United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
--------- ------------------
Commission File Number: 0-29285
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ONLINE INNOVATION, INC.
(Name of Small Business Issuer in its charter)
Delaware 52-2058364
-------- ----------
(state or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1118 Homer Street, #218, Vancouver, British Columbia V6B 6L5
------------------------------------------------------------
(Address of principal executive offices)
(604) 669-7564
--------------
Issuer's telephone number
-------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report
Check whether the registrant (1) filed all reports required to be filed by
sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
YES [ ] NO [ ] N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of November 7, 2000, the registrant's outstanding common stock consisted of
13,305,000 shares.
Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X]
<PAGE>
ONLINE INNOVATION, INC.
INDEX TO FORM 10QSB
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Item 2. Management Discussion and Analysis
or Plan of Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote
of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Attached are the registrant's unaudited financial statements for the nine month
period ended September 30, 2000, with comparative figures for the nine month
period ended September 30, 1999, and the Independent Accountant's Report
thereon.
<PAGE>
MOEN AND COMPANY
CHARTERED ACCOUNTANTS
PO Box 10129
1400 IBM Tower
701 West Georgia Street Telephone: (604)662-8899
Vancouver, BC V7Y 1C6 Fax: (604)662-8809
--------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS' REPORT
To the Directors and Shareholders of
Online Innovation, Inc. (A Delaware Corporation)
(A Development Stage Company)
We have reviewed the accompanying Balance Sheets of Online Innovation, Inc. (A
Delaware Corporation (A Development Stage Company) as of September 30, 2000, and
September 30, 1999 and the Statements of Profit and loss, Retained Earnings
(Deficit), Cash Flows and Stockholders' Equity for the three month periods then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Moen and Company
Chartered Accountants
Vancouver, British Columbia, Canada
October 31, 2000
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Balance Sheet
September 30, 2000
(In U.S. Dollars)
(Unaudited)
(With Comparative Figures at September 30, 1999)
ASSETS
2000 1999
------------- --------------
Current Assets
Cash $ 10,225 $ 266,682
Prepaid expense 1,343 -
------------- --------------
11,568 266,682
------------- --------------
Deferred income tax (Notes 13 and 14) 52,500 42,000
------------- --------------
Fixed assets (Note 5)
Computer equipment, at cost 107,138 511
Less: accumulated depreciation (28,820) (77)
------------- --------------
78,318 434
------------- --------------
Computer software development
(Note 2(d) and 6(b))
Application development stage costs 400,000 400,000
------------- --------------
$ 542,386 $ 709,116
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued $ 4,054 $ 3,000
Agreement payable - Stratford
Internet Technologies (Note 6(b)) 75,000 125,000
------------- --------------
79,054 128,000
------------- --------------
Shareholders' Equity
Capital Stock (Note 3)
Authorized:
75,000,000 common shares at
$0.001 par value
Issued and outstanding
13,468,333 common share
(1999 - 12,705,000 shares) -
par value 13,468 12,705
Paid in capital in excess of
par value of stock 1,674,532 1,255,295
Deficit accumulated during development
stage (Note 1) (1,224,748) (685,829)
Cumulative translation 80 (1,055)
------------- --------------
463,332 581,116
------------- --------------
$ 542,386 $ 709,116
============= ==============
Approved on Behalf of the Board
/s/ Chad D. Lee
------------------------------
/s/ Marlene C. Schluter
------------------------------
See Accompanying Notes and Independent Accountants' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Statement of Profit and Loss
Three Months Ended September 30, 2000
(In U.S. Dollars)
(Unaudited)
(With Comparative Figures for Three Months Ended September 30, 1999)
Cumulative From
Inception Date
of Aug 1, 1997 Three Months Ended
to September 30, September 30,
--------------------------
2000 2000 1999
---------------- ------------ ------------
Administration Costs
Compensation expense - stock
options $ 150,000 $ - $ -
Depreciation 28,820 8,035 -
Filing and transfer agent fees 14,622 512 822
Financing costs 22,550 - -
Management and consulting fees 359,227 17,568 40,500
Office expenses, net 100,046 13,149 7,649
Option payment on mineral
properties 30,000 - -
Professional fees 94,325 16,362 3,184
Promotion, investor relations, - 11,002
and investor communications 83,039 - -
Computer technology and
website costs 227,325 - -
Website marketing/Banner
advertising costs 154,766 42,961 -
Travel expenses 12,528 - -
------------ ---------- ----------
(1,277,248) (98,587) (63,157)
Deferred tax expense 52,500 - -
------------ ---------- ----------
Net loss for the period $ (1,224,748) $ (98,587) $ (63,157)
============ ========== ==========
Net loss per share, basic and diluted
$ (0.01) $ (0.01)
========== ==========
See Accompanying Notes and Independent Accountants' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Statement of Cash Flows
Three Months Ended September 30, 2000
(In U.S. Dollars)
(Unaudited)
(With Comparative Figures for Three Months Ended September 30, 1999)
Cumulative From
Inception Date
of Aug 1, 1997 Three Months Ended
to September 30, September 30,
--------------------------
2000 2000 1999
---------------- ------------ ------------
Cash Provided by (Used for)
Operating Activities
Net loss for the period $ (1,224,748) $ (98,587) $ (63,157)
Items not requiring use of cash:
Compensation on stock options 150,000 - -
Common shares issued for computer
technology and website costs 200,000 - -
Depreciation 28,820 8,035 -
Cumulative translation 80 - -
Changes in non-cash working
capital items
Prepaid expense (1,343) -
Accounts payable and accrued
increase 4,054 (19,153) (21,108)
Deferred income tax (52,500) - -
Agreement payable 75,000 (25,000) 125,000
------------ ---------- ----------
(820,637) (134,705) 40,735
------------ ---------- ----------
Investing Activities
Computer software development (400,000) - (400,000)
Fixed assets purchased (107,138) - -
------------ ---------- ----------
(507,138) - (400,000)
------------ ---------- ----------
Financing Activities
Capital stock subscribed and
issued 1,338,000 50,592 -
Due to related parties - - (31,689)
------------ ---------- ----------
1,338,000 50,592 (31,689)
------------ ---------- ----------
Increase in Cash During the Period 10,225 (84,113) (390,954)
Cash, Beginning of Period - 94,338 657,636
------------ ---------- ----------
Cash, End of Period $ 10,225 $ 10,225 $ 266,682
------------ ---------- ----------
See Accompanying Notes and Independent Accountants' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Statement of Retained Earnings (Deficit)
September 30, 2000
(In U.S. Dollars)
(Unaudited)
(With Comparative Figures for Three Months Ended September 30, 1999)
Cumulative From
Inception Date
of Aug 1, 1997 Three Months Ended
to September 30, September 30,
--------------------------
2000 2000 1999
---------------- ------------ ------------
Balance (deficit), beginning of period $ - $(1,126,161) $ (622,672)
Net loss for the period (1,224,748) (98,587) (63,157)
------------ ---------- ----------
Balance (deficit), end of period $ (1,224,748) $(1,224,748) $ (685,829)
============ ========== ==========
See Accompanying Notes and Independent Accountants' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Statement of Stockholders' Equity
From Date of Inception on August 1, 1997 to September 30, 2000
(In U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Additional Total Retained Total
Common par Paid-in Capital Earnings Cumulative Stockholders'
Shares Value Capital Stock (Deficit) Translation Equity
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss for eleven
month period ended
June 30, 1998 $ (144,175) $ (144,175)
Issued for cash,
@$0.01 October 23,
1997 1,500,000 $ 1,500 $ 13,500 $ 15,000 15,000
Issued for cash,
@$0.001 May 8, 1997 500,000 500 500 500
Issued for assignment
of option on mineral
properties, @$0.0035
September 30, 1997 8,500,000 8,500 21,500 30,000 30,000
------------------------------------------------------------------------------------------------------------
10,500,000 10,500 35,000 45,500 (144,175) (98,675)
Shares subscribed and
fully paid and issued,
@$0.50 April 6, 1999 85,000 85 42,415 42,500 42,500
------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 10,585,000 10,585 77,415 88,000 (144,175) (56,175)
Net loss for year
ended June 30, 1999 (478,497) (478,497)
Compensation on
stock options 120,000 120,000 120,000
Cumulative translation (1,055) (1,055)
Issued for cash,
@$0.50 April 6, 1999 20,000 20 9,980 10,000 10,000
Issued for cash,
@$0.50 April 6, 1999 100,000 100 49,900 50,000 50,000
Issued for private
business(note 7),
@$0.50 April 2, 1999 400,000 400 199,600 200,000 200,000
Issued for cash(note
14), @$0.50 April 15,
1999 1,600,000 1,600 798,400 800,000 800,000
------------------------------------------------------------------------------------------------------------
Balance, June 30,
1999 12,705,000 12,705 1,255,295 1,268,000 (622,672) (1,055) 644,273
Cumulative translation 543 543
Shares subscribed and
fully paid, @$0.50
January 4, 2000 450,000 450 224,550 225,000 225,000
Net loss for year
ended June 30, 2000 (503,489) (503,489)
Cumulative translation
Issued for exercise of
option @ $0.50
March 13, 2000 100,000 100 49,900 50,000 50,000
Compensation on stock
options 30,000 30,000 30,000
Exercise of warrants
@ $0.50 May 9, 2000 50,000 50 24,950 25,000 25,000
Exercise of warrants
@ $0.50 June 16, 2000,
unissued 80,000 80 39,920 40,000 40,000
------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 13,385,000 13,385 1,624,615 1,638,000 (1,126,161) (512) 511,327
Exercise of warrants
@$0.60 August 17,
2000, unissued 83,333 83 49,917 50,000 50,000
Net loss for period
ended Sept 30, 2000 (98,587) 592 (97,995)
------------------------------------------------------------------------------------------------------------
Balance, September
30, 2000 13,468,333 13,468 1,674,532 1,688,000 (1,224,748) 80 463,332
============================================================================================================
</TABLE>
See Accompanying Notes and Independent Accountants' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 1. BUSINESS OPERATIONS
a) The Company was incorporated on May 7, 1997 under the Company Act of the
State of Delaware, U.S.A. and commenced inception of business on August 1,
1997. The Company changed it's name from Micro Millennium, Inc. to Sinaloa
Gold Corp. on October 16, 1997 and subsequently changed it's name from
Sinaloa Gold Corp. to Online Innovation, Inc. on April 8, 1999.
b) The Company is in its development stage in the internet/e-commerce
industry as a website development company and was previously in the mining
resource industry and has not generated any revenues from its planned
operations. The deficit to September 30, 2000 has been accumulated during
the development stage.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
a) Administration Costs
Administration costs are written off to operations when incurred.
b) Translation of Foreign Currency
The functional currency of the Company is the Canadian Dollar and the
reporting currency is the United States Dollar.
The assets, liabilities, and operations of the Company are expressed in the
functional currency of the Company, the Canadian Dollar, in conformity with
US GAAP, before they are translated into the reporting currency, the United
States Dollar.
Monetary assets and liabilities are translated at the current rate of
exchange.
The weighted average exchange rate for the period is used to translate
revenue, expenses, and gains or losses from the functional currency to the
reporting currency.
The gain or loss on translation is reported as a separate component of
stockholders' equity and not recognized in net income. Gains or losses on
remeasurement are recognized in current net income.
Gains or losses from foreign currency transactions are recognized in
current net income.
Fixed assets are measured at historical exchange rates that existed at the
time of the transaction.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(b) Translation of Foreign Currency (cont'd)
Depreciation is measured at historical exchange rates that existed at the
time the underlying related asset was acquired.
An analysis of the changes in the cumulative translation adjustment as
disclosed as part of stockholders' equity, is as follows:
Three Months Ended
September 30,
----------------------------
2000 1999
---------- ---------
Beginning balance $ (1,055) $ -
Changes during the period 1,135 (1,055)
---------- ---------
Ending balance $ 80 $ (1,055)
========== =========
Capital accounts are translated at their historical exchange rates when the
capital stock is issued.
The effect of exchange rate changes on cash balances is reported in the
statement of cash flows as a separate part of the reconciliation of change
in cash and cash equivalents during the year.
c) Comparative Figures
These audited annual financial statements also include comparative figures
for three months ended September 30, 1999.
d) Amortization of Computer Software
Development - Application Development Stage Costs
The company is in the application development stage relating to the
development of computer software, and accordingly, costs are capitalized.
When the company is in the post-implementation / operation stage costs will
be expensed as incurred.
Amortization of computer software costs of $400,000 will commence when the
software service is available to be marketed. The amortization period is
for twenty-six months on a straight-line basis. The software is not
available to be marketed as at September 30, 2000 and therefore no
amortization of this cost has been charged to operations for the three
month period ended September 30, 2000.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 3. CAPITAL STOCK
a) Authorized: 75,000,000 common shares at $0.001 par value.
b) Common shares issued and outstanding are as follows:
Shares $
---------- ---------
Balance, June 30, 2000 13,305,000 $1,598,000
Subscribed June 16, 2000
but unissued (d) 80,000 40,000
---------- ---------
13,385,000 1,638,000
Subscribed August 17, 2000
but unissued (d) 83,333 50,000
---------- ---------
Balance, September 30, 2000 13,468,333 1,688,000
========== =========
c) Warrants outstanding
There are 950,000 common share purchase warrants outstanding as at
September 30, 2000 that can be exercised at $0.60 per share to April 14,
2001.
d) 163,333 of the shares, in (b) above, have not been issued by the transfer
agent at September 30, 2000, who confirms that 13,305,000 common shares, in
total, have been issued to that date.
Note 4. RELATED PARTY TRANSACTIONS:
a) (i) Pursuant to a management agreement effective November 1, 1998, the
Company pays $2,500 per month to MCS Management Ltd., a company wholly
owned by Ms. Marlene C. Schluter, Director, Secretary, and Treasurer of the
Company, for management services provided to the Company by MCS Management
Ltd.
(ii) Pursuant to a management agreement effective July 1, 1999, the Company
pays $2,500 per month to Netgain Management Solutions Inc., a company
wholly owned by Mr. Chad D. Lee, President, Chief Financial Officer, CEO,
and Director of the Company.
Payments of the above for three months ended September 30, 2000, total as
follows:
MCS Management Ltd. $ 7,500
Netgain Management Solutions Inc. 7,500
----------
$ 15,000
==========
b) Ms. Marlene Schluter and Mr. Chad Lee were reimbursed for office costs paid
on behalf of the Company, of $1,682.43 and $4,207.44, respectively, during
three months ended September 30, 2000.
c) Directors and Officers of the Company are beneficial owners of common
shares of the Company, as follows, at September 30, 2000:
Chad D. Lee 5,500,000 common shares
Marlene C. Schluter 2,500,000 common shares
---------
8,000,000
=========
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 5 FIXED ASSETS - COMPUTER EQUIPMENT
The Company depreciates its computer equipment using the declining-balance
basis at the rate of 30% per annum.
The cost and accumulated depreciation are as follows:
September 30,
----------------------
2000 1999
--------- ---------
Cost $ 107,138 $ 511
Accumulated depreciation (28,820) (77)
--------- ---------
Net balance $ 78,318 $ 434
========= =========
Note 6. COMPUTER TECHNOLOGY AND WEBSITE COSTS
a) Acquisition From Online Innovation
i) The Company by resolution dated April 2, 1999, acquired from Online
Innovation, a non-reporting private Canadian unincorporated entity,
100% interest in all of its proprietary and intellectual property
associated with its business plan and concepts and its world wide web
site domain name: www.virtuallydating.com.
ii) Consideration for this purchase is the issuance of 400,000 common
shares of the Company at a price of $0.50 per share. These shares
were issued on June 2, 1999 and the amount of $200,000 has been
included as an expense of operations for the year ended June 30,
1999.
iii) Online Innovation has not had any historical revenue or expenses; it
also has no liabilities and the only asset is a business plan and
concepts and the abovementioned world wide web site domain name.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 6. COMPUTER TECHNOLOGY AND WEBSITE COSTS (cont'd)
b) Agreement with Stratford Internet Technologies.
By agreement dated July 30, 1999 between the Company and Stratford Internet
Technologies ("Stratford"), Stratford has been engaged to create, maintain,
upgrade and supply artwork, computer files, and coding for a website at
www.virtuallydating.com for the amount of $400,000 US, which is capitalized
-----------------------
in these financial statements, and 300,000 common shares of the Company.
The payment schedule is as follows:
i) a deposit of $275,000 US was paid upon delivery of the contract, and
additional payments totaling $50,000 have been paid.
ii) the balance of $75,000 US represents the expenditure for completion
of development of and roll out of the website which is due upon
completion of development of the website and the Company raising
secondary financing. The Company has received $225,000 US to December
31, 1999 on the exercise of 450,000 share purchase warrants. The
obligation to pay $75,000 US to Stratford is disclosed as a current
liability as at September 30, 2000, as it is expected to be paid
within the next twelve months, and the cost is carried as a deferred
development expense until the website is completed.
iii) the issuance of 300,000 common shares, restricted under Rule 144,
which will bear a one year tradable restriction upon contract
delivery. The obligation to issue these shares has not been recorded
in these financial statements but is disclosed as a contingent
liability in Note 15.
Note 7. LEASE OBLIGATIONS
a) Computer Lease
On June 1, 1999, the Company entered into a 36 month lease with Leasing
Solution (Canada) Inc. for computer equipment to be used by the Company.
Lease payments are expensed as they are incurred. Lease obligations are as
follows:
Balance of Fiscal Year Ending June 30,
2001 CAD$ 1,203
2002 CAD$ 1,213
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 7. LEASE OBLIGATIONS (cont'd)
b) Lease of Premises
The Company entered into a lease for offices on April 1, 1998 with 535424
BC Ltd. for three years for monthly rent and costs of CAD$827.63 plus GST.
This agreement was terminated on October 31, 1999.
c) Lease of Premises
The Company entered into a lease for offices on November 1, 1999 with
570679 BC Ltd. for two years for monthly rent and costs of CAD$1,987.50,
with an option to renew for a third year.
The first and the last month rent of CAD$3,975.00 (CAD$1,987.50 X 2) is due
at the time of signing. $1,343 US is recorded as prepaid expense as at
September 30, 2000.
Note 8 COMPENSATION/STOCK OPTION/DEFERRED COMPENSATION ARRANGEMENT
a) The Company does not have a stock option plan or deferred compensation
plan as at September 30, 2000.
b) No liability for potential pension costs has been recorded at September
30, 2000.
Note 9 NET LOSS PER SHARE
Net loss per common share is computed by dividing net loss by the weighted
average of shares outstanding during the period.
Note 10 INCOME TAXES
The Company has losses carried forward to future years of $1,225,499. The
potential tax benefit has not been recorded, as an equivalent reserve has
been provided due to uncertainty of application of the losses.
Note 11 FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, prepaid expense,
accounts payable and agreement payable. It is management's opinion that the
Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments. The fair value of these financial
statements approximates their carrying values.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 12 PRIVATE PLACEMENT
a) By resolution dated April 15, 1999, the directors determined to effect a
private placement to total 3.2 million common shares of the Company at a
price of $0.50 per share with one share purchase warrant entitling the
buyer to purchase one additional common share of the Company at a purchase
price of $0.50 per common share at any time prior to the first anniversary
of the date of acceptance on April 15, 1999 (expired) or at a purchase
price of $0.60 per common share at any time after the first anniversary but
prior to the second anniversary of the acceptance.
b) Of the above placement, the Company received subscriptions for 1,600,000
common shares and received $800,000. An Issuance Resolution covering the
issuance of these shares was approved by the Company on June 22, 1999.
There are 1,050,000 common share purchase warrants outstanding at September
30, 2000.
Note 13 CONSULTING AGREEMENTS
a) Fortune Capital Management (USA) Inc.
By agreement dated March 31, 1999, the Company agreed to retain Fortune
Capital Management (USA) Inc. as a consultant to provide corporate finance
services and related office administration services to the Company for a
consultant fee of $6,000 per month, for a period of one year commencing on
the date of this agreement. The term of this agreement may only be extended
by the written agreement of the Company and the consultant. The Company may
terminate the agreement at its option upon the breach by the consultant of
its obligations pursuant to the agreement provided that the Company has
given written notice of default to the consultant and the consultant has
failed to remedy the default within 30 days of receipt of written notice
from the Company. The consultant may terminate the agreement at any time
upon thirty days written notice to the Company. The agreement may not be
assigned by the consultant without the prior written consent of the
Company. This agreement expired on February 28, 2000.
b) The Pinnacle Group
i) By agreement dated April 14, 1999, the Company appointed The Pinnacle
Group as the company's financial public relations advisor for a
period of six months commencing May 1, 1999 for $3,500 per month to
develop and execute an investor relations/financial communications
program. This agreement was cancelled in July 1999.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 13 CONSULTING AGREEMENTS (cont'd)
c) 535424 BC Ltd.
By agreement dated April 1, 1999, the Company has engaged 535424 BC Ltd. to
provide the Company with professional marketing, research and developmental
services at a total cost of $2,500 per month. The Company terminated this
contract on May 5, 2000.
d) National Financial Communications Corp.
(i) By agreement dated February 1, 2000, the company engaged National
Financial Communications Corp., an arm's length company, to render
public relations and communication services for a period of one year
commencing February 1, 2000 and terminating February 1, 2001, at
$10,000 per month. The amount of $20,000 has been incurred to March
31, 2000. By mutual agreement the services were suspended in April
2000 until the company becomes fully reporting. As part of the
agreement, National Financial Communications Corp. is granted the
following options on February 1, 2000 to purchase shares of the
company, exercisable, commencing February 1, 2000, and expiring
January 31, 2003. February 1, 2000 is the measurement date and the
vesting date. There are five options for 50,000 shares each at
prices of $2.00, 3.00, 4.00, 5.00, 7.00 per share, respectively.
(ii) The compensation of $30,000 is expensed in these financial
statements. The options are nonforfeitable.
Option price of 50,000 shares at $2.00 per share $ 100,000
Market price at date of issuance of option -
50,000 shares at $2.60 130,000
Compensation added to paid-in capital $ 30,000
-----------
Deferred income tax - 35% of $30,000 $ 10,500
===========
Note 14 STOCK OPTIONS
a) As at February 2, 1999 the Company granted to Fordee Management Company
with stock options to purchase 400,000 common share of the Company at a
price of $0.20 per share with the expiry date of October 3, 2002. These
options are outstanding as at September 30, 2000.
b) Fordee Management Company is an unrelated third party
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 14 STOCK OPTIONS (cont'd)
c) The compensation of $120,000 applicable to issuance of this option was
expensed in the year ended June 30, 1999, and was added to paid-in capital,
computed as follows:
Option price of 400,000 shares at $0.20 per share $ 80,000
Market price at date of issuance of option 400,000
shares at $0.50 per share 200,000
---------
Compensation added to paid-in capital $ 120,000
=========
Deferred income tax - 35% of $120,000 $ 42,000
=========
Note 15 CONTINGENT LIABILITIES
a) Liability to issue common shares
By agreement dated July 30, 1999 as outlined in Note 6(b), above, the
Company engaged Stratford Internet Technologies to design and maintain an
e-commerce website for the Company. An additional obligation of the
Company, in this agreement, is the obligation to issue 300,000 common
shares upon completion of the website. As the website had not been
completed by September 30, 2000, these shares are not recorded as at that
date and no paid up cost or value related thereto has been recorded in
these financial statements.
b) Terminated Mexican property option agreement
The Company held the option to acquire an interest in subsurface mineral
rights on four mineral properties located in the State of Sinaloa, Mexico.
The interest was acquired by way of assignment of all rights under an
option agreement between CL Communications Group, (an unincorporated entity
wholly owned by the president of the Company) and the owner of the interest
in the mineral properties [see note 2(a) and note 4(d)]. The option
agreement was entered into on September 30, 1997. The rights under the
option agreement were assigned to the Company by CL communications Group on
the same day. The owner of the mineral properties is an unrelated third
party. The terms of the option agreement were set out in part in a written
agreement. Some of the terms were agreed upon verbally between the parties.
The option agreement required the Company to pay a total of $900,000 in
staged payments over three years, to incur exploration and development
expenditures on the properties of $4,500,000 and to issue 3,000,000 shares
to the property owner upon signing of a formal joint venture agreement
between the parties. Other than an initial cash payment of $30,000 (which
was made by CL Communications Group and for which the Company issued
8,500,000 shares to CL Communications Group), the cash and share payments
and exploration expenditures were to be made solely at the Company's
discretion.
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ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 15 b) Terminated Mexican property option agreement (cont'd)
If the Company chose not to make further payments, it would earn no
interest in the properties. Management determined that, under the economic
conditions prevailing at the time, development of the mineral properties
was not economically feasible. As a result, the Company chose not to make
further payments and, therefore, earned no interest in the properties. The
Company has been advised by its counsel that the written agreement could be
construed as an agreement of purchase and sale, in which case the Company
could be held liable to make full payment and incur the required
exploration and development expenditures as set out above. Management of
the Company is of the opinion that the likelihood of such an assertion
being made and upheld is remote. Management is, therefore, of the view that
it has no further obligations relating to the option agreement and,
accordingly, no liabilities are recorded in these financial statements
relating to this matter.
Note 16 SUBSEQUENT EVENTS
Lawsuit Against Directors, Officers, and Third Parties
On October 4, 2000, Mr. Darin Wong and 535424 B.C. Ltd. (a private company
owned by Mr. Wong) (collectively, the "Plaintiffs") filed a statement of
claim in the British Columbia Supreme Court against Mr. Chad Lee, Director,
President and CEO of the Company, Ms. Marlene C. Schluter, Director,
Secretary and Treasurer of the Company, Ms. Sharmen Vigouret and Mr.
Stanley Ross (collectively, the "Defendants"). 535424 B.C. Ltd was formerly
retained by the Company to provide consulting services to the Company. The
Plaintiffs are suing the Defendants for breach of contract, repudiation,
breach of trust and/or conversion of shares. In their statement of claim,
the Plaintiffs allege that Mr. Wong was induced by the Defendants to
transfer 603,400 common shares in the capital stock of the Company owned by
Mr. Wong to the Defendants on the basis of an oral agreement which the
Plaintiffs allege they entered into with the Defendants. The Plaintiffs
allege that pursuant to the oral agreement they were to be entitled to
participate in the management and development of the Company and to be paid
remuneration for their services. The Plaintiffs also allege that the
Defendants represented that they would place their respective equity
holdings in the Company (including the 603,400 shares the Plaintiffs
allege Mr. Wong transferred to the Defendants) into an offshore account,
jointly direct and control the trading and disposition of shares subject to
a pooling agreement and participate equally in the resulting profits. The
Plaintiffs further claim that since May, 2000, the Defendants have excluded
the Plaintiffs from participation in the Company's business, caused the
Company to cancel the consulting agreement between the Company and 535424
B.C. Ltd., denied the existence of any oral agreement or any pooling
agreement between the Plaintiffs and the Defendants and refused to
acknowledge that Mr. Wong has any interest in the shares which Mr. Wong
alleges he transferred to the Defendants.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 2000
(In U.S. Dollars)
Note 16 SUBSEQUENT EVENTS
Lawsuit Against Directors, Officers, and Third Parties (cont'd)
The allegations set out in the Plaintiffs' statement of claim have not been
proven in Court. The Defendants filed their Statement of Defence in the
British Columbia Supreme Court on October 23, 2000. In their defence, the
Defendants deny all allegations made by the Plaintiffs in their Statement
of Claim. In particular, the Defendants deny the existence of any oral
agreement, pooling agreement or offshore account. The Statement of Defence
further pleads that Chad Lee and Marlene C. Schluter terminated the
consulting agreement between the Company and 535424 B.C. Ltd. in accordance
with the provisions of the consulting agreement.
The Company has not been named as a Defendant in the action and no claims
have been made against the Company for breach of consulting agreements or
other agreements or for any other matters. Management of the Company is of
the opinion that this action will not have a material affect on the
Company.
<PAGE>
Item 2 - Management Discussion and Analysis or Plan of Operation
General
Online Innovation, Inc. (the "Company") is a website development company. The
Company developed a website designed to facilitate social interaction between
single adults, with an emphasis on entertainment and matchmaking. The Company's
business is conducted almost exclusively through its website,
www.virtuallydating.com. The Company launched its website subsequent to its
year end of June 30, 2000. Although it is fully operational, the Company is
continuing to improve the website's performance and new features are being
developed.
The Company is also focusing on marketing activities. Membership drives and
other marketing activities are the primary components of the Company's
activities. It is anticipated that marketing expenses will be the Company's
most significant expenses in the 12 months subsequent to the launch of the
website.
Forward Looking Statements
All statements, other than statements of historical facts, included in this
report that address activities, events or developments that the Company expects,
believes, intends or anticipates will or may occur in the future, are
forward-looking statements. Forward-looking statements are inherently subject
to risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, could differ materially from those set forth in or
contemplated by the forward-looking statements herein. These risks and
uncertainties include, but are not limited to, the Company's reliance on current
revenues; the uncertainties associated with the introduction of new
products/services; management of growth, including the ability to attract and
retain qualified employees; the ability to integrate acquisitions made by the
Company and the costs associated with such acquisitions; dependence on its chief
executive officer; substantial competition from larger companies with greater
financial and other resources than the Company; the success of its marketing
strategy; its dependence on suppliers for some of its products; currency
fluctuations and other risks associated with foreign sales and foreign
operations; quarterly fluctuations in revenues, income and overhead expense; and
potential product liability risk associated with its existing and future
products. Readers are cautioned not to put undue reliance on forward-looking
statements. The Company disclaims any intent or obligation to update publicly
these forward-looking statements, whether as a result of new information, future
events or otherwise.
Marketing Strategies
Management believes that marketing will be the key to the Company's success in
the short term and in the long term. As a result, management intends to focus
much of its energies in the upcoming 12 months on marketing activities. The
Company intends to advertise online, through print media and possibly, depending
on the resources available, through television, radio and billboards. The goal
is to capture, at a minimum, 50,000 subscribing members in each of the three
years following the launch of the website, which occurred in July 2000, for a
total of 150,000 members within three years of launch. As of November 3, 2000,
the Company had 22,676 members. The target market for the Company's service is
single adults, aged 18-49, with basic computer skills and access to the
internet. The Company intends to focus on the North American market in the
short term and consider other markets at a later date.
<PAGE>
Online Advertising
Online advertising can take a number of different forms. Banner advertising is
the most common form. Banner advertisements are small banners which appear on
the perimeter of another Company's website and provide information about the
advertising company. Generally, a link to the advertising company's website
will be provided. The Company is placing banner advertisements on those
websites which management believes will enable the Company to most effectively
reach its target market.
Affiliations with other websites also provide an avenue for marketing for
internet companies. Companies with similar markets can form various types of
strategic alliances to promote one another's products and services. The key
component is usually a link to the affiliate company's website. By forging
strategic partnerships with key industry players, the Company hopes to be able
to increase traffic on its website.
Another form of online advertising being considered by the Company involves
sponsoring e-mails or newsletters sent by other internet companies. Through
payment of a sponsorship fee, the Company would be shown as the sponsor of a
particular e-mail or newsletter sent by an entity to its members. By selecting
an entity with a large membership, the Company can reach large target markets.
A message identifying the sponsor and a link to the sponsor's website are
provided.
Management is exploring the various forms of online advertising available and
focusing its initial energy on this sector because of the relatively low cost
and the ability to reach its target market (i.e. personal computer users)
effectively. It will, however, assess other marketing tools and utilize those
which it feels will enable it to reach its target market in the most efficient
and cost effective manner.
Print Media, T.V., Radio and Billboards
While management is of the view that online advertising is the most
cost-effective marketing tool, it also believes that other, more traditional
methods of marketing will be effective and must be developed to the fullest
extent possible. It envisions placing advertisements in the personals sections
of major newspapers and in high circulation magazines with general readership to
brand the VirtuallyDating name and to expose the Company to a wider audience.
Determination as to whether these types of advertisements will be placed will
depend on funds available in the upcoming 12 months. In addition,
advertisements on television, radio and on billboards will be considered and
utilized if the Company has the capital available to purchase advertising
space/time from these sources.
Cash Requirements
The Company currently has sufficient working capital to meet its operating
requirements until November 30, 2000. Management will be seeking to arrange
additional equity financing for the Company in the upcoming months. Any
additional funds raised will likely be utilized for marketing, website
development and maintenance and for general and administrative expenses. The
quantity of funds to be raised and the terms of any equity financing to be
undertaken will be negotiated by the Company's management as opportunities to
raise funds arise. The Company will be required to incur an additional $75,000
in expenditures to complete the development and roll out of its website. This
represents the balance of the fees which the Company is required to pay to its
website development consultants in connection with the development of the
Company's website. The Company paid its website development consultants $50,000
<PAGE>
in its last quarter. The balance is payable upon completion of development of
the website and, if necessary, upon completion of appropriate financing by the
Company.
Specific plans related to marketing and any additional website development which
may occur in the upcoming months will be devised once financing has been
completed and management knows what funds will be available for these purposes.
If additional financing is unavailable, the Company will, to the extent
possible, rely on revenue generated from memberships and other sources
identified above to meet its financial needs. There is no guarantee, however,
that revenues from ongoing operations will be sufficient to meet the Company's
working capital requirements on an ongoing basis.
Additional Website Development
The Company intends to continue to develop new features which will make the
website more attractive to prospective members. Proposed features may include
the development of live video chat functions for members whose personal
computers have the capacity to perform video conferencing/interaction. In
addition, the Company intends to create a webpage entitled "Hey Bartender" which
would provide recipes for alcoholic cocktails. Members would be invited to post
their own favorite recipes on the page. Another section entitled "Postcards
From Stanley" may be created. This section would feature travel reviews of
destinations geared towards singles.
The Company recently launched an "Avatar Poker" game. An avatar is a
personalized caricature which represents the member throughout the site. The
avatar serves to introduce members to other members and provide another way in
which the members can express themselves. The "Avatar Poker" game is an
interactive game that permits four players to play with one another. The
players/members participating in the poker game are represented by their avatar.
Purchase of Equipment
At this time, the Company does not anticipate the purchase of any significant
equipment.
Employees
The Company currently has no full or part time employees. The Company retains
consultants to provide it with services related to the administration,
management and development of the Company. At this time, the Company does not
anticipate any significant changes in staffing.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no legal proceedings reportable pursuant to this section. As of the
date of this report, the Company has not been served with notice of any legal
proceedings and does not contemplate undertaking any legal proceedings.
On October 4, 2000, Mr. Darin Wong and 535424 B.C. Ltd. (a private company owned
by Mr. Wong) (collectively, the "Plaintiffs") filed a statement of claim in the
<PAGE>
British Columbia Supreme Court against Mr. Chad Lee, Director, President and CEO
of the Company, Ms. Marlene C. Schluter, Director, Secretary and Treasurer of
the Company, Ms. Sharmen Vigouret and Mr. Stanley Ross (collectively, the
"Defendants"). 535424 B.C. Ltd was formerly retained by the Company to provide
consulting services to the Company. The Plaintiffs are suing the Defendants for
breach of contract, repudiation, breach of trust and/or conversion of shares.
In their statement of claim, the Plaintiffs allege that Mr. Wong was induced by
the Defendants to transfer 603,400 common shares in the capital stock of the
Company owned by Mr. Wong to the Defendants on the basis of an oral agreement
which the Plaintiffs allege they entered into with the Defendants. The
Plaintiffs allege that pursuant to the oral agreement they were to be entitled
to participate in the management and development of the Company and to be paid
remuneration for their services. The Plaintiffs also allege that the Defendants
represented that they would place their respective equity holdings in the
Company (including the 603,400 shares the Plaintiffs allege Mr. Wong transferred
to the Defendants) into an offshore account, jointly direct and control the
trading and disposition of shares subject to a pooling agreement and participate
equally in the resulting profits. The Plaintiffs further claim that since May,
2000, the Defendants have excluded the Plaintiffs from participation in the
Company's business, caused the Company to cancel the consulting agreement
between the Company and 535424 B.C. Ltd., denied the existence of any oral
agreement or any pooling agreement between the Plaintiffs and the Defendants and
refused to acknowledge that Mr. Wong has any interest in the shares which Mr.
Wong alleges he transferred to the Defendants.
The allegations set out in the Plaintiffs' statement of claim have not been
proven in Court. The Defendants filed their Statement of Defence in the British
Columbia Supreme Court on October 23, 2000. In their defence, the Defendants
deny all allegations made by the Plaintiffs in their Statement of Claim. In
particular, the Defendants deny the existence of any oral agreement, pooling
agreement or offshore account. The Statement of Defence further pleads that
Chad Lee and Marlene C. Schluter terminated the consulting agreement between the
Company and 535424 B.C. Ltd. in accordance with the provisions of the consulting
agreement.
The Company has not been named as a Defendant in the action and no claims have
been made against the Company for breach of consulting agreements or other
agreements or for any other matters. Management of the Company is of the
opinion that this action will not have a material affect on the Company.
Item 2 -Change in Securities
No instruments defining the rights of the holders of any class of registered
securities were modified during the period covered by this report. No rights
evidenced by any class of registered securities were materially limited or
qualified by the issuance or modification of any other class of securities
during the period covered by this report.
On April 15, 1999, the Company completed a sale of 1,600,000 units at a price of
$0.50 per unit. Each unit consisted of one share of the Company's common stock
and one share purchase warrant. Each share purchase warrant is exercisable for
a term of 2 years and entitles the holder to purchase one share of the Company's
common stock at a price of $0.50 until April 15, 2000 or at a price of $0.60 any
time after April 15, 2000 but before April 15, 2001. The offering was made
without registration under the Securities Act in reliance on the exemption from
registration provided by sections 4(2) and 3(b) of the Securities Act and by
Regulation D promulgated thereunder.
<PAGE>
On January 4, 2000, a total of 450,000 shares were issued by the Company
pursuant to the exercise of share purchase warrants issued in conjunction with
the unit offering. On March 13, 2000, a total of 100,000 shares were issued by
the Company pursuant to the exercise of share purchase warrants issued in
conjunction with the unit offering. As of September 30, 2000, the Company did
not issue any additional shares pursuant to the exercise of share purchase
warrants issued in conjunction with the unit offering. Therefore, there were
1,050,000 common share purchase warrants outstanding as at September 30, 2000.
Item 3 - Defaults Upon Senior Securities
There have been no material defaults in the payment of principal, interest,
sinking or purchase fund installments or any other material defaults with
respect to indebtedness of the Company exceeding 5% of the total assets of the
Company.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of security holders during the period
covered by this report, through the solicitation of proxies or otherwise.
Item 5 - Other Information
There is no information reportable pursuant to this section.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
15 Letter on Unaudited Financial Information
27 Financial Data Schedule
(b) No reports on form 8-K were filed during the period covered by this
report.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 8, 2000 ONLINE INNOVATION, INC.
-------------------------
(Registrant)
By: /s/ Chad D. Lee
--------------------
Chad D. Lee, President
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