SUBSCRIPTION AGREEMENT The OLB Group, Inc. Fourth Floor, New York, NY 10036
The OLB
Group, Inc.
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Ladies
and Gentlemen:
Pursuant
to the terms of the offer (this “Offering”) made by The OLB Group, Inc. (the
"Company") contained in the Confidential Private Offering Materials dated June
1st
, 2010 (said Materials, including the exhibits and attachments thereto, being
hereinafter called the "Materials"), the undersigned hereby tenders this
subscription and applies for the purchase 20 Units set forth on the signature
page of this agreement, each Unit consisting of hundred sixty six thousand
shares (166,000) shares of Common Stock of the Company (the "Shares"), at a
purchase price of $5,000 per Unit. The minimum purchase is one Unit, provided,
however, that partial Units may be purchased in the discretion of “The Company”
Together with this Subscription Agreement, the undersigned is delivering to the
Placement Agent, a check payable The OLB Group, Inc." or funds by wire transfer
as instructed by the “The Company” in the full amount of the purchase price for
the Units which the undersigned is subscribing for pursuant hereto.
Wire
Instructions:-
Chase
Bank
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Name:
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The
OLB Group, Inc.
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Account
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788634467
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Routing#
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Tax ID
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The Units
to be purchased by the undersigned are part of a private placement of securities
(the "Private Placement") of up to 20 Units, being effected on a best-efforts
basis by the Company. Accordingly, there is a minimum of 20 of Units that must
be sold in order for the Private Placement to become effective. If all the Units
are sold, the Company will receive an aggregate of $100,000
Representations
and Warranties. In order to induce the Company to accept this subscription, the
undersigned hereby represents and warrants to, and covenants with, the Company
as follows:
The
undersigned has received and reviewed the Materials, and except for the
Materials, the undersigned has not relied upon any other materials or literature
relating to the offer and sale of the Units;
The
undersigned has had a reasonable opportunity to ask questions of and receive
answers from the Company concerning the Company and this Offering, and all such
questions, if any, have been answered to the full satisfaction of the
undersigned;
1
The
undersigned has such knowledge and expertise in financial and business matters
that the undersigned is capable of evaluating the merits and risks involved in
an investment in the Units;
The
undersigned understands that an investment in the Units is a speculative
investment, which involves a high degree of risk and the potential loss of his
investment.
The
Confidential Purchaser Questionnaire being delivered by the undersigned to the
Company simultaneously herewith is true, complete and correct in all material
respects, and the undersigned understands that the Company has determined that
the exemption from the registration provisions of the Securities Act of 1933, as
amended (the "Act"), which is based upon non public offerings is applicable to
the offer and sale of the Units, based, in part, upon the representations,
warranties and agreements made by the undersigned herein and in the Confidential
Purchaser Questionnaire;
Except as
set forth in the Materials, no representations or warranties have been made to
the undersigned by the Company or by any agent, employee, or affiliate of the
Company, and in entering into this transaction the undersigned is not relying
upon any information, other than that contained in the Materials and the results
of independent investigation by the undersigned;
The
undersigned understands that: (A) the Units, the Shares, the Warrants and the
Warrant Shares have not been registered under the Act or the securities laws of
any state, and are being offered by the Company based upon an exemption from
such registration requirements for non public offerings pursuant to Regulation D
under the Act; (B) the Units, the Shares, the Warrants and the Warrant Shares
are and will be "restricted securities", as said term is defined in Rule 144 of
the Rules and Regulations promulgated under the Act; (C) the Units, the Shares,
the Warrants and the Warrant Shares may not be sold or otherwise transferred
unless they have been first registered under the Act and all applicable state
securities laws, or unless the undersigned shall have first delivered to the
Company a written opinion of counsel (which counsel and opinion (in form and
substance) shall be reasonably satisfactory to the Company), to the effect that
the proposed sale or transfer is exempt from the registration provisions of the
Act and all applicable state securities laws; (D) other than as set forth in the
Materials, the Company is under no obligation to register the Units, the Shares,
the Warrants or the Warrant Shares under the Act or any state securities laws,
or to take any action to make any exemption from any such registration
provisions available; (E) the certificates for the Shares, the Warrants and the
Warrant Shares will bear a legend to the effect that the transfer of the
securities represented thereby is subject to the provisions hereof; and (F) stop
transfer instructions will be placed with the Company's transfer agent, if any,
for the Units, the Shares, the Warrants and the Warrant Shares;
The
undersigned is acquiring the Units solely for the account of the undersigned,
for investment purposes only, and not with a view towards their resale or
distribution;
The
undersigned has full power and authority to execute and deliver this
Subscription Agreement and to perform its obligations hereunder, and this
Subscription Agreement is a legally binding obligation of the undersigned in
accordance with its terms;
The
undersigned meets the requirements of at least one of the suitability standards
for an "accredited investor," as such term is defined in Regulation D of the
Rules and Regulations promulgated under the Act and as set forth on the
Accredited Investor Certification contained herein;
2
The
undersigned understands and acknowledges that the Placement Agent makes no
representations or warranties as to the accuracy or completeness of the
information contained in the Materials;
The
undersigned has carefully reviewed the risk factors, as set forth on Annex A
attached hereto, associated with an investment in the Units;
The
undersigned has carefully reviewed the use of proceeds, as set forth on Annex B
attached hereto, for this Offering as currently intended by the
Company;
The
undersigned understands that in connection with this Offering he will enter into
a Registration Rights Agreement in the form attached hereto as Annex
C.
(xv) The
undersigned has carefully reviewed the jurisdictional notices listed below and
agrees to abide by any restrictions contained therein applicable to the
undersigned;
JURISDICTIONAL
NOTICES
Residents
of All States:
THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID
ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID
ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OR THIS OFFERING OR THE
ACCURACY OR ADEQUACY OF THE MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
Alabama
Residents
THESE
SECURITIES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER THE ALABAMA
SECURITIES ACT. A REGISTRATION STATEMENT RELATIVE TO THESE SECURITIES HAS NOT
BEEN FILED WITH THE ALABAMA SECURITIES COMMISSION. THE COMMISSION DOES NOT
RECOMMEND OR ENDORSE THE PURCHASE ANY SECURITIES, NOR DOES IT PASS UPON THE
ACCURACY OR COMPLETENESS OF THIS OFFERING DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
3
Alaska
Residents
THE
SECURITIES OFFERED HAVE BEEN REGISTERED WITH THE ADMINISTRATOR OF SECURITIES OF
THE STATE OF ALASKA UNDER PROVISIONS OF 3 AAC 08.500-3 AAC08.506. THE INVESTOR
IS ADVISED THAT THE ADMINISTRATOR HAS NOT REVIEWED THE OFFERING DOCUMENT. THE
FACT OF REGISTRATION DOES NOT MEAN THAT THE ADMINISTRATOR HAS PASSED IN ANY WAY
UPON THE MERITS, RECOMMENDED, OR APPROVED THE SECURITIES. ANY REPRESENTATION TO
THE CONTRARY IS A VIOLATION OF AS 45.55.170.
THE
INVESTOR MUST RELY ON THE INVESTOR'S OWN EXAMINATION OF THE PERSON OR ENTITY
CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED, IN MAKING AN INVESTMENT DECISION ON THESE
SECURITIES.
Connecticut
Residents:
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE CONNECTICUT
UNIFORM SECURITIES ACT AND, THEREFORE, CANNOT BE SOLD, TRANS-FERRED OR OTHERWISE
DISPOSED OF TO ANY PERSON OR ENTITY UNLESS SUBSE-QUENTLY REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES ACT OF THE STATE, IF SUCH
REGISTRATION IS REQUIRED, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
Florida
Residents:
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE FLORIDA SECURITIES ACT IN RELIANCE
UPON EXEMPTION PROVISIONS CONTAINED THEREIN. ANY SALE MADE PURSUANT TO SUCH
EXEMPTION PROVISIONS IS VOIDABLE BY THE PURCHASER WITHIN THREE (3) DAYS AFTER
THE FIRST TENDER OF CONSIDERATION IS MADE BY THE PURCHASER TO THE ISSUER, AN
AGENT OF THE ISSUER OR AN ESCROW AGENT. A WITHDRAWAL WITHIN SUCH THREE (3) DAY
PERIOD WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS
WITHDRAWAL, A SUB-▇▇▇▇▇▇▇ NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT
THE ADDRESS SET FORTH IN THIS INVESTMENT SUMMARY, INDICATING HIS INTENTION TO
WITHDRAW.
SUCH
LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE
AFOREMENTIONED THIRD BUSINESS DAY. IT IS ADVISABLE TO SEND SUCH LETTER BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO
TO EVIDENCE THE TIME IT WAS MAILED. IF THE REQUEST IS MADE ORALLY, IN PERSON OR
BY TELEPHONE, TO AN OFFICER OF THE COMPANY, A WRITTEN CONFIRMATION THAT THE
REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
Maine
Residents:
THESE
SECURITIES ARE BEING SOLD PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE
BANK SUPERINTENDENT OF THE STATE OF MAINE UNDER SECTION 10502(2)(R) OF TITLE 32
OF THE MAINE REVISED STATUTES. THESE SECURITIES MAY BE DEEMED RESTRICTED
SECURITIES AND AS SUCH THE HOLDER MAY NOT BE ABLE TO RESELL THE SECURITIES
UNLESS PURSUANT TO REGISTRATION UNDER STATE OR FEDERAL SECURITIES LAWS OR UNLESS
AN EXEMPTION UNDER SUCH LAWS EXISTS.
4
Minnesota
Residents:
THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE MINNESOTA DEPARTMENT OF
COMMERCE NOR HAS THE DIVISION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
OFFERING DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
New
Hampshire Residents:
NEITHER
THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN
FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE DIRECTOR OF THE OFFICE OF SECURITIES REGULATION
THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE DIRECTOR OF THE OFFICE OF
SECURITIES REGULATION HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED, OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION.
IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
New
Mexico Residents:
THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE NEW MEXICO DEPARTMENT OF
REGULATION AND LICENSING, NOR HAS THE SECURITIES DIVISION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFERING.
North
Carolina Residents:
THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING
DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
IN MAKING
AN INVESTMENT DECISION INVESTORS MUST REPLY THEIR OWN EXAMINATION OF THE ISSUER
AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE
NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933.
AS AMENDED, AND THE APPLICABLE STATE LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD.
5
Oregon
Residents:
THE
SECURITIES OFFERED HAVE BEEN REGISTERED WITH THE CORPORATION COMMISSIONER OF THE
STATE OF OREGON UNDER PROVISIONS OF OAR ▇▇▇-▇▇-▇▇▇ THROUGH ▇▇▇-▇▇-▇▇▇. THE
INVESTOR IS ADVISED THAT THE COMMISSIONER HAS MADE ONLY A CURSORY REVIEW OF THE
REGISTRATION STATEMENT AND HAS NOT REVIEWED THIS DOCUMENT SINCE THE DOCUMENT IS
NOT REQUIRED TO BE FILED WITH THE COMMISSIONER. THE INVESTOR MUST RELY ON THE
INVESTOR'S OWN EXAMINATION OF THE COMPANY CREATING THE SECURITIES, AND THE TERMS
OF THE OFFERING INCLUDING THE MERITS AND RISK INVOLVED IN MAKING AN INVESTMENT
DECISION ON THESE SECURITIES.
Pennsylvania
Residents:
RESIDENTS
OF THE COMMONWEALTH OF PENNSYLVANIA CAN ONLY TRANSFER THESE SECURITIES IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 203(d) OF THE PENNSYLVANIA SECURITIES
ACT AND ARE SUBJECT TO THE FOLLOWING CONDITION:
THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT AND
MAY NOT BE SOLD OR TRANSFERRED UNLESS THEY ARE SO REGISTERED OR AN EXEMPTION
FROM THE REGISTRATION PROVISIONS OF THE ACT BECOMES AVAILABLE.
South
Carolina Residents:
THESE
SECURITIES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER THE SOUTH CAROLINA
UNIFORM SECURITIES ACT. A REGISTRATION STATEMENT RELATIVE TO THESE SECURITIES
HAS NOT BEEN FILED WITH THE SOUTH CAROLINA SECURITIES COMMISSIONER. THE
COMMISSIONER DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF ANY OF THESE
SECURITIES NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF THIS OFFERING
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Tennessee
Residents:
IN MAKING
AN INVESTMENT DECISION INVESTORS MUST REPLY ON THEIR OWN EXAMINATION OF THE
ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED.
THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE
NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
6
THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISK OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME.
* *
*
The
undersigned understands that this subscription is not binding upon the Company
until the Company accepts it, which acceptance is at the sole discretion of the
Company and is to be evidenced by the Company's execution of this Subscription
Agreement where indicated. This Subscription Agreement shall be null and void if
the Company does not accept it as aforesaid.
The
undersigned understands that the Company may, in its sole discretion, reject
this subscription and, in the event that this Offering to which the Materials
relates is oversubscribed, offer partial Units or reduce this subscription in
any amount and to any extent, whether or not pro rata reductions are made of any
other investor's subscription.
The
undersigned agrees to indemnify the Company and hold it harmless from and
against any and all losses, damages, liabilities, costs, and expenses which it
may sustain or incur in connection with the breach by the undersigned of any
representation, warranty, or covenant made by the undersigned.
Neither
this Subscription Agreement nor any of the rights of the undersigned hereunder
may be transferred or assigned by the undersigned.
This
Subscription Agreement: (i) may only be modified by a written instrument
executed by the undersigned and the Company; (ii) sets forth the entire
agreement of the undersigned and the Company with respect to the subject matter
hereof; (iii) shall be governed by the laws of the State of New York applicable
to contracts made and to be wholly performed therein; and (iv) shall inure to
the benefit of, and be binding upon the Company and the undersigned and its
respective heirs, legal representatives, successors, and assignees.
Unless
the context otherwise requires, all personal pronouns used in this Subscription
Agreement, whether in the masculine, feminine or neuter gender, shall include
all other genders.
All
notices or other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally or mailed by certified or
registered mail, return receipt requested, postage prepaid, as follows: if to
the undersigned, to the address set forth on the signature page hereof; and if
to the Company, to the address provided above or to such other address as the
Company or the undersigned shall have designated to the other by like
notice.
7
IN
WITNESS WHEREOF,
the
undersigned has executed this Subscription Agreement
This
1st,
day of June, 2010.
20 X
$5,000 = $100,000
No. of
Units (Unit Price) Subscription Price
SIGNATURE
PAGE
Organization
Signature:
Print
Name of Subscriber Organization Individual Signature(s):
By:
(Signature
and Title)
Print
Name and Title of Person Signing
Print
Name of Subscriber
Print
Name of Subscriber
(All
Subscribers should please print information below exactly as you wish it to
appear in the records of the Company)
Name and
capacity in which subscription is made — see below for particular
requirements
Social
Security Number of Individual or other Taxpayer I.D. Number
8
Address:
Number
and Street
City
State Zip Code Address for notices, if different:
Number
and Street
City
State Zip Code
Please
check the appropriate box to indicate form of ownership (if
applicable):
TENANTS-IN-COMMON
(Both
Parties must sign above) JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
(Both
Parties must sign above)
9
ACCEPTANCE
OF SUBSCRIPTION
The OLB
Group, Inc.
The
foregoing subscription is hereby accepted by The OLB Group, Inc.
this
1st,
day of June 2010, for ____Unit.
The OLB
Group, Inc.
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By:
▇▇▇▇▇ ▇▇▇▇▇
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CEO
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10
ANNEX
A
RISKS
RELATED TO THE COMPANY’S BUSINESS
Limited Operating
History
The
Company has a limited operating history on which an investor can evaluate its
business. The Company has been providing. An investor in the Units must consider
the risks and difficulties the Company will encounter as an early-stage company
in the new and rapidly evolving e-commerce market. These risks include the
Company’s ability to:
•
implement the Company’s business model;
• manage
the Company’s expanding operations;
•
establish and maintain arrangements with additional ShopFast business
partners;
•
increase the number of products offered as part of the ShopFast Direct Content
Database
(“ShopFast
DCD”) service;
•
establish and maintain arrangements with additional destination sites for which
the Company would provide ShopFast DCD services;
•
attract, retain and motivate qualified personnel;
• compete
with established e-commerce marketers;
•
anticipate and adapt to rapid changes in its markets;
•
maintain and enhance the Company’s systems to support growth of
operations;
•
minimize technical difficulties, system downtime and the effect of Internet
▇▇▇▇▇-outs; and
• respond
to changes in government regulation.
If the
Company does not successfully manage its risks, the Company’s business, results
of operations and financial condition will be materially adversely affected. The
Company cannot assure you that it will successfully address these risks or that
the Company’s business strategy will be successful.
Expectation of
Losses
While the
Company has historically had a marginal operating profit, the Company expects to
record substantial net losses for the foreseeable future in order to achieve its
business objectives. The Company believes that its continued growth will depend
in large part on the Company’s ability to:
•
establish relationships with additional ShopFast business partners;
•
increase the number of products offered as part of the ShopFast DCD
service;
11
•
increase the number of destination sites for which the Company would provide
ShopFast DCD services;
• provide
its customers with superior Internet and e-commerce services; and
•
continue to enhance its systems and technology to support increased traffic to
the Web sites of ShopFast business partners and ShopFast DCD
customers.
Accordingly,
the Company intends to increase its level of marketing and promotional
expenditures. In addition, the Company expects to invest heavily in the
development of Web sites for new ShopFast business partners, technology and
operating infrastructure. The Company will need significant amounts of working
capital in order to fund Web site development and initial maintenance of the Web
sites as the Company has historically not derived positive cash flow until such
Web sites have been in operation for six to nine months. Slower revenue growth
than the Company anticipates or operating expenses that exceed the Company’s
expectations would have a material adverse effect on the Company’s
business.
Quarterly
Operating Results Are Subject to Significant Fluctuations and
Seasonality
The
Company’s revenues and operating results may vary significantly from quarter to
quarter due to a number of factors. Many of these factors are outside the
Company’s control and include:
•
seasonal fluctuations in consumer purchasing patterns;
• timing
of, response to and quantity of ShopFast business partners and ShopFast DCD
customers;
• changes
in the growth rate of Internet usage;
• actions
of the Company’s competitors;
• the
timing and amount of costs relating to the expansion of the Company’s
operations; and
• general
economic and market conditions.
The
Company’s revenue for the foreseeable future will remain primarily dependent on
online user traffic levels, online sales of merchandise appearing on the Web
sites of ShopFast business partners and at the destination sites of ShopFast
customers. Such future revenues are difficult to forecast. Any shortfall in
revenues in relation to the Company’s expenses would have a material adverse
effect on its business.
The
Company’s limited operating history in the e-commerce market makes it difficult
to ascertain the effects of seasonality on its business. If seasonal and
cyclical patterns emerge in Internet consumer purchasing, the Company’s results
of operations from quarter to quarter will be less comparable. The Company
expects sales to fluctuate in a manner similar to that of the retail industry;
accordingly, the Company’s sales will peak during its fiscal fourth
quarter.
You
should not rely on quarter-to-quarter comparisons of the Company’s results of
operations as indicative of future performance. It is possible that in some
future periods the Company’s results of operations may be below
expectations.
12
Competition
The
e-commerce industry is new, rapidly evolving and intensely competitive. The
Company expects to face intense competition in the future. Potential competitors
of the Company will encounter minimal barriers to entry. The Company currently
faces competition from companies which sell products over the Internet, such as
on-line malls, and other companies which develop and host Web sites. In
addition, there are no assurances that companies with far more resources will
not attempt to compete directly with the Company.
Need to Expand the Company’s
Features, Capacity and Operations
A key
element of the Company’s strategy is to establish relationships with additional
ShopFast business partners and ShopFast customers and to increase the number of
products it offers. Such growth may strain or exceed the capacity of the
Company’s computer systems and lead to degradations in performance or systems
failure. The Company believes that it will therefore need to continually improve
and enhance the functionality and performance of its e-commerce, customer
tracking and other technical systems.
The
Company’s inability to add additional hardware and software to upgrade existing
technology or network infrastructure to accommodate increased operations may
cause decreased levels of customer service and satisfaction. The Company
believes its present systems will not be adequate to accommodate rapid growth in
user demand. As a result, it may need to implement new systems. Failure to
implement these systems effectively or within a reasonable period of time would
have a material adverse effect on the Company’s business, results of operations
and financial condition.
Growth of
the Company’s business may place a significant strain on management systems and
resources and will require the implementation of new operational and financial
systems, procedures and controls. It is expected that the Company will need to
continue to expand, train and manage its workforce. The inability to accomplish
any of these goals could adversely affect the Company’s business.
Risks of Failure of Computer
Systems and Equipment
The
Company’s operations depend on its ability to maintain computer systems and
equipment in effective working order. The Company must also protect its computer
systems against damage from fire, power loss, water damage, telecommunications
failures, vandalism and other malicious acts, and similar unexpected adverse
events. The Company currently has limited disaster recovery plans. The
continuing and uninterrupted performance of its computer system is critical to
its success. Customers may become dissatisfied as a result of any system
failure. The Company needs to review and seek to upgrade its technical
infrastructure and provide for system redundancies and backup power to limit
such failures. Sustained or repeated system failures or interruptions would
materially reduce the attractiveness of the Company’s services. In addition,
interruptions in its systems could result from the failure of its
telecommunications providers to provide the necessary data communications
capacity in the time frame required. Unanticipated problems affecting the
Company’s systems have caused from time to time in the past, and in the future
could cause, interruptions in its services. Any damage or failure that
interrupts or delays the Company’s operations could have a material adverse
effect on its business.
13
Dependence on Third
Parties
The
Company depends upon a number of third parties to deliver goods and services to
it and its customers. For example, the Company relies on third-party shippers
(including the United States Postal Service, United Parcel Service and FedEx) to
ship merchandise to its customers. Strikes or other service interruptions
affecting its shippers would have a material adverse effect on its ability to
deliver merchandise on a timely basis. The Company also depends on
communications providers to provide Internet users access to its ShopFast Web
sites and ShopFast customers’ Web sites. Such Web sites could experience
disruptions or interruptions in service due to failures by these providers. In
addition, 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 the Company’s
systems. These types of occurrences could cause users to perceive these Web
sites as not functioning properly and therefore cause them to stop using the
Company's services.
The
Company carries no inventory, has no warehouse employees and facilities, and
relies on rapid fulfillment from its ShopFast business partners. There can be no
assurance that current ShopFast business partners will continue to sell
merchandise on current terms or that it 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. The Company’s
business depends, in part, on the ability of ShopFast business partners to
provide products at competitive prices in sufficient quantities and of
acceptable quality. If any of the following events occurred, the Company’s
business could be materially adversely affected:
• If the
Company lost one or more key ShopFast business partners;
• If the
Company’s ShopFast business partners are unable to provide consumers with
quality products at competitive prices;
• If the
Company’s ability to procure products was limited; or
• If the
Company’s ability to maintain or establish relationships with new ShopFast
business partners or ShopFast customers was adversely affected.
RISKS RELATED TO THE
INTERNET INDUSTRY
Dependence
on Continued Growth in Use of the Web and Online Commerce
The
e-commerce industry is new and rapidly evolving. A decrease in the growth of Web
usage would adversely affect the Company’s business. The following factors may
inhibit growth in Web usage:
•
Inadequate Internet infrastructure;
•
Security and privacy concerns;
•
Inconsistent quality of service; and
•
Unavailability of cost-effective, high-speed service.
14
The
Company’s success is dependent, in large part, upon the ability of the Internet
infrastructure to support increased use. The performance and reliability of the
Web may decline as the number of users increases or the bandwidth requirements
of users increase. The Web has experienced a variety of outages due to damage to
portions of its infrastructure. If outages or delays frequently occur in the
future, Web usage, including usage of Web sites, could grow slowly or decline.
Even if the necessary infrastructure or technologies are developed, the Company
may have to spend considerable amounts to adopt appropriate
solutions.
The
Company’s future revenue and profits substantially depend upon the widespread
acceptance and use of the Web as an effective medium of commerce by consumers.
Rapid growth in the use of the Web and commercial online services is a recent
phenomenon. The Company cannot assure you that a sufficiently broad base of
consumers will adopt, and continue to use, the Web as a medium of commerce.
Demand for recently introduced services and products over the Web and online
services are subject to a high level of uncertainty. The development of the Web
and online services as a viable commercial marketplace is subject to a number of
factors, including continued growth in the number of users of such services,
concerns about transaction security, continued development of the necessary
technological infrastructure, and the development of complementary services and
products. Failure of the Web and online services to become a viable commercial
marketplace would materially adversely affect the Company’s
business.
Government Regulation and
Legal Uncertainties
Laws and
regulations directly applicable to Internet communications and commerce are
becoming more prevalent. The law governing the Internet, however, remains
largely unsettled, even in areas where there has been some legislative action.
The U.S. Congress has recently passed Internet laws regarding online children's
privacy, copyrights and taxation. Such legislation could dampen growth in use
and acceptance of the Web. Although the Company’s online transmissions generally
originate in New York, the governments of other states or foreign countries
might attempt to regulate transmissions or levy sales or other taxes relating to
its activities. It may take years to determine whether and how existing laws
governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of e-commerce may prompt calls
for more stringent consumer protection laws, both in the United States and
abroad. New laws may impose additional burdens on companies conducting business
over the Internet. The adoption or modification of laws or regulations
applicable to the Internet could adversely affect the Company’s business. The
Company also may be subject to regulation not specifically related to the
Internet, including laws affecting direct marketers and
advertisers.
Web Security Concerns Could
Hinder E-commerce
The need
to securely transmit confidential information (such as credit card and other
personal information) over the Internet has been a significant barrier to
e-commerce and communications over the Web. Any publicized compromise of
security could deter more people from using the Web or from using it to transmit
confidential information. Furthermore, decreased traffic and e-commerce sales as
a result of general security concerns could cause advertisers to reduce their
amount of online spending. Such security concerns could reduce the Company’s
market for e-commerce, and the Company may also incur significant costs
protecting itself from the threat of problems caused by such security
breaches.
15
Risks Associated with
Technological Change
The
Internet and e-commerce markets are characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions, and changing customer preferences. The Company’s future success
will depend on its ability to adapt to rapidly changing technologies and address
its customers' changing preferences. The Company may experience difficulties
that delay or prevent it from being able to do so.
Sales and Other
Taxes
The
Company currently collects sales or other similar taxes in respect to shipments
of goods in only limited circumstances. However, one or more states or foreign
countries may seek to impose sales tax collection obligations on out-of-state or
foreign companies such as the Company, which engage in online commerce. A
successful assertion by one or more states or any foreign country that the
Company should collect sales or other similar taxes on the sale of merchandise
could have a material adverse effect on the Company’s business, financial
condition and results of operations.
Risk of Product Liability
Claims
The
Company’s agreements with ShopFast business partners do not typically contain
provisions designed to limit its exposure to potential product liability claims.
Further, any limitation of liability provisions contained in such agreements may
not be effective under the laws of certain jurisdictions. Although, the Company
has not experienced any material product liability claims to date, the sale and
support of the Company’s products entails the risk of such claims. The Company
currently has only limited insurance coverage against product liability and
errors and omissions claims and there can be no assurance that such insurance
will continue to be available to the Company on commercially reasonable terms or
at all. A product liability claim brought against the Company could have a
material adverse effect on the Company’s business, results of operations and
financial condition.
RISKS RELATED TO THIS
OFFERING
Future Capital Need;
Uncertainty of Additional Financing
The
Company requires substantial working capital to fund its own business and
expects to use a significant portion of the net proceeds of this Offering to
fund its expected continuing operating losses. The proceeds of this Offering
will not permit the Company to meet its business objectives and the Company will
be dependent on the proceeds of a future financing for the payment of day-to-day
operating expenses. While the Company intends to raise additional funds prior to
such time, there can be no assurance that additional financing will be available
when needed or that, if available, such financing will be available on terms
acceptable to the Company and its stockholders. If such financing is not
available when required or is not available on acceptable terms, the Company
will not be able to execute its business strategy as planned, or at all, and the
Company’s business, financial condition and results of operations may be
materially adversely affected. Although the Company has entered into a letter of
intent with the Placement Agent pursuant to which the Placement Agent proposes
to act as the managing underwriter of the Company’s initial public offering
(“IPO”), there can be no assurance that the IPO will be consummated, or that the
funds therefrom will be adequate for the Company to execute its business
strategy. If additional funds are raised through the issuance of additional
equity securities, stockholders of the Company may experience significant
dilution.
16
Anti-Takeover Provision in
Charter Documents and Delaware law
Certain
provisions of the Company’s Amended and Restated Certificate of Incorporation,
By-Laws, other agreements and Delaware law could make it more difficult to
acquire the Company, even if change in control would be beneficial to its
stockholders.
Broad
Discretion in Use of Proceeds
The
Company’s management can spend most of the proceeds from the Offering in ways
with which its stockholders may not agree. The Company intends to use most of
the net proceeds of the Offering ($100,000) for working capital.
Dependence
on Key Personnel
The
Company’s future success depends in significant part upon the continued service
of a relatively small number of key management, technical, sales and marketing
personnel especially ▇▇▇▇▇ ▇▇▇▇▇, the Company’s Chairman of the Board and Chief
Executive Officer. The Company does not currently carry key person life
insurance for Mr. Yakov, The Company’s management team is currently too
inexperienced and understaffed to manage a larger entity. The Company’s future
success depends on its ability to attract and retain other highly qualified
management, technical, sales and marketing personnel. Competition for such
personnel is intense, and the Company has at times in the past experienced
difficulty in recruiting qualified personnel. There can be no assurance that the
Company will retain its key management, technical, sales and marketing employees
or that it will be successful in attracting, assimilating and retaining other
highly qualified management, technical, sales and marketing personnel in the
future. The loss of any member of the Company’s key management, technical, sales
and marketing personnel or the inability to attract and retain additional
qualified personnel would have a material adverse effect on the Company’s
business, operating results and financial condition.
Uncertain Protection of
Intellectual Property
The
Company’s success depends on its ability to protect its proprietary software and
other intellectual property. To protect its proprietary rights, the Company
plans to rely generally on copyright, trademark and trade secret laws and
confidentiality agreements with employees and third parties. Despite such
protections, a third party could, without authorization, copy or otherwise
obtain and use the Company’s products or technology, or develop similar
technology. There can be no assurance that the Company’s agreements with those
who participate in product development activities will not be breached, that the
Company will have adequate remedies for any breach, or that the Company’s
software or trade secrets will not otherwise become known or independently
developed by competitors.
The
Company has not pursued the registration of any of its trademarks and service
marks in the United States and abroad, and no assurance can be given that the
Company will be able to secure the registration of all its marks. In addition,
the laws of some foreign countries do not protect the Company’s proprietary
rights to the same extent as do the laws of the United States, and effective
copyright, trademark and trade secret protection may not be available in such
jurisdictions.
17
There can
be no assurance that the Company’s efforts to protect its intellectual property
rights through copyright, trademark and trade secret laws will be effective to
prevent misappropriation of its technology or to prevent the development by
others of products or technologies similar to or competitive with those
developed by the Company. The Company’s failure or inability to protect its
proprietary rights could materially and adversely affect is business, financial
condition and results of operations.
The
Company does not rely on any significant proprietary technology in the operation
of its business. With respect to technology there are few, if any, barriers to
entry by potential competitors.
Control by Principal
Stockholders
▇▇▇▇▇
▇▇▇▇▇ beneficially owns 70% of the Company's outstanding shares of Common Stock.
Accordingly, he is able to elect all of the Company's directors and otherwise
control all matters requiring approval by the stockholders of the Company,
including approval of significant corporate transactions.
Absence of
Dividends
The
Company has not paid any cash dividends on its Common Stock and does not expect
to do so in the foreseeable future.
Arbitrary Offering Price of
the Units
The price
of the Units was determined by negotiations between the Company, and should not
be regarded as indicative of any future market price of the Units or the
securities contained therein.
18
ANNEX
B
USE OF
PROCEEDS
The net
proceeds to the Company from the sale of the Units offered hereby are estimated
to be $100,000 after deducting the underwriting discount and estimate offering
expenses. The principal purposes for which the net proceeds are currently
intended, and the approximate amounts intended for each such purpose, are set
forth below:
|
Use of proceeds required on
closing
|
||||
|
Legal
and transfer agent issuance of shares
|
$ | 15,000 | ||
|
Integration
|
$ | 75,000 | ||
|
Administrative
|
$ | 10,000 | ||
| $ | 100,000 | |||
Additional
financing will be necessary for the continued support of the Company's
operations. Additional financing may be either equity, debt or a combination of
debt and equity. An equity financing could result in dilution in the Company's
net tangible book value per share of Common Stock. There can be no assurance
that the Company will be able to secure additional debt or equity financing or
that such financing will be available on favorable terms. If the Company is
unable to obtain such additional financing, the Company's ability to repay its
debts and its ability to maintain its current level of operations will be
materially adversely affected. In such event, the Company will be required to
reduce its overall expenditures and may default on its obligations. Persons
buying Units in this Offering will not, unless required by law, participate in
the determination of whether to obtain additional financing or as to the terms
of such financing.
Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds of this Offering in short-term, interest bearing
investment grade securities.
19