10-Q 1 f10q0912_theolbgroup.htm QUARTERLY REPORT f10q0912_theolbgroup.htm


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, 2012
 
¨ 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 November 7, 2012 the Company had outstanding 7,155,548 shares of its common stock, par value $0.0001.
 


 
 
 
 
 
THE OLB GROUP, INC.

FORM 10-Q
 
For the Quarterly Period Ended September 30, 2012
 
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.
Mine Safety Disclosures
19
     
Item 5.
Other Information
19
     
Item 6.
Exhibits
20
     
Signatures
21

 
2

 
 
PART I - FINANCIAL INFORMATION
  
Item 1.     Financial Statements
 
The OLB Group, Inc.
 
FINANCIAL STATEMENTS

September 30, 2012 and December 31, 2011
 
 
3

 
 
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
 
 
4

 
  
The OLB Group, Inc.
Balance Sheets
 
             
   
September 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
ASSETS
           
             
CURRENT ASSETS
           
             
Cash
  $ 24,408     $ 845  
                 
Total Current Assets
    24,408       845  
                 
OTHER ASSETS
               
                 
Property and equipment, net
    -       -  
Intangible assets, net
    68,069       273,021  
Internet domain
    4,965       4,965  
                 
TOTAL ASSETS
  $ 97,442     $ 278,831  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
Accounts payable and accrued expenses
  $ 78,517     $ 84,055  
Convertible note payable (related party), net of discount
    71,461       -  
Accrued officer compensation
    385,084       205,175  
                 
Total Current Liabilities
    535,062       289,230  
                 
TOTAL LIABILITIES
    535,062       289,230  
                 
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, 7,155,548 and 7,155,548 shares issued and outstanding, respectively
    715       715  
Common stock receivable
    -       (50,000 )
Additional paid-in capital
    13,002,289       12,968,956  
Accumulated deficit
    (13,440,624 )     (12,930,070 )
                 
Total Stockholders’ Equity (Deficit)
    (437,620 )     (10,399 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 97,442     $ 278,831  
The accompanying notes are an integral part of these financial statements.
 
5

 
 
The OLB Group, Inc.
Statements of Operations
(Unaudited)
 
   
 
For the Nine Months Ended
September 30,
   
For the Three Months Ended
September 30,
 
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net revenues
  $ 98,640     $ 135,972     $ 31,431     $ 39,214  
                                 
Cost of sales
    38,325       49,359       12,310       15,174  
                                 
Gross profit
    60,315       86,613       19,121       24,040  
                                 
OPERATING EXPENSES
                               
Officer’s compensation
    206,250       206,250       68,750       68,750  
Amortization expense
    204,953       204,204       68,817       68,815  
General & administrative expenses
    155,139       93,063       88,654       24,078  
   Total operating expenses
    566,342       503,517       226,221       161,643  
                                 
Loss from operations
    (506,027 )     (416,904 )     (207,100 )     (137,603 )
                                 
OTHER INCOME (EXPENSE)
                               
Gain (loss) on derivative liability
    -       (52,774 )     -       12,054  
Gain on settlement of debt
    5,609       -       -       -  
Interest expense
    (10,136 )     (7,051 )     (9,424 )     (5,624 )
                                 
  Total other income (expense)
    (4,527 )     (59,825 )     (9,424 )     6,430  
                                 
NET LOSS
  $ (510,554 )   $ (476,729 )   $ (216,524 )   $ (131,173 )
                                 
BASIC LOSS PER SHARE
  $ (0.07 )   $ (0.08 )   $ (0.03 )   $ (0.02 )
                                 
BASIC WEIGHTED AVERAGE SHARES
    7,155,548       6,419,830       7,155,548       6,419,830  
 
The accompanying notes are an integral part of these financial statements.

 
6

 
 
The OLB Group, Inc.
Statement of Stockholders’ Equity (Deficit)
 
   
Common Stock
   
Additional 
 Paid In
   
Common  Stock
   
   Accumulated
       
   
Shares
   
Amount
   
Capital
   
Receivable
   
Deficit
   
Total
 
                     
 
   
 
   
 
 
Balance at  December 31, 2010
    6,419,830     $ 642     $ 12,775,917     $ -     $ (12,250,579 )   $ 525,980  
                                                 
Issuance of common stock to convert notes payable
    402,385       40       60,318       -         -         60,358  
                                                 
Common stock for cash
    333,333       33       49,967       (50,000 )      -         -  
                                                 
Discount on Convertible Note
    -       -       16,667       -         -         16,667  
                                                 
Loss on derivative liability
    -       -       66,087       -         -         66,087  
                                                 
Net loss for the year ended December 31, 2011
    -       -       -       -         (679,491 )       (679,491 )
                                                 
 Balance at  December 31, 2011
    7,155,548       715       12,968,956       (50,000 )     (12,930,070 )         (10,399 )
                                                 
Cash received on stock receivable (unaudited)
    -       -       -       50,000         -         50,000  
                                                 
Discount on Convertible Note (unaudited)
    -       -       33,333       -         -              33,333  
                                                 
Net loss for the period ended September 30, 2012 (unaudited)
    -       -       -       -         (510,554 )       (510,554 )
                                                 
 Balance at  September 30, 2012 (unaudited)
    7,155,548     $ 715     $ 13,002,289     $ -     $ (13,440,624 )   $ (437,620 )
 
The accompanying notes are an integral part of these financial statements.
 
 
7

 
 
The OLB Group, Inc.
Statements of Cash Flows
(Unaudited)

   
For the Nine Months Ended
September 30,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
             
Net loss
  $ (510,554 )   $ (476,729 )
Adjustments to Reconcile Net Loss to Net Cash Provided by Operations:
               
Amortization of intangible assets
    204,952       204,204  
Loss on derivative liability
    -       52,774  
Interest expense from amortization of debt discount
    4,794       5,114  
                 
Changes in assets and liabilities:
               
Increase in accounts payable and accrued expenses
    174,371       153,796  
                 
Net Cash Used by Operating Activities
    (126,437 )     (60,841 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
    -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Increase in cash overdraft
    -       533  
Proceeds from the sale of common stock
    50,000       57,000  
Proceeds from loans, related party
    100,000       -  
                 
Net Cash Provided by Financing Activities
    150,000       57,533  
                 
NET CHANGE IN CASH
    23,563       (3,308 )
                 
CASH – BEGINNING OF PERIOD
    845       (3,908 )
                 
CASH – END OF PERIOD
  $ 24,408     $ 600  
                 
CASH PAID FOR
               
                 
Interest
  $ -     $ -  
Income taxes
  $ -     $ -  
  
The accompanying notes are an integral part of these financial statements.
 
 
8

 
 
The OLB Group, Inc.
 Notes to the Financial Statements
September 30, 2012 and December 31, 2011
(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
 
The company is 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 7,155,548 shares of common stock issued and outstanding. No shares of preferred stock are currently outstanding. Our fiscal year end date is December 31.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Preparation of Financial Statements

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, 2011 included on the Company’s Form 10-K. The results of the nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

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.

 
9

 
 
Property and Equipment

Property and equipment are stated at cost.  Depreciation and amortization are provided utilizing the straight-line method over the related asset’s estimated useful life.  Assets under capital leases and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvement.

The Company adopted FASB ASC 350-40, Internal Use Software, which requires the capitalization of internal use software and other related costs under certain circumstances.  The Company is implementing a direct shopping database.  External direct costs of materials and services and payroll costs of employees working solely on the application development stage of the project will be capitalized as required. To date we have not capitalized any software development costs.

Maintenance and repairs are charged to expense as incurred; renewals and improvements that extend the useful life of the assets are capitalized.  Upon retirement or disposal, the asset cost and the related accumulated depreciation and amortization are eliminated from the respective accounts and a resulting gain or loss, if any, is included in the results of operations.

These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable.  Furthermore, the assets are evaluated for continuing value and proper useful lives by comparison to expected future cash projections.
 
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.
 
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.
 
 
10

 
 
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 as of September 30, 2012 and December 31, 2011.

 
Level 1: None
 
Level 2: None
 
Level 3: None

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.

 
11

 
 
Stock-based Compensation

We account for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
 
Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding.
 
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In September 2011 Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for impairment. This ASU's objective is to simplify the process of performing impairment testing for Goodwill. With this update a company is allowed to asses qualitative factors, first, to determine if it is more likely than not (greater than 50%) that the FV is less than the carrying amount. This would be done, prior to performing the two-step goodwill impairment testing, as prescribed by Topic 350.  Prior to this ASU, all entities were required to test, annually, their good will for impairment by Step 1 - comparing the FV to the carrying amount, and if impaired, then step 2 - calculate and recognize the impairment. Therefore, the fair value measurement is not required, until the "more likely than not" reasonableness test is concluded. Effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.

In May 2011, FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU clarifies the board's intent of current guidance, modifies and changes certain guidance and principles, and adds additional disclosure requirements concerning the 3 levels of fair value measurements. Specific amendments are applied to FASB ASC 820-10-35, Subsequent Measurement and FASB ASC 820-10-50, Disclosures. This ASU is effective for interim and annual periods beginning after December 15, 2011.

In June 2011, FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. - ASU 2011-05. Current US GAAP allows companies to present the components of comprehensive income as a part of the statement of changes in stockholders' equity. This ASU eliminates that option. In this update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income This ASU is effective interim and annual periods beginning after December 15, 2011.  This ASU should be applied retrospectively.
 
The Company has implemented all new accounting pronouncements that are in effect.  These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

NOTE 4 - RELATED PARTY TRANSACTIONS

During the year ended December 31, 2011, the Company entered into a $7,000 note payable and a $50,000 convertible note with a stockholder. See note 6 for discussion of the terms of these notes.

As of September 30, 2012, the Company owed $100,000 to a stockholder. See note 6 for discussion of the terms of these note.

 
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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 $0.40. The fair value of the common stock was determined using the quoted market price on the date of issuance of $0.028 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 were valid to exercise for 24 months from the closing date, and therefore have expired as of September 30, 2012. In addition, RNI agreed to purchase OLB common stock totaling $100,000 at a purchase price of $0.028.

The Company has elected to perform its annual analysis at the end of its reporting year. As of December 31, 2011 it was determined that there were no impairment issues with any of its intangible assets.

The following table summarizes the Company’s carrying amount of intangible assets:
 
Amortizable Intangible Assets
 
September 30, 2012
   
December 31, 2011
 
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
   
(477,973)
     
(273,021)
 
Net Intangible Assets
 
$
68,069
   
$
273,021
 

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 month periods ended September 30, 2012 and 2011 was $204,952 and $204,204, respectively.  

NOTE 6 - CONVERTIBLE NOTE AND DERIVATIVE LIABILITY

On February 25, 2011 a stockholder loaned the company $7,000. The loan had an interest rate of 10% and was due on demand.

On June 10, 2011, the Company issued a $50,000 convertible note to the same stockholder that had previously loaned the Company $7,000. 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 recorded a debt discount in the amount of $16,667 based on the discount to market available at the time of conversion. The discount was to be amortized over the life of the loan 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%. 
 
On December 29, 2011, the note holder converted the entire principle of $57,000 and $3,358 of interest into 402,385 shares of common stock. The shares were issued at $0.15, which represented a 25% discount to the closing price of $0.20. Upon conversion the remaining debt discount was also expensed to interest expense. Total interest expense resulting from amortization of the debt discount was $16,667 for the year ended December 31, 2011. In addition, a derivative liability value of $66,087 immediately prior to conversion was calculated using the Black Scholes pricing model using half a year to maturity and assuming a risk free rate of 0.07% and a volatility of 728%. The total derivative liability of $66,087 was charged to additional paid in capital upon conversion.
 
 
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On June 7, 2012, the Company issued a $25,000 convertible note to a stockholder. 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 recorded a debt discount in the amount of $8,333 based on the discount to market available at the time the note was issued. The discount is to be amortized over the life of the loan to interest expense. As of September 30, 2012 $2,648 of the debt discount was amortized to interest expense and the balance of the debt discount was $5,685.

On July 30, 2012, the Company issued a $25,000 convertible note to a stockholder. 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 recorded a debt discount in the amount of $8,333 based on the discount to market available at the time the note was issued. The discount is to be amortized over the life of the loan to interest expense. As of September 30, 2012 $1,415 of the debt discount was amortized to interest expense and the balance of the debt discount was $6,918.

On September 14, 2012, the Company issued a $50,000 convertible note to a stockholder. 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 recorded a debt discount in the amount of $16,667 based on the discount to market available at the time the note was issued. The discount is to be amortized over the life of the loan to interest expense. As of September 30, 2012 $731 of the debt discount was amortized to interest expense and the balance of the debt discount was $15,936.

NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT)

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.

On December 29, 2011, the Company issued 402,385 shares of common stock in conversion of $57,000 of principle and $3,358 of accrued interest on a note payable. Shares were issued at $0.15, which represented a 25% discount to the closing price of $0.20 on the day of conversion as set forth in the conversion terms included in the note agreement.

On December 29, 2011, the Company issued 333,333 shares of common stock for $50,000 cash. Shares were issued at $0.15 per share. As the $50,000 was not received until January 10, 2012 the Company recorded a stock receivable for the $50,000 as of December 31, 2011.
 
NOTE 8 - 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 $13,440,624 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 9 - SUBSEQUENT EVENTS

The company has evaluated subsequent events in accordance with the provisions of ASC 855 noting no reportable subsequent events.  
 
 
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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 engaged in the development of software products and other services designed to help businesses sell products over the internet.

We developed two software products: ShopFast Direct Shopping Database (TM) (“ShopFast DSD”), and   ShopFast Profit Center   (TM) (“ShopFast PC”). Each of these software products enables the user of the software to create an internet website from which such user can sell products located on a database maintained by us (the “OLB Database”).

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.

Our plan of operation is to launch the marketing of the software component of our ShopFast PC product in the fourth quarter of 2012, 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.  
 
 
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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 Mobile commerce applications and product, we are then planning to develop or acquire additional products to complement the new mobile 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 new ShopFast Mobile POS 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 all internet browsers.

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, 2012 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011

REVENUE

Revenue from operations for the three months ended September 30, 2012 decreased $7,783 or 2%, to $31,431 from $39,214 for the three months ended September 30, 2011. 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, 2012 decreased $4,919 to $19,121 from $24,040 for the three months ended September 30, 2011. The decrease can be attributed to a greater decrease in revenue over a decrease in administrative fees.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative ("G&A") expenses increased $64,576 or 260% to $88,654 from $24,078 for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. The increase can be largely attributed to increased development spending.

NET LOSS

Net loss increased by $85,351 to $216,524 from $131,173 for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. The increase in net loss can be largely attributed to increased development spending.
 
 
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RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2012 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2011

REVENUE

Revenue from operations for the nine months ended September 30, 2012 decreased $37,332 or 27%, to $98,640 from $135,972 for the nine months ended September 30, 2011. The decrease is mainly attributed to a decrease in revenue from the insurance program.

GROSS PROFIT

Gross profit from operations for the nine months ended September 30, 2012 decreased $26,298 to $60,315 from $86,613 for the nine months ended September 30, 2011. The decrease can be attributed to a greater decrease in revenue over a decrease in administrative fees.
 
GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative ("G&A") expenses increased $62,076 or 67% to $155,139 from $93,063 for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. The increase can be largely attributed to increased development spending.

NET LOSS

Net loss increased by $33,825 to $510,554 from $476,729 for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. The increase in net loss can be largely attributed to increased development spending.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 2012, the Company used $126,437 of cash for operating activities and received $150,000 from financing activities.

The financial statements as of September 30, 2012 have been prepared under the assumption that we will continue as a going concern through December 31, 2012. Our independent registered public accounting firm has issued their report on the December 31, 2011 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 financing in the past consisted 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. More recently the company has been able to fund its operations from revenue, stockholders’ loans and the sale of common stock.

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 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.
 
 
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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.

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.
  
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.

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 effective at December 31, 2011 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.
 
 
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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 was not effective as of September 30, 2012 and December 31, 2011.

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, and have also failed in the timely recording of certain transactions.
 
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. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.
 
 
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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)
 
 
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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  14, 2012
Name:
Ronny Yakov
 
Title:
President and Interim Chief Financial Officer
(Principal Executive Officer, Principal Financial and Accounting Officer)
 
 
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