Unassociated Document

10-Q 1 v238829_10q.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2011

¨ 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)

DELAWARE	13-4188568

(State or other jurisdiction of incorporation or	(IRS Employer Identification No.)
organization)

1120 Avenue of the Americas, 4th flr New York, NY 10036

(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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of October 25, 2011, the Company had outstanding 6,419,830 shares of its common stock, par value $0.0001.

THE OLB GROUP, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2011

INDEX

PART I	Financial Information	3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18

PART II	Other Information	19
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits	20
Signatures		21

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The OLB Group, Inc.

FINANCIAL STATEMENTS

September 30, 2011 and December 31, 2010

CONTENTS

Balance Sheets	5

Statements of Operations	6

Statement of Stockholders’ Equity (Deficit)	7

Statements of Cash Flows	8

Notes to the Financial Statements	9

The OLB Group, Inc.

Balance Sheets

	September 30, 2011			December 31, 2010
	(Unaudited)

ASSETS

CURRENT ASSETS

Cash	$	600		$	3,908

Total Current Assets		600			3,908

OTHER ASSETS

Internet domain		4,965			4,965
Intangible assets, net		341,838			546,042

TOTAL ASSETS	$	347,403		$	554,915

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Cash overdraft	$	533		$	-
Accounts payable and accrued expenses		31,370			28,935
Related party note payable		7,000			-
Related party convertible note, net of discount		38,447			-
Derivative liability		52,774			-
Accrued interest		1,937			-
Accrued salary		149,425			-

Total Current Liabilities		281,486			28,935

TOTAL LIABILITIES		281,486			28,935

STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares outstanding					-
Common stock, $0.0001 par value; 200,000,000 shares authorized, 6,419,830 and 6,419,830 shares issued and outstanding, respectively		642			642
Additional paid-in capital		12,792,583			12,775,917
Accumulated deficit		(12,727,308	)		(12,250,579	)

Total Stockholders’ Equity (Deficit)		65,917			525,980

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	347,403		$	554,915

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

The OLB Group, Inc.

Statements of Operations

(Unaudited)

	For the Nine Months Ended						For the Three Months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Net revenues	$	135,972		$	155,160		$	39,214		$	51,879

Cost of sales		49,359			108,208			15,174			25,045

Gross profit		86,613			46,952			24,040			26,834

OPERATING EXPENSES
Officer’s salary		206,250			206,250			68,750			68,750
Amortization expense		204,204			-			68,815			-
General & administrative expenses		93,063			162,058			24,078			68,101
Total operating expenses		503,517			368,308			161,63			136,851

Loss from operations		(416,904	)		(321,356	)		(137,603	)		(110,017	)

OTHER INCOME (EXPENSE)
Interest expense		(7,051	)		-			(5,624	)		-
Gain (loss) on derivative liability		(52,774	)		-			12,054			-
Gain on/settlement of a lawsuit		-			86,887			-			-

Total Other Income (Expense)		(59,825	)		86,887			6,430			-

NET LOSS	$	(476,729	)	$	(234,469	)	$	(131,173	)	$	(110,017	)

BASIC LOSS PER SHARE	$	(0.08	)	$	(0.06	)	$	(0.02	)	$	(0.03	)

BASIC WEIGHTED AVERAGE SHARES		6,419,830			3,896,811			6,419,830			4,371,236

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

The OLB Group, Inc.

Statement of Stockholders’ Equity (Deficit)

					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit
Balance at December 31, 2009		3,597,160	$	360	$	11,788,809	$	(11,869,418	)

Issuance of common stock for purchase of intangible assets		577,842		58		323,533		-

Warrants issued for purchase of intangible assets		-		-		326,459		-

Common stock for cash		221,428		22		134,978		-

Issuance of common stock to convert accrued salaries to equity		2,023,400		202		202,138		-

Net loss for the year ended December 31, 2010		-		-		-		(381,161	)

Balance at December 31, 2010		6,419,830		642		12,775,917		(12,250,579	)

Debt discount (unaudited)		-		-		16,666		-

Net loss for the nine months ended September 30, 2011 (unaudited)		-		-		-		(476,729	)

Balance at September 30, 2011 (unaudited)		6,419,830	$	642	$	12,792,583	$	(12,727,308	)

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

The OLB Group, Inc.

Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended September 30,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss	$	(476,729	)	$	(234,469	)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operations:
Amortization expense		204,204			-
Loss on derivative liability		52,774			-
Interest expense from beneficial conversion		5,114			-

Changes in assets and liabilities:
Increase in accounts payable and accrued expenses		153,796			124,467

Net Cash Used by Operating Activities		(60,841	)		(110,002	)

CASH FLOWS FROM INVESTING ACTIVITIES		-			-

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in cash overdraft		533			-
Proceeds from related party loans		57,000			-
Sale of common stock		-			110,000
Repayment of loan - officer		-			(3,700	)
Proceeds from loan - officer		-			3,700

Net Cash Provided by Financing Activities		57,533			110,000

NET CHANGE IN CASH		(3,308	)		(2	)

CASH – BEGINNING OF PERIOD		3,908			555

CASH – END OF PERIOD	$	600		$	553

CASH PAID FOR

Interest	$	-		$	-
Income taxes	$	-		$	-

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

The OLB Group, Inc.

Notes to the Financial Statements

September 30, 2011 and December 31, 2010

NOTE 1

BACKGROUND

The unaudited financial statements have been prepared by The OLB Group, Inc. (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2010 included on the Company’s Form 10-K. The results of the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist of cash deposits. The Company maintains cash with various major financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. To reduce risk, the Company performs credit evaluations of its customers and maintains reserves for potential credit losses.

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.

Income Taxes

The Company accounts for its income taxes using the Income Tax topic of the FASB ASC 740, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Revenue and cost recognition

Revenues will be recognized when title and risk of loss transfers to the customer and the earnings process is complete. In general, title passes to our customers upon the customer's receipt of the merchandise. Revenue is accounted for in accordance with the Revenue Recognition topic of the FASB ASC 605, reporting revenue 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. Our company records all shipping and handling fees billed to customers as revenues and related costs as cost of goods sold, when incurred.

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

As a rule, a majority of revenue for The Company is recognized when actual collection of cash occurs. This is true for License revenue paid in full, Advanced Solutions revenue and Subscription revenue. Our License revenue on payment plans allows for customers to pay over time in installments and is recognized upon delivery of the product at the present value of the installment payment stream.

The OLB Group, Inc.

Notes to the Financial Statements

September 30, 2011 and December 31, 2010

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, chargeback’s from credit card companies, and allowances based upon actual history and management’s evaluation of current facts and circumstances.

Commissions

The Company will pay commissions for its sales of third-party products. Commissions are recognized as products are sold and services performed and the Company has accomplished all activities necessary to complete the earnings process.

Marketing Fees and Materials

The Company markets certain of its products through a telemarketing sales organization whereby independent distributors establish their own network of associates. The independent distributors pay the Company a fee to become marketing representatives on behalf of the Company. In exchange, the representatives receive access, on an annual basis, to various marketing and promotional materials and tools as well as access to customized management reports; accordingly revenue from marketing fees is recognized over an annual period. The Company also earns ancillary revenue from the sale of marketing materials which is recognized when the materials are provided to the representatives.

Fair value of financial instruments

For certain of the Company’s non-derivative financial instruments, including cash and cash equivalents, receivables, accounts payable, and other accrued liabilities, the carrying amount approximates fair value due to the short-term maturities of these instruments. The estimated fair value of long-term debt is based primarily on borrowing rates currently available to the Company for similar debt issues. The fair value approximates the carrying value of long-term debt.

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following presents the gross value of assets and liabilities that were measured and recognized at fair value.

Level 1: none

Level 2: none

Level 3: Derivative Liability - $52,774

Intangible Assets

Intangible assets are carried at cost and amortized over their estimated useful lives, generally on a straight-line basis over two years. The Company reviews identifiable amortizable intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. The Company elected to perform its annual analysis at the end of its reporting year. As of December 31, 2010, the Company deemed that certain intangible assets acquired through its asset purchase agreement with Retailer Networks, Inc. were fully impaired. See Note 5 –Intangible Assets.

The OLB Group, Inc.

Notes to the Financial Statements

September 30, 2011 and December 31, 2010

NOTE 3

RECENT ACCOUNTING PRONOUNCEMENTS

During the Quarter September 30, 2011 and the year ended December 31, 2010; the Company adopted the following accounting pronouncements which had no impact on the financial statements or results of operations.

In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.” The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.

In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption did not have an impact on the Company’s financial position and results of operations.

In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.

NOTE 4

RELATED PARTY TRANSACTIONS

In February 2008, the Company renewed the employment agreement with its founder and President that expires on February 28, 2013. The agreement provides for an annual salary of $275,000, fringe benefits and an incentive bonus based on achievement of certain performance targets.

On December 31, 2010, the Company issued 2,023,400 shares of common stock in conversion of $202,340 of accrued salary. Shares were valued at $0.10, which approximated the market value of the shares on the day of exchange.

During the nine months ended September 30, 2011, the Company entered into a $7,000 note payable and a $50,000 convertible note payable with a stockholder. See notes 6 and 7, respectively, for discussions of the terms of these notes.

The OLB Group, Inc.

Notes to the Financial Statements

September 30, 2011 and December 31, 2010

NOTE 5

INTANGIBLE ASSETS

On June 17, 2010 the Company completed an asset purchase agreement with Retailer Networks, Inc. (RNI). Pursuant to the terms of that agreement the Company purchased a number of intangible assets from RNI, including, but not limited to, customer information, trademarks, domain names, and educational resources for e-commerce. The purchase price that was paid to RNI for the assets consisted of 577,842 shares of OLB common stock and 665,842 warrants exercisable for the purchase of common stock, at the purchase price of $8.00. The fair value of the common stock was determined using the quoted market price on the date of issuance of $0.56 and the fair value of the purchase warrants were determined using the Black-Scholes option pricing model, for a total purchase price of $650,051. The warrants are valid to exercise for 24 months from the closing date. In addition, RNI agreed to purchase OLB common stock totaling $100,000 at a purchase price of $0.56.

The Company elected to perform its annual analysis at the end of its reporting year. As of December 31, 2010 it was determined that certain intangibles would not be used by the company; therefore, these items were considered fully impaired.

The following table summarizes the Company’s carrying amount of intangible assets as of September 30, 2011 and December 31, 2010.

Amortizable Intangible Assets	September 30, 2011			December 31, 2010
Customer and Product Information	$	390,030		$	390,030
Trademarks, Domain names, & other intangibles		91,007			91,007
Educational Resource		65,005			65,005
Total Intangible Assets		546,042			546,042
Less accumulated amortization		(204,204	)		-
Net Intangible Assets	$	341,838		$	546,042

The amortizable intangible assets have useful lives not exceeding two years and a weighted average useful life of two years. Amortization expense for the nine months ended September 30, 2011 was $204,204.

NOTE 6

NOTE PAYABLE

During the nine months ended September 30, 2011 a stockholder loaned the company $7,000. The loan has an interest rate of 10% and is due on demand.

NOTE 7

CONVERTIBLE NOTE AND DERIVATIVE LIABILITY

During the quarter ended June 30, 2011, the Company issued a $50,000 convertible note to the same stockholder that had previously loaned the Company $7,000, see note 6. The note was issued with interest at 10% per annum, due within one year and converts at a discount of 25% of the closing bid for the Company’s common stock on the date of conversion. As required by ASC 470-20 the Company has recorded a liability for the beneficial conversion feature in the amount of $16,667 based on the discount to market available at the time of conversion. The discount will be amortized over the life of the loan to interest expense. During the quarter ended June 30, 2011 the company amortized $913 to interest expense. In addition, an initial derivative liability value of $64,828 was calculated using the Black Scholes pricing model using one year to maturity and assuming a risk free rate of 0.19% and a volatility of 429%. The derivative liability will be revalued at the end of each reporting period. As of September 30, 2011 the note was convertible into 6,666,667 shares of common stock. For the three months ended September 30, 2011 the company amortized $4,201 to interest expense. In addition, a derivative liability of $52,774 was calculated using the Black Scholes pricing model using two-thirds year to maturity and assuming a risk free rate of 0.06% and a volatility of 286%.

The OLB Group, Inc.

Notes to the Financial Statements

September 30, 2011 and December 31, 2010

NOTE 8

GAIN ON SETTLEMENT OF A LAWSUIT

In February 2010 the Company received $175,000, less $88,113 in attorney fees, as settlement of a lawsuit that was filed in a previous year. The proceedings were initiated due to non-performance of a consulting agreement between the Company and the plaintiff. With receipt of the settlement all further legal action has been dismissed.

NOTE 9

COMMON STOCK TRANSACTIONS

In June 2010 the Company issued 577,842 shares of common stock in exchange for certain intangible assets as part of an Asset Purchase Agreement.

In June and July of 2010 the Company sold 196,428 shares of common stock for $0.56 for total proceeds of $110,000. The stock was purchased as part of the agreement with the above mentioned Asset Purchase Agreement.

On December 31, 2010, the Company sold 25,000 shares of common stock for $1.00 for proceeds of $25,000.

NOTE 10

STOCK WARRANTS

A summary of the status of the Company’s outstanding stock warrants as of September 30, 2011 and December 31, 2010 and changes during the periods is presented below:

	Warrant		Weighted Average Price		Weighted Average Fair Value
Outstanding, December 31, 2010		665,842	$	8.00	$	8.00

Issued		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Expired		-		-		-

Outstanding, September 30, 2011		665,842	$	8.00	$	8.00

Exercisable, September 30, 2011		665,842	$	8.00	$	8.00

		Outstanding						Exercisable
Range of Exercise Prices		Number Outstanding at 9/30/11		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at 9/30/11		Weighted Average Exercise Price

$	8.00		665,842		.67	$	8.00		665,842	$	8.00

The OLB Group, Inc.

Notes to the Financial Statements

September 30, 2011 and December 31, 2010

NOTE 11

GOING CONCERN

The financial statements are presented on the basis that the Company is a going concern. A going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company has incurred significant losses from operations, and has an accumulated deficit of $12,727,308 which together raises substantial doubt about its ability to continue as a going concern. Management is presently pursuing financing and investment opportunities with investment bankers and private investors. The ability of the Company to achieve its operating goals and to obtain such additional finances, however, is uncertain. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

NOTE 12

SUBSEQUENT EVENTS

The company has evaluated subsequent events in accordance with the provisions of ASC 855 noting no reportable subsequent events other than that presented below.

On October 12, 2011, the Company filed a Certificate of Amendment with the Delaware Secretary of State in order to effectuate a one for twenty (1:20) reverse stock split (the “reverse split”) and a change of the par value from $0.01 to $0.0001. The board of directors determined that it would be in the Company's best interest to affect the reverse split and approved this corporate action by unanimous written consent. All shares throughout these financial statements have been retroactively restated to reflect the split.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 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.

Overview

We are an e-commerce service provider, which enables a business desiring to sell goods and services on the internet to utilize our e-commerce resources and support services, thus creating economies of scale and cost efficiencies for e-commerce sellers throughout the entire e-commerce process.

The products that we plan to distribute over the next year which will account for most of our business are as follows:

ShopFast PC

ShopFast DSD

GHM Connect

GHM Benefits

Gift and Home Channel

There are a number of trends in the e-commerce/direct response marketing industry, the most significant of which is the trend toward integrated marketing strategies. Integrated marketing campaigns involve not only advertising, but also sales promotions, internal communications, public relations, social networking, and other disciplines. The objective of integrated marketing is to promote our products and services.

Price is no longer the sole motivator of purchasing behavior for our potential customers. With the availability of similar products from multiple sources, customers are increasingly looking for distributors who provide a tangible value-added service to their products. As a result, we provide a broad range of products and related services. Specifically, we will provide research and consultancy services, artwork and design services, and fulfillment services to our customers. These services will be provided in-house as well as outsourced by our current suppliers.

We can provide no assurances that our expectations described above will be realized.

Our plan of operation is to launch the marketing of the software component of our ShopFast PC product in the fourth quarter of 2011, to produce a 30 minute infomercial to promote this product, as well as a short form two minute commercial after completing the longer infomercial, depending on the funds available to the Company for such purposes. We intend to run the advertisements for a period of time and to use focus groups to determine the prices at which we can obtain the highest level of reseller orders and then to launch a full scale media campaign. If the ratio of media spending to product orders is at least $1.50 return in orders on $1.00 spent on advertising, we would continue such advertising. Otherwise, we would consider alternatives to the advertising methods tried. After adjustments to the marketing plan and getting a satisfactory return rate on the media expenditures, we intend to launch a nationwide television distribution campaign.

The purchase of the intangible assets in the prior year fits into the company's overall e-commerce strategy and future revenue growth.

We are currently redesigning ShopFast PC so that the Internet Storefront can be created by a client having limited computer expertise without our assistance. In previous versions of ShopFast DSD, the Internet Storefront would have had to have been created by an administrator employed by us. We are redesigning ShopFast PC so that the client can create the Internet Storefront on the client’s own, in the following five steps:

Step 1:

Choose the categories of items to be sold on the store.

Step 2:

Design the store by choosing layouts, fonts, colors and a logo.

Step 3:

Personalize the store by adding descriptive text

Step 4:

Account information to facilitate payments for the store subscription as well as payment of commissions

Step 5:

Final store confirmation and immediate store generation.

If we successfully test our ShopFast PC product, we are planning to develop or acquire additional products to complement our e-commerce products. We anticipate that we will also need to make expenditures in the following areas: to expand our existing ecommerce platform and replace some of the existing hardware and servers to service the volume of transactions we anticipate and to add more marketing and administrative personnel, although our initial plan is to outsource significant services to third party providers. The additional products to be developed and/or acquired have not yet been identified, but are expected to be the result of requests by clients and/or their customers for additional functionality, services, payment methods and/or product availability.

We are currently in the final stages of our quality assurance phase for our re-developed ShopFast DSD software, which is based on a different design platform than the prior versions, allowing it to operate faster and under all computer operating systems that can fully support Internet Explorer 5.0 or higher. ShopFast DSD will have be a customized product to the needs of the particular clients. The immediately prior paragraph is also applicable to the successful testing of our re-developed ShopFast DSD product.

In addition to our ShopFast products we offer an extended service which allows our customers to obtain health-related discount benefit plans which are included as part of the ShopFast program. These healthcare insurance programs are generally renewable monthly and include elements sold through contracts with third-party providers.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2011 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2010

REVENUE

Revenue from operations for the three months ended September 30, 2011 decreased $12,665 or 25%, to $39,214 from $51,879 for the three months ended September 30, 2010. The decrease is mainly attributed to a decrease in revenue from the insurance program.

GROSS PROFIT

Gross profit from operations for the three months ended September 30, 2011 decreased $2,794 to $24,040 from $26,834 for the three months ended September 30, 2010. The decrease can be attributed to the decrease in revenue on the company’s insurance program.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative ("G&A") expenses decreased $44,023 or 65% to $24,078 from $68,101 for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. The decrease is a result of efforts to lower basic operating expenses.

NET LOSS

Net loss increased by $21,156 to $131,173 from $110,017 for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. This increase in net loss is mostly attributed to amortization expense of $68,815 which was not an expense in the prior period.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2011 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2010

REVENUE

Revenue from operations for the nine months ended September 30, 2011 decreased $19,188 or 13%, to $135,972 from $155,160 for the nine months ended September 30, 2010. The decrease is mainly attributed to a decrease in the number of subscribers for the sales of health-related discount benefit plans as earned as part of the ShopFast program.

GROSS PROFIT

Gross profit from operations for the nine months ended September 30, 2011 increased $39,661 to $86,613 from $46,952 for the nine months ended September 30, 2010. The increase can be attributed to lower administrative fees on the company’s insurance program.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative ("G&A") expenses decreased $68,995 or 43% to $93,063 from $162,058 for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. The decrease is a result of efforts to lower basic operating expenses.

NET LOSS

Net loss increased by $242,260 to $476,729 from $234,469 for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010 This increase in net loss is mostly attributed to amortization expense of $204,204, and a loss on derivative liability of $52,774, neither of which was an expense in the prior period, and the $86,887 gain on the settlement of a lawsuit in 2010.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 2011, the Company used $60,841 of cash for operating activities and received $57,000 in loans from a stockholder.

Our financial statements as of the nine months ended September 30, 2011 have been prepared under the assumption that we will continue as a going concern through December 31, 2011. Our independent registered public accounting firm has issued their report on the December 31, 2010 financial statements that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We anticipate that our future liquidity requirements will require a need to obtain additional financing. The Company’s primary source of funding to date consists of loans from its Chief Executive Officer and principal stockholder, Ronny Yakov. Although Mr. Yakov has provided financing in the past, he has no binding commitment to continue such financing. We may not be able to obtain such additional financing or, if obtained, such financing may not be available and/or not be on terms favorable to us.

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 require 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 and Cost Recognition

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

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 meets these requirements for reporting revenue on a gross basis. The Company records a reduction in revenue for refunds, chargeback’s from credit card companies, and allowances based upon actual history and management’s evaluation of current facts and circumstances.

Commissions

Intangible Assets

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

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act ”), that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management designed its disclosure controls and procedures to provide reasonable assurance that the objectives of the disclosure controls and procedures are met. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of September 30, 2011, we carried out an evaluation, under the supervision and with the participation of our President and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our President and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changed 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number		Exhibit Description

31.1		Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)

31.2		Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)

32		Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)

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.

	By:	/s/ Ronny Yakov
Date: November 3, 2011	Name:	Ronny Yakov
	Title:	President and Interim Chief Financial Officer (Principal Executive Officer, Principal Financial and Accounting Officer)