Item  405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB or any amendment to this Form 10-KSB x.

 

 

 

ITEM 1.

DESCRIPTION OF BUSINESS

History

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

 

As result of the merger, we 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 common and preferred stock and, in addition, the former holders of the Series A stock of OLB.com received one warrant for each such preferred share and the former holders of the Series B Preferred Stock of OLB.com received two warrants for each such preferred share, to purchase shares of our common stock. An aggregate of 26,901,963 shares of common stock were issued in connection with the merger.

 

We are authorized to issue 200,000,000 shares of common stock, par value $0.01 per share, and 50,000,000 shares of preferred stock, par value $0.01per share. We currently have 43,691,067 shares of common stock issued and outstanding. No shares of preferred stock are currently outstanding. Our fiscal year end date is December 31.

 

Our Business

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.

 

Our Products

 

We are currently developing two software products: ShopFast Direct Shopping Database™ (“ShopFast DSD”), and ShopFast Profit Center™ (“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”).

 

Throughout this Form 10-KSB, our “client” refers to the person who purchases and uses either ShopFast DSD or ShopFast PC. Whenever we refer to the “purchase” or “purchase price” of ShopFast DSD or ShopFast PC, as with almost all other software on the market, we are referring to the purchase of a license to use the software for the purchase price of such a license.

 

Initially, our business will be dependent on a limited number of suppliers engaged in competitive businesses such as sales of books, music, video, and audio products and we currently have only one agreement and arrangement with one supplier, Baker & Taylor Fulfillment, Inc, (“B&T”), for the above products. The Company will need to enter into additional agreements with other supply companies in order to expand the lines of products available on the OLB Database. If the Company is successful in negotiating such additional supply agreements, of which there can be no assurance, the OLB Database, as and if operations grow, could expand to eventually contain a “virtual inventory” of over three million products, including computer and office supplies, electronic products, sports apparel, compact discs, books, fine Belgian chocolates, flowers, cosmetics, beauty products, and fragrances. We characterize as “virtual” the inventory of the products to be contained on our OLB Database because such products will be supplied by third-party suppliers, not us. Throughout this Form 10-KSB, “supplier” means the person who provides the products ordered from the OLB Database. We do not own the products found on our OLB Database, and we do not carry any inventories of such items. We do not have a warehouse or any warehouse employees. We will depend on suppliers to fulfill the orders for any products purchased from the OLB Database.

 

As further discussed below, ShopFast DSD is a collection of software programs that are packaged together into what is known as a software suite. ShopFast DSD enables a client to create a customized website, pursuant to any of our client’s specifications, for the sale of products from the OLB Database. We will work together with our client to customize such website to include our client’s logos, desired design layout, and any other desired features.

 

ShopFast PC also is a software suite. ShopFast PC enables our client to create on its own a standard website pre-designed by us for the sale of products from the OLB Database. Our client may choose from a selection of our pre-designed logos, design layouts, and color schemes for the website. Further, our client may personalize certain of the information on the website, by adding the client’s name, slogan, and other information about the client.

 

 

Throughout this Form 10-KSB, “Internet Storefront” means the individual website that is created for the use of each of our clients using either ShopFast DSD or ShopFast PC for the sale of products from our OLB Database. As an additional service provided to our clients, we will host the Internet Storefronts. This means that the website will be placed on our server, which is simply a computer connected to the internet for the purpose of serving up web sites which people can access from the internet. We will provide an internet address for the Internet Storefront, which can be personalized by the client. For example, if the client’s company name is “Rick’s Books”, then the internet address can be personalized as http://rickbooks.shopfast.com.

 

With either software program, once our client’s Internet Storefront is established, our client can sell the products contained on our OLB Database to visitors to that client’s Internet Storefront. Throughout this document, “client’s customer” means the person who purchases products from our client’s Internet Storefront. As further discussed below, our clients will earn a commission on sales made from their Internet Storefronts, and we will retain any remaining profits. In addition, both ShopFast DSD and ShopFast PC enable the client to create various reports summarizing information such as sales, profits, and number of visitors to the Internet Storefront.

 

As additional services to our clients, we will process the orders made on the Internet Storefronts. A typical order will be processed as follows: The client’s customer will place the order on the Internet Storefront and pay for it by providing his or her credit card information on the Internet Storefront. Upon the placement of an order, we will automatically receive a copy of the order electronically, and the funds from the credit card payment will be paid from the credit card company directly to us. We will then purchase the ordered products from the appropriate suppliers and arrange for them to be delivered directly by the supplier to the client’s customer. We will also send an e-mail to the client’s customer confirming that the order has been placed and providing the approximate date that the order will be shipped. The supplier will thereafter provide us an invoice for the products purchased, which we will pay in accordance with its terms. We will also pay to our client a commission on the products sold, which commission will be paid once a month with respect to all products sold by such client during the preceding month. Any remaining profits will be retained by us.

 

We intend to formally launch the promotion of our ShopFast PC software beginning in the second quarter of 2008 and our ShopFast DSD shortly thereafter, depending on the availability of the funds available to the Company for such purposes.

 

Potential Markets

 

We intend to generate revenues from the following sources:

 

·

sales of ShopFast DSD and ShopFast PC to our clients;

 

·

sales of the related services we provide to our clients, including maintenance of the OLB Database and processing of orders made on our clients’ websites for products from the OLB Database; and

 

·

profits from sales of the products from the OLB Databases remaining after we pay the product commissions to the client.

 

 

Since ShopFast DSD will be customized for each client, we will negotiate with each client the purchase price of the ShopFast DSD software, the related services we provide, and the commission payable to our client on sales made by such client. The purchase price of the ShopFast PC software and the related services we provide will be standard for all our clients and not subject to negotiation. The purchase price of the ShopFast PC software is expected to be between $19.95 and $59.95. The price will be set as the product is introduced and may increase or decrease in the future depending on, among other things, the reception of the product, improvements to the product and any competing products that may be introduced into the market place in the future. The continuing services we provide, including maintenance of our OLB Database and the processing of orders placed for products from our OLB Database, will be made available for an additional monthly fee, ranging from a minimum of $9.95 to up to $49.95, depending on the level of services requested by the client, which fee might also be adjusted in the future based on marketplace conditions for such services. The commission that we will pay to a client using ShopFast PC will be a percentage of the gross revenues generated by such client with respect to each type of product. The specific amount of such percentage, depending on the type and price of the product sold, can range from 2.5% to 60%.

 

Growth Through Acquisition

 

As part of our business strategy, we intend to acquire complementary businesses. Our management believes that we can achieve profitability if, in addition to generating revenues based on sales of our software products, related services provided to our clients and our profit from sales to customers by our clients, we also acquire complementary businesses. The Company expects, based on the prior experience of the Company’s predecessor, that the Company may have a negative cash flow for the first six to nine months after it commences operations, but there can be no assurance that prior experience will be correct and that such period may not be longer or shorter. There can be no assurance that any such acquired businesses will ever be profitable, If such acquired businesses were not profitable at the time of acquisition, the Company, if management’s assessment of the business potential proved correct, would expect such businesses to experience a negative cash flow for not less than from six to nine months from acquisition, which could materially affect the operations of the Company and cause it to continue to incur financial losses for an indefinite period of time. The Company may not be able to make acquisitions in the future and any acquisitions we do make may not be successful. Any such future acquisitions may also have a material adverse effect upon our operating results, particularly in periods immediately following the Consummation of those transactions while the operations of the acquired businesses are in the process of being integrated with and into our then current operations. The Company has entered into discussion with several companies, and has been in contact with, several potential targets for such future acquisitions. While the Company intends to exert substantial efforts to acquire complementary businesses, in the event the Company is not successful in acquiring complementary businesses, the Company may determine that it is in the best interests of the Company to commence to develop complementary products to its software products and/or incorporate additional functionality into newer versions of its current software, while still pursuing possible acquisitions.

 

The Company intends to initially evaluate such potential targets for acquisition based upon the concept of determining the cost of such acquisition based upon the cost of developing and implementing the software, services and/or customer base independently of such an acquisition. There can be no assurance that Management’s evaluation will prove to be correct following such acquisition or independent development.

 

In connection with any such acquisition, the company anticipates that it will acquire such target by a purchase price of company Stock or a combination of stock and cash. In the event that a cash component is included, the company anticipates that it will have to finance the cash portion of the purchase price. There can be no assurance that the Company will be able to obtain such financing on terms acceptable to the Company.

 

 

Industry Overview

An e-commerce service provider enables a business desiring to sell goods and services on the internet, also known as an e-commerce seller, to utilize the service provider’s established e-commerce resources and support services, thus creating economies of scale and cost efficiencies throughout the entire e-commerce process.

 

Infomercial Sales

 

We initially intend to market our products through the use of “infomercials.” The Company’s largest competitor, as well as others, use the “infomercial” as their primary marketing format.

 

Selling products through "Infomercials" (direct response television sales - "DRTV") can serve as a profitable sales tool for appropriate products. According to Forbes Magazine, as of 2002 an estimated sixty three percent (63%) of Americans over the age of sixteen had purchased products after viewing an Infomercial program.

A company's startup situation hinges on the success of the initial products' testing periods. These test periods may last for six months each, with positive results being used to refine and enhance the product "show," and negative results (a product that does not test well early on) leading to the early abandonment of the product. Only successfully-tested product Infomercials will be further refined and broadcast in a full-scale media campaign.

The industry has made significant strides in overcoming negative public perception. Major corporations such as Apple, Sony, and Gateway use the sales channel as part of their overall marketing campaigns. Production quality has also improved in the past few years, resulting in viewers who perceive infomercial and direct response television as entertainment.

DRTV remains subject to negative public perception, and it can be a challenging and costly proposition. There remain incidents of DRTV production organizations requiring the manufacturers or owners of the products to pay for not only the cost of the goods, but also all of the production costs of a "test" infomercial, including legal compliance, talent, equipment rentals, production crews, location costs and other production fees and expenses, while declining to run the infomercial.

As a sales channel, DRTV is enjoying substantial growth. At the same time, consumers are overwhelmed with the high number of direct response programs currently airing, which viewers often perceive as annoying `paid advertising' programs. Media buyers jockey for coveted airtimes that produce high returns. These combined forces create a challenging environment for DRTV product developers. In spite of the challenges, the DRTV sales channel can return excellent profits for products that test well and meet the sales channel's tough requirements for success.

Growth rates for the electronic direct response industry (TV, radio and internet) have been quite strong, driven by deregulation, the proliferation of cable channels in the mid -1980's and the growth of the internet.

 

 

Infomercials are aired on national cable networks and local broadcast stations in all 212 broadcast markets nationally. The programs use sophisticated motivational techniques that drive viewers to immediately purchase the product through a Call-To-Action (“CTA”), usually in the form of a toll-free telephone order number. A typical presentation sequence in the program is: product introduction; product demonstration; customer testimonials; followed by a Call-To-Action (CTA). Quite often the viewer is provided with additional motivation to order the product through the use of product up-sells (...'but wait, there's more'..). The carefully crafted message cultivated by the program is intended to develop the viewer's sense of immediately needing the product, causing the viewer to react to the Call-To-Action. The desired result is the viewer's impulse buy of the product.

DRTV can be a cost-effective sales channel for delivering a product's message to a large number of viewers. A 1 % response rate to the CTA is considered typical. The total number of viewers watching the program, multiplied by multiple broadcast markets airing the program, can generate substantial calls even at just a 1% response rate. The channel closes a lower percentage of sales (generally 25%) compared to traditional one-on-one sales techniques, but reaches a mass audience that can allow tremendous economies of scale and high margin returns. Advertisers are turning to DRTV because the payback is much faster than that of traditional broadcast advertising.

Broadcast markets in Europe, Latin America, and Asia also represent an opportunity for DRTV sales, providing additional markets for extending the product's lifespan. While still generating sales in national DRTV and retail sales channels, a product can be tested and adapted for placement in international channels, generally in the order of Canada, Australia, Great Britain, France, Germany, Japan and China.

Infomercial advertising campaigns can build brands inexpensively, while creating a pent up demand for eventual retail rollout. The most costly expenditure in an infomercial campaign is that of buying airtime. Paying for airtime has two effects. Buying media airtime generates immediate sales from each airing of the infomercial. Just as importantly, brand awareness is quickly built through the airings, allowing the company to create a widely recognizable brand name for the product and the company. The infomercial marketing arena is often used as a product's introductory sales channel, effectively building brand awareness prior to rolling the product out into retail channels. When brand-name identification of a product is established through DRTV and other marketing methods, even greater income can be generated through product sales at retail and in foreign countries.

Infomercial Distribution

The three major types of media distribution are National Cable, Broadcast, and Satellite. Distributors sell blocks of airtime for infomercials in 30-second, 60-second, 120-second, 2-minute, and 30-minute increments (actually 28.5 minutes). The shorter time blocks are called 'short-form' and 'spots', the 30-minute blocks are called 'long-form'. Generally, infomercial products with higher prices and margins are appropriate for more expensive 30-minute blocks. A higher priced product generally requires more time to explain the benefits to the customer. A 30-minute timeslot offers a greater opportunity to educate customers about a product's benefits, and motivate that customer to place an order.

 

 

The long-form category is highly competitive. Not only do products compete against similar products in their categories, but each infomercial competes against all other infomercials airing in the same timeframe, regardless of category. are two new infomercials that began airing one-minute advertisements on stations monitored by IMS.

Principal Industry Factors

The principal competitive factors in our market are brand recognition, selection, personalized services, convenience, price, accessibility, customer service, quality of search tools, quality of site content, reliability and speed of fulfillment.

 

We believe that our products will offer the following competitive advantages to clients:

 

Flexibility. Our flexible platform will allow for more customized solutions for clients.

Categories. We will provide financial service companies with direct debit capability for their customers.

Operating cost. Low cost resources, no warehouse, all fulfillment and customer service are outsourced

Experience. We have processed over 250,000 e-commerce orders for resellers in the past, during the period during which we marketed our original ShopFast DSD Software.

Our Strategy

E-commerce is one of the fastest growing sales channels in the history of business, with U.S. online revenues predicted to grow from $172B in 2005 to $329B in 2010, according to Forrester Research. Consumer adoption of e-commerce continues at such a rapid pace that its overall growth remains strong and far outpaces more mature brick-and-mortar sales.

Because of the rapid growth of internet shopping, both existing and new businesses must consider establishing an on-line business presence to broaden their appeal to potential customers. Additionally, a growing percentage of both existing businesses and new businesses are exclusively focused online.

We are primarily targeting:

·

Ecommerce retailers

·

Small businesses

·

Home businesses

·

New businesses

·

Entrepreneurs

·

eBay sellers

·

Consumers

 

We believe that our business strategy offers the following advantages over traditional e-commerce:

 

·

Flexibility to add new resellers to our existing scaleable e-commerce platform and resources: Our e-commerce platform consists of the hardware and software needed to operate our e-commerce services. A reseller can be added to our e-commerce platform and infrastructure by the installation of ShopFast PC or ShopFast DSD on the reseller’s computer.

 

 

·

Utilization of a core technology platform across multiple markets: Internet Storefronts can be customized to be targeted to specific markets, without requiring the use of additional software or hardware other that required, and previously described, in order for the reseller to access the internet.

·

Distributing the cost of establishing supplier relationships over large numbers of clients.

·

Aggregating supplier purchases to achieve volume discounts: Orders received for a particular product from the various Internet Storefronts established by our clients are automatically aggregated by our software programs. This will enable us to purchase from suppliers enough quantities of particular products to be entitled to volume discounts from the suppliers.

·

Aggregation of customer data from all Internet Storefront to generate targeted marketing programs; and Provision of a complete set of resources and services which will create strategic relationships with resellers as we become integral to their continued success.

Infomercial Marketing of Our Products

We plan to produce a 30 minute infomercial to promote this product, as well as short form two minute commercials after completing the longer infomercial. 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.

Customers

Currently we have no paid customers. The company completed its final development and is in the process of completing the quality assurance process. The Company plans to commence marketing the software and anticipates having paid customers in the second quarter of 2008, depending on the funds available to the Company for such marketing efforts.

Competition

 

We will compete with a variety of other companies, including traditional stores, non-traditional retailers, such as television retailers and mail order catalogues, and a myriad of various online retailers of different sizes and financial capabilities offering both specialty and broad categories of products. Additionally our competition will include large online retailers, such as Amazon, Yahoo, eBay and half.com. Management believes our current principal competitor in the e-commerce service provider space is Monster Commerce, which markets its services primarily through infomercials.

 

Many of our current and potential competitors, including those mentioned in the preceding paragraph, have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than us.

 

 

See “Risk Factors--We are subject to significant competition and may be unable to keep up with the technology and pricing of our competition,” for a more detailed discussion of the competitive factors to which we are subject.

 

Intellectual Property

The Company does not have any registered trade marks. We have obtained the domain name http://www.shopfast.com (“shopfast.com”) as well as http://www.shopfast.net (“shopfast.net”) We also have obtained the domain name http://www.olb.com, which will be utilized to provide information about the Company as well as information about its products and services. This site will not be utilized for sales of software and or product, but it is anticipated that links to such sites, when appropriate, will be provided.

 

The Company still maintains ownership of the domain name http://www.colorbank.com, which was utilized in connection with its prior business operations. The Company has no present plans for the utilization of this domain name.

 

The company intends to file for registered trade marks for its products when funds are available for that purpose. However, there can be no assurance that the Company will be successful in obtaining any such trade marks.

 

The company is also the sole owner of all the source code and development properties of the ShopFast software.

Employees

 

As of March 31, 2008, we had one full time employees and fifteen part time employees, all of whom, except for Ronny Yakov, our chief executive officer, are outsourced as contractors to the Company. We have no employment contracts, other than with our chief executive officer. Our employees are not affiliated with a union or affected by labor contracts. We also engage consultants from time to time on an independent contractor basis. Mr. Yakov is currently serving as our Chief Financial Officer on an interim basis. The Company is currently identifying candidates to serve as Chief Financial Officer. The candidate who is identified and hired will become an employee devoting such time as is necessary to our business for the performance of his duties.

 

Regulation

 

At this time, there are no Federal or state certifications or other regulatory requirements applicable to our products and we are not of aware of any pending Federal or state legislation which would introduce regulatory requirements that would negatively impact or impede the sales and distribution of our products in the United States or elsewhere; however, our products and business practices may be subject to review by industry self-regulatory agencies and consumer affairs monitors. Actions resulting from such reviews could include, but not limited to, cease and desist orders, fines and recalls.

 

Our advertising is subject to review by the National Advertising Council (NAC) and our advertisements could be subject to NAC recommendations for modification. The U.S. Federal Trade Commission (FTC) and state and local consumer affairs bodies oversee various aspects of our sales and marketing activities and customer handling processes. If any of these agencies, or other agencies that have a right to regulate our products, engage in reviews of our products or marketing procedures we may be subject to various enforcement actions.

 

See “Risk Factors -- Government regulation and legal uncertainties may damage our business,” for a discussion of governmental laws and regulations applicable to us.

 

RISK FACTORS

 

You should carefully consider the following risk factors, in addition to the other information presented in this Form 10-KSB, in evaluating us and our business. Any of the following risks, as well as other risks and uncertainties, could harm our business and financial results and cause the value of our securities to decline, which in turn could cause you to lose all or part of your investment.

 

Risks Relating to Our Business – Going Concern Issues

 

We have incurred and will continue to incur financial losses until we are able to generate sufficient revenues from operations to offset such expenditures, and we will require additional financing, which may not be available when needed. If our business plans are not successful, we may not be able to continue operations as a going concern and our stockholders may lose their entire investment in us.

 

In 2007, we incurred an operating loss, which was offset by the gain on release of debt due to the write off of certain liabilities. The Company anticipates that it will continue to incur losses for some time. The Company’s continued existence is dependent on its ability to generate additional revenues and on obtaining additional financing from its stockholders and external sources. Accordingly, there can be no assurance that the Company will succeed in executing its plans and have all the financing necessary for its operations.

 

We incurred significant losses from operations, and have a working capital deficit of approximately $ 261,000.

 

Our auditors have indicated that our past losses from operations and our working capital deficit raise substantial doubt as to our ability to continue as a going concern. These factors raise substantial doubt that we will be able to continue operations as a going concern. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

 

Our ability to continue as a going concern is dependent upon our generating cash flow sufficient to fund operations and reducing operating expenses. We expect to incur significant up-front expenditures in connection with our e-commerce operations, including increased expenditures relating to marketing and sales and development of web sites for new clients, which will result in continuing operating losses. While we currently expect to commence marketing our e-commerce software and services in the second quarter of 2008, we anticipate that losses will continue until we attract and retain a sufficient number of clients for our products and services and are able to generate sufficient revenues from the e-commerce websites of such clients to offset such expenditures. Historically, we have not derived positive cash flow from a web site until it has been in operation for six to nine months. Our business plans may not be successful in addressing these issues. If we cannot continue as a going concern, our stockholders may lose their entire investment in us.

 

 

Until we have received sufficient proceeds to conduct reduced operations focusing on quality and testing, maintaining, marketing and advertising ShopFast DSD and ShopFast PC, we will endeavor to fund our working capital requirements by obtaining loans from Ronny Yakov, who is our largest shareholder, and third parties. Mr. Yakov is under no obligation to advance any additional sums of money to the Company and, additionally, there can be no assurance that we will be successful in obtaining such funds from third parties during such portion of the offering period. We cannot assure you that we will generate revenues or positive cash flow or succeed in obtaining the financing necessary for our operations when needed and on acceptable terms, or at all. Our failure to obtain additional financing when needed will have a material adverse effect on our business, financial condition and prospects. If we cannot obtain such additional financing, our stockholders may lose their entire investment in us. We may have to limit operations during the period that we are looking for capital if we can not obtain interim working capital loans. We may incur losses in future periods, which could reduce investor confidence and cause our share price to decline.  

 

We expect to increase our sales and marketing expenses, research and development expenses and general and administrative expenses, and we cannot be certain that our revenues will grow at a rate sufficient to cover these costs, if at all. Accordingly, we may be unable to operate profitably, even if we develop operations and generate revenues. The Company expects, based on prior experience, that the Company may have a negative cash flow for the first six to nine months after it commences marketing efforts planned to commence during the second quarter of 2008, but there can be no assurance that prior experience will be correct and that such period may not be longer or shorter.We will be dependent on a limited number of suppliers, and we currently have only one Supplier agreement and arrangement.

 

We anticipate that our business will be dependent on a limited number of suppliers engaged in competitive businesses such as sales of books, music, video, and audio products. We currently have only one agreement and arrangement with one supplier, Baker & Taylor Fulfillment, Inc, (“B&T”), for the above products. The Company will need to enter into additional agreements with other supply companies in order to expand the lines of products available on the OLB Database. We anticipate that, so long as we are processing orders by credit card, such additional agreements will be obtainable, although the terms of any such agreements are not expected to offer the Company direct credit or any other benefit other than that made available to other new customers of such entities with no current track record with such supplier.. Should we encounter the loss of a primary supplier, or a decline in the economic prospects or activity of such supplier, we might need to limit the listing of a product, or line of products, from the OLB Database. We also may also need to increase the delivery times for such products, resulting in losses of sales, which events could materially and adversely affect our financial condition and operating results and, consequently, our stockholders may lose their entire investment in us.

 

We will be dependent on third parties for fulfillment over whom we have only limited control or no control.

 

We do not carry any inventories and do not have any warehouse employees or facilities. We will be dependent on our suppliers to fulfill customer orders and ship merchandise directly to consumers on a timely and competitive basis.

 

 

While we have only limited control over the fulfillment and shipping procedures of our suppliers, we assume the risk of product delivery upon shipment. Poor performance by our suppliers would adversely affect our business and reputation.

 

Our business also depends on the ability of our suppliers to provide products at competitive prices in sufficient quantities and of acceptable quality. We cannot assure that you our suppliers will continue to sell merchandise on favorable terms or that we will be able to establish new, or extend current, relationships to ensure acquisition and delivery of merchandise in a timely and efficient manner and on acceptable commercial terms.

 

We expect that our suppliers, similar to B&T, will limit the circumstances under which we can return products for other than erroneously shipped products, damaged products, defective products. For other types of returns, we expect a time limit similar to the 60 days imposed by B&T, as well as a “re-stocking” type charge for certain categories of returns. In addition, a penalty for excessive returns which, in the case of B&T, will be a an increase in the return processing fee to 10% of the price charged by B&T for the remainder of the term of the agreement can be expected.

 

These type of agreements customarily impose a high rate of interest for failure to pay invoices timely (18% for B&T), provide no right to maintain an open account balance with the supplier, do not guarantee that products covered by the contract will always be in stock, and prices will be subject to change with little or no notice.

 

As, when and if, the Company increases the level of business it conducts with such suppliers, it is possible, but not assured, that the Company may be able to negotiate more favorable business terms.

 

We will assume certain risks of our suppliers, including the risk of loss on payment disputes.

 

Typically, a client’s customer will place the order on the Internet Storefront and pay for it by credit card on the Internet Storefront. Upon the placement of an order, we will automatically receive an electronic copy of the order, and we will receive the credit card funds directly from the credit card company. We will then purchase the ordered products from a supplier and arrange for direct delivery from the supplier to the client’s customer. The supplier will thereafter invoice us for the products purchased, which we will pay when due.. We will also pay to our client a commission on the products sold, which commission will be paid once a month with respect to all products sold by such client during the preceding month. We will retain any remaining profits, after payment of client commissions.

 

In the event of a customer dispute it is possible that a credit card company may charge back the purchase price of a product while we have paid the supplier for the products. The Company will have a potential for loss on such amounts if the dispute is not resolved to the customer’s satisfaction or the credit card company otherwise reverses any such charge back.

 

We hope to enter into additional agreements with our suppliers which will require them, as in the case with B&T, to pay us specified percentages (by product line) of total product sales offered by us over the Internet. We will recognize revenues on product sales when the product is shipped to the client’s customer by our supplier.. We will recognize the amount due to a supplier (i.e., total product sales less our specified percentage) in cost of sales. In order for us to adopt this accounting policy, we will assume the risk of loss on product shipments and bear the credit risk with respect to product sales. An unanticipated delay in shipping, or substantial shipments of defective goods and/or returns could result in our absorbing the loss. If product related losses are material, our business financial condition and operating results could likely be adversely affected.

 

 

In the case of B&T, we are obligated to utilize it as our primary supplier for goods within the categories specified in the agreement, as will more likely than not be the case with other primary suppliers we may enter into agreements with. In the event of limitations on product availability from a primary supplier, there exists a risk that orders can be lost pending an alternate source of supply. We will endeavor to have agreements in place with back-up suppliers in the event that a primary supplier runs into stock and or other fulfillment problems, but no assurance can be given that back-up suppliers will always be obtainable for all offered products.

 

High returns of the Company’s ShopFast PC Software could lower profit margins of the Company.

 

We plan to initiate a “money back guarantee policy” for our ShopFast PC individual and small business customers, who we refer to as “resellers,” which will permit resellers to return this product to us within 30 days if not satisfied, which is a common return period in the industry. A materially larger number of returns could lower our margins.

 

E-commerce is still an evolving market, with business and security risks, and we cannot assure you of the market acceptance we require in order to become profitable.

 

The business of selling goods over the Internet is relatively new and is still rapidly evolving. Demand for our products and services could be negatively affected by:

 

• inadequate development of Internet resources;

• security and privacy concerns; and

• inconsistent service quality.

Our future revenue and profits depend upon the widespread acceptance and use of the web as an effective medium of commerce by consumers. We cannot assure that a sufficiently broad base of consumers will adopt, and continue to use, the web as a medium of commerce. Failure of the web and online services to become a viable commercial marketplace would materially adversely affect our business, prospects and financial condition. If we are unable to acquire users for our services, our business will be adversely impacted, and our stockholders may lose their entire investment.

 

The need to transmit confidential information securely, such as credit card and other personal information, over the Internet has been a significant barrier to e-commerce. We will rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as customer credit card numbers. We cannot assure you that future advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach of the algorithms used by us to protect customer transaction data. Any publicized compromise of security could deter people from using the web for e-commerce transactions. Such security concerns could reduce the e-commerce market, force us to incur significant cost to protect ourselves from the threat of problems caused by such security breaches, and thereby materially and adversely affect our business, financial condition and operating results.

 

 

We are subject to certain global business operation risks.

 

The internet allows for potential clients and their customers to be located world-wide. Sales of our products and sales to customers by our clients may be subject to different laws and regulations in effect in such jurisdictions which could impede our growth. The Company, in conjunction with its suppliers, will develop policies for where orders for products shipment destinations by customers will be accepted in order to minimize risk exposure to the Company. Any negative impact changes in trade regulation could have an effect on the areas in which the Company can successfully maintain and/or develop its client base and a client can develop its customer base.

 

We are dependent on our clients to operate and promote their storefronts.

 

Our future success will depend upon on our clients’ properly operating the ShopFast Suite system they are utilizing and to promote their storefront. The failure of the clients to do so will have a material adverse effect on all aspects of the business of the Company.

 

We are subject to significant competition and may be unable to keep up with the technology and pricing of our competition.

 

Online retail shopping is relatively new, rapidly evolving and intensely competitive. We expect competition in the online commerce market to intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost. In addition, the retail shopping industry is intensely competitive. We currently or potentially compete with a variety of other companies, including traditional stores, non-traditional retailers, such as television retailers and mail order catalogues, and other online retailers. Competitive pressures created by any one of the foregoing, or by our competitors collectively, could have a material adverse effect on us. Our competition includes a myriad of various online retailers of different sizes and financial capabilities offering both specialty and broad categories of products and, in addition, large internet retailers such as Amazon, Yahoo, eBay and half.com.

 

The options generally available to a retailer desiring to sell goods or services on the internet normally require a large up-front investment, lengthy development cycle and recurring maintenance and update costs for which we plan to provide a cost effective and efficient alternative to our clients. Clients who purchase and use our ShopFast DSD and ShopFast PC will not have to invest in hardware, software or staffing beyond that which is normally required for access to the internet and the web. The equipment and services required includes, an internet ready computer equipped with an operating system that fully supports Internet Explorer Version 5.0 or higher, an internet service provider with high speed service (although dial-up, while slower will operate) and a printer. Instead, other than the basic equipment listed above, they will be able to access our existing resources and will be able to use ShopFast DSD or ShopFast PC, as case may be, without having to purchase additional software or hardware. While our ShopFast DSD and ShopFast PC has been designed to be easily installed and operated by persons not having computer expertise and to offer the a quick and direct way for any business or individual to begin selling products over the Internet, we cannot assure you that we will be able to compete with our competitors.

 

 

We believe that the principal competitive factors in our market are brand recognition, selection, personalized services, convenience, price, accessibility, customer service, quality of search tools, quality of site content, reliability and speed of fulfillment. Many of our current and potential competitors, including those mentioned in the preceding paragraph, have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than us. In addition, other on-line retailers may be acquired by, receive investments from, or enter into other commercial relationships with larger, well-established and well-financed companies as use of the Internet and other on-line services increases. Certain of our competitors may be able to secure merchandise from manufacturers and/or suppliers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to web site and systems development than we do. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise. We cannot assure you that we will be able to compete successfully against current and future competitors. Competitive pressures faced by us may have a material adverse effect on business, financial condition and results of operations. We are dependent upon our proprietary technology and are subject to the risk of third party infringement claims.

 

Our success and ability to compete is dependent in significant part upon our proprietary software technology. We rely upon a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights. Currently we have no patents or trademarks on file to protect our intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. We cannot assure that the steps taken by us to protect our proprietary technology will prevent misappropriation of such technology, and such protections may not preclude competitors from developing products with functionality or features similar to our products. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. In the event of a successful claim of product infringement against us and our failure or inability to develop a non-infringing technology or license the infringed or similar technology our business, results or financial condition could be materially and adversely affected..

 

Failure of our hardware systems or system suppliers could have a material adverse effect our business.

 

We will depend on third party communications providers to enable internet users to access our resellers' web sites and the ShopFast DSD website which we intend to establish when the ShopFast DSB becomes ready for sale. These web sites could experience disruptions or interruptions in service due to failures by these providers. In addition, end-users depend on Internet service providers, online service providers and other web site operators for access to these web sites. Each of these groups has experienced significant outages in the past and could experience outages, delays and other difficulties due to system failures unrelated to our systems. Material delays and system failures would adversely affect our operations and could have material adverse effect on our business, prospects and financial condition

 

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