flow and liquidity;
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5.
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Our inability to obtain additional financing in order to
fund our operations, capital expenditures, and to meet our other
obligations; 6. Our inability to attract and retain key
personnel;
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Financial information provided in this Form 10-Q, for periods
subsequent to June 30, 2014, is preliminary and remains subject to audit. As
such, this information is not final or complete, and remains subject to change,
possibly materially.
Overview
BUSINESS ACTIVITIES
We focus on the development of opportunities to invest in
client issuers by providing either nominal stage equity, and/or fix-it capital
for existing private or thinly traded public companies along with strategic
guidance and corporate restructuring, debt consolidation, and equity enhancement
advice.
Our principal objective is both current consulting income and
long-term capital appreciation. We may invest in debt securities of these
companies, or may acquire an equity interest in the form of preferred stock,
warrants or options to acquire stock or the right to convert the debt securities
into stock. We may invest alone, or as part of a larger investment group.
Consistent with our status as a 1934 Act Holding Company, attempting to
transition to a BDC in the future, we will provide managerial assistance,
potentially in the form of a consulting agreement or in the form of a board of
directors seat, to the developing companies in which we provide corporate &
advisory services.
In addition, we look to acquire either a minority or
controlling interest in companies in a roll-up strategy, through Forward
Acquisition Agreements. It is anticipated that any acquisitions will be
primarily in exchange for a specific class or designation of our convertible
preferred stock. The principal objective of acquisitions pursuant to a roll-up
strategy would be to consolidate an industry and either sell the acquired
entities as a larger unit, or take the unit public through an initial public
offering, spin-off to our shareholders one year after incubation. Our principle
objectives are to roll up OTC & OTCQB Companies as well as Private
Companies, either for their Shareholder base or Net Stock Holders Equity.
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MODEL 1. INCOME GENERATION
Income generation is sought from assigning matured long term
secured loans from non affiliates in our client issuer companies and other
non-portfolio companies, and making introductions to other non-affiliated
lending sources.
We seek to acquire secured debt with conversion privileges or
options to acquire common stock or equity securities that are typically the
issuers most senior preferred stock at the time of our investment. In cases
where we acquire common shares, the issuer typically has only common stock
outstanding. We believe that investing in an issuers most senior and/or secured
debt or equity securities provides some protection and is one way to potentially
mitigate the otherwise high risks investing. Since securities that we acquire
directly from selling stockholders may not represent the most senior securities
of the issuer, we may seek to negotiate terms, such as warrants or other
structural protections, which are intended to provide some additional value
protection. Although we seek to invest in the most senior class of securities or
obtain other protections, the seniority and other protections provided in these
types of investments may be diminished if the portfolio company issues more
senior securities in a subsequent financing round.
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Acquisition price:
We seek the acquisition of private
securities at a valuation that creates the potential for our target
arbitrage return on our investment once the company is publicly traded. We
believe that buying right at a lower price earnings multiple is one of the
keys to success along with growth of earnings in our portfolio company from
either or both organic growth and further acquisitions of earnings from
additional investments in other related companies.
The main strategy for value creation of portfolio companies is
SEC registration for transparency with financial reporting and liquidity through
subsequent SEC registration for public stock trading. A price to earnings
multiple arbitrage ratios between public stock and private stock may increase
our portfolio company holding value. This concept is based on the investment
market value accretion for going from private to public status. Factors such as
financial and operating transparency, quality of liquidity, management and
asset, and earnings acquisition are improved when a company is publically traded
versus privately owned and operated.
MODEL 2. CAPITAL APPRECIATION
Capital appreciation is sought from our equity participation
and profit realization from a sale of some or all of our equity in a client
Issuer's companys investment. We may assign aged matured, secure debt from
unrelated parties to the Issuer, and/or fees earned and received for providing
managerial support and other corporate consulting services to a client.
We may also initiate and help develop a new controlling
acquisition entity (Newco) for a particular industry. We may partner with
specific industry management experts to help create this portfolio acquisition
company in an industry to build revenue, profits and value of a Newco. We shall
not directly operate such a Newco.
The main strategy for value creation of portfolio companies is
SEC registration for transparency with financial reporting and liquidity through
subsequent SEC registration for public stock trading. A price to earnings
multiple arbitrage ratio between public stock and private stock may increase
our portfolio company holding value. This concept is based on the investment
market value accretion forgoing from private to public status. Factors such as
financial and operating transparency, quality of liquidity, management and
asset, and earnings acquisition are improved when a company is publically traded
versus privately owned and operated.
Our Investment Goals
We seek to invest in micro-cap, small-cap and lower middle
market companies that we believe will be able to file an audited registration
statement with the SEC within approximately 6 months or less after our initial
investment, and complete a registration to issue portfolio company shares within
approximately 12 months after the closing of our initial investment. However,
there may be delays due to completion of auditor requirements or a strategy
decision to delay trading of our portfolio company shares at our sole
discretion.
After, registration with the SEC, the client issuer may seek
and obtain an exchange listing when it is strategically advantageous. However,
we typically will be subject to a lockup restriction which prohibits us from
selling our investment during the customary 180-day period following the
exchange listing. Once this lockup restriction expires, we expect to sell some
or all of our shares in the portfolio company in the public markets as are
strategically advantageous. However, we have the sole discretion to hold our
position to the extent we believe the client issuer is not being appropriately
valued in the public markets or is adversely affected by market or industry
cyclicality. Accordingly, we anticipate our typical investment horizon for
portfolio investments will be 12 to 36 months. We may pursue investments with a
shorter expected investment horizon, where we believe the portfolio company may
file for public trading of shares sooner than 12 months or has a registration
statement filed at the time of our investment. In each case, we have the
discretion to hold securities for a longer period. There can be no assurance
that we will be able to achieve our targeted return on our investments in
portfolio companies once they go public.
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If the private companies in which we invest do not perform as
planned, they may be unable to successfully complete a security public
registration within our typical targeted 12 -month time frame, or at all, or may
decide to abandon their plans. In such cases, we will likely exceed our targeted
36-month holding period and the value of these investments may decline
substantially if the going public exit is no longer viable. We may also be
forced to take other steps to exit these investments, including the use of the
trading platforms of private secondary marketplaces that specialize in the
trading of private company securities.
Although we expect that some of our equity investments may
trade on these trading platforms, the securities we hold will typically be
subject to legal and other restrictions on resale that may prevent us from using
these trading platforms or otherwise selling our securities, and will otherwise
be less liquid than publicly traded securities. Furthermore, trading in private
securities markets involves risks given the possible imbalance of information
between such transaction participants. In addition, while some portfolio
companies may trade on the trading platforms of private secondary marketplaces,
we can provide no assurance that such a trading market will be available for
particular companies, will continue or remain active, or that we will be able to
sell our position in any portfolio company at the time we desire to do so and at
the price we anticipate.
Since we may not seek to control a portfolio company, we may
not expect to have input as to when, or if, our portfolio companies choose to
pursue a SEC share trading registration. In certain cases, our portfolio
companies may choose to delay the registration because of either adverse
conditions in their particular industry or the equity markets generally. In
other cases, our portfolio companies may be performing poorly or not achieving
the milestones that an investment bank would require to underwrite a share
offering. In such cases, our portfolio companies may need to raise additional
capital, which may cause dilution to, or adversely affect, our ownership
interests, or we may have to make additional follow-on investments pro rata with
other investors in order to preserve our rights and preferences of our initial
investment.
Client Issuer Progress
As part of our services agreement & MOU for our client
issuers, we typically require information rights that give us access to the
companys quarterly and annual financial statements as well as the companys
annual budget. Although we do not have a control position, we attempt to have an
on-going dialogue, on at least a quarterly basis, with our client issuer's
management teams to review the companys business prospects, financial results,
and exit strategy plans.
Since we may not be in a position to control the management,
operation and strategic decision-making of the companies we invest or advise
for, a client issuer may make business decisions with which we disagree, and the
stockholders and management of such a company may take risks or otherwise act in
ways that are adverse to our interests. Due to the lack of liquidity for the
equity investments that we will typically hold in our client companies, we may
not be able to dispose of our investments in the event that we disagree with the
actions of a client company or its substantial stockholders, and may therefore
suffer a decrease in the value of our investments.
We also use our ongoing discussions with our portfolio company
management teams to monitor their continued commitment to completing a
registration and, when requested, to provide our insights on the current
investment market and what we believe are the key differentiators for successful
registration and share offering.
We also offer significant managerial assistance to our
portfolio companies as requires for registered business development companies
under the Act. We expect that this managerial assistance will likely involve
consulting and advice for the going and staying public and public capital
markets. As a business development company, we are required to offer, and in
some cases provide and be paid for, such managerial assistance.
Disposition of Investments in Publicly Traded Client
Issuers
Our primary source of investment return will be generated from
net capital gains realized on the disposition of our client Issuer's
investments, which typically will occur after a client issuer completes a share
trading registration, or it will arise from our purchase and assignment of Non
Affiliate Unrelated Party, Aged Debt. We are also typically prohibited from
exiting investments in our publicly traded client issuer company until the
expiration of the customary post-public lockup agreement, unless we have
purchased aged secure, non affiliate debt where the lock up provisions are
already matured.
Also, the market prices of client issuers that have recently
completed a forced conversion of aged, mature debt from non affiliates typically
experience high volatility and are driven by such factors as overall market
conditions, the industry conditions for the particular sector in which the
client issuer operates, the relative size of the public float, and the potential
selling activities of other investors and possibly management.
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Critical Accounting Policies
We prepare our condensed financial statements in conformity
with GAAP, which requires management to make certain estimates and apply
judgments. We base our estimates and judgments on historical experience, current
trends and other factors that management believes to be important at the time
the condensed financial statements are prepared. Due to the need to make
estimates about the effect of matters that are inherently uncertain, materially
different amounts could be reported under different conditions or using
different assumptions. On a regular basis, we review our critical accounting
policies and how they are applied in the preparation of our condensed financial
statements.
While we believe that the historical experience, current trends
and other factors considered support the preparation of our condensed financial
statements in conformity with GAAP, actual results could differ from our
estimates and such differences could be material.
For a full description of our critical accounting policies,
please refer to Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations in our 2013 Annual Report on Form 10- K
Results of Operations for the three months ended June 30,
2014 and June 30, 2013.
Revenues
In December of 2013 Olie Inc signed a one year consulting
agreement with Laredo Corp. in exchange for $250,000. It was agreed upon that
Olie Inc would accept 100,000 preferred shares of Laredo's valued at $2.50 as
payment.
Olie has recognized $62,500 portion of this consulting contract
in the quarter ended June 30, 2014. Additionally, Olie has recognized $135,081
of this consulting contract to date.
Operating Expenses
Total Operating Expenses.
Total operating expenses for
the three months and nine Months ended June 30, 2014 and 2013 were $43,651,
$110,221and $1,908,265, $201,352 respectively. Total operating expenses
consisted of stock compensation, professional fees and selling, general and
administrative expenses. The largest single expense for the nine Month ended
June 30, 2014 was issuance of shares for consulting and attorney fees incurred
to assist in implementing our business plan in the amount of $1,475,700.
Financial Condition
Total Assets.
Total assets at June 30, 2014 and
September 30, 2013 were $400,768 and $83 respectively.
Total Liabilities.
Total liabilities at June 30, 2014
and September 30, 2014 were $627,148 and $343,743, respectively. Total
liabilities consist of primarily notes payable and accounts payable. The change
was due to an increase in funds advanced to the company by non-related party to
pay for various fees and expenses associated with implementing our business
plan.
Liquidity and Capital Resources
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern which contemplates,
among other things, the realization of assets and satisfaction of liabilities in
the ordinary course of business.
The Company sustained a loss of $1,774,484 for the nine month
ended June 30, 2014. Due to the absence of positive cash flows from operations,
the Company will require additional funding to continue to provide its services.
These factors raise substantial doubt about the Companys ability to continue as
a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We are not presently able to meet our obligations as they come
due. At June 30, 2014 we had minimal assets and a working capital deficit of
$626,380. Our working capital deficit is due to the results of operations.
Net cash used in operating activities for the nine Months ended
June 30, 2014 and 2013 was $48,687 and $34,704 respectively. Net cash used in
operating activities includes our net loss, stock compensation, accounts
payable, and note payable.
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We anticipate that our future liquidity requirements will arise
from the need to fund our growth from operations, pay current obligations and
future capital expenditures. The primary sources of funding for such
requirements are expected to be cash generated from operations and raising
additional funds from the private sources and/or debt financing. However, we can
provide no assurances that we will be able to generate sufficient cash flow from
operations and/or obtain additional financing on terms satisfactory to us, if at
all, to remain a going concern. Our continuation as a going concern is dependent
upon our ability to generate sufficient cash flow to meet our obligations on a
timely basis and ultimately to attain profitability. Our Plan of Operation for
the next twelve months is to raise capital to continue to expand our operations.
We are presently engaged in capital raising activities through one or more
private offering of our companys securities. We would most likely rely upon the
transaction exemptions from registration provided by Regulation D, Rule 506 or
conduct another private offering under Section 4(2) of the Securities Act of
1933. See Note 3 Going Concern in our financial statements for additional
information as to the possibility that we may not be able to continue as a
going concern.
We have no known demands or commitments and are not aware of
any events or uncertainties that will result in or that are reasonably likely to
materially increase or decrease our current liquidity.
We are not aware of any trends or known demands, commitments,
events or uncertainties that will result in or that are reasonably likely to
result in material increases or decreases in liquidity.
Capital Resources.
We had no material commitments for capital expenditures as of
June 30, 2014 and December 31, 2013.
Off-Balance Sheet Arrangements
We have made no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.