United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number:
ONLINE INNOVATION, INC.
(Name of Small Business Issuer in its charter)
Delaware 52-2058364
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(state or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1118 Homer Street, #218, Vancouver, British Columbia V6B 6L5
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(Address of principal executive offices)
(604) 669-7564
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Issuer's telephone number
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Former name, former address, and former fiscal year, if changed
since last report
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Check whether the issuer (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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
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Page 2
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
As of June 30, 2000, the registrant did not report any revenues.
As of October 10, 2000, the aggregate market value of the voting common equity
held by non-affiliates of the registrant was $15,765,000, based on the closing
trade reported on the NQSB Pink Sheet quotation system. Shares of common stock
by each officer and director and by each person who owns 5% or more of the
outstanding common stock have been excluded from this calculation as such
persons may be considered to be affiliated with the registrant.
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has 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 October 10, 2000 the registrant's outstanding common stock consisted of
13,255,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X]
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ONLINE INNOVATION, INC.
FORM 10KSB
TABLE OF CONTENTS
Part Item(s) Page No.
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I 1 Description of Business
2 Description of Property
3 Legal Proceedings
4 Submission of Matters to a Vote of Security Holders
II 5 Market for Common Equity and Related Stockholder Matters
6 Management's Discussion and Analysis or
Plan of Operation
7 Financial Statements
8 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
III 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
10 Executive Compensation
11 Security Ownership of Certain Beneficial Owners
and Management
12 Certain Relationships and Related Transactions
13 Exhibits and Reports on Form 8-K
Signatures
Exhibits
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
Business Development
Online Innovation, Inc. (the "Company") is a website development company.
The Company has developed a group of webpages designed to facilitate social
interaction between single adults, with an emphasis on entertainment and
matchmaking. The Company's website enables internet users to interact socially
in a variety of contexts. The various webpages facilitate the development of
"virtual communities" in which members interact socially and form bonds through
the use of the internet. The Company's main website, located on the worldwide
web at www.virtuallydating.com, provides entertainment for and facilitates
matchmaking between single adults. This site acts as a gateway to the various
webpages developed by the Company, all of which are designed to facilitate
social interaction in a variety of settings and contexts. The target market is
single North Americans over the age of 18 and the primary focus is on
entertainment and matchmaking between single adults.
During the period covered by this report, the Company worked primarily on
the development of its business, particularly its website. The Company launched
its website subsequent to its year end of June 30, 2000. Although the website
is fully operational, the Company is continuing to improve the its performance.
The Company is not charging a membership fee described in the section headed
Principal Products and Services on page 5, but is currently offering free
memberships. As of October 10, 2000, the Company had 21,369 members. The
Company intends, however, to generate revenue through the sale of memberships to
users via the internet, through the sale of banner advertising on the website,
and through the sale of merchandise.
The Company was incorporated on May 7, 1997 pursuant to the General
Corporation Law of the State of Delaware, U.S.A. under the name Micro Millennium
Inc. On September 30, 1997, the Company acquired the option to earn a 60%
interest in 4 mineral properties located in the state of Sinaloa, Mexico. The
Company changed its name from Micro Millennium, Inc., to Sinaloa Gold Corp. on
October 16, 1997 and operated as a mineral exploration and development company
until January of 1999. Between September of 1997 and January of 1999, the
Company's primary business focus was attempting to finance the exploration and
development of its mineral properties.
Depressed metal prices and lack of investor interest in resource stocks
during this period made financing difficult. As a result, the Company chose not
to exercise its option and decided to abandon its interest in its mineral
properties and to acquire and develop its current website development business.
Pursuant to an agreement dated April 2, 1999, the Company acquired from Online
Innovation, a non-reporting private unincorporated entity, a 100% interest in
all of its proprietary and intellectual property associated with its business
plan and concepts and its worldwide web site domain name,
www.virtuallydating.com. As consideration for the acquisition of the assets of
Online Innovation, the Company issued 400,000 common shares at a deemed value of
$0.50 per share to Mr. Darin Wong, the sole proprietor of Online Innovation.
The Company changed its name from Sinaloa Gold Corp. to Online Innovation, Inc.
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on April 8, 1999, after acquiring the assets of Online Innovation as described
above. Since the acquisition the Company has developed and continues to develop
the property and concepts acquired from Online Innovation. In addition, it has
been forging partnerships and strategic alliances in the internet industry and
seeking financing to further its development goals.
Business of the Company
Principal Products and Services
The Company's principal product/service is a website on the worldwide web
(www.virtuallydating.com) which internet users can utilize to engage in various
forms of social interaction with other users. The focus is on entertainment and
matchmaking for single adults. The website is multi-faceted and allows users to
interact socially in a number of different forums, described in greater detail
below. The main webpage, located at www.virtuallydating.com, provides links to
the other pages which comprise the site. These pages contain the various
interactive/entertainment functions and services offered by the Company. In
order to utilize the website, internet users are required to become members.
The Company intends to charge a membership fee, but at present, the Company is
offering free memberships. Once an individual becomes a member, he or she can
utilize the various webpages created by the Company to interact with other
members. Applying technology to create virtual communities,
virtuallydating.com combine traditional on-line matchmaking features with
interactive entertainment concepts to emulate real world experiences and social
environments.
The website offers several ways for members to meet, interact, and have fun
through its many features, while always maintaining privacy and discretion.
While the intention may be for members to find a love connection or friendship,
the site's primary focus is entertainment. The interactive entertainment
features of the site may also lead to or enhance a friendship or romantic
liaison.
Member WebPages
Members of the site complete a survey in which they compile information
such as gender, height, geographic location, lifestyle choices, interests,
hopes, dreams and desires. This information provides a personal profile for
each member. Once the member completes the survey, the information is
incorporated into a personal webpage for the member. The member designs the
look and feel of his/her personal webpage by selecting from a number of
different graphic options and features designed by the Company. Members also
have the option of personalizing their webpage further by including their
photograph. The personal webpage is then posted in a member webpage viewing
gallery. All information from the member profiles is placed in a searchable
database that other members can utilize to find suitable companions.
AutoMatch Function
The AutoMatch option allows members to match automatically with other
members who have similar interests. This option allows members to create a
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personal "short list" of member webpages to view and serves as an alternative to
completing a more time-consuming survey of each member in the viewing gallery.
Searching Member Webpages
In addition to the AutoMatch function, a search engine enables members to
search the database for a suitable companion. Members engaging in such a search
are required to identify the key qualities they are seeking in a companion.
Utilizing the criteria set out by the member, the search engine searches the
database and the member is provided with other member profiles which meet
his/her criteria.
Internal Messaging Service
Each member is provided with an internal messaging service that operates
throughout the website. Privacy is maintained because home and office e-mail
addresses are not utilized. Once a member selects the profile of a person whom
he or she wishes to contact, the member can send a personal electronic message
to that member as a first means of direct communication. When the recipient
member logs onto the site, the recipient will be instantly informed that he or
she has received mail. The recipient can then easily retrieve the message and
respond at his or her own discretion.
Chat Rooms
Chat rooms are sites where large numbers of members interact through
instant messaging. All members participating in a chat room discussion can read
messages that are sent to other participants in the room. Chat rooms provide
"chatters" with the opportunity to discuss common interests and themes. Chat
rooms also provide an alternative to the member webpage gallery as a means of
meeting other members. For those members who are shy, and for whom connecting
for the first time through internal messaging is too direct, the chat rooms
provide the opportunity to get to know members first, before escalating the
communication to a one-on-one basis.
The Company provides three different sets of chat rooms organized around
three different themes. The chat rooms emulate a natural setting in which
people tend to meet, and are graphically enhanced to look and feel like an
actual themed environment.
Friendship/Companionship Chat Rooms
The Friendship/Companionship set of chat rooms are designed to attract
members who are looking to meet others who have the same interests and are not
looking for romantic involvement. There are four themed chat rooms available to
these types of members.
Romance & Love Chat Rooms
The Romance & Love set of chat rooms are designed to attract members who
are serious about finding a love match and embarking on an experience of
romance. Four themed chat rooms emulate the environments where singles most
often look for love.
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The Red Light District
In these chat rooms members can discuss more personal issues that are
sexual in nature. The Company hopes that by providing a separate set of chat
rooms for sexual discussions, it will help prevent this type of interaction from
occurring in the Friendship/Companionship and Romance & Love chat rooms.
Private Rooms
If a member connects with someone special in a chat room, he or she has the
option of forming a private room where the two can send instant messages and
interact one-on-one. The room are completely private. Only the two members
involved are able to read the other's messages and participate in the
conversation.
The Dressing Room
The Dressing Room allows members to design their own "avatar", a
personalized caricature which represents the member throughout the site.
Members enter the Dressing Room and have a selection of graphic representations
of body parts and other accessories with which to create their own caricature.
By utilizing drag and drop technology, members are easily guided through the
creation of their avatar, choosing from a library of components (eyes, hair,
body type, accessories, etc.). The avatar represents the member in all
interactive sections of the Virtually Dating site. In chat rooms, multi-player
games, or on the member's personal webpage, the avatar serves to introduce
members to other members and provide another way in which members can express
themselves.
Multi Player Avatar Based Games
The website contains an interactive zone in which members can congregate to
play games with one another. Games include trivia, multi player card games and
carnival games. Each player/member participating in these games are represented
by their avatar.
Send a Gift
This service will combine online dating with online shopping. Once a
member has found that special someone, he or she will be able to send a gift to
that person. Gifts will range from greeting cards or "virtual" bouquets of
flowers which are sent electronically, to merchandise which is mailed to the
recipient. Animated greeting cards and virtual gifts are currently available.
Members are required to complete an information form and then send a card from
the VirtuallyDating Gallery of animated cards (10 animated cards to start with,
future plans to increase the Gallery's inventory). Within the first year of
site launch, the Company intends to develop the site to permit the purchase and
delivery of merchandise.
When merchandise becomes available, members will be able to view a select
inventory of Private Collection gifts with the click of a mouse and purchase the
gift directly, without having to leave the site, or provide another organization
with their credit card number. The Company will complete the recipient mailing
information so that privacy of the member's location will be maintained. The
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sender will never know the address of the recipient, and vice versa. All gifts
in the Private Collection will be tasteful and in the spirit of romance so that
intended recipients need not fear receiving something offensive in the mail.
Dear Bridgette
The website will offer members third party love advice, relationship advice
or dating advice through the use of a "Dear Abby" persona known as Bridgette.
Bridgette's one on one advice will only be available to members. Dear Bridgette
is currently not available, but the Company is presently developing this site.
Horoscopes
The Company has negotiated an agreement with KnowledgeWeb, Inc.
("KnowledgeWeb"), pursuant to which the horoscope content of KnowledgeWeb's
website will be made available to the Company's members. KnowledgeWeb provides
an online horoscope service through its website located at www.Astrology.net.
The Company entered into an Affiliate Agreement with KnowledgeWeb on November 8,
1999. Pursuant to the terms of the Affiliate Agreement, the Company is
permitted to provide its members with access to content provided on the
Astrology.net website. Access is provided by direct links from the Company's
website to the Astrology.net website. Astrology.net provides some horoscope
content to its users free of charge (e.g. daily horoscopes) and charges users
for other content (e.g. personalized charts). KnowledgeWeb pays the Company
commissions on purchases of content/services provided by Astrology.net made by
persons who are linked to the Astrology.net website directly from the Company's
website (10% for aggregate purchases of up to $1,000 in any given month and 20%
for aggregate purchases exceeding $1,000 per month).
Dating Safety Tips
Dating safety tips and advice for using the VirtuallyDating site are
available to all members. This advice includes online dating and off-line
dating safety tips for members.
Banner Advertising
In addition to membership fees and online shopping, the Company intends to
generate revenue through the sale of banner advertising. Banner advertisements
are advertisements which appear on banners on the perimeter of a computer user's
screen while viewing a website. Once traffic on the Company's website reach
1,000,000 page views per month, the website will be marketable to major
corporations for banner advertising. A page view is the number of times each
page throughout the site has been viewed by multiple users.
The Company intends to target corporations whose business will enhance the
general spirit of the website so that members will not feel that they are being
blatantly advertised to. General floating banner spots will be made available
to all prospective advertisers throughout the website's pages, but will not be
available in the themed chat rooms. Banner advertisements in the themed chat
rooms will be sold exclusively to corporations that sell products that are
related to the theme of and will directly enhance the atmosphere in the chat
room. For example, the Company intends to create a chat room with a "coffee
house" theme. The Company intends to reserve banner advertisements in the
"coffee house" chat room for corporations that sell coffee related products.
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Banner advertising on the website will be sold for $12 per unit. A unit is
1,000 impressions. An impression is an occurrence of a banner advertisement on
a webpage while that webpage is being viewed. Thus, a banner advertisement may
appear for a few seconds or minutes while a person is viewing a webpage and then
be replaced by another advertisement. Each time an advertisement appears is one
impression.
Distribution Method
The Company's primary means of distribution for its products and services
is the internet. The Company's primary product is the information and
interactive functions which are contained on the website. The information is
accessible to internet users who are members. Merchandise which will be
available through the "Send a Gift" service, once that service is functioning,
will be distributed through the mail.
Competition
The Company competes with numerous entities which provide
matchmaking/dating services to the public in a variety of manners. The Company
has identified four sources of competition: traditional "offline" dating
agencies, personal advertisements, telepersonals and other online dating
services.
Traditional Dating Agencies
The Company competes with traditional "offline" dating agencies which
provide matchmaking services to single adults. These are typically local
services which serve defined and limited geographic areas. These services
typically charge clients a fee for their service and do not facilitate
interaction beyond introducing their clients to one another. By virtue of
delivering its services via the internet, the Company can reach a market which
is international in scope. Marketing efforts focus primarily on Canada and the
U.S., but the Company is in a position to deliver its services anywhere in the
world. This represents a significant advantage for the Company relative to
traditional local dating agencies. In addition, the Company offers a range of
services and forums which facilitate interaction between single people prior to
their actually meeting in person. This type of service has traditionally not
been provided by traditional dating agencies. Finally, the Company's internet
based service allows delivery of the service directly to an individual's home.
This allows members to interact socially from the comfort of their own home,
until such time as they wish to interact with other members in a more direct
fashion. The primary competitive disadvantage for the Company relative to
"offline" dating services, is the Company's reliance on the internet to deliver
its services, which limits the Company's market to personal computer users with
internet access. Traditional dating services have no such market restriction.
Nonetheless, for the reasons discussed above, the Company believes that its use
of the internet as a means of service/product delivery is also the Company's
primary competitive advantage over traditional dating services. In addition,
the Company expects the use of the internet to increase dramatically in the
coming years, significantly offsetting any advantage "offline" dating agencies
may have in this regard.
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Personal Ads
Single adults seeking companionship or romance often place personal
advertisements in newspapers and other periodical publications. The Company
thus competes with newspapers and other periodicals for a portion of the market
share. Similar to "offline" dating agencies, periodicals are subject to the
same geographic restrictions with respect to the market. They can be costly and
do not have an interactive component as the Company's internet based service
does. Without an interactive component, participants are forced to communicate
directly, either via telephone or in person, perhaps more quickly than they
would like. As discussed above, the Company's internet based service allows
members to interact from the comfort and security of their homes prior to
arranging person to person contact with a prospective companion. Personal
advertisements also have the advantage of being accessible to individuals
without computers and internet access. As discussed above, however, the
Company believes that the use of the internet will increase dramatically in the
coming years, thereby offsetting a significant portion of the advantage of
offline services in this regard.
Telepersonals
Telepersonal services enable users to record personal advertisements which
can then be accessed by other individuals over the telephone. Fees are often
based on time spent using the service. Telepersonals advertisements have some
of the same drawbacks relative to the Company's internet based service that the
other services described above have. They do not facilitate any social
interaction prior to a person to person or telephone meeting with a prospective
companion. Telephone use is, however, much more widespread than internet use.
This provides telepersonal matchmaking service providers with a significant
competitive advantage over the Company. This competitive advantage will only be
overcome if internet use becomes as widespread as telephone use, making the
Company's products and services as accessible as those of telepersonal
matchmaking services.
Online Dating Services
There are other websites which provide services similar to those that are
provided by the Company. The table below provides a summary of the most
successful direct competition.
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VirtuallyDating. Match.com American One & Only Jewish
.com Singles Network Quality
Singles
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Cost to post $10.95/month $16.95/month free free $125.00/
6 months
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Cost to free with free with free $14.95/mo. free with
respond membership membership membership
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Methods of Internal Internal mail, fax, Internal Internal
communication messaging messaging phone ($10 messaging Messaging
on contact)
--------------------------------------------------------------------------------
Ad
prescreening yes Yes yes yes yes
--------------------------------------------------------------------------------
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VirtuallyDating. Match.com American One & Only Jewish
.com Singles Network Quality
Singles
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Anonymous
Answering yes Yes no no your
choice
--------------------------------------------------------------------------------
Religious
Affiliation no no no no yes
Jewish
--------------------------------------------------------------------------------
Gift Shop
(own) yes no no no no
--------------------------------------------------------------------------------
On-site chat yes yes yes no no
themed
environments
--------------------------------------------------------------------------------
Create
your own
caricature yes no no no no
--------------------------------------------------------------------------------
Avatar based
multi-player
games yes no no no no
--------------------------------------------------------------------------------
Sonofied
Surfing yes no no no no
--------------------------------------------------------------------------------
Flash
enhanced
greeting
cards yes no no no no
--------------------------------------------------------------------------------
Online
advice yes yes no no no
--------------------------------------------------------------------------------
Extras photos, photos, photos photos, photos
voice ads members voice ads
magazine
--------------------------------------------------------------------------------
Horoscopes yes yes no no no
--------------------------------------------------------------------------------
Estimated
paying
subscribers new service 120,000 200,000 >100,000 60,000
--------------------------------------------------------------------------------
[ ] Indicates a unique service offered by VirtuallyDating.
While the Company provides certain products and services which management
believes are not currently being provided by the Company's online competitors,
the Company is still at a competitive disadvantage relative to the online
competitors listed above because of their established market presence. The
Company will have to capture a market share before it can effectively compete
with established online competitors. Established competitors have revenues with
which to further develop and enhance their products and services, while the
Company may be dependent on additional financing to do so. Refer to "Assessment
of Competition" below for a discussion of the relative competitive advantages of
established online matchmaking service providers.
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Assessment of Competition
The Company's primary competition comes from other online dating services.
The Company's management is of the view that online matchmaking/entertainment
services are superior to services provided by offline competitors and that the
major barrier to their success relative to offline competitors is current lack
of access to the internet by a large segment of the population. Management is
of the view that once internet access becomes more widespread, online
matchmaking services should displace offline competition. The interactive
component of the online service, particularly the potential to foster extensive
interaction prior to person to person meetings, should make use of online
services more appealing than offline services to single adults seeking
companionship. There is no guarantee, however, that access to and use of the
internet will increase. Even if access to and use of the internet do increase,
there is no guarantee that online services will displace offline competitors or
that the Company will capture a substantial portion of the online market.
The Company's primary website and related webpages are currently
functional. However, established competitors have an advantage over the Company
in that they have already captured a share of the market and thus have an
established market presence. Achieving critical mass with respect to market
share is critical for a business of the nature of the Company's. The Company's
service will only be useful to consumers once a certain level of membership is
attained. Competitors who already have an established market share will,
therefore, be in a better competitive position than the Company. The Company
hopes to offset any such competitive advantages by offering products and
services which are superior in quality to and more appealing than those of their
competitors and by launching an effective marketing campaign.
The Company's primary objectives in the immediate future are to market its
products/services and attain a broadly based diverse membership. To do so will
require capital. The Company relies on equity financing to acquire capital for
marketing and product development. There is no guarantee that financing
sufficient to enable the Company to meet its objectives will be available in the
future. The Company will thus be at a competitive disadvantage relative to more
established competitors with greater access to capital. Established competitors
with cash flow from revenues may be in a better position to capture a share of
the available market.
Intellectual Property Rights
The Company relies on copyrights, trademarks, trade secret laws and contractual
restrictions to establish and protect its proprietary rights in its services and
products. The Company does not at this time have any patented technology which
would prevent competitors from entering into its market. In addition, the
Company has not registered any of its copyrighted software or trademarks. There
can, therefore, be no assurance that the Company will be able to protect its
proprietary rights from use by its competitors. The Company's management
believes, however, that the steps taken by the Company to protect its
intellectual property are consistent with industry standards for online
businesses. The Company protects proprietary software primarily by maintaining
secrecy with respect to source codes and other information pertaining to the
Company's software. Consultants conducting development work on the Company's
technology are bound by confidentiality clauses which restrict dissemination of
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proprietary technical information related to the Company's products. The
Company also relies on third party software licenses in the conduct of its
business.
To date, the Company has received no notification that its services or
products infringe the proprietary rights of third parties. Third parties could,
however, make such claims of infringement in the future. Any future claims that
do occur may have a material adverse effect on the Company and its business.
Refer to "Risk Factors" herein.
Government Regulation
As at the date of filing, there are few laws and regulations that apply
specifically to access to or commerce on the internet. Due to the increasing
popularity of use of the internet, however, it is possible that laws and
regulations with respect to the internet may be adopted at federal, state and
even local levels, covering issues such as user privacy, freedom of expression,
pricing, characteristics and quality of products and services, taxation,
advertising, intellectual property rights, information security and the
convergence of traditional telecommunications services with Internet
communications. Such future regulations may end up having a material adverse
affect on the Company and its business. Refer to "Risk Factors" herein.
Employees and Consultants
The Company 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. The Company pays $2,500 per month to
MCS Management Ltd., a private company wholly owned by Marlene Schluter,
director, secretary and treasurer of the Company, for management and
administrative services provided by MCS Management Ltd. The Company pays $2,500
per month to Netgain Management Solutions Inc., a private company wholly owned
by Chad Lee, director and president of the Company, for management and
administrative services provided by Netgain Management Solutions Inc.
Services related to the design, development and maintenance of the Company's
website are provided by Stratford Internet Technologies Inc. ("Stratford").
Stratford is retained by the Company pursuant to the terms of a consulting
agreement between Stratford and the Company dated July 30, 1999. Pursuant to
the terms of this agreement, Stratford provides services related to the
development, design and maintenance of the Company's internet based products and
services. Stratford designs, develops and maintains the following items:
* Database Architecture - (software comprising the member registration/
tracking database system)
* Credit card transaction/authorization system for processing memberships and
maintaining accounts
* Interactive "build your own website/profile/avatar" system
* Interactive chat rooms
* Interactive multi-player games
* Audio-technology to provide background music for the website
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* Direct live video chat connection for members with webcamera technology on
their personal computers
* Animated greeting cards and virtual gifts
* Personal messaging system
* Dear Bridgette Advice system
* Daily horoscope service through links with third party service provider
* Dating safety tip webpage
* Survey systems for surveying members on a variety of issues
Stratford is currently undertaking all of the computer programming and
other technical development work related to the production of these various
functions/services. Stratford will not act as the Company's webserver or
provide the Company with webhosting services. A webserver is a computer server
which houses the technical data and components comprising a webpage or website
and related functional components. Webhosting companies typically provide
internet companies and other entities with access to a server which functions 24
hours a day and is connected to the internet through a service provider who
provides access to telephone cables or other means of electronically
disseminating information. The Company does not currently have any agreements
in place with any webhosting companies or internet service providers.
Pursuant to the agreement with Stratford, the Company will pay Stratford
$400,000 and issue Stratford 300,000 shares of its common stock in exchange for
the services to be provided by Stratford and $25,000 was paid during the quarter
ended June 30, 2000. The Company paid Stratford a deposit of $275,000 upon
execution of the agreement. The balance will be paid upon completion of a
financing by the Company. The shares are to be issued after Stratford has
performed all of its obligations under the agreement. The shares will bear
restrictive legends pursuant to Rule 144 and will not be transferable for one
year from the date they are issued.
Risk Factors
Prospective investors should consider carefully the following risk factors,
in addition to the other information contained in this Registration Statement
concerning the Registrant and its business, before making any investment in the
Registrant's securities.
Potential for Failure of the Company's Business
The Company may not be successful in its effort to further its business.
Even if the Company were to successfully meet the goals it has set for itself
the aforesaid goals may not be achieved within the respective time-frames set
for them herein. The limited extent of the Company's assets and the Company's
stage of development as well as the Company's limited operating history make it
subject to the risks associated with start-up companies. For example, the
Company, like many start-up companies, does not have significant revenues and
may experience cash flow difficulties. It may, therefore, be required to rely
on equity or bank financing to meet any cash needs in the short term. Such
financing may not be available. In addition, the Company does not have an
established presence in its target market and its name is not well known to
consumers in that market. There is no guarantee that the Company will ever
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Page 15
establish a significant presence in its target market. The Company's products
and services are also not completely developed. Earning revenue depends on
successful development of products and services. The Company may require
additional financing to fully develop its products and services and, as
discussed above, such financing may not be available when required. Any or all
of these factors may cause the Company's business to fail.
Ability to Retain Qualified Management Personnel
The Company's present management structure, although adequate for the early
stage of its operations, will likely have to be significantly augmented as
operations commence and expand. The ability of the Company to recruit and
retain capable and effective individuals is unknown. The loss of the services
of its current officers, or the inability of the Company to attract, motivate
and retain highly qualified executive personnel in the future could result in
failure of or cause serious disruption to the Company's business.
Competition in the Online and Offline Matchmaking Service Market
The Company intends to enter into the internet/e-commerce market, which is
relatively new and are, therefore, difficult to predict in terms of the level of
demand for the Company's products and services. In addition, this market is or
likely will be, subject to intense competition from both private and public
businesses nationally and/or around the world, many of whom have greater
financial and technical resources than the Company. The Company competes with
more established competitors in the internet matchmaking and e-commerce
businesses and may have difficulty establishing a significant market presence.
In addition, the Company competes with the more established offline
matchmaking/dating services industry. Competition from these sources as well
as any other future competition may be insurmountable for the Company. If the
Company is unable to compete in this marketplace, its business may fail. Refer
to the section entitled "Competition" herein.
Adverse Effects of Incorrect Financial Assumptions
The Company will rely on internally prepared forecasted financial
statements, which are predicated on certain assumptions, including assumptions
of revenue and expense and the occurrence of certain future events, which in
turn were based on management's considered assessment of prevailing conditions
and management's best estimates of future events. Should, for example, product
yields or prices deviate from the levels assumed in the internal forecasted
statements, then the Company's projected revenue and profits will be less than
projected. Similarly, should the Company's actual costs exceed the assumed
levels, then the Company's projected profits would likewise be less than
projected. In the final analysis, any return to an investor in the Company will
in large part be determined by management's ability to execute the Company's
plan as projected, and there can be no assurances provided of their success with
respect thereto. There can be no assurances whatsoever as to the future
financial performance of the Company. Projections are based upon current
information and certain extrinsic factors, some of which are beyond the control
of the Company, and/or subject to various assumptions, such as the Company's
ability to obtain additional financing and its ability to implement its plan.
<PAGE>
Page 16
Absence of Operating History
The Company was incorporated on May 7, 1997 but, as discussed, has yet to
commence operations in the internet/e-commerce business as it was previously in
the mining resource industry. To date, the Company has attempted to raise
capital to fund the implementation of its initial goals. The Company has no
revenues from operations, has yet to produce a profit and has no significant
assets. Failure to achieve projected rates of market penetration could
significantly affect the Company's pattern of revenues and expense, and
accordingly future cash flow. Therefore, the Company's stockholders should be
prepared to bear the economic risk of losing their entire investment.
Lack of Public Market
There is not now, and there may never be, a public market of any kind for
the securities issued by the Company. There is no assurance that the price of
the Company's common stock in any market which may develop will be greater than
the offering price. As a result of these factors, holders of the Company's
common stock may not be able to liquidate their investment.
Designation as a Penny Stock
The Company's securities may be deemed "penny stock" as defined in Rule
3a51-1 of the Securities and Exchange Act of 1934, as amended. Such a
designation could have a material adverse effect on the development of the
public market for shares of the Company's common stock or, if such a market
develops, its continuation, since broker-dealers are required to personally
determine whether an investment in such securities is suitable for customers
prior to any solicitation of any offer to purchase these securities. Compliance
with procedures relating to sale by broker-dealers of "penny stocks" may make it
more difficult for purchasers of the Company's common stock to resell their
shares to third parties or to otherwise dispose of such shares.
Ability To Raise Additional Capital
The Company may not be able to raise additional funds for expansion and/or
growth. If such funds are not available the Company's business may fail and
investors may lose their entire investment. Additional financing may come in the
form of securities offerings or from bank financing. If additional shares are
issued to raise capital, existing shareholders will suffer a dilution of their
stock ownership in the Company. In the event the Company has not achieved
certain milestones, or consummated further financings, the Company will have
severe cash flow and liquidity problems and may cease at that point to be a
viable commercial entity.
Potential Conflicts Of Interest
There are various interrelationships between the officers and directors of
the Company which may create conflicts of interest that might be detrimental to
the Company. The Company's directors and officers will deal with any such
conflicts of interest, should they arise, in accordance with applicable
corporate law principles.
<PAGE>
Page 17
No Foreseeable Dividends
The Company does not anticipate paying dividends on its common stock in the
foreseeable future but plans to retain earnings, if any, for the operation,
growth and expansion of its business.
Failure to Obtain Permits and Licenses
The operations of the Company may require licenses and permits from various
governmental authorities. There can be no assurance that the Company will be
able to obtain all necessary licenses and permits that may be required to carry
out its plan.
Loss of Interest in Intellectual Property / Claims of Infringement by Third
Parties
The Company does not have any patents for its technology and has not
registered any of its copyrighted software or trademarks. There can, therefore,
be no assurance that the Company will be able to protect its proprietary rights
from use by its competitors. The commercial success of the Company may also
depend upon its products and services not infringing any intellectual property
rights of others and upon no such claims of infringement being made. Management
is currently unaware of any such infringement or actual or potential claim of
infringement. It is possible, however, that such infringements or claims exist.
If any claims of infringement are made, the Company may be held liable for
damages for such infringement and be required to pay cash compensation. The
Company may also be forced to stop using technology upon which it is currently
dependent if use of that technology is found to infringe proprietary rights held
by others.
Currency Fluctuation
The Company's potential operations make it subject to foreign currency
fluctuation and such fluctuation may adversely affect the Company's financial
position and results. There can be no assurance that steps taken by management
to address foreign currency fluctuations will eliminate all adverse effects and
accordingly, the Company may suffer losses due to adverse foreign currency
fluctuation. Such fluctuations may also influence future contribution margins.
Access to Technology by Competitors
The technology necessary to create a service such as the one the Company
will be offering exists today and is readily accessible. The Company's line of
business may, therefore, be easily entered by would-be competitors.
Lack of Market Acceptance of the Internet as a Means of Conducting Commercial
Transactions
Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium is subject to a high level of
uncertainty. The Company expects to experience significant fluctuations in
operating results in future periods due to a variety of factors, including, but
not limited to:
<PAGE>
Page 18
* market acceptance of the Internet as a medium for consumers;
* the Company's ability to create and deliver internet content in order to
attract users to its websites to purchase its product and/or services, and
to attract advertisers to its websites;
* the ability of the Company to produce content which will be attractive to
a sufficient number of users to generate significant revenues;
* intense competition from other providers of related content over the
Internet;
* delays or errors in the Company's ability to effect electronic commerce
transactions;
* the Company's ability to upgrade and develop its systems and
infrastructure in a timely and effective manner;
* technical difficulties, system downtime or Internet brownouts;
* the Company's ability to attract customers at a steady rate and maintain
customer satisfaction;
* seasonality of the industry;
* seasonality of advertising sales;
* Company promotions and sales programs;
* the amount and timing of operating costs and capital expenditures relating
to expansion of the Company's business, operations and infrastructure and
the implementation of marketing programs, key agreements and strategic
alliances;
* the level of returns experienced by the Company; and
* general economic conditions and economic conditions specific to the
Internet, on-line commerce industry.
Dependence on Telecommunication Infrastructure
The Company's services are dependent on the use of the Internet and
telephone connections. Any interruptions, delays or capacity problems
experienced on the Internet or with the telephone connection could adversely
effect the ability of the Company to provide its services. The
telecommunications industry is subject to regulatory control. Amendments to
current regulations could disrupt or adversely effect the profitability of the
Company's business. The Company's business is highly dependent on its computer
and telecommunications systems for the operation and quality of its services.
The temporary or permanent loss of all or a portion of either system, or
significant replacement delays, for whatever reason, could cause disruption of
the Company's business activities and result in loss of revenues.
ITEM 2: DESCRIPTION OF PROPERTY
Office Space
Pursuant to a Lease Agreement between the Company, 570679 B.C. Ltd. and
Marlene Schluter dated November 1, 1999, the Company pays a total of $1,987.50
(Canadian) per month for office space. The lease is for a two-year term and
commenced on November 1, 1999. The lease expires on October 31, 2001 with an
option to renew for a third year. The Company rents a total of 1,152 feet of
office space pursuant to the lease agreement. Rent payments are made to 570679
<PAGE>
Page 19
B.C. Ltd. Marlene Schluter is party to the Lease Agreement as a guarantor only
and receives no direct or indirect material benefit from the Lease Agreement.
Computer Equipment
The Company currently leases the following computer equipment at a cost of
$133.67 per month (including applicable taxes):
* Campus Pentium Celeron 366MMX Processors (2)
* 17" Flat Screen SVGA Color Monitors (2)
* Hewlett Packard Scanjet 4200C Printer (1)
* 60 Watt Power Amplified Speakers (2)
The Company also owns the following processors, which will act as the
servers for the data comprising the Company's website:
* 3 Compaq Proliant 1600R Pentium 3 - 500 Megahertz Servers
* Sun E450 Server
* 3 Sun Netra T-1 (Front End) Server
ITEM 3: 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
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
<PAGE>
Page 20
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 and the Defendants have not yet filed a Statement of Defense.
Furthermore, 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 4: SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report, through the solicitation of
proxies or otherwise.
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Principal Market
The Company's common shares were previously traded on the over the counter
market, with quotations posted on the NASD Over-the-Counter Bulletin Board under
the ticker symbol ONIN. Prior to May 5, 1999, the common shares of the Company
traded under the ticker symbol SLOG, reflecting the previous name of the
Company, Sinaloa Gold Corp. On May 5, 1999, the Company began trading under the
ticker symbol ONIN.
The Company filed a Form 10-SB in order to comply with the reporting obligations
contained in NASD Rule 6530. In order to comply with the obligations contained
in Rule 6530, the Company was required to file the Form 10-SB with the
Securities and Exchange Commission ("SEC") and clear all comments raised by the
SEC by April 5, 2000. The Company cleared all SEC comments on September 27,
2000. The Company's securities may become eligible for quotation on the NASD
Over-the-Counter Bulletin Board when the Company files this annual report.
Until such time, there will be no public market for the Company's securities
other than the NQSB Pink Sheet quotation system.
High and Low Bid Information
The common shares of the Company began trading on February 24, 1998 under
the ticker symbol SLOG on the OTC-BB. The following table sets out high and
low sale prices for the Company's common shares for each quarter starting on the
date the Company's common shares began trading on the OTC-BB until March 31,
2000. The high and low sale prices for the quarter ended June 30, 2000 reflects
the Company's share price on the NQSB Pink Sheet quotation system.
<PAGE>
Page 21
--------------------------------------------------------------------------------
Quarter Ended High Low
--------------------------------------------------------------------------------
March 31, 1998 1.10 0.90
--------------------------------------------------------------------------------
June 30, 1998 1.20 0.44
--------------------------------------------------------------------------------
September 30, 1998 0.75 0.34
--------------------------------------------------------------------------------
December 31, 1998 0.62 0.12
--------------------------------------------------------------------------------
March 31, 1999 0.56 0.18
--------------------------------------------------------------------------------
June 30, 1999 3.31 0.21
--------------------------------------------------------------------------------
September 30, 1999 5.56 2.37
--------------------------------------------------------------------------------
December 31, 1999 6.50 4.50
--------------------------------------------------------------------------------
March 31, 2000 6.25 1.25
--------------------------------------------------------------------------------
June 30, 2000 4.25 2.50
--------------------------------------------------------------------------------
Quote data is obtained from Canada Stockwatch. Quotations posted on the
OTC-BB reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Holders
As at October 10, 2000, there were approximately 58 stockholders of record
holding 13,255,000 common shares of the Company.
Dividends
The Company has not declared any cash dividends on its common shares for
the last 2 fiscal years or any subsequent interim period. The Company does not
intend to pay cash dividends in the foreseeable future.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Online Innovation, Inc. (the "Company") is a website development company.
The Company has 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. During the period covered by this report, the Company
worked primarily on the development of its website. The Company launched its
<PAGE>
Page 22
website subsequent to its year end of June 30, 2000. Although the website is
fully operational, the Company is continuing to improve the its performance.
The Company is also focusing on marketing activities. Membership drives
and other marketing activities is the primary component 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 12 month period following the launch of the website
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, for a
total of 150,000 members within three years of launch. As of October 10, 2000,
the Company had 21,369 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.
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
<PAGE>
Page 23
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 12 months subsequent to the launch of the
website. 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 $125,000
in expenditures to complete the development of and roll out 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. This amount is payable upon completion of development of the
<PAGE>
Page 24
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 after the website becomes operational 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
Once the website is launched, 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.
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.
<PAGE>
Page 25
ITEM 7: FINANCIAL STATEMENTS
<PAGE>
MOEN AND COMPANY
CHARTERED ACCOUNTANTS
PO Box 10129
1400 IBM Tower Telephone: (604)662-8899
701 West Georgia Street Fax: (604)662-8809
Vancouver, BC V7Y 1C6
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Directors and Shareholders of
Online Innovation, Inc. (A Delaware Corporation)
(A Development Stage Company)
We have audited the Balance Sheets of Online Innovation, Inc. (A Delaware
Corporation) (A Development Stage Company) as at June 30, 2000, and June 30,
1999, and the Statement of Profit and Loss, Retained Earnings (Deficit), Cash
Flows, and Shareholders' Equity for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 2000, and June
30, 1999 and the results of its operations and the Statement of Cash Flows and
Shareholders' Equity for the years then ended, in conformity with United States
generally accepted accounting principles (GAAP).
/s/ Moen and Company
Chartered Accountants
Vancouver, British Columbia, Canada
October 5, 2000
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Balance Sheet
June 30, 2000
(In U.S. Dollars)
ASSETS
2000 1999
-----------------------
Current Assets
Cash $ 94,338 $ 657,636
Prepaid expense 1,343 -
-----------------------
95,681 657,636
-----------------------
Deferred income tax (Notes 13 and 14) 52,500 42,000
-----------------------
Fixed assets
Computer equipment, at cost 107,138 511
Less: accumulated depreciation (20,785) (77)
-----------------------
86,353 434
-----------------------
Computer software development (Note 5)
Application development stage costs 400,000 -
-----------------------
$ 634,534 $ 700,070
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued $ 23,207 $ 24,108
Due to related parties (Note 4) - 31,689
Agreement payable - Stratford Internet
Technologies (Note 6(b)) 100,000 -
-----------------------
123,207 55,797
-----------------------
Shareholders' Equity
Capital Stock (Note 3)
Authorized:
75,000,000 common shares at $0.001 par value
Issued and outstanding
13,385,000 common share ( 1999 - 12,705,000
shares) - par value 13,385 12,705
Paid in capital in excess of par
value of stock 1,624,615 1,255,295
Deficit accumulated during development
stage (Note 1) (1,126,161) (622,672)
Cumulative translation (512) (1,055)
-----------------------
511,327 644,273
-----------------------
$ 634,534 $ 700,070
=======================
Approved on Behalf of the Board
/s/ Chad D. Lee
---------------------------------
/s/ Marlene C. Schluter
---------------------------------
See Accompanying Notes and Independent Auditors' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Statement of Profit and Loss
Year Ended June 30, 2000
(In U.S. Dollars)
(With Comparative Figures for Year Ended June 30, 1999)
Cumulative
From Inception
Date of Aug.
1, 1997 Quarter Ended Year Ended
to June 30, June 30, June 30,
---------------------------------------
2000 2000 1999 2000 1999
--------------------------------------------------------
Administration Costs
Compensation
expense - stock
options $ 150,000 $ - $ 120,000 $ 30,000 $ 120,000
Depreciation 20,785 7,946 77 20,708 77
Filing and
transfer agent
fees 14,110 2,048 2,683 8,920 3,939
Financing costs 22,550 - - - 3,300
Management and
consulting fees 341,659 60,134 106,625 176,134 110,125
Office expenses,
net 86,897 19,216 (2,281) 61,592 14,927
Option payment
on mineral
properties 30,000 - - - -
Professional fees 77,963 14,179 9,965 46,013 12,616
Promotion, investor
relations, and
investor
communications 83,039 290 8,830 69,109 10,480
Computer technology
and website costs 227,325 - 220,122 7,203 220,122
Website marketing/
Banner advertising
costs 111,805 50,701 22,759 89,046 22,759
Travel expenses 12,528 - 2,152 5,264 2,152
--------------------------------------------------------
(1,178,661) (154,514) (490,932) (513,989) (520,497)
Deferred tax expense 52,500 - 42,000 10,500 42,000
--------------------------------------------------------
Net loss for
the period $(1,126,161) $(154,514) $(448,932) $(503,489) $(478,497)
========================================================
Net loss per share,
basic and diluted $ (0.01) $ (0.04) $ (0.04) $ (0.04)
===========================================
See Accompanying Notes and Independent Auditors' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Statement of Cash Flows
Year Ended June 30, 2000
(In U.S. Dollars)
(With Comparative Figures for Year
Ended June 30, 1999)
Cumulative
From Inception
Date of Aug.
1, 1997 Quarter Ended Year Ended
to June 30, June 30, June 30,
---------------------------------------
2000 2000 1999 2000 1999
--------------------------------------------------------
Cash Provided
by (Used for)
Operating
Activities
Net loss for
the period $(1,126,161) $(154,514)$ (448,932) $(503,489) $(478,497)
Items not
requiring
use of cash:
Compensation on
stock options 150,000 - - - 120,000
Common shares
issued for
computer
technology
and website
costs - - - - 200,000
Depreciation 20,785 7,946 77 20,708 77
Cumulative
translation (512) - - - (1,055)
Changes in
non-cash
working
capital items
Prepaid expense (1,343) 2,015 - (1,343) -
Accounts
payable and
accrued
increase 23,207 5,047 9,691 (901) 22,358
Deferred
income tax (52,500) - (42,000) (10,500) (42,000)
Agreement
payable 100,000 (25,000) - 100,000 -
--------------------------------------------------------
(886,524) (164,506) (481,164) (395,525) (179,117)
--------------------------------------------------------
Investing Activities
Computer software
development (400,000) - - (400,000) -
Fixed assets
purchased (107,138) (1,193) (511) (106,627) (511)
--------------------------------------------------------
(507,138) (1,193) (511) (506,627) (511)
--------------------------------------------------------
Financing Activities
Capital stock
issued for cash 13,385 130 2,120 680 902,500
Capital stock
subscribed and
paid 1,474,615 64,870 1,176,825 369,863 (42,500)
Loans - - (32,358) - (13,000)
Note payable and
accrued interest - - - - (19,358)
Due to related
parties - - (8,311) (31,689 (8,311)
--------------------------------------------------------
1,488,000 65,000 1,138,276 338,854 819,331
--------------------------------------------------------
Increase in Cash
During the Period 94,338 (100,699) 656,601 (563,298) 639,703
Cash, Beginning
of Period - 195,037 1,035 657,636 17,933
--------------------------------------------------------
Cash, End of
Period $ 94,338 $ 94,338 $ 657,636 $ 94,338 $ 657,636
========================================================
See Accompanying Notes and Independent Auditors' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Statement of Retained Earnings
(Deficit)
June 30, 2000
(In U.S. Dollars)
(With Comparative Figures for Year Ended June 30, 1999)
Cumulative
From Inception
Date of Aug.
1, 1997 Quarter Ended Year Ended
to June 30, June 30, June 30,
---------------------------------------
2000 2000 1999 2000 1999
--------------------------------------------------------
Balance (deficit),
beginning of period $ - $ (971,647)$(173,740)$ (622,672)$(144,175)
Net loss for
the period (1,126,161) (154,514) (448,932) (503,489) (478,497)
--------------------------------------------------------
Balance (deficit),
end of period $(1,126,161)$(1,126,161)$(622,672)$(1,126,161)$(622,672)
========================================================
See Accompanying Notes and Independent Auditors' 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 June 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
====================================================================================================
</TABLE>
See Accompanying Notes and Independent Auditors' Report
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
June 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 June 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
June 30, 2000
(In U.S. Dollars)
Note 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(b) Translation of Foreign Currency (cont'd)
Depreciation is remeasured 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:
Year Ended
June 30,
-----------------------
2000 1999
---------- ----------
Beginning balance $ (1,055) $ -
Changes during the period 543 (1,055)
---------- ----------
Ending balance (512) (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 the year ended June 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 June 30, 2000 and therefore no
amortization of this cost has been charged to operations for the fiscal
year ended June 30, 2000.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
June 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, 1999 12,705,000 $ 1,638,000
Compensation added to paid-in capital - 30,000
Issued during the year ended June 30, 2000:
for cash 600,000 300,000
Subscribed by unissued (d) 80,000 40,000
-----------------------------
Balance, June 30, 2000 13,385,000 1,638,000
=============================
c) Warrants outstanding
There are 1,050,000 common share purchase warrants outstanding as at
June 30, 2000 that can be exercised at $0.60 per share to April 14,
2001.
d) 80,000 of the shares subscribed for the current year had not been issued
by the transfer agent at June 30, 2000.
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 the year ended June 30, 2000, total as
follows:
MCS Management Ltd. $ 30,000
Netgain Management Solutions Inc. 30,000
----------
$ 60,000
==========
b) Ms. Marlene Schluter and Mr. Chad Lee were reimbursed for travel and
office costs paid on behalf of the Company, of $9,213.14 and $6,823.88,
respectively, during the year ended June 30, 2000.
c) Directors and Officers of the Company are beneficial owners of common
shares of the Company, as follows, at June 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
June 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:
June 30,
----------------------------
2000 1999
------------ -----------
Cost $ 107,138 $ 511
Accumulated depreciation (20,785) (77)
------------ -----------
Net balance $ 86,353 $ 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
June 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 upon delivery of the contract. This amount
has been paid,
ii) the balance of $100,000 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 $100,000 US to Stratford is
disclosed as a current liability as at June 30, 2000, as it is
expected to be paid within the next twelve months, and the cost is
carried as a deferred development expense until the website is
completed.
iii) the issuance of 300,000 common shares, restricted under Rule 144,
which will bear a one year tradable restriction upon contract
delivery. The obligation to issue these shares has not been
recorded in these financial statements but is disclosed as a
contingent liability in Note 15.
Note 7. LEASE OBLIGATIONS
a) Computer Lease
On June 1, 1999, the Company entered into a 36 month lease with Leasing
Solution (Canada) Inc. for computer equipment to be used by the Company.
Lease payments are expensed as they are incurred. Lease obligations are
as follows:
Year Ended June 30
2001 CAD$ 1,604
2002 CAD$ 1,213
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
June 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 months rent of CAD$3,975.00 (CAD$1,987.50 X 2) is
due at the time of signing. This amount has been paid and CAD$1,987.50
(US$1,342.91) is recorded as prepaid expense as at June 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 June 30, 2000.
b) No liability for potential pension costs has been recorded at June 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 $1,126,161. The
potential tax benefit has not been recorded, as an equivalent reserve has
been provided due to uncertainty of application of the loss.
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
June 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 June
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.
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
June 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 plus GST of
$175. 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 June 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
June 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 June 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.
<PAGE>
ONLINE INNOVATION, INC.
(A Delaware Corporation)
(A Development Stage Company)
Notes to Financial Statements
June 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, CFO 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
June 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 and the Defendants have not yet filed a Statement
of Defense. Furthermore, 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 and, accordingly, no
provision has been made in these financial statements for any possible
costs relating to this action.
<PAGE>
Page 26
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no changes in or disagreements with accountants on accounting
and financial disclosure of the type referred to in Item 304 of Regulation S-K.
PART II
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
The following table sets forth, as of the date of this registration
statement, the name, age, and position of the officers and directors of the
Company and the date of appointment of such officer or director:
--------------------------------------------------------------------------------
Name Age Position (1)
Chad D. Lee (2) 31 Director, President and CEO
--------------------------------------------------------------------------------
Marlene Schluter (3) 36 Director, Secretary and Treasurer
--------------------------------------------------------------------------------
Harvey H. Cohen (4) 75 Director and Vice President
--------------------------------------------------------------------------------
(1) Pursuant to the Company's Bylaws, all directors serve until such time as
their successor has been elected, until they resign or until they are
removed by majority vote at a meeting of the Company's shareholders.
Officers are elected by the Company's directors and serve until such time
as their successor is appointed, until they resign or until they are
removed by the directors. None of the Company's directors and officers
hold positions with other reporting companies.
(2) Marlene Schluter was appointed as Secretary and Treasurer of the Company
on October 27, 1997.
(3) Chad Lee was appointed as President of the Company on April 15, 1998.
Prior to being appointed as President, Mr. Lee acted as Vice-President of
the Company from October 24, 1997 until he was appointed as President.
(4) Harvey H. Cohen was appointed as Vice-President of the Company on April
15, 1998.
Chad D. Lee
Mr. Lee, the founder of what is now Online Innovation Inc., is a graduate
of the University of British Columbia where he focused his studies on the field
of Urban Land Economics. He has used his skills in strategic management,
financial analysis and planning, contract negotiation, and business planning to
develop new companies and to assist established companies with operations. Mr.
Lee is also the Principal of CL Communications Group where he has developed and
<PAGE>
Page 27
implemented multi-media marketing strategies for several publicly traded
companies. Mr. Lee brings to the Company expertise in strategic management,
demonstrating strong leadership in visioning, corporate strategy development and
deployment with a clear focus on achieving results. Utilizing his expertise in
strategic visioning, he has diversified the company's focus to the
communications and hi-tech Internet sectors with the acquisition and further
development of the Company's technology assets.
From March, 1991 to February, 1995 Mr. Lee was employed by Summit Motors, a
motor vehicle dealership located in Vancouver, British Columbia. Mr. Lee was
responsible for warranty claims, invoicing, sales, business development and
quality assurance. From February, 1995 to September, 1996, Mr. Lee was employed
by Ensign Pacific Lease Ltd., a motor vehicle leasing company also based in
Vancouver, British Columbia. He was responsible for invoicing, budgets, credit,
revenue forecasts, business development, customer satisfaction and quality
assurance. From October, 1996 to the present, Mr. Lee has been the president
and director of C.L. Communications Group. Mr. Lee has been a director of the
Company since October, 1997 and has acted as its president since April, 1998.
Ms. Marlene C. Schluter
Ms. Schluter is a graduate of Simon Fraser University with a Bachelor of
Education (B Ed.). She was employed by the public school system at the
elementary and secondary school levels, specializing in Business and Math. In
addition, she was also an active member in the school counseling programs. Ms.
Schluter has furthered her professional career by attending courses in the
Master of Business Administration Program at the University of British Columbia
concentrating in the areas of International Trade and Finance. With this
education, she went on to work in the Financial Industry with Yorkton Securities
where she completed the Canadian Securities Course (CSC) and Series 63 and 67
for qualification in the United States. Ms. Schluter acted as a Broker's
Assistant and as a Broker with Yorkton Securities Inc. She was employed by
Yorkton Securities Inc. from April, 1991 to December, 1996. From February, 1997
to July, 1997, Ms. Schluter acted as executive assistant and performed investor
relations services for CKD Ventures Ltd., a Vancouver, British Columbia based
mineral exploration company. She has acted as director, corporate secretary and
treasurer of the Company since October of 1997.
Harvey H. Cohen
Mr. Cohen graduated from the University of British Columbia with a
Bachelor's degree in Physical Sciences / Mining Engineering. He has been a
registered member of the Association of Professional Engineers and Geoscientists
of British Columbia since 1954 and is also a lifetime member of the Canadian
Institute of Mining, Metallurgy and Petroleum. During the course of his career
he has acted for numerous publicly traded companies in the mining sector. Mr.
Cohen has been semi-retired for approximately ten years and was involved with
the Company at the outset to provide advice on matters related to its mineral
properties.
Significant Employees
The Company has no employees. All services are performed by consultants.
Refer to the section headed "Employees and Consultants" under "Business of the
Company" above.
<PAGE>
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Family Relationships
There are no family relationships among the Company's directors or
officers.
Involvement in Legal Proceedings
During the past five years, no director or officer of the Company has been:
* a general partner or executive officer of a business against which a
bankruptcy petition was filed;
* convicted in a criminal proceeding or is currently subject to a pending
criminal proceeding;
* subject to any order, judgement or decree of any court of competent
jurisdiction permanently or temporarily enjoining, barring, suspending him/
her from, or otherwise limiting his/her involvement in, any type of
business, securities or banking activities; or
* found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires executive officers and directors of
the Company and persons who beneficially own more than ten percent of the
Company's Common Stock to file with the Securities and Exchange Commission
certain reports, and to furnish copies thereof to the Company, with respect to
each such person's beneficial ownership of the Company's equity securities.
Based solely upon a review of the copies of such reports furnished to the
Company and certain representations of such persons, all such persons have
complied with the applicable reporting requirements.
ITEM 10: EXECUTIVE COMPENSATION
The following table provides a summary of the compensation paid to the
Company's Chief Executive Officer for the year ended June 30, 2000. No officers
of the Company received in excess of $100,000 in annual salary and bonus. The
Company's Chief Executive Officer has received no compensation other than
salary.
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Page 29
Summary Compensation Table
--------------------------------------------------------------------------------
Annual
Name and Principal Position Year Ended Compensation
-----------------
Salary
--------------------------------------------------------------------------------
Chad Lee , President & Director June 30, 2000 $30,000 (1)
--------------------------------------------------------------------------------
(1) The cash compensation shown was paid to Mr. Lee pursuant to management
agreements between the Company and a company wholly owned by Mr. Lee.
As of the date of this registration statement, the Company has not paid any
bonuses or granted any stock awards, options or stock appreciation rights to any
officer, director or employee. The Company has no arrangements for the
compensation of directors and officers for their services as directors and
officers.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's issued and outstanding common stock as of January 25,
2000 by (i) each person who is known to the Company to be the beneficial owner
of more than 5 percent of the Company's common stock; (ii) named directors and
executive officers; and (iii) all directors and executive officers of the
Company as a group:
--------------------------------------------------------------------------------
Name and address of beneficial owner Amount and nature Percent of class (1)
of beneficial owner
--------------------------------------------------------------------------------
Chad D. Lee 5,500,000 (2) 41.8%
(President, Chief Executive
Officer and Director)
61-12411 Jack Bell Drive
Richmond, British Columbia
Canada
--------------------------------------------------------------------------------
Marlene C. Schluter 2,500,000 (2) 19.0%
(Secretary, Treasurer and Director)
2233 Lillooet Street
Vancouver, British Columbia
Canada
--------------------------------------------------------------------------------
Harvey H. Cohen 0 (2) 0.0%
(Vice President and Director)
8278 Tugboat Place
Vancouver, British Columbia
Canada
--------------------------------------------------------------------------------
Directors and Officers as
a Group (3 persons) 8,000,000 60.8%
--------------------------------------------------------------------------------
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Page 30
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
(2) The persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a management agreement made effective as of November 1, 1997,
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.
Pursuant to a management agreement made effective as of 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 and director of the Company, for
management services provided to the Company by Netgain Management Solutions Inc.
The Company has not been a party to any other transactions during the past
two years, and is not currently a party to any other transaction, in which any
directors, officers or holders of greater than five percent of the Company's
securities, or any immediate family members of any of the foregoing, have any
direct or indirect material interest.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Sequential
Number Description Page Number
------- ----------- -----------
3(i)** Certificate of Incorporation dated May 7, 1997;
Certificate of Amendment dated October 16, 1997;
and Certificate of Amendment dated April 8, 1999.
3(ii).1** Bylaws of Micro Millennium, Inc.
3(ii).2** Resolution of the board of directors approving
amendment to the By-Laws of Micro Millenium, Inc.
10.1** Consulting Agreement between National Financial
Communications Corp. and the Company dated February
1, 2000.
10.2** Sponsorship Agreement between Student Advantage, Inc.
and the Company, dated November 30, 1999.
10.3** Custom Affiliate Agreement between KnowledgeWeb, Inc.
and the Company, dated November 8, 1999.
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Page 31
10.4** Lease Agreement between 570679 B.C. Ltd. as Lessor and
the Company as Lessee, dated November 1, 1999.
10.5** Agreement between Netgain Management Solutions Inc. and
the Company, dated November 1, 1999, for management and
administrative services provided by Netgain Management
Solutions Inc.
10.6** Agreement between 535424 B.C. Ltd., the Company, dated
April 1, 1999, for professional media buying/marketing
services provided by 535424 B.C. Ltd.
10.7** Agreement between Stratford Internet Technologies, Inc.
and the Company dated July 30, 1999, for services related
to the development, design and maintenance of the Company's
internet based products and services.
10.8** Purchase Agreement between Sinaloa Gold Corp. and Online
Innovation, dated April 2, 1999.
10.9** Consulting Agreement between Fortune Capital Management (USA)
Inc. and the Company, dated March 31, 1999.
10.10** Option Agreement between Fordee Management Company and the
Company, dated February 2, 1999.
10.11** Agreement between MCS Management Ltd. and the Company, dated
November 1, 1998, for management and administrative services
provided by MCS Management Ltd.
10.12** Agreement in Principle between Minera Fuerte Mayo and CL
Communications Group, dated September 30, 1997.
10.13** Assignment Agreement between Sinaloa Gold Corp. and CL
Communications Group, dated September 30, 1997.
27 Financial Data Schedule
** Incorporated by reference from the Registration Statement on
Form 10SB of the Registrant filed with the Commission on
February 1, 2000 as amended.
(b) No reports on form 8-K were filed during the period covered
by this report.
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Page 32
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: October 11, 2000 ONLINE INNOVATION, INC.
-------------------------
(Registrant)
By: /s/ Chad D. Lee
----------------------
Chad D. Lee, President
<PAGE>
