As filed with the Securities and Exchange Commission
on April , 2006 Registration No. 333-_______
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ONLINE ORIGINALS, INC.
(Name of small business issuer in its charter)
NEVADA 5960 98-0479983
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
RPO 163 Sorrento, British Columbia, Canada, V0E 2W0 Phone
604 313-9781 (Address and telephone number of
principal executive offices)
CSC Services of Nevada, Inc.
502 East John Street, Carson City, Nevada, 89706 (775) 882-3072
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Michael A. Littman, Attorney at Law
7609 Ralston Road, Arvada, CO, 80002 phone 303-422-8127 / fax 303-431-1567
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount To Be Proposed Maximum Proposed Maximum Amount of
Securities To Be Registered Registered1 Offering Price Per Unit Aggregate Offering Price Registration
Fee
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Common Stock 700,000 $0.10 $70,000.00 $ 100
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to Completion
Prospectus
ONLINE ORIGINALS, INC.
700,000 shares of Common Stock
We are offering 700,000 shares of common stock of Online Originals, Inc.
(Online) a Nevada corporation, at a price of $0.10 per share for a total amount
of $70,000.
This offering involves a high degree of risk; see "RISK FACTORS" beginning on
page 4 to read about factors you should consider before buying shares of the
common stock.
These securities have not been approved or disapproved by the Securities and
Exchange Commission (the "SEC") or any state or provincial securities
commission, nor has the SEC or any state or provincial securities commission
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
We intend to have an application filed on the company's behalf by a market maker
for approval of common stock for quotation on the Over-the Counter/Bulletin
Board quotation system, subject to effectiveness of the Registration Statement.
Our common stock is presently not listed on any national securities exchange or
the NASDAQ Stock Market or any other venue.
The Offering:
700,000 shares Offered Price Per Share Total
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Public Price $0.10 $70,000
Underwriting Discounts and Commissions(1) - 0 - $ 0
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Total $0.10 $70,000
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We are conducting this offering as a "self-underwriting" through our officers
and directors, and therefore, we will pay no underwriting fees or commissions
1. We are not using an underwriter for this offering.
2. We have a minimum offering other than a minimum purchase of 5,000
shares / ($500). We have no arrangement to place the proceeds from this
offering in an escrow, trust or similar account. Nevada law does not
require that funds raised pursuant to the sale of securities be placed
into an escrow account. Any funds raised from this offering will be
immediately available to us for its use and retained by Online
regardless of whether or not there are any additional sales under this
offering.
3. Our closing date for the offering is September 30, 2006 unless all
shares are sold prior to that date.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the date that the registration statement
relating to these securities, which has been filed with the Securities and
Exchange Commission, becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
The date of this Prospectus is April ____, 2006.
TABLE OF CONTENTS
Item in Form SB-2 Prospectus Caption Page No.
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Front of Registration Statement and Outside Front Cover Page of Prospectus
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Prospectus Cover Page
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Prospectus Summary and Risk Factors 4
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Use of Proceeds 12
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Determination of Offering Price 14
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Dilution 14
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Selling Security Holders 15
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Plan of Distribution 16
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Legal Proceedings 16
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Directors, Executive Officers, Promoters and Control Persons 16
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Security Ownership of Certain Beneficial Owners and Management 17
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Description of Securities 18
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Interest of Named Experts and Counsel 18
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Disclosure of Commission Position on Indemnification for Securities Act Liabilities 18
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Organization within Last Five Years 19
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Description of Business 19
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Plan of Operation 22
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Description of Property 24
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Certain Relationships and Related Transactions 24
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Market for Common Equity and Related Stockholder Matters 25
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Executive Compensation 27
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Financial Statements F-1 - F-11 26
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Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 45
Securities offered through this prospectus will not be sold through dealers, but
will be sold on a direct participation basis only.
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PROSPECTUS SUMMARY AND RISK FACTORS
The Company
We incorporated as Online Originals, Inc. (hereinafter referred to as Online) on
November 18th, 2005 in the State of Nevada. Our principal executive offices are
located at 1240 Dieppe Road, Sorrento, British Columbia, Canada, V0E 2W0.
Telephone number is (604) 313-9781.
We are a development stage company. As of the date of this prospectus, we have
not had any revenues or begun operations and we have few assets. We have no
employees at the present time. We do not expect to commence earning revenues
until at least three months after this registration statement becomes effective.
Since incorporation, we have not made any significant purchases or sale of
assets, nor have we been involved in any mergers, acquisitions or
consolidations. We have never declared bankruptcy, have never been in
receivership, and have never been involved in any legal action or proceedings.
We intend to develop an online art gallery/auction house where members will be
able to bid and purchase art pieces online. These art pieces are expected to
come from artists, art owners, members of the site, our inventory, as well as
one-time users looking to sell a single piece through the Online Originals
gallery/auction website. The website is designed to showcase many varieties of
art including paintings, drawings, prints, and sculptures. We will bring
together artists and art enthusiasts who are purely interested in art. Members
will have the ability to interact with other members in an open forum or online
chat room.
We intend to showcase original pieces of art and limited edition prints from
unknown artists in the industry as well as established artists. Prints will also
be available for individuals looking for a rare piece that can only be found in
a gallery. Using comments of the members, Online intends to continually add to
its collection of available art pieces. Please refer to access a more complete
description of the Business of the Issuer.
Summary of Financial Information
As at February 28, 2006
Current Assets $22,883
Current Liabilities $2,500
Shareholders' Equity $20,383
From November 18th,2005 to February 28, 2006
Revenues $0
Net Loss $4,617
We have begun initial minimal operations and are currently without revenue. Our
company has no employees at the present time. As at February 28, 2006,
accumulated deficit for the company was $4,617. We anticipate that our company
will operate in a deficit position and continue to sustain net losses for the
foreseeable future.
The Offering
Common Shares Outstanding Before This Offering 2,500,000
Maximum Shares Being Offered 700,000
Maximum Common Shares Outstanding After This Offering 3,200,000
We are authorized to issue 75,000,000 shares of common stock. Our current
shareholders, officers and directors collectively own 2,500,000 shares of
restricted common stock. These shares were issued at a price of $0.01 per share.
Our offering consists of 700,000 shares of our common stock (the "Offering").
The offering price is $0.10 per share. None of our officers, directors or
significant investors own any of the shares being offered.
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There is currently no public market for our common stock, as it is presently not
traded on any market or securities exchange.
Company Risk Factors
Our securities, as offered hereby, are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in our
company. Each prospective investor should carefully consider the following risk
factors, as well as all other information set forth elsewhere in this
prospectus, before purchasing any of the shares of our common stock.
Our Business Plan and Concept are Unproven and the Ability to Commence
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Significant Operations is Questionable.
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We are unaware of any other business that operates or has operated with the same
or similar business purpose as outlined in this prospectus. We have no way to
judge whether or not the business plan is viable. Therefore, an investment in
our company is very risky, as the business model cannot be compared to any
similar operations.
Our Failure to Secure Additional Financing Will Limit our Ability to Commence
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Operations and Thereafter Continue Operations.
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We will require financing in addition to the funds we hope to raise from the
sale of shares offered under this prospectus in order to commence our
operations. Such financing, if required, may not be forthcoming. Even if
additional financing is available, it may not be available on terms we find
favorable. Failure to secure the needed additional financing may have a serious
effect on our ability to commence its operations or thereafter to continue
operations.
Unproven Profitability Due to Lack of Operating History Makes an Investment in
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Our Company an Investment in an Unproven Venture.
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We formed the Company on November 18th 2005. As of this date, we do not have any
revenues or operations, and have few assets. Online does not expect to commence
generating revenues until at least six months after completion of the offering,
assuming all of the shares offered are sold.
We have a lack of operating history, and the revenue and income potential of our
business is unproven. If we cannot successfully implement the business
strategies, we may not be able to generate sufficient revenues to operate
profitably. Since our resources are very limited, insufficient revenues may
result in termination of operations, as we cannot fund unprofitable operations,
unless additional equity or debt financing is obtained.
With No Minimum Share Sale Requirement it is Possible that Our Company will Fail
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to Implement its Entire Business Plan Despite Having Raised some Funds from this
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Offering.
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Our offering is not subject to any minimum number of shares to be sold.
Consequently, the early investor is not assured of any other shares being sold.
You may be the only purchaser. If we fail to sell the entire offering, we will
not be able to implement our entire business plan, and this fact would
substantially increase the risk to your investment.
We are dependent upon this offering to be able to implement the business plan
and the lack of revenues and profits may make obtaining additional capital more
difficult. We presently have no significant operating capital and are totally
dependent upon receipt of the proceeds of this offering to provide the capital
necessary to commence the proposed business. Upon completion of this offering,
the amount of capital available to we will still be extremely limited,
especially if less than the total amount of the offering is raised since this is
a self-underwritten offering. We have no commitments for additional funding. If
we need to and are unable to raise additional capital, then the investor may
lose his investment.
Difficulty for Our Stockholders to Resell Their Stock Due to a Lack of Public
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Trading Market
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There is presently no public trading market for our common stock, and it is
unlikely that an active public trading market can be established or sustained in
the foreseeable future. We intend to have our common stock quoted on the OTC /
Bulletin Board as soon as practicable. However, there can be no assurance that
our shares will be quoted on the OTC / Bulletin Board. Until there is an
established trading market, holders of our common stock may find it difficult to
sell their stock or to obtain accurate quotations for the price of the common
stock. If a market for our common stock does develop, stock price may be
volatile.
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Our Independent Auditors' Report States that there is a Substantial Doubt that
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we will be able to Continue as a Going Concern.
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Our independent auditors Schumacher & Associates Inc., a Registered Public
Accounting Firm, state in their audit report, dated January 6th, 2006, and
included with this prospectus, that since we have no business operations to date
and must secure additional financing to commence our plan of operations, these
matters raise substantial doubt about the about our ability to continue as a
going concern.
Broker-dealers may be Discouraged from Effecting Transactions in Our Shares
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Because they are Considered Penny Stocks and are Subject to the Penny Stock
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Rules.
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Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934
impose sales practice and disclosure requirements on NASD broker-dealers who
make a market in "penny stocks." A penny stock generally includes any non-Nasdaq
equity security that has a market price of less than $5.00 per share. Online
shares currently are not traded on Nasdaq or on any other exchange nor are they
quoted on the OTC/Bulletin Board or "OTC/BB."
When the registration statement, in which this prospectus is included, becomes
effective we hope to find a broker-dealer to act as a market maker for the
company stock. We intend to seek an NASD Broker-dealer to file on our behalf
with the NASD an application on Form 15c(2)(11) for approval for the shares to
be quoted on the OTCBB. As of the date of this prospectus, we have not obtained
a market maker to file such an application for the company. If we are successful
in finding such a market maker and successful in achieving quotation on the
OTCBB, the stock will be considered a "penny stock." NASD broker-dealers who act
as market makers for our shares will generally facilitate purchases and sales of
the shares, but the additional sales practice and disclosure requirements
imposed upon broker-dealers by penny stock rules may discourage broker-dealers
from effecting transactions in our shares, which could severely limit the market
liquidity of the shares and impede the sale of the company's shares in the
secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to sale, unless the broker-dealer or
the transaction is otherwise exempt. Generally, accredited investors is an
individual with net worth in excess of $1,000,000 or an annual income exceeding
$200,000, or $300,000 together with his or her spouse.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the Commission relating to the penny stock market, unless the broker-dealer
or the transaction is otherwise exempt. A broker-dealer is also required to
disclose commissions payable to the broker-dealer and the registered
representative and current quotations for the securities. Finally, a
broker-dealer is required to send monthly statements disclosing recent price
information with respect to the penny stock held in a customer's account and
information with respect to the limited market in penny stocks.
Risks Related to Our Business
Securing artists under contract, which we have not done to date, is critical to
our ability to have art for sale on the Internet or in our galleries.
Securing one or more artists under contract to sell their works through us
involves a number of important steps:
- --Establishing sufficient brand recognition to attract the attention of artists;
- --Offering sufficient financial incentives and marketing resources as to attract
appropriate artists;
- -- Successfully contracting with and keeping under contract appropriate artists
together with their significant works
Identifying and contracting with appropriate artists involves the successful
execution of the above steps, which requires capital and human resources. We
have not made any efforts to put artists under contract to date. We may not have
sufficient capital or human resources to successfully accomplish these steps. If
we fail to identify, contract with and retain appropriate artists, we will not
have a successful product offering and will not attract customers, without whom
we will not derive revenues and will be unable to continue operations.
6
We must build a website and retail gallery in order to be able to sell art to
the public or we will not be able to derive any revenue.
In order to establish these venues to market works of art we must establish;
- --An Internet website highlighting all of our contracted artists and their works
for sale;
- --E-commerce capability on our Internet website so that we can sell art directly
to online customers for delivery to their homes or offices;
- --Retail galleries in leased locations which are appropriate to the demographics
of our customers.
All of these projects are in the early stages of development and require
substantial time and resources to complete. All that we have accomplished to
date on our website is to launch our basic interim website, which features our
current art inventory. We hope this website can generate sufficient capital to
develop our planned auction and e-commerce website. In addition, we may sell our
art inventory through other means in order to raise the necessary capital. This
may include selling our art on e-Bay or through other galleries. Although we are
in negotiations with other galleries, we currently do not have any preliminary
agreement with any gallery. In addition, we currently do not have the funds to
open a retail gallery.
We must acquire staff with skill sets to implement our business, or we will not
be able to execute our business plan.
We do not currently have the resources or staff to complete all of the projects
listed above and may not develop the technical, financial or human resources to
complete these projects. Without completing these projects successfully, we will
not have a mechanism for revenue and we will therefore not derive any revenue.
Without revenue, we will quickly consume our available cash and may be forced to
cease operations.
Our Initial Reliance on the limited features of a low-budget website could
result in an unsatisfactory customer experience and failure of our e-commerce
model.
Due to funding constraints, we have deployed an initial website for
approximately $2,000. This website is not interactive, nor does it have dynamic
pages, nor does it give customers the ability to understand what any eventual
full service website might be like. We risk alienating potential customers with
this low cost site and will not be able to develop or test our contemplated
business model until the site is upgraded. Our customers may be frustrated with
the lack of features on our site and may decide permanently to take their
business elsewhere. This could result in a failure of our e-commerce model, even
if we were to upgrade the site at a later date.
We need $70,000 to commence our plan of operations. Without these funds, our
limited contingency plan for sale of the art may fail. We may therefore never be
able to commence operations.
We require $70,000 to commence our plan of operations. There can be no assurance
that this offering will produce those proceeds or that we will derive the
proceeds through any other mechanism. We have a contingency plan to sell our
inventory of art on our interim website, on e-Bay or at auction. We may not be
successful at selling our inventory through any of these mechanisms. It is
difficult to drive traffic to a website without spending money on internet or
other marketing. Even if potential customers visit the website, they may not buy
art. No assurance can be given that anyone will buy the art on e-Bay or at
auction. If we do not raise the proceeds or sell our art in inventory, we will
not be able to commence operations and we will fail, resulting in a total loss
of investment.
We have never sold any art and may never be able to do so profitably. Our
failure to sell art profitably will drain available cash and eventually force us
to cease operations.
We have only been in business since November 2005. There is no meaningful
historical data for an investor to evaluate. As of February 28, 2006, we had
$22,883 in assets and $2,500 in liabilities. Our cash on February 28, 2006 was
$19,083 of which an estimated $18,000 will be required to pay the remaining
offering costs. We have derived very limited revenues and no profits. The
revenue and income potential of our business and the market for online sales of
artwork has to be proven. We will encounter risks and difficulties commonly
faced by early-stage companies in new and rapidly evolving markets. We intend to
7
make significant investments in our infrastructure, website and galleries. As a
result, we have a net loss from operations since inception and may not be able
to reach or sustain profitability in the future. If we fail to become
profitable, we will be forced to cease operations.
Failure to develop the audience or to convert the audience to purchasers will
result in insufficient sales and revenue and we may not be able to sustain
operations.
We expect that many of the same factors that will influence potential purchasers
to visit our retail or online galleries will also control their purchasing. We
may not be successful in achieving either of these ends without being able to:
- --Drive collectors and investors to an auction and e-commerce Internet site
which we plan to build;
- --Sign kinds of artists and works under contract that will appeal to our
customer demographic, both online customers and retail storefront customers;
- --Establish and enhance our infrastructure to handle a large amount of artists
and their artwork;
- --Continue to research and develop precise locations for our galleries;
- --Diversify our product offerings to appeal to a more diverse range of art
collectors and investors.
Our investment in these programs will require substantial amounts of cash, which
may not be available. Such expenditures will affect adversely our short-term
profitability. In the interim when funds are low, we have developed a
scaled-down version of our planned Internet site. We may fail to successfully
implement these programs or otherwise fail to develop a qualified audience of
purchasers. Such a failure would impact revenues adversely, and cause our
business to suffer. Without sufficient revenues, we will be unable to fund our
ongoing operations and would have to cease operations.
We may not be able to compete effectively against dominant companies in the art
gallery or the online art sales business because we lack the equipment, staff,
strategic alliances and experience.
There are numerous, well-financed competitors who offer artwork for sale through
galleries and/or web sites which will directly compete with us for new artists,
art collectors and art investors. Several competitors have larger staffs, more
resources, more strategic alliances, more sophisticated equipment and more
experience in the field of providing collectable artwork and accessories to the
public than we do. These competitors include:
- --P and C Art
- --Herndon Galleries
- --Galleria De Sorrento
- --Art.com
- --Artvest.com
We have not demonstrated that we can compete successfully against these
competitors and we may not be able to in the future. If we are unable to
effectively compete in the art industry, our results would be negatively
affected, we may be unable to implement our plan and we might ultimately fail.
If essential Officers, Ms. Gaye Adams and Mr. Greg Adams, leave prior to
securing a replacement, the company will be left without management or employees
and its business operations would cease.
Our chief executive officer and secretary are entirely responsible for the
development and execution of our business. They are under no contractual
obligation to remain employed by us. If they should choose to leave us for any
reason before we have hired additional personnel, we will fail. Even if we are
able to find additional personnel, it is uncertain whether we could find someone
who could develop the body of artists, complete the website and secure retail
gallery space for us. We will fail without an appropriate replacement.
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Our management has no prior experience in running an art gallery or an internet
business and therefore may not be able to successfully manage the development or
growth of our company in either field.
Our management has no experience in running an art gallery or an internet
business. Although Gaye Adams has some limited experience in purchasing art on
the open market, this experience may not be useful in purchasing art for the
retail market. Both the retail art and internet business present serious
managerial and operational challenges. Our inexperience may cause us to make
serious mistakes in the development or implementation of our business plan which
could make it impossible for us to profitably purchase and offer art for sale,
either in galleries or on the Internet. Our management may be unable to develop
or grow a business in this field due to its inexperience.
Risks related to this offering
Unrestricted sales of 2,500,000 shares of stock by our selling stockholders
could have a huge negative impact on our share price, and the market for our
shares.
Rules of the SEC about penny stocks apply to us and may impair our share price
and marketability.
The Securities and Exchange Commission has adopted a number of rules to regulate
"penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4,
15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934, as
amended. Because our securities constitute "penny stocks" within the meaning of
the rules, the rules apply to us and our securities. (See "Description of
Securities Penny Stock Classification.")
"Penny Stocks" are stocks:
1. with a price of less than $5.00 per share;
2. that are not traded on a "recognized" national exchange;
3. whose price are not quoted on the NASDAQ automated Quotation at not less
than $5.00 per share;
4. issuers with net tangible assets of less than $2 million (if the issuer has
been in continuous operation less than three years as is our situation).
The requirements affecting brokers affecting trades in our shares,
which are discussed in the Risk Factors immediately following, reduce the
potential market for our shares by reducing the number of potential investors.
This will make it more difficult for investors in our common stock to sell
shares to their parties or to otherwise dispose of them. This, in turn, could
cause our stock price to decline, and this impediment to trading could cause
difficulty to our stock to ever develop any consistency in volume, or any
substantial volume, which negatively affects liquidity of the shares and which
may affect our share price negatively.
Regulations regarding penny stocks may impair our shares' tradability in the
market if one ever develops.
Our securities, if and when available for trading, will be subject to a
Securities and Exchange Commission rule that imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other than
established customers or accredited investors. For purposes of the rule, the
phrase "accredited investors" means, in general terms, institutions with assets
in excess of $5,000,000, or individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that, when
combined with a spouse's income, exceeds $300,000). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may adversely affect the ability of
investors and broker-dealers to sell our securities and also may adversely
affect the ability of purchasers in this offering to sell their securities in
any market that might develop therefore. (See "Description of Securities.")
Investors should be aware of the risks in the market for penny stocks and the
possibilities of fraud and abuse.
We want shareholders to be aware that, according to Securities and
Exchange Commission, the market for penny stocks has suffered in recent years
from patterns of fraud and abuse. Such patterns include (i) control of the
market for the security by one or a few broker-dealers that are often related to
9
the promoter or issuer; (ii) manipulation of prices through prearranged matching
of purchases and sales and false and misleading press releases; (iii) "boiler
room" practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. The Company will not be able to control any of such patterns.
We expect our stock price to be volatile which could cause investment losses to
purchasers of our stock.
The trading price of our common stock is likely to be highly volatile.
Our stock price could fluctuate widely in response to many factors, including
the following:
o Our historical and anticipated quarterly and annual operating results;
o Announcements of new products or services by us or our competitors or new
competing technologies;
o Investor perceptions of us and investments relating to art;
o Developments in the art industry;
o Technological innovations;
o Changes in pricing made by us, our competitors or providers of alternative
services;
o The addition or loss of business customers;
o Variations between our actual results and analyst and investor expectations;
o Conditions or trends in the medical imaging industry, including regulatory
developments;
o Announcements by us of significant acquisitions, strategic partnerships,
joint venture or capital
commitments;
o Additions or departures of key personnel;
o General market and economic conditions.
In addition, in recent years the stock market in general, and the
Nasdaq National Market and the market for internet and technology companies in
particular, have experienced extreme price and volume fluctuations. These
fluctuations have often been unrelated or disproportionate to the operating
performance of these companies. These market and industry factors may materially
and adversely affect our stock price, regardless of our operating performance.
Share purchasers could suffer dilution from issuances of shares in the future
for consideration less than that paid by our current investors.
We may issue additional shares to finance our future capital and operations
requirements and for research and development of our proposed products. Any
issuance will reduce the present percent of ownership of previous investors and
will result in additional dilution to investors purchasing shares in the market.
(See "Need for Additional Financing.")
Future sales of our common stock by restricted shareholders could have a
depressive on the market price for our stock.
Currently, we have 2,500,000 shares of common stock outstanding, including those
being offered for resale in this registration. Subject to restrictions on
transfer referred to below, all other shares of common stock which we have not
registered are treated as "restricted securities" as defined under the
Securities Act (2,500,000 shares) and in the future may be sold in compliance
with Rule 144 under the Securities Act or pursuant to a registration statement
filed under the Securities Act. Rule 144 generally provides that a person
holding restricted securities for a period of one year may sell every three
months in brokerage transactions or market-maker transactions an amount equal to
the greater of (i) one percent (1%) of our issued and outstanding common stock
or (ii) the average weekly trading volume of the common stock during the four
calendar weeks prior to the sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity limitation by a person
who is not an affiliate of the company and who has satisfied a two year holding
period. The sale of substantial numbers of these shares, whether pursuant to
Rule 144 or pursuant to a registration statement, may have a depressive effect
on the market price of our common stock by causing the supply exceeding demand.
10
We may issue shares to raise capital or for services in the future at a price
lower than that paid by current investors and such actions would be dilutive,
even highly dilutive, of current outstanding shares, which would adversely
affect market values.
We will need to raise substantial additional capital and may issue shares for
cash, services, or acquisitions at a price less than that paid by current
owners, as needs arise. This poses a risk for investors in that there is no
protection for them against such dilutive issuances, which could ultimately
adversely affect the market and price for our shares, if a market ever develops.
Our operating results in future periods are likely to fluctuate significantly
and may fail to meet or exceed the expectations of securities analysts or
investors, and this could affect our market price, if any.
Our annual and quarterly operating results are likely to fluctuate significantly
in the future due to numerous factors, many of which are outside of our control.
These factors include many of which are discussed in other risk factors; such as
low revenues, competition, failure to approve products proposed, lack of
additional capital, competition, management changes, and intellectual property
infringement claims to extremely high operating costs. If our operating results
are negatively affected by any of these factors, our operating results in future
periods could fail to meet or exceed the expectations of securities analysts or
investors. In that event, any trading price of our common stock would likely
decline.
We may be unable to obtain the additional capital required to grow our business.
We may have to curtail our business if we cannot find adequate funding,
resulting ultimately in business failure.
Our ability to grow depends significantly on our ability to expand our
operations through internal growth and by acquiring other companies or assets
that require significant capital resources. We may need to seek additional
capital from public or private equity or debt sources to fund our growth and
operating plans and respond to other contingencies such as:
o shortfalls in anticipated revenues or increases in expenses;
o the development of new services; or
o the expansion of our operations, including the recruitment of additional
personnel.
We cannot be certain that we will be able to raise additional capital
in the future on terms acceptable to us or at all. If alternative sources of
financing are insufficient or unavailable, we may be required to modify our
growth and operating plans in accordance with the extent of available financing.
Any additional equity financing may involve substantial dilution to our then
existing shareholders.
Without being able to commence meaningful operations, we will not have a means
to acquire or sell artwork and would never be operational or profitable,
resulting in a total loss of your investment.
We believe that we will have to raise at least $70,000 in proceeds from the sale
of shares registered in this offering to commence operations as currently
planned. As we will be spending proceeds of the warrant as they are exercised,
we may spend proceeds without being able to complete a viable product offering.
If we fail to bring in revenues of $100,000, we may fail to achieve successful
operations, thus resulting in a total loss of your investment.
Dilution to present and future shareholders by sale of this offering new
issuances in the future will occur.
Upon the sales of shares, there may be substantial dilution to the shareholders.
The offering price of $.10 is substantially higher than the pro forma, net
tangible book value per share of our outstanding common stock. The net tangible
book value attributable to our shares as of February 28, 2006 was $20,383, or
$0.0082 per share. Net tangible book value per share of common stock is
determined by dividing the number of outstanding shares of common stock into the
net tangible book value attributable to our common stock, which is our total
11
tangible assets less our total liabilities. After giving effect to possible sale
of our shares at a price of $.10 per share, and after deducting the offering
expenses payable, the adjusted net tangible book value attributable to our
common stock will increase. This represents an immediate increase in net
tangible book value per share to the holders of our existing common stock and an
immediate dilution per share to shareholders purchasing shares of stock at the
offering price of $.10 per share. See "Dilution" hereinafter on pg. 15.
Value per share post offering Dilution
0.0059 0.0941
0.0117 0.0883
0.0168 0.0832
0.0214 0.0786
Our stock price may experience volatility because of competitive developments
and other factors beyond our control, and you may lose all or a part of your
investment.
The market prices of stock for companies, which provide artwork, supplies or
services particularly following an initial offering, often reach levels that
bear no relationship to the past or present operating performance of those
companies. These market prices may not be sustainable in the after market.
USE OF PROCEEDS
Online Originals, Inc. intends to raise $70,000 from the sale of 700,000 shares
of common stock at $0.10 per share. This offering is for a maximum amount of
$70,000 and no minimum sale requirement. We have no intention of returning any
stock sale proceeds to investors if the maximum amount is not raised.
The following table indicates how we intend to use these proceeds of this
offering.
Proceeds from Sale of Common Stock $70,000
Expenses
Legal and Accounting 8,000
Website Development 14,000
Computers, Network, Hosting and Telecom 7,000
Marketing and Promotion 18,000
Office Furniture, Equipment and Supplies 7,000
Inventory 12,000
Administration 3,000
Miscellaneous 1,000
Total $70,000
The above expenditure items are defined as follows:
Legal and Accounting: This expenditure item refers to the normal legal
and accounting costs associated with maintaining a publicly traded
company. We expect to make these expenditures throughout the year,
commencing upon the effective date of this registration statement.
Website Development: This expense is the cost associated with the
development of the website. Because we will be an online art
gallery/auction house the website will be the core business and without
it we will not be able to carry out our business plan as outlined in
this prospectus. Since the website will be used as the only means to
provide our services, it will be given the most amount of attention
following the public offering of which this prospectus is a part. Work
on our preliminary interim website has begun. These funds will be used
to upgrade our website in order to have an interactive site with
dynamic pages to display our inventory. The website will be used to
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outline our services, introduce and display our inventory, take orders
and respond to queries. It will have a members-only area where they
will be able to have their own account profiles, search tools to find
specific art pieces they are looking for; an open forum where members
can chat online and discuss personal interests; and art in general. We
intend to use these chat rooms to create "buzz" about new art works or
prints to stimulate interest.
Computers, Network, Hosting and Telecom: This expenditure refers to the
mandatory costs associated with having a web-based business. Costs have
been kept to a minimum to allow for greater marketing and promotions.
These costs, however, will cover hosting the website for one year,
telephone service for a year, and internet service for one year as well
as assisting in customer service, regulatory maintenance and updating.
This expenditure also includes the cost of purchasing computer
equipment.
We expect this expense to begin within six months after the closing of
this offering and continue through the balance of the year.
Marketing and Promotions: This expenditure refers to the cost of
setting up online marketing campaigns along with print and direct mail.
Online marketing will be used as the primary source to bring traffic to
the website. Google and Overture offer programs for businesses like
Online whereby advertising is based on a pay per click format rather
than a weekly or monthly bases. This means that the marketing and
promotions that Online will be doing will be highly focused and cost
effective. Print and direct mail will make up the other area of
marketing and promotions and will be placed in art magazines, art
stores, and art galleries and theaters.
Office Furniture, Equipment and Supplies: This expenditure refers to
items such as desks, chairs, computer software, photocopier, fax
machine, telephone system, filing cabinets, office supplies and other
similar office requirements. We expect to be making these expenditures
throughout the year, commencing during the 2nd quarter after the
effective date of the registration statement.
Inventory: This expenditure item refers to the total cost of
establishing product inventory for sale to the public. It is our
intention to have our inventory turnover a minimum of twelve times a
year. Consequently, we will do monthly evaluation of our sales to
adjust the products and the quantity of each product we wish to carry
in our inventory stock.
Administration: This expense is to cover the cost of bookkeeping and
other administrative costs.
Miscellaneous: This expense refers to any miscellaneous costs that have
not been otherwise listed such as bank service charges and sundry
items. This amount should cover all unexpected costs not mentioned or
listed in the above list. Any additional funds not used in this
category will be funneled back into marketing.
There is no assurance that we will raise the full $70,000 as anticipated. The
following is the break down of how management intends to use the proceeds if
only 25 percent, 50 percent, or 75 percent of the total offering amount is
raised:
Expenditure Item 25% 50% 75% 100%
- --------------------------------------------- -------------- -------------- ------------- -------------
Legal and Accounting 8,000 8,000 8,000 8,000
Website Development 5,000 8,000 10,000 14,000
Computers, Network, Hosting and Telecom 500 500 4,000 7,000
Marketing and Promotions 1,500 13,000 15,500 18,000
Office Furniture, Equipment and Supplies 500 500 3,000 7,000
Inventory 1,000 4,000 10,000 12,000
Administration 500 500 1,500 3,000
Miscellaneous 500 500 500 1,000
Total $17,500 $35,000 $52,500 $70,000
------- ------- ------- -------
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If only 25% of the offering is sold, we will continue with development
plans. The website will be given the most amount of attention, but we
will have to severely limit the features of our website. Funding for
marketing and promotions will be restricted. We will purchase limited
inventory. Internet marketing will be the only form of advertising and
marketing the company will use. This will keep cost low and allow for a
targeted marketing campaign intended to bring large volumes of traffic
to the website. Our directors and officers will participate in all
functions to generate sales and revenue from the business. We will use
the office furniture and computer hardware of the directors and only
basic software systems will be purchased until sufficient capital
becomes available. The directors will take responsibility for monthly
bookkeeping and quarterly in-house interim financial statements for the
accountant's review. We anticipate that the $17,500 along with the
expectation of limited revenue from modest sales will be sufficient to
sustain operations during the short-term. However, there would be
insufficient funds available for furtherance of the plan of operations
as detailed later in this prospectus under the heading "PLAN OF
OPERATION."
If less than $17,500 were made available, we will restrict expenditures
to a shoestring budget. Firstly, we will cover ongoing legal and
accounting cost. Improvement of our interim website will use the
balance of existing funds. No inventory will be acquired, with products
being procured on a consignment basis only. The creative artist will
not receive any remuneration until the artwork is delivered and payment
has been received.
In the event that only 50% of the offering amount is raised, we will be
able to further the plan of operation; however, our activities will
continue to be severely restricted. We will place more importance on
the website and marketing. Office furniture, computers and networking
will be left until more capital is made available. Marketing will be
focused on online advertising where targeted campaigns will allow for
higher density of traffic being directed to the website. Direct mail
campaigns will begin with mail outs and brochures being sent to art
galleries, major purchasers, and enthusiasts alike that have shown
interest throughout the last year. An increased level of inventory
would be anticipated.
If 75% of the total offering amount is raised, there will be sufficient
funds to pay a significant portion of all budgeted expenditure items.
Office furniture will again be the one area that we will restrict till
the full amount of the offering is achieved.
The monies we have raised thus far from selling stock to its officers and
directors will be sufficient to pay all expenses of this offering, which is
estimated to be $22,000. The total amount of the money raised from the sale of
the 700,000 shares we are offering will be used for the purpose of furthering
the Company's plan of operation, as detailed under the heading "PLAN OF
OPERATION" below.
DETERMINATION OF OFFERING PRICE
There is no established market for our common stock. We have arbitrarily set our
offering price for shares sold pursuant to this offering at $0.10 per share. The
2,500,000 shares of stock already purchased by officers and directors were sold
for $0.01 per share. All of the outstanding shares of our stock are restricted.
The additional factors that were included in determining the sales price are the
lack of liquidity since there is no present market for our stock and the high
level of risk considering our lack of operating history.
DILUTION
We are offering shares of its common stock for $0.10 per share through this
offering. Since our inception on November 18th, 2005, our officers and directors
have purchased shares of its common stock for $0.01 per share.
14
Comparative Data
- ----------------
The following table sets forth with respect to existing shareholders and new
investors, a comparison of the number of our shares of common stock purchased
the percentage ownership of such shares, the total consideration paid, the
percentage of total consideration paid and the average price per share.
Shares Purchased Total Consideration Average
Number Percent Amount Percent Price/Share
Existing shareholders
If 50% sold (min) 2,500,000 87.7% $25,000 41.7% $0.01
If 75% sold 2,500,000 82.6% $25,000 32.3% $0.01
If 100% sold (max) 2,500,000 78.1% $25,000 26.3% $0.01
New shareholders
If 50% sold (min) 350,000 12.3% $35,000 58.3% $0.10
If 75% sold 525,000 17.4% $52,500 67.7% $0.10
If 100% sold (max) 700,000 21.9% $70,000 73.7% $0.10
Total
If 50% sold (min) 2,850,000 100% $60,000 100% 0.0211
If 75% sold 3,025,000 100% $77,500 100% 0.0256
If 100% sold (max) 3,200,000 100% $95,000 100% 0.0297
"Net tangible book value" is the amount that results from subtracting the total
liabilities and intangible assets from the total assets of an entity. Dilution
occurs because we determined the offering price based on factors other than
those used in computing book value of our stock. Dilution exists because the
book value of shares held by existing stockholders is lower than the offering
price offered to new investors.
Following is a table detailing dilution to investors if 25%, 50%, 75%, or 100%
of the offering is sold.
25% 50% 75% 100%
Net Tangible Book Value Per Share Prior to
Stock Sale 0.0082 0.0082 0.0082 0.0082
Net Tangible Book Value Per Share After
Stock Sale* 0.0059 0.0117 0.0168 0.0214
Cost of Shares owned by existing
stockholders at $0.01 per share 25,000 25,000 25,000 25,000
Cost of Shares owned by new investors at
$0.10 per share 17,500 35,000 52,500 70,000
Increase in Net Book Value Per Share Due
to Stock Sale (0.0023) 0.0035 0.0086 0.0132
Loss (subscription price of $.10 less net
tangible book value per share) 0.0941 0.0883 0.0832 0.0786
* Computation of Net Tangible Book Value per Share after stock sale
includes the offering costs of $22,000
As at February 28, 2006, the net tangible book value of our stock was $0.01 per
share. If we are successful in selling all of the offered shares at the public
offering price, the pro forma net tangible book value of our stock after
deducting the offering costs of $22,000 would be $68,383 or approximately $0.02
per share. That would represent an immediate increase of $0.01 in net tangible
book value per share and $0.08 or 78% per share dilution to new investors,
assuming all the shares are sold at the offering price of $0.10 per share. The
existing stockholders have purchased a total of 2,500,000 shares for an
aggregate amount of $25,000 or an average cost of $0.01 per share. Your
investment in our shares will cost you $0.10 per share. In the event that this
offering is fully subscribed the book value of the stock held by the existing
stockholders will increase by $0.01 per share, while your investment will
decrease by $0.08 per share.
If this offering is fully subscribed, the total capital contributed by new
investors will be $70,000. The percentage of capital contribution will then be
16
26% for the existing stockholders and 74% for the new investors. The existing
stockholders will then hold, as a percentage, 78% of the issued and outstanding
shares of our company, while the new investors will hold, as a percentage, 22%.
SELLING SECURITY HOLDERS
Our current shareholders are not selling any of the shares being offered in this
prospectus.
PLAN OF DISTRIBUTION
Upon effectiveness of the registration statement, of which this prospectus is a
part, we will conduct the sale of shares on a self-underwritten basis. There
will be no underwriters used, no dealers' commissions, and no passive market
making. Our officers and directors, Gaye Adams and Greg Adams, will sell
securities on our behalf in this offering. Gaye Adams and Greg Adams are not
subject to a statutory disqualification as such term is defined in Section
(a)(39) of the Securities Exchange Act of 1934. They will rely on Rule 3a4-1 to
sell our securities without registering as broker-dealers. They are serving as
our officers and directors otherwise than in connection with transactions in
securities and will continue to do so at the conclusion of this offering. They
have not been a broker or dealer, or an associated person of a broker or dealer,
within the preceding 12 months, and have not nor will not participate in the
sale of securities for any issuer more than once every twelve months. Our
officers and directors will not receive commissions or other remuneration in
connection with their participation in this offering based either directly or
indirectly on transactions in securities. Our officers and directors intend to
contact people that they know from previous business relationships in connection
with their efforts to sell the securities offered by this prospective. We will
only use this prospectus in connection with this offering and no other sales
materials. Since our officers and directors are Canadian residents, we expect
all of the sales of this offering to be conducted in the western provinces of
Canada. If at a later date we determine to conduct this offering in the United
States, we will have to comply with applicable state securities laws of the
states where we would be offering the securities, which could include
registering as an issuer-dealer. Since we currently do not plan on conducting
the offering in any particular state, we have not determined the requirements of
any states securities laws that would be applicable with respect to this
offering.
We plan to offer shares to the public, at a price of $0.10 per share with no
minimum amount to be sold. The officers and directors will not purchase any
shares under this offering. We will keep the offering open until we sell all of
the shares registered, or September 30th, 2006, which ever occurs first. There
can be no assurance that we will sell all or any of the shares offered. We have
no arrangement or guarantee that we will sell any shares. All subscription
checks will be made payable to our company or as the business may otherwise
direct.
Any funds received from this offering will immediately be made available for our
use and retained by us regardless of whether or not we sell any additional
shares under this offering. Any funds not immediately used for corporate
purposes will be deposited into an interest bearing account in our name, and
interest accrued on such funds will be retained by us.
LEGAL PROCEEDINGS
We are is not a party to any pending legal proceedings, nor are we aware of any
government authority contemplating any legal proceeding against it.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Gaye Adams, President, Member of the Board, age 45
Ms. Adams has served as President and Director since November 18, 2005. The term
of office is for two years and thereafter renewable on an annual basis. Ms.
Adams also served as the Secretary/Treasurer from November 18th, 2005 until
resignation date of November 28th, 2007. Her son, Gregory Adams is presently
serving as Secretary/Treasurer and is also a member of the Board.
17
Ms. Adams has been self-employed for the last twenty years. She is an artist and
business woman with experience in motivational speaking, teaching, sales and
marketing. In 2003 Ms. Adams was given the designation of Senior Signature
status with the Federation of Canadian Artists. In 2002 she was given Associate
status with the Federation of Canadian Artists, and in 1998 given Signature
status with the Federation of Canadian Artists. Since 1998, Ms. Adams has
received awards including; Pastel Society of Canada National Exhibition,
Honorable Mention (1998), Federation of Canadian Artists Faces and Figures
Exhibition, Award of Excellence (1999), Pastel Society of Canada National
Exhibition, Evans Cash Award (2000), Miniatures Show Federation for Canadian
Artists, Award of Excellence (2001), Federation of Canadian Artists Mainland
Chapter Show, Award of Excellence (2001), Spilsbury Medal Show, Honorable
Mention (2002), Pastel Artists International Magazine International Competition,
Finalist (2002).
As Ms. Gaye Adams is self-employed, she is able to dedicate significant time
towards our business development. Gaye is prepared to spend 20 hours a week as
required.
Gaye Adams is not an officer or director of any reporting company that files
annual, quarterly, or periodic reports with the United States Securities and
Exchange Commission.
Gregory Adams, Secretary/Treasurer, Member of the Board, age 23
Mr. Adams has served as Secretary/Treasurer and Director since November 28th,
2005. The term of his office is for two years and is thereafter renewable on an
annual basis. His mother, Gaye Adams is presently serving as President and is a
Member of the Board.
Mr. Adams is currently studying full time as a fine arts student at Capilano
College in British Columbia, Canada. The focus of his course is commercial
animation. Prior to registering at Capilano College in January 2003, he has
received diplomas for life drawing and portraiture courses at Vancouver Academy
of Art in 2002, and completed part time drawing courses at Capilano College, in
December 2001. Mr. Adams completed his senior secondary education in Salmon Arm,
British Columbia in June 2001.
Mr. Adams has computer experience using Windows 98/ME/XP, Adobe After Effects,
Adobe Photoshop CS 2, Kinetix 3D Studio Max 3.0+, Macromedia Flash MX & Flash MX
2004, and Adobe Premiere 6.0.He is currently developing a Flash based website to
showcase his portfolio.
Although Mr. Adams is currently a full time student, he is prepared to spend up
to 20 hours a week of his time when operations begin with the intent of devoting
up to 50 hours per week upon completion of his education this spring.
Mr. Adams is not an officer or director of any reporting company that files
annual, quarterly or periodic reports with the United States Securities and
Exchange Commission.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table details our current shareholders owning 5% or more of the
common stock, and shares owned by our directors and officers as of February 28,
2006.
18
Title of Name and Address of Beneficial Owner Amount and
Class Nature of Percent of
Beneficial Class 1
Ownership
- ------------- ------------------------------------------------------- ----------------- -------------
Common Gaye Adams 1,800,000 72%
President and member of the Board of Directors
1240 Dieppe Road
Sorrento, British Columbia, Canada, V0E 2W0
- ------------- ------------------------------------------------------- ----------------- -------------
Common Greg Adams 700,000 28%
- ------------- ------------------------------------------------------- ----------------- -------------
Common Directors and officers as a group 2,500,000 100.00%
============= ======================================================= ================= =============
1 The percentage of class is based on the total number of shares outstanding of
2,500,000. We do not have any outstanding options, warrants or rights to acquire
shares of capital stock.
DESCRIPTION OF SECURITIES
Common Stock
Our Articles of Incorporation authorize the issuance of 75,000,000 shares of
common stock with $0.001 par value. Each of the shares of common stock to be
issued pursuant to this prospectus will be fully paid and non-assessable when
issued. We do not have authorized to issue any series or shares of preferred
stock. Each record holder of common stock is entitled to one vote for each share
held in all matters properly submitted to the stockholders for their vote.
Cumulative voting for the election of directors is not permitted by our By-Laws.
Holders of outstanding shares of common stock are entitled to such dividends as
may be declared from time to time by the Board of Directors out of legally
available funds; and, in the event of liquidation, dissolution or winding up of
the affairs of our company, holders are entitled to receive, ratably, the net
assets available to stockholders after distribution is made to the preferred
stockholders, if any, who are given preferred rights upon liquidation. Holders
of outstanding shares of common stock have no preemptive, conversion or
redemptive rights. To the extent that additional shares of our common stock are
issued, the relative interest of then existing stockholders may be diluted.
INTEREST OF NAMED EXPERTS AND COUNSEL
We have not hired or retained any experts or counsel on a contingent basis, who
would receive a direct or indirect interest in our company, or who is, or was, a
promoter, underwriter, voting trustee, director, officer or employee, of our
company.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES LIABILITIES
The Nevada General Corporation Law requires us to indemnify officers and
directors for any expenses incurred by any officer or director in connection
with any actions or proceedings, whether civil, criminal, administrative, or
investigative, brought against such officer or director because of his or her
status as an officer or director, to the extent that the director or officer has
been successful on the merits or otherwise in defense of the action or
proceeding. The Nevada General Corporation Law permits a corporation to
indemnify an officer or director, even in the absence of an agreement to do so,
for expenses incurred in connection with any action or proceeding if such
officer or director acted in good faith and in a manner in which he or she
reasonably believed to be in or not opposed to the best interests of our company
and such indemnification is authorized by the stockholders, by a quorum of
disinterested directors, by independent legal counsel in a written opinion
authorized by a majority vote of a quorum of directors consisting of
disinterested directors, or by independent legal counsel in a written opinion if
a quorum of disinterested directors cannot be obtained.
The Nevada General Corporation Law prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud, or a knowing violation
of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Nevada General Corporation Law may permit an
officer or director to apply to the court for approval of indemnification even
if the officer or director is adjudged to have committed intentional misconduct,
fraud, or a knowing violation of the law.
19
The Nevada General Corporation Law also provides that indemnification of
directors is not permitted for the unlawful payment of distributions, except for
those directors registering their dissent to the payment of the distribution.
According to Section 10 of our bylaws, we are authorized to indemnify its
directors to the fullest extent authorized under Nevada Law subject to certain
specified limitations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and persons controlling
the company pursuant to the foregoing provisions or otherwise, we are advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The Company was newly formed on November 18, 2005 and has had only limited start
up operations to date. Also see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
below.
DESCRIPTION OF BUSINESS
Business Development
The company was incorporated on November 18, 2005, in the State of Nevada.
Operations have yet to begin, and there is currently no revenue and no
significant assets. We have never been involved in any reclassification, merger,
consolidation or purchase or sale of a significant amount of assets nor has it
ever declared bankruptcy, has never been in receivership, and has never been
involved in any legal action or proceedings. Since becoming incorporated, we
have not made any significant purchase or sale of assets, nor has it been
involved in any mergers, acquisitions or consolidations. We are not a blank
check registrant as that term is defined in Rule 419(a) (2) of Regulation C of
the Securities Act of 1933, since it has a specific business plan or purpose and
it has no intentions or plans to merge with or acquire another company to be
used as a vehicle for a reverse acquisition in the foreseeable future.
Neither our Company nor our officers, directors, promoters or affiliates, have
had preliminary contact or discussions with, nor are there any present plans,
proposals, arrangements or understandings with any representatives of the owners
of any business or company regarding the possibility of an acquisition or
merger.
Business of Issuer
We intend to develop an online art gallery/auction house where members will be
able to bid and purchase art pieces online. These art pieces will be solicited
from artists, art owners, and members of the site, Online Originals' inventory
as well as one-time users looking to sell a single piece through the our
gallery/auction website. The website will showcase many varieties of art ranging
from paintings, drawings, prints, and sculptures. We intend to bring together
artists and art enthusiasts who are purely interested in art. The website will
allow people to read about the artists, past sales and reviews, quality of
service, and other aspects individuals want to know before doing business over
the Internet. Rather than sifting through a website to find artwork or artistic
pieces, this website will be strictly devoted to the display and sale of art
pieces. Members will have the ability to interact with other members in an open
forum or online chat room on our website. We intend to develop a community of
art enthusiasts through this site that will have profiles of other members and
member's comments on other sellers so individuals feel comfortable purchasing
online.
We will showcase original pieces of art from unknown artists in the industry as
well as established artists. Prints will also be available for individuals
looking for a piece that can otherwise only be found in a gallery. We will
continually add to our collection of art pieces, following the demand of the
members and listening to what they are looking for.
Buyers will be able to purchase art pieces from the website using different
forms of payment including Paypal, Linkpoint, credit card, money order, and
20
www.otherized.net. These being the most commonly used forms of payment on the
Internet today. We have not yet made any service arrangements with any of the
above noted companies and service providers.
We will be focusing on buyers and art collectors who are using the Internet to
find what they are looking for. The website will have a search toolbar where
visitors to the site will be able to type in the kind of art they are looking
for, a specific artist, and/or geographic location. We believe that these
elements will facilitate the sale of art pieces and create a community where
people can interact with others who share the same interests.
Members will enter the website, log into their account and see five pieces that
will be featured for the week. A dialogue on the pieces giving the history and
description will act as an educational tool and encourage individuals to visit
the site frequently. Featured artists, periods of time, and styles will all be
part of these weekly features. We believe that having these aspects on the site
will boost participation and facilitate community.
Principal Products and Services
- -------------------------------
We intend to develop an online art gallery/auction house that will allow members
and users to purchase original art pieces online. The artwork will consist of
paintings, drawings, prints, and sculptures. Members of the site, one-time users
and we will sell these pieces. Fees and commissions will be charged for the
services provided by us. Inventory pieces owned by the company will be purchased
at wholesale prices in lots, often and sold at retail prices.
Our site will also include a member's only area where individuals will have
access to educational material special sales and useful information about what
is happening in the art community. Members will have the ability to interact
with other members and sellers, giving a community feel to the website. Monthly
membership fees will be charged.
The Market
- ----------
We intend to primarily target North America but will be pleased to service
members and clients around the world. The key demographic that we are targeting
will be art purchasers. These individuals will come in all ages, races and
social structures. We will market to them primarily through online marketing.
Our marketing will focus on a specific group in North America and/or throughout
the world, and make them a targeted, specified community. This target group will
be art purchasers and art enthusiasts. Internet marketing will be used as the
primary source to bring traffic to the website. Google and Overture offer
programs for businesses like our whereby advertising is based on a pay per click
format rather than a weekly or monthly bases. This means that the marketing and
promotions that we will be doing will be highly focused, and we hope, cost
effective. Print and direct mail will make up the other area of marketing and
promotions and will be placed in art magazines, art stores, and art galleries
and theaters.
Competition and Competitive Strategy
- ------------------------------------
We are a development stage company and are presently unknown in the industry.
Our competitive position is not measurable.
There are various shops and stores that sell art. Our strategy is making it as
easy as possible for consumers to purchase art pieces without having to leave
the comfort of their home. Rather than spend time going to different shops in
search of a specific item, our members will have the ability to view thousands
of available art pieces from their home computer.
There are many auction houses on the Internet, but few, we believe, that are
focused on our same area. We intend to be differentiated from the other websites
by offering services specifically to art purchasers and art enthusiasts. Members
will be able to narrow their searches by artist, style and or year. We believe
this strategy will give us a competitive advantage.
Distribution
- ------------
Initially we will market through several key forms of advertising. The first
will be through online pay-per click advertising The cost of such advertising is
based on the popularity of search words and how prominent we want our
advertisement to be. We will only pay for advertising when individuals click on
the advertisement. We believe this form of advertising is much more specific and
cost effective than a newspaper ad or other forms of advertising.
21
Secondly, we will do cross promotions with other websites who are targeting the
same groups. By having a strong presence on the Internet, costs will remain low
and cross promotions will allow our name and services to reach a wide audience.
We also plan to participate in special interest mailing lists to gain visibility
among targeted audiences as well as generate traffic for the website. Special
interest mailing lists are not direct lists, but instead are similar to email
newsletters or on-going dialogues dedicated to special interests. We plan to
send E-mail messages to specific mailing lists targeting the individuals
currently viewing art and showing a visible interest in art.
We plan to participate in industry related newsgroups to gain visibility and
develop relationships with targeted markets.
Finally, we will seek to create a media presence and work towards establishing a
name for itself in the artistic community. Print and direct mail of marketing
and promotions and will be placed in art magazines, art stores, and art
galleries and theaters.
Sources and Availability of Products and Supplies
- -------------------------------------------------
Our inventory will come from creative artists. These individuals will supply
original art. We intend to showcase the works of art on the website for sale to
other artists and buyers and will offer advertising/promotional services for new
works being introduced.
Dependence on One or a Few Major Customers
- ------------------------------------------
We are not dependant on one or a few customers because our website will target
all art purchasers and art enthusiasts who have access to the internet.
Patent, Trademark, License & Franchise Restrictions and Contractual Obligations
- --------------------------------------------------------------------------------
& Concessions
- -------------
There are no inherent factors or circumstances associated with this industry, or
any of the products or services that we plan to provide that would give cause
for any patent, trademark or license infringements or violations. We have not
entered into any franchise agreements or other contracts that have given, or
could give rise to obligations or concessions. This is original art and we will
recognize the artists and copy rites if and when they are necessary.
Governmental Controls and Approvals
- -----------------------------------
In regards to both the retail and the customer service aspects of our business,
the major area for government control or need for government approval would be
local business licensing. All of the products being offered for sale will be
purchased from reputable artists and suppliers and will carry the necessary
government and industry standard approvals. We do not intend to promote products
or services of any business that are restricted in Canada and the United States.
Existing or Probable Government Regulations
- -------------------------------------------
Other than the licensing requirements discussed above, there are no other types
of government regulations existing nor are we aware of any such regulations
being contemplated that adversely affect our ability to operate.
Research and Development Activities and Costs
- ---------------------------------------------
We do not have any plans for research and development during the term of this
offering.
Compliance with Environmental Laws
- ----------------------------------
There are no environmental laws that have been enacted, nor is there an
awareness of any such laws being contemplated for the future, that address
issues specific to our business.
22
Facilities
- ----------
We do not own or rent facilities of any kind. At present, operations are from
the offices of the President, Ms. Adams and she provides this space free of
charge. We will continue to use this space our business operations for the
foreseeable future.
Employees
- ---------
We have no employees at the present time. The officers and directors are
responsible for all planning, developing and operational duties, and will
continue to do so throughout the early stages of growth. There are no intentions
in hiring employees until the business has been successfully launched and there
is sufficient, reliable revenue flowing into our company from operations. The
officers and directors will do whatever work is necessary to bring the business
to the point of having positive cash flow. Human resource planning will be part
of an ongoing process that will include constant evaluation of operations and
revenue realization. In any case, management has no intention of hiring any full
time employees during the first year of operations
Forward-Looking Statements
- --------------------------
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as: anticipate, believe, plan, expect, future,
intend and similar expressions, to identify such forward-looking statements.
Actual results are most likely to differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced as
described in this Risk Factors section and elsewhere in this prospectus. Factors
which may cause the actual results or the actual plan of operations to vary
include, among other things, decisions of the board of directors not to pursue a
specific course of action based on its re-assessment of the facts or new facts,
or changes in general economic conditions and those other factors set out in
this prospectus.
Reports to Security Holders
- ---------------------------
We will voluntarily make available to securities holders an annual report,
including audited financials on Form 10-K or Form 10-KSB. We are not currently a
fully reporting company, but upon effectiveness of this registration statement,
will be required to file reports with the SEC pursuant to the Securities
exchange Act of 1934.
The public may read and copy any materials filed wit the SEC at the SEC's Public
Reference Room at 100 F Street, N.E. Room 1580, Washington, DC 20549. The public
may obtain information about the operation of the Public Reference Room by
calling the Sec at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at htttp://www.sec.gov.
PLAN OF OPERATION
We are a development stage company with no operations, no revenues, no financial
backing and few assets. We are in the process of establishing a business, which
provides members with a website where customers will be able to bid on and
purchase pieces of art. Our target cliental is the artistic community and those
who enjoy purchasing, learning, and discussing art.
We do not currently have the $70,000 that is needed to fully launch our business
plan, to develop the web site, produce the print media and other promotional
campaigns and acquire the necessary inventory. We also have no source to supply
the necessary funding if unsuccessful in raising the capital through this
offering. We believe it could take up to 3 months to raise sufficient capital to
complete the development of the business after the registration, of which this
prospectus is apart, becomes effective.
In the event that we raise only a minimal amount of money from this offering,
such as $25,000 or less, we will endeavor to proceed with a modified plan of
operations. The day to day operations would be limited to internet marketing and
the directors making product sales through personal contacts. Those contacts
would include email and telephone calls with friends and past business
23
associates in order to market and promote the products for sale. The directors
would network through their contacts to develop prospective new clients. We
would purchase limited inventory. Our plan would then be that the majority of
our products would be procured on a consignment basis with the creative artist
not receiving any remuneration until the artwork is delivered and revenues have
been received from the sale of the artwork. We would use the working capital
remaining after all offering expenses are paid and with self financing from
financial contributions from individuals that are our founders and directors.
While these individuals have generally indicated a willingness to provide
financial contributions if necessary, there are presently no agreement,
arrangements, commitments or specific understandings, verbally or in writing,
between the founders and us nor any commitment to any minimum or maximum amount
that they, individually or jointly, would be willing to provide. In the event
that we require additional outside funding, there are no anticipated sources of
additional funds in place.
Should we be able to raise at least $25,000 from this offering, we would be able
to begin operations. We believe we can pursue our modified plan of operations if
we can raise enough funding through this offering after paying all offering
costs to begin limited operations and then achieve sales revenue within the
following six months. Our focus would be to develop our website. The website
would be used to introduce our products, take orders and respond to queries. Our
directors would monitor the website daily to fill orders and to reply to
inquiries. As products are purchased, we would complete the packaging and
shipping of the products on a daily basis.
Should we be able to raise the full offering of $70,000, we will be able to
fully launch our business plan. We will begin upgrading our website. This
process will begin the second month after funds of at least $25,000 are received
if the registration becomes effective. Our development of the website will be
ongoing and is expected to take 2 to 4 months costing the business initially
$8,000, with a total cost of $14,000 to complete the website.
Our purchase of inventory pieces will begin within 3 months of this registration
statement becoming effective. We expect that the inventory level will reach
$12,000 by the beginning of the third quarter. Our inventory level will be
managed closely to ensure good turnover. It is our intention to have our
inventory turnover six to eight times a year. Consequently, we will do monthly
evaluation of our sales to adjust the products and the quantity of each product
we wish to carry in our inventory stock.
We intend to design a promotional campaign that will be effective in the
artistic community giving consideration to the diversity of this community. A
website will be created as the main source of promotion and facilitation for our
members. Our website will outline the services, description of art pieces,
artists, and ordering instructions. It will also include the mission statement,
brief bios on the creators and sellers of the art pieces, as well as pictures of
the pieces.
The forms of promotions we intend to use will include search engine
optimization, pay-per click advertising and meta-tags within the website. This
process will be done side by side with the development of the website. Projected
time frame for this is 4 to 6 months This initial cost will come out of the
marketing and promotions budget and should be approximately $13,000 during the
first 6 months of operations.
We plan to register and list the website address with widely used search engines
and directories. When registering, we plan to use meta-tags and other
descriptive keywords to increase the likelihood of people finding the site when
conducting research on the Internet.
In the third quarter, we intend to begin to use direct mail campaigns, newspaper
advertisements, and magazine advertisements to promote the website. Our
remaining funds in marketing and promotions will be used for this form of
promotions and is intended to cost $5,000 taking the total budget for marketing
and promotions to $18,000 for the year.
We plan to participate in special interest mailing lists to gain visibility
among targeted audiences as well as generate traffic for the website. Special
interest mailing lists are not direct lists, but instead are similar to email
newsletters or on-going dialogues dedicated to special interests. E-mail
messages would be sent to specific mailing lists targeting the individuals
currently viewing art and showing a visible interest in art. We also plan to
participate in industry related newsgroups to gain visibility and develop
relationships with targeted markets.
During the early stages of our business commencement the officers and directors
will provide all the labor required to operate the website, take orders and
24
facilitate customer service. Since we intend to operate with very limited
administrative support, our officers and directors will continue to be
responsible for at least the first year of operations.
One of our marketing strategies is to offer a membership only auction house for
art buyers. Members will be offered choices of hundreds of art pieces, may view
bios on the sellers, and can see the quality of the piece while shopping from
the comfort of their own home.
Whether additional outside funding will be needed depends on the speed in which
we can start generating revenue. At the present time, we have only the funds
available to complete the expenses of this offering.
If we are unable to raise funding through this offering or from other sources,
the business will not be able to survive the first year of operations. In that
event, it will be critical that we begin to realize sales revenues as quickly as
possible.
Expenditures
During the first year of operations, we will concentrate efforts on the
development of website layout, cross-promotions, and print media in order to
establish a growing client base. We plan to develop the Internet business to
generate sales revenue for continuing operations.
Readers will note that we have already raised a total of $25,000 from the sale
of 2,500,000 shares of common stock from the sale of stock to affiliates,
officers and directors. These shares are restricted and are not being registered
in this offering. The offering expenses associated with this offering are
estimated to be $22,000. As at February 28th. we had a balance of $19,083 in
cash. As at February 28th, $3,900 had been paid towards the expenses of the
offering, an additional $18,100 is required to complete the offering. Existing
cash will pay for the entire outstanding balance created from this offering.
None of the offering expenses are to be paid out of the proceeds of this
offering. The entire sum of monies raised from this offering will be used to
finance our plan of operations. None of the proceeds of this offering will be
used to repay any existing debt.
Should we raise the entire $70,000 from this offering together with the cash
remaining after the offering expenses are paid, we believe that no further funds
would be required for the operation of our business for the twelve month period
following the completion of this offering.
In the event that we raise only a nominal amount of money from this offering -
$25,000 or less - we will endeavor to proceed with the plan of operations by
self financing from financial contributions from our founders. While the
founders have generally indicated a willingness to provide services and
financial contributions if necessary, there are presently no agreements,
arrangements, commitments or specific understandings, verbally or in writing,
between the founders and us. If we should require additional outside funding,
there are no anticipated sources of additional funds in place.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
DESCRIPTION OF PROPERTY
We do not own any property, real or otherwise. For the first year, we will
conduct administrative affairs from the office located in the home of our
president, Gaye Adams, at no cost to the company.
We do not have any investments or interests in any real estate. We do not invest
in real estate mortgages, nor do we invest in securities of, or interests in,
persons primarily engaged in real estate activities.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the stock transactions discussed below, we have not entered into any
transaction nor are there any proposed transactions in which any founder,
director, executive officer, shareholder of our company or any member of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
On November 18th, 2005, Gaye Adams, who is the founder of our company and a
member of the board of directors, purchased by subscription 1,800,000 shares of
common stock at a price of $0.01 per share for a total of $18,000.
The only other officer and director, Mr. Greg Adams, purchased 700,000 shares of
our company common stock on November 28th, 2005, in a private offering price of
$0.01 per share for a total of $7,000.
There are no promoters being used in relation to this offering. No person who
may, in the future, be considered a promoter of this offering, will receive or
expect to receive assets, services or other considerations from our company. No
assets will be, nor expected to be, acquired from any promoter on behalf of the
company. We have not entered into any agreements that require disclosure to the
shareholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
- ------------------
Currently there is no public trading market for our stock, and we have not
applied to have the common stock listed. We intend to apply to have the common
stock quoted on the OTC Bulletin Board immediately after filing this
registration statement. No trading symbol has yet been assigned. We do not have
any outstanding options, warrants to purchase, or securities convertible into
shares of common stock.
The offering of the shares under this prospectus of 700,000 shares at the price
of $0.10 per share could have a material effect on the market price for the
stock if it is approved for quotation on the OTC / BB.
We know that a total of 1,800,000 shares of the common stock will be available
for resale to the public after November 18th, 2006 and all of our current issued
and outstanding 2,500,000 shares of the common stock will be available for
resale to the public after November 28, 2006 subject to the volume and trading
limitations of Rule 144 of the Act. In general, under Rule 144, as currently in
effect, a person who has beneficially owned shares of a company's common stock
for at least one year is entitled to sell within any three month period a number
of shares that does not exceed the greater of: 1% of the number of shares of our
common stock then outstanding which, in this case, will equal approximately
25,000 shares as of the date of this prospectus; or the average weekly trading
volume of our common stock during the four calendar weeks preceding the filing
of a notice on form 144 with respect to the sale.
Rules Governing Low-Price Stocks that May Affect Our Shareholders' Ability to
- -----------------------------------------------------------------------------
Resell Shares of Our Common Stock
- ---------------------------------
Our stock currently is not traded on any stock exchange or quoted on any stock
quotation system. After filing the registration statement in which this
prospectus is included, we intend to solicit a broker to apply for quotation of
common stock on the NASD's OTC/BB.
Quotations on the OTC/BB reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not reflect actual transactions. Our common stock
will be subject to certain rules adopted by the SEC that regulate broker-dealer
practices in connection with transactions in "penny stocks". Penny stocks
generally are securities with a price of less than $5.00, other than securities
registered on certain national exchanges or quoted on the Nasdaq system,
provided that the exchange or system provides current price and volume
information with respect to transaction in such securities. The additional sales
practice and disclosure requirements imposed upon broker-dealers are and may
discourage broker-dealers from effecting transactions in our shares which could
severely limit the market liquidity of the shares and impede the sale of shares
in the secondary market.
The penny stock rules require broker-dealers, prior to a transaction in a penny
stock not otherwise exempt from the rules, to make a special suitability
determination for the purchaser to receive the purchaser's written consent to
26
the transaction prior to sale, to deliver standardized risk disclosure documents
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
provide the customer with current bid and offer quotations for the penny stock.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks.
Holders
- -------
As of the filing of this prospectus, we have two shareholders of record of our
company's common stock. Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of current public
information about us. Under Rule 144(k), a person who is not one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least 2 years, is
entitled to sell shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
As of the date of this prospectus, persons who are our affiliates hold all of
the 2,500,000 shares, which may be sold pursuant to Rule 144 after November 28,
2006.
Dividends
- ---------
As of the filing of this prospectus, we have not paid any dividends to
shareholders. There are no restrictions which would limit our ability to pay
dividends on common equity or that are likely to do so in the future. The Nevada
Revised Statutes, however, do prohibit us from declaring dividends where, after
giving effect to the distribution of the dividend; we would not be able to pay
its debts as they become due in the usual course of business; or its total
assets would be less than the sum of the total liabilities plus the amount that
would be needed to satisfy the rights of shareholders who have preferential
rights superior to those receiving the distribution.
EXECUTIVE COMPENSATION
Our officers have not currently received and are not accruing any compensation.
Our officers anticipate that they will not receive or accrue any compensation
during the first year of operations.
FINANCIAL STATEMENTS
The financial statements of Online Originals, Inc. appear on pages F-1 through
F-21.
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosures
Not applicable.
27
ONLINE ORIGINALS, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
November 30, 2005
Page
Report of Independent Registered Public Accounting Firm F-2
Financial Statements:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7 to F-10
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors
Online Originals, Inc.
We have audited the accompanying balance sheet of Online Originals, Inc., as of
November 30, 2005, and the related statements of operations, stockholders'
equity, and cash flows for the period from November 18, 2005 (inception) to
November 30, 2005. 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. 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. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Online Originals, Inc. as of
November 30, 2005, and the results of its operations and cash flows for the
period from November 18, 2005 (inception) to November 30, 2005, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 3, the Company
has no business operations to date and must secure additional financing to
commence the Company's plan of operations which raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to this
matter are also discussed in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Schumacher & Associates, Inc.
SCHUMACHER & ASSOCIATES, INC.
Denver, Colorado
January 6, 2006
F-2
ONLINE ORIGINALS, INC.
(A Development Stage Company)
BALANCE SHEET
November 30, 2005
ASSETS
Current
Cash $ 25,085
-----------------
Total Current Assets 25,085
-----------------
Total Assets $ 25,085
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current
Accounts payable $ 765
Accrued liabilities 2,000
-----------------
Total Current Liabilities 2,765
-----------------
Commitments and Contingencies (Notes 3 and 6)
STOCKHOLDERS' EQUITY
Capital Stock
Authorized:
75,000,000 common shares, par value $0.001 per share
Issued and outstanding:
2,500,000 common shares 2,500
Additional paid-in capital 22,500
Deficit Accumulated During The Development Stage (2,680)
-----------------
Total Stockholders' Equity 22,320
-----------------
Total Liabilities and Stockholders' Equity $ 25,085
=================
The accompanying notes are an integral part of these financial statements.
F-3
ONLINE ORIGINALS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION, NOVEMBER 18, 2005, TO NOVEMBER 30, 2005
Cumulative amounts from
Date of Incorporation on
November 18, 2005 to
November 30, 2005
---------------------------
Revenue $ -
---------------------------
Expenses
Organizational costs 665
Professional fees 2,000
Office and administration 15
---------------------------
2,680
---------------------------
Net Loss from Operations (2,680)
---------------------------
Other Income
Interest Income -
---------------------------
Net Loss For The Period (2,680)
===========================
Basic And Diluted Loss Per Share Nil
===========================
Weighted Average Number Of Shares Outstanding 1,961,538
===========================
The accompanying notes are an integral part of these financial statements.
F-4
ONLINE ORIGINALS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
NOVEMBER 30, 2005
DEFICIT
CAPITAL STOCK ACCUMULATED
---------------------------------------------------
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
-------------- --------------- -------------------- ----------------------- ----------------
November 18, 2005 - Shares issued
for cash at $0.01 1,800,000 $ 1,800 $ 16,200 $ - $ 18,000
November 28, 2005 - Shares issued
Net loss for the period ended - - - (2,680) (2,680)
November 30, 2005
-------------- ----------- ----------------- -------------------- -----------
Balance, November 30, 2005 2,500,000 $ 2,500 $ 22,500 $ (2,680) $ 22,320
============== =========== ================= ==================== ===========
The accompanying notes are an integral part of these statements.
F-6
ONLINE ORIGINALS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION, NOVEMBER 18, 2005, TO NOVEMBER 30, 2005
Cumulative amounts from Date of
Incorporation on November 18,
2005 to November 30, 2005
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss for the period $ (2,680)
Adjustments To Reconcile Net Loss To Net Cash
Used By Operating Activities
Accounts payable and accrued liabilities 2,765
---------------------------
85
---------------------------
Cash Flows From Financing Activity
Issuance of common shares 25,000
---------------------------
Increase In Cash During The Period 25,085
Cash, Beginning Of Period -
---------------------------
Cash, End Of Period 25,085
===========================
Supplemental Disclosure Of Cash Flow Information
Cash paid for:
Interest $ -
Income taxes -
===========================
The accompanying notes are an integral part of these statements.
F-5
ONLINE ORIGINALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2005
1. NATURE AND CONTINUANCE OF OPERATIONS
a) Organization
The Company was incorporated in the State of Nevada, United States of
America, on November 18, 2005. The Company's year end is November 30.
b) Development Stage Activities
The Company is in the development stage and has not yet realized any
revenues from its planned operations. Online Originals' business plan
is to develop a membership based website art gallery/auction house
specifically focused on displaying and selling original artwork.
Based upon the Company's business plan, it is a development stage
enterprise. Accordingly, the Company presents its financial statements
in conformity with the accounting principles generally accepted in the
United States of America that apply in establishing operating
enterprises. As a development stage enterprise, the Company discloses
the deficit accumulated during the development stage and the cumulative
statements of operations and cash flows from inception to the current
balance sheet date.
2. SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist
in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles
in the United States of America and have been consistently applied in
the preparation of the financial statements. The financial statements
are stated in United States of America dollars.
a) Organizational and Start-up Costs
Costs of start-up activities, including organizational costs, are
expensed as incurred in accordance with SOP 98-5.
b) Income Taxes
The Company has adopted the Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes" (SFAS 109). SFAS
109 requires the use of the asset and liability method of
accounting of income taxes. Under the asset and liability method
of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary
differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled.
F-7
c) Basic and Diluted Loss Per Share
In accordance with SFAS No. 128 - "Earnings Per Share", the basic
loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per common share is computed
similar to basic loss per common share except that the denominator
is increased to include the number of additional common shares
that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
At November 30, 2005, the Company had no stock equivalents that
were anti-dilutive and excluded in the earnings per share
computation.
d) Estimated Fair Value of Financial Instruments
The carrying value of the Company's financial instruments,
consisting of accounts payable and accrued liabilities approximate
their fair value due to the short-term maturity of such
instruments. Unless otherwise noted, it is management's opinion
that the Company is not exposed to significant interest, currency
or credit risks arising from these financial statements.
e) Revenue Recognition
The company has had no revenues to date. It is the Company's
policy that revenues will be recognized in accordance with SEC
Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition."
Under SAB 104, product revenues (or service revenues) are
recognized when persuasive evidence of an arrangement exists,
delivery has occurred (or service has been performed), the sales
price is fixed and determinable and collectibility is reasonably
assured.
f) Currency
The functional currency of the Company is the United States
Dollar.
g) Use of Estimates
The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
h) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
i) Concentrations
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of cash and cash
equivalents. At November 30, 2005, the Company had no amounts of
cash or cash equivalents in financial institutions in excess of
amounts insured by agencies of the U.S. Government.
j) Recent Accounting Pronouncements
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities," and a revised interpretation of FIN
46 ("FIN 46-R") in December 2003. FIN 46 requires certain variable
interest entities ("VIEs") to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support
from other parties. The provisions of FIN 46 are effective
immediately for all arrangements entered into after January 31,
2003. Since January 31, 2003, the Company has not invested in any
entities it believes are variable interest entities for which the
Company is the primary beneficiary. For all arrangements entered
into after January 31, 2003, the Company was required to continue
to apply FIN 46 through April 30, 2004. The Company was required
to adopt the provisions of FIN 46-R for those arrangements on May
1, 2004. For arrangements entered into prior to February 1, 2003,
the Company was required to adopt the provisions of FIN 46-R on
May 1, 2004. The adoption of this statement did not impact the
Company's financial position, results of operations, or cash
flows.
F-8
In December 2004, the Financial Accounting Standards Board (FASB)
issued FAS 123(R), Shareholder Based Payments, that, upon
implementation, will impact the Company's net earnings and
earnings per share, and change the classification of certain
elements of the statement of cash flows. FAS 123(R) requires
stock options and other share-based payments made to employees to
be accounted for as compensation expense and recorded at fair
value, and to reflect the related tax benefit received upon
exercise of the options in the statement of cash flows as a
financing activity inflow rather than an adjustment of operating
activity as currently presented. Consistent with provisions of
the new standard, the Company adopted FAS 123(R) in the third
quarter of 2005, and to implement it on a prospective basis.
There were various other accounting standards and interpretations
issued during 2005 and 2004, none of which are expected to have a
material impact on the Company's consolidated financial position,
operations or cash flows.
k) Other
The Company consists of one reportable business segment. The
Company paid no dividends during the periods presented.
3. BASIS OF PRESENTATION - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of
America, which contemplates continuation of the Company as a going
concern. However, the Company has no business operations to date and
must secure additional financing to commence the Company's plan of
operations. These matters raise substantial doubt about the Company's
ability to continue as going concern. In view of these matters,
realization of certain of the assets in the accompanying balance sheet
is dependent upon the Company's ability to meet its financing
requirements, raise additional capital, and the success of its future
operations. The Company intends to acquire additional operating capital
through equity offerings to the public to fund its business plan. There
is no assurance that the equity offerings will be successful in raising
sufficient funds to commence operations or to assure the eventual
profitability of the Company. Management believes that actions planned
and presently being taken to revise the Company's operating and
financial requirements provide the opportunity for the Company to
continue as a going concern.
The financial statements do not include any adjustments that might
result from these uncertainties.
4. COMMON STOCK
The Company's authorized common stock consists of 75,000,000 shares
with a par value of $0.001 per share.
On November 18, 2005, the Company issued 1,800,000 shares of common
stock at a price of $0.01 for cash totaling $18,000.
On November 28, 2005, the Company issued 700,000 shares of common stock
at a price of $0.01 for cash totaling $7,000.
5. INCOME TAXES
The Company is subject to US federal income taxes. The Company has had
no income, and therefore has paid no income tax.
Deferred income taxes arise from temporary timing differences in the
recognition of income and expenses for financial reporting and tax
F-9
purposes. The Company's deferred tax assets consist entirely of the
benefit from net operating loss (NOL) carryforwards. The net operating
loss carry forwards expire in 2026. The Company's deferred tax assets
are offset by a valuation allowance due to the uncertainty of the
realization of the net operating loss carryforwards. Net operating loss
carryforwards may be further limited by a change in company ownership
and other provisions of the tax laws.
The Company's deferred tax assets, valuation allowance, and change in
valuation allowance are as follows:
NOL
Estimated Expires Estimated Change in
NOL Tax Benefit Valuation Valuation Net Tax
Period Ending Carry-forward from NOL Allowance Allowance Benefit
November 30, 2005 2,680 2026 402 (402) (402) --
Income taxes at the statutory rate are reconciled to the Company's
actual income taxes as follows:
Income tax benefit at statutory rate resulting from net operating
loss carryforward (15%)
Deferred income tax valuation allowance 15%
-------
Actual tax rate 0%
=======
6. RELATED PARTY TRANSACTIONS
The Company uses the offices of its President for its minimal office
facility needs for no consideration. No provision for these costs has been
provided since it has been determined that they are immaterial.
7. SUBSEQUENT EVENTS
The Company proposes to file a Form SB-2 Registration Statement to offer
the public up to 700,000 common shares at $0.10 per share.
F-10
ONLINE ORIGINALS, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
February 28, 2006
(Unaudited)
Page
Financial Statements:
Balance Sheet F-12
Statements of Operations F-13
Statement of Stockholders' Equity F-14
Statements of Cash Flows F-15
Notes to Financial Statements F-16 to F-19
F-11
ONLINE ORIGINALS, INC.
(A Development Stage Company)
BALANCE SHEETS
February 28, November 30,
2006 (unaudited) 2005 (See Note 1)
ASSETS
Current
Cash $ 19,083 $ 25,085
Prepaid expenses 3,800 -
-----------------------------------
Total Assets $ 22,883 $ 25,085
===================================
LIABILITIES
Current
Accounts payable $ - $ 765
Accrued liabilities 2,500 2,000
-----------------------------------
Total Liabilities 2,500 2,765
Commitments and Contingencies (Notes 4 and 7)
STOCKHOLDERS' EQUITY
Capital Stock
Authorized:
75,000,000 common shares, par value $0.001 per share
Issued and outstanding:
2,500,000 common shares 2,500 2,500
Additional paid-in capital 22,500 22,500
Deficit Accumulated During The Development Stage (4,617) (2,680)
-----------------------------------
Total Stockholders' Equity 20,383 22,320
Total Liabilities and Stockholders' Equity $ 22,883 $ 25,085
===================================
The accompanying notes are an integral part of these statements.
F-12
ONLINE ORIGINALS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
PERIOD FROM INCEPTION, NOVEMBER 18, 2005, TO FEBRUARY 28, 2006
(Unaudited)
Three-month period Cumulative amounts from Date of
ending February 28, Incorporation on November 18, 2005
2006 to February 28, 2006
-------------------------------------------------------------------
Revenue $ - $ -
-------------------------------------------------------------------
Expenses
Organizational costs - 665
Professional fees 1,700 3,700
Office and administration 237 252
-------------------------------------------------------------------
1,937 4,617
-------------------------------------------------------------------
Net Loss from Operations (1,937) (4,617)
-------------------------------------------------------------------
Other Income
Interest Income - -
-------------------------------------------------------------------
Net Loss For The Period $ (1,937) (4,617)
===================================================================
Basic And Diluted Loss Per Share $ Nil Nil
===================================================================
Weighted Average Number Of Shares Outstanding 2,500,000 2,432,039
===================================================================
The accompanying notes are an integral part of these statements.
F-13
ONLINE ORIGINALS, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from November 18, 2005 (date of inception)
through February 28, 2006 (Unaudited)
DEFICIT
CAPITAL STOCK ACCUMULATED
-------------------------------------------------
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
----------------------------------------------------------------------------------------
November 18,2005 - Shares issued
for cash at $0.01 1,800,000 $ 1,800 $ 16,200 $ - $ 18,000
November 28, 2005 - Shares issued
for cash at $0.01 700,000 700 6,300 - 7,000
Net loss for the period ended
November 30, 2005 - - - (2,680) (2,680)
----------------------------------------------------------------------------------------
Balance, November 30, 2005 2,500,000 2,500 22,500 (2,680) 22,320
Net loss for the period ended
February 28, 2006 - - - (1,937) (1,937)
----------------------------------------------------------------------------------------
Balance, February 28, 2006 2,500,000 $ 2,500 $ 22,500 $ (4,617) $ 20,383
============== ========== ================ =================== ===========
The accompanying notes are an integral part of these statements.
F-14
ONLINE ORIGINALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
PERIOD FROM INCEPTION, NOVEMBER 18, 2005, TO FEBRUARY 28, 2006
(Unaudited)
Three-month Cumulative amounts from Date
period ending of Incorporation on November
February 28, 2006 18, 2005 to February 28, 2006
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss for the period $ (1,937) $ (4,617)
Adjustments To Reconcile Net Loss To Net
Cash Used By Operating Activities
Prepaid expenses (3,800) (3,800)
Accounts payable and accrued liabilities
(265) 2,500
-------------------------------------------------------------
(4,065) (1,300)
-------------------------------------------------------------
Net Cash Flows From Operating Activities (6,002) (5,917)
-------------------------------------------------------------
Cash Flows From Financing Activity
Issuance of common shares - 25,000
-------------------------------------------------------------
Increase (Decrease) In Cash During The Period (6,002) 19,083
Cash, Beginning Of Period 25,085 -
-------------------------------------------------------------
Cash, End Of Period $ 19,083 19,083
=============================================================
Supplemental Disclosure Of Cash Flow Information
Cash paid for:
Interest $ - $ -
Income taxes - -
=============================================================
The accompanying notes are an integral part of these statements.
F-15
ONLINE ORIGINALS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006
(Unaudited)
1. BASIS OF PRESENTATION
While the information presented in the accompanying interim financial
statements is unaudited, it includes all adjustments which are, in the
opinion of management, necessary to present fairly the financial position,
results of operations and cash flows for the interim periods presented.
Except as disclosed below, these interim financial statements follow the
same accounting policies and methods of their application as the Company's
audited November 30, 2005 annual financial statements. It is suggested
that these interim financial statements be read in conjunction with the
Company's November 30, 2005 audited financial statements.
The information as of November 30, 2005 is taken from the audited
financial statements of that date.
2. NATURE AND CONTINUENCE OF OPERATIONS
a) Organization
The Company was incorporated in the State of Nevada, United States of
America, on November 18, 2005. The Company's year end is November 30.
b) Development Stage Activities
The Company is in the development stage and has not yet realized any
revenues from its planned operations. Online Originals' business plan
is to develop a membership based website art gallery/auction house
specifically focused on displaying and selling original artwork.
Based upon the Company's business plan, it is a development stage
enterprise. Accordingly, the Company presents its financial statements
in conformity with the accounting principles generally accepted in the
United States of America that apply in establishing operating
enterprises. As a development stage enterprise, the Company discloses
the deficit accumulated during the development stage and the cumulative
statements of operations and cash flows from inception to the current
balance sheet date.
3. SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist
in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles
in the United States of America and have been consistently applied in
the preparation of the financial statements. The financial statements
are stated in United States of America dollars.
a) Organizational and Start-up Costs
Costs of start-up activities, including organizational costs, are
expensed as incurred in accordance with SOP 98-5.
b) Income Taxes
The Company has adopted the Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes" (SFAS 109). SFAS
109 requires the use of the asset and liability method of
accounting of income taxes. Under the asset and liability method
of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary
differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled.
F-16
ONLINE ORIGINALS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006
(Unaudited)
c) Basic and Diluted Loss Per Share
In accordance with SFAS No. 128 - "Earnings Per Share", the basic
loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per common share is computed
similar to basic loss per common share except that the denominator
is increased to include the number of additional common shares
that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
At February 28, 2006, the Company had no stock equivalents that
were anti-dilutive and excluded in the earnings per share
computation.
d) Estimated Fair Value of Financial Instruments
The carrying value of the Company's financial instruments,
consisting of accounts payable and accrued liabilities approximate
their fair value due to the short-term maturity of such
instruments. Unless otherwise noted, it is management's opinion
that the Company is not exposed to significant interest, currency
or credit risks arising from these financial statements.
e) Revenue Recognition
The company has had no revenues to date. It is the Company's
policy that revenues will be recognized in accordance with SEC
Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition."
Under SAB 104, product revenues (or service revenues) are
recognized when persuasive evidence of an arrangement exists,
delivery has occurred (or service has been performed), the sales
price is fixed and determinable and collectibility is reasonably
assured.
f) Currency
The functional currency of the Company is the United States
Dollar.
g) Use of Estimates
The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
h) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
i) Concentrations
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of cash and cash
equivalents. At February 28, 2006 the Company had no amounts of
cash or cash equivalents in financial institutions in excess of
amounts insured by agencies of the U.S. Government.
j) Recent Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149 "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities",
which amends and clarifies the accounting guidance on certain
derivative instruments and hedging activities. SFAS 149 is
generally effective for contracts entered into or modified after
June 30, 2003 and hedging relationships designated after June 30,
2003. The adoption of this statement did not impact the Company's
financial position, results of operations, or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS 150 establishes standards for how an issuer of
equity (including the equity shares of any entity whose financial
statements are included in the consolidated financial statements)
F-17
ONLINE ORIGINALS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006
(Unaudited)
classifies and measures on its balance sheet certain financial
instruments with characteristics of both liabilities and equity.
SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003 and for existing financial instruments
after July 1, 2003. The adoption of this statement did not impact
the Company's financial position, results of operations, or cash
flows.
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities," and a revised interpretation of FIN
46 ("FIN 46-R") in December 2003. FIN 46 requires certain variable
interest entities ("VIEs") to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support
from other parties. The provisions of FIN 46 are effective
immediately for all arrangements entered into after January 31,
2003. Since January 31, 2003, the Company has not invested in any
entities it believes are variable interest entities for which the
Company is the primary beneficiary. For all arrangements entered
into after January 31, 2003, the Company was required to continue
to apply FIN 46 through April 30, 2004. The Company was required
to adopt the provisions of FIN 46-R for those arrangements on May
1, 2004. For arrangements entered into prior to February 1, 2003,
the Company was required to adopt the provisions of FIN 46-R on
May 1, 2004. The adoption of this statement did not impact the
Company's financial position, results of operations, or cash
flows.
k) Other
The Company consists of one reportable business segment. The
Company paid no dividends during the periods presented.
4. BASIS OF PRESENTATION - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of
America, which contemplates continuation of the Company as a going
concern. However, the Company has no business operations to date and
must secure additional financing to commence the Company's plan of
operations. These matters raise substantial doubt about the Company's
ability to continue as a going concern. In view of these matters,
realization of certain of the assets in the accompanying balance sheet
is dependent upon the Company's ability to meet its financing
requirements, raise additional capital, and the success of its future
operations. The Company intends to acquire additional operating capital
through equity offerings to the public to fund its business plan. There
is no assurance that the equity offerings will be successful in raising
sufficient funds to commence operations or to assure the eventual
profitability of the Company. Management believes that actions planned
and presently being taken to revise the Company's operating and
financial requirements provide the opportunity for the Company to
continue as a going concern.
5. COMMON STOCK
The Company's authorized common stock consists of 75,000,000 shares
with a par value of $0.001 per share.
On November 18, 2005, the Company issued 1,800,000 shares of common
stock at a price of $0.01 for cash totaling $18,000.
On November 28, 2005, the Company issued 700,000 shares of common stock
at a price of $0.01 for cash totaling $7,000.
F-18
ONLINE ORIGINALS, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2006
(Unaudited)
6. INCOME TAXES
The Company is subject to US federal income taxes. The Company has had
no income, and therefore has paid no income tax.
Deferred income taxes arise from temporary timing differences in the
recognition of income and expenses for financial reporting and tax
purposes. The Company's deferred tax assets consist entirely of the
benefit from net operating loss (NOL) carryforwards. The net operating
loss carry forwards expire in 2026. The Company's deferred tax assets
are offset by a valuation allowance due to the uncertainty of the
realization of the net operating loss carryforwards. Net operating loss
carryforwards may be further limited by a change in company ownership
and other provisions of the tax laws.
The Company's deferred tax assets, valuation allowance, and change in
valuation allowance are as follows:
Estimated Tax Change in
Estimated NOL Benefit from Valuation Valuation Net Tax
Period Ending Carry-forward NOL Expires NOL Allowance Allowance Benefit
November 30, 2005 2,680 2026 402 (402) (402) -
February 28, 2006 4,617 2027 691 (289) -
Income taxes at the statutory rate are reconciled to the Company's
actual income taxes as follows:
Income tax benefit at statutory rate resulting from net operating
loss carryforward (15%)
Deferred income tax valuation allowance 15%
-----------
-----------
Actual tax rate 0%
===========
7. RELATED PARTY TRANSACTIONS
The Company uses the offices of its President for its minimal office
facility needs for no consideration. No provision for these costs has been
provided since it has been determined that they are immaterial.
8. SUBSEQUENT EVENTS
The Company proposes to file a Form SB-2 Registration
Statement to offer the public up to 700,000 common shares at
$0.10 per share.
F-19
[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
Dealer Prospectus Delivery Requirements
Until ninety (90) days from the effective date of this registration statement,
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Online Originals, Inc. officers and directors are indemnified as provided by the
Nevada Revised Statutes and the bylaws.
Under the Nevada Revised Statutes, director immunity from liability to a company
or its shareholders for monetary liabilities applies automatically unless it is
specifically limited by a company's Articles of Incorporation. Our Articles of
Incorporation do not specifically limit the directors' immunity. Excepted from
that immunity are: (a) a willful failure to deal fairly with the company or its
shareholders in connection with a matter in which the director has a material
conflict of interest; (b) a violation of criminal law, unless the director had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (c) a transaction from
which the director derived an improper personal profit; and (d) willful
misconduct.
Our bylaws provide that it will indemnify the directors to the fullest extent
not prohibited by Nevada law; provided, however, that the company may modify the
extent of such indemnification by individual contracts with the directors and
officers; and, provided, further, that we shall not be required to indemnify any
director or officer in connection with any proceeding, or part thereof,
initiated by such person unless such indemnification: (a) is expressly required
to be made by law, (b) the proceeding was authorized by the board of directors,
(c) is provided by us, in sole discretion, pursuant to the powers vested under
Nevada law or (d) is required to be made pursuant to the bylaws.
Our bylaws provide that it will advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the company, or is
or was serving at the request of us as a director or executive officer of
another company, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefore,
all expenses incurred by any director or officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under the bylaws or otherwise.
Our bylaws provide that no advance shall be made by it to an officer of the
company except by reason of the fact that such officer is or was a director of
the company in which event this paragraph shall not apply, in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made: (a) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the company.
45
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Online Originals, Inc. has expended, or will expend fees in relation to this
registration statement as detailed below:
==============================================================================
Expenditure Item Amount
Attorney Fees $15,000
Audit Fees 4,500
Transfer Agent Fees 1,800
SEC Registration and Blue Sky Registration fees (estimated) 100
Printing Costs and Miscellaneous Expenses (estimated) 600
Total $22,000
==============================================================================
RECENT SALES OF UNREGISTERED SECURITIES
Online Originals, Inc. has sold securities within the past three years without
registering the securities under the Securities Act of 1933 on two separate
occasions.
Ms. Gaye Adams purchased by subscription 1,800,000 shares of common stock from
our company on November 18th, 2005 for $18,000. No underwriters were used, and
no commissions or other remuneration was paid except to the company. The
securities were sold in reliance on Regulation D, Section 504 of the Securities
Act of 1933. Ms. Adams shares continue to be subject to Rule 144 of the
Securities Act of 1933.
On November 28th, 2005, a private offering was completed, under which 700,000
shares of common stock were sold by subscription at a price of $0.01 per share
to one (1) shareholder for $7,000. No underwriters were used, and no commissions
or other remuneration were paid except to the company. The securities were sold
in reliance on Regulation D, Section 504 of the Securities Act of 1933. All
shareholders continue to be subject to Rule 144 of the Securities Act of 1933.
We qualified for an exemption from registration under Rule 504 in both of these
issuances since it is not subject to the reporting requirements of Section 13 or
15(d) of the Securities Act of 1933, is not an investment company, it had a
specific business plan at the time it sold the securities, it was not a blank
check company, as that term is defined in Rule 419(a)(2) of Regulation C or Rule
504 (a)(3) of Regulation D of the Securities Act of 1933. Neither our company
nor any person acting on its behalf offered or sold any of the securities by any
form of general solicitation or general advertising. The securities sold are
restricted shares; the purchasers were informed that the securities cannot be
resold without the securities being registered under the Securities Act of 1933
or an exemption there from. We exercised reasonable care to assure that the
purchases were not underwritten within the meaning of section 2(a) (11) of this
Act including but not limited to the placement of a restrictive legend on the
certificates representing the shares, and the aggregate offering price was less
that $1,000,000.
The following table provides details of all stock sales transactions that have
taken place during the period from the Company's formation, on November 18th,
2005, to the date of this Registration Statement.
==============================================================================
Stock Purchaser's Name Date of Purchase Total Number of Shares
Purchased
Gaye Adams November 18th, 2005 1,800,000
Greg Adams November 28th, 2005 700,000
Total 2,500,000
==============================================================================
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Exhibits
Number Description
------ -----------
3.1 Articles of Incorporation. Filed Herewith
3.2 Bylaws. Filed Herewith
5 Opinion re: Legality. Filed Herewith
23.1 Consent of Attorney. Filed Herewith
23.2 Consent of Accountant Filed Herewith
UNDERTAKINGS
Online Originals, Inc. hereby undertakes the following:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement, or most
recent post-effective amendment, which, individually or in the
aggregate, represent a fundamental change in the information
set forth in this registration statement; and
(c) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in the
registration statement.
That, for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
To remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to the directors, officers and controlling persons pursuant to the
provisions above, or otherwise, our company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by one of the directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by one of the directors, officers, or controlling
persons in connection with the securities being registered, we will unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act, and
we will be governed by the final adjudication of such issue.
For determining liability under the Securities Act, to treat the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 424(b) (1) or (4) or 497(h) under the Securities Act as
part of this Registration Statement as of the time the Commission declared it
effective.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sorrento, Province of British Columbia, Canada, on
April , 2006.
ONLINE ORIGINALS, INC.
/s/ Gaye Adams April 12, 2006
- ----------------------------------------
Gaye Adams
President, Principle Executive Officer
/s/ Greg Adams April 12, 2006
- ------------------------------------
Greg Adams
Secretary/Treasurer, Principle Financial Officer & Principal Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Gaye Adams April 12, 2006
- ----------------------------------------
Gaye Adams
Director
/s/ Greg Adams April 12, 2006
- ------------------------------------
Greg Adams
Director
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