UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File Number 333-133347
ONLINE ORIGINALS, INC.
(Exact name of registrant as specified in its charter)
Nevada 98-0479983
- --------------------------------- -------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
57113, 2020 Sherwood Drive, Sherwood Park, AB, Canada T8A 5L7
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (780) 668-7422
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
1
Number of shares issued and outstanding of the registrant's class of common
stock as of April 10, 2010: 3,200,000 shares of common stock
The Company recognized revenues of $3,520 during the quarter ended February 28,
2010.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Balance Sheets F-5
Interim Statements of Operations F-6
Interim Statements of Cash Flows F-7
Interim Statement of Changes in Stockholders' Deficit F-8
Notes to Interim Financial Statements F-9 to F-10
Item 2. Management's Discussion and Analysis 11
Item 3 Quantitative and Qualitative Disclosure about Market Risk 13
Item 4. Controls and Procedures 13
Item 4(A) T. Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Not Applicable 14
Item 3. Defaults upon Senior Securities - Not Applicable 14
Item 4. Removed and Reserved 14
Item 5. Other Information 14
Item 6. Exhibits 14
SIGNATURES 15
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONLINE ORIGINALS, INC.
INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2010
(Unaudited)
Page
Financial Statements:
Balance Sheets F-5
Interim Statements of Operations F-6
Interim Statements of Cash Flows F-7
Interim Statement of Changes in Stockholders' Deficit F-8
Notes to Interim Financial Statements F-9 to F-10
F-4
ONLINE ORIGINALS, INC.
BALANCE SHEETS
February 28, 2010 November 30, 2009
(Unaudited) (See Note 1)
ASSETS
Current Assets
Cash $ 248 $ 2,841
Prepaid expense 159 109
-----------------------------------------------
Total Current Assets 407 2,950
Computer Equipment, net of depreciation of $6,836 - 476
-----------------------------------------------
- 476
-----------------------------------------------
TOTAL ASSETS $ 407 $ 3,426
===============================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current Liabilities
Accounts payable $ 3,339 $ 3,900
Accrued liabilities 6,285 8,000
-----------------------------------------------
Total Liabilities, all current 9,624 11,900
-----------------------------------------------
Commitments and Contingencies (Note 2)
STOCKHOLDERS' DEFICIT
Capital Stock
Authorized:
75,000,000 common shares, par value $0.001 per share
Issued and outstanding:
3,200,000 common shares 3,200 3,200
Additional paid-in capital 77,299 77,299
Accumulated comprehensive income 313 312
Accumulated Deficit (90,029) (89,285)
-----------------------------------------------
Total Stockholders' Deficit (9,217) (8,474)
-----------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 407 $ 3,426
===============================================
The accompanying notes are an integral part of these statements.
F-5
ONLINE ORIGINALS, INC.
INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
Three month period Three month period
ended ended
February 28 February 28,
2010 2009
--------------------------------------------------------
Revenue $ 3,520 $ -
--------------------------------------------------------
3,520 -
--------------------------------------------------------
Expenses
Depreciation and amortization 477 907
Office and administration 952 230
Professional fees 2,835 1,683
--------------------------------------------------------
4,264 2,820
--------------------------------------------------------
Net Loss From Operations (744) (2,820)
--------------------------------------------------------
Net Loss $ (744) $ (2,820)
========================================================
Basic And Diluted Income (Loss) Per
Share $ Nil $ Nil
========================================================
Weighted Average Number Of Shares
Outstanding 3,200,000 3,200,000
========================================================
The accompanying notes are an integral part of these statements.
F-6
ONLINE ORIGINALS, INC.
INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
Three month Three month
period ended period ended
February 28, 2010 February 28,
2009
- ------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Loss $ (744) $ (2,820)
Adjustments to Reconcile Net Loss to Net Cash Used by
Operating Activities
Depreciation and amortization 477 907
Changes in Operating Assets and Liabilities
Prepaid expenses (50) (83)
Accounts payable and accrued liabilities (2,276) (584)
-----------------------------------------------
Net Cash (Used) in Operating Activities (2,593) (2,580)
-----------------------------------------------
Cash Flows from Investing Activity
Additions to capital assets - -
Additions to intangibles - -
-----------------------------------------------
Net Cash From Investing Activities - -
-----------------------------------------------
Cash Flows From Financing Activity
Issuance of common shares - -
Foreign currency translation adjustment - (71)
-----------------------------------------------
Net Cash (Used) Provided by Financing Activities - (71)
-----------------------------------------------
Net (Decrease) in Cash during the Period (2,593) (2,651)
Cash, Beginning of Period 2,841 4,904
-----------------------------------------------
Cash, End Of Period $ 248 $ 2,253
===============================================
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest $ - $ -
Income taxes $ - $ -
===============================================
The accompanying notes are an integral part of these statements.
F-7
ONLINE ORIGINALS, INC.
STATEMENT OF STOCKHOLDERS' (DEFICIT)
For the Period from November 30, 2008 through February 28, 2010
CAPITAL STOCK
-------------------------------------------------------
ADDITIONAL ACCUMULATED
PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) TOTAL
----------------------------------------------------------------------------------------------------
Balance, November 30, 2008
3,200,000 $ 3,200 $ 77,299 $ (82,896) $ (129) $ (2,526)
----------------------------------------------------------------------------------------------------
Foreign currency translation
adjustment - - - - 441 441
Net loss for the year ended
November 30, 2009 - - - (6,389) - (6,389)
----------------------------------------------------------------------------------------------------
Balance, November 30, 2009
3,200,000 3,200 77,299 (89,285) 312 (8,474)
----------------------------------------------------------------------------------------------------
Foreign currency translation
adjustment - - - - 1 1
Net loss for the period ended
February 28, 2010 - - - (744) - (744)
----------------------------------------------------------------------------------------------------
Balance, February 28, 2010 3,200,000 $ 3,200 $ 77,299 $ (90,029) $ 313 $ (9,217)
====================================================================================================
The accompanying n otes are an interal part of these statements.
F-8
ONLINE ORIGINALS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2010
(Unaudited)
1. UNAUDITED STATEMENTS
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, 2009 annual financial
statements. It is suggested that these interim financial statements be
read in conjunction with the Company's audited financial statements for
the year ended November 30, 2009, included in the annual report
previously filed with the Securities and Exchange Commission on Form
10-K. The results of operations for the interim periods presented are
not necessarily indicative of the results to be expected for the full
year.
The information as of November 30, 2009 is taken from the audited
financial statements of that date.
2. BASIS OF PRESENTATION - GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles in the
United States of America, which contemplates our continuation as a
going concern. However, the Company has negative working capital and a
stockholders' deficit and has losses to date of approximately $90,029.
These matters raise substantial doubt about our ability to continue as
a going concern. In view of these matters, realization of certain of
the assets in the accompanying consolidated 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 is seeking additional means of financing to fund its business
plan. There is no assurance that the Company will be successful in
raising sufficient funds 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 consolidated financial statements do not include any adjustments
that might result from these uncertainties.
3. INCOME TAXES
The Company is subject to foreign and domestic income taxes. The
Company has net losses of $90,029 since inception, 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) carry-forwards. The NOL carry
forwards expire in various years through 2030. The Company's deferred
tax assets are offset by a valuation allowance due to the uncertainty
of the realization of the NOL carry-forwards. NOL carry-forwards 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, 2009 89,285 Various 22,321 (1,597) -
February 28, 744 2030 186 186 -
F-9
ONLINE ORIGINALS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2010
(Unaudited)
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 carry forward (25%)
Deferred income tax valuation allowance 25%
-----------
Actual tax rate 0%
===========
4 SUBSEQUENT EVENTS
The Company has evaluated its activities subsequent to the period ended
February 28, 2010 and through the date the financial statements were
available to be issued, and has found that there were no reportable
subsequent events.
F-10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results, or other developments.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic, and competitive,
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements.
The following discussion of the plan of operation, financial condition, results
of operations, cash flows and changes in financial position of our Company
should be read in conjunction with our most recent financial statements and
notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual
Report on Form 10-K filed on March 10, 2010.
The independent registered public accounting firm's report on the Company's
financial statements as of November 30, 2009, and for each of the years in the
two-year period then ended; include a "going concern" explanatory paragraph that
describes substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to the factors prompting the explanatory
paragraph are discussed below and also in Note 2 to the unaudited quarterly
financial statements.
Operations
We are establishing a business, which provides a website where members and
customers are 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 also represent pieces from artists, art owners, and members of the site,
as well as one-time users looking to sell a single piece through our
gallery/auction website.
The website, www.artbyonlineoriginals.com, showcases a variety of art ranging
from paintings, drawings, prints, and sculptures. 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 are showcasing original pieces of art from unknown artists in the industry as
well as established artists. Prints are also available for individuals looking
for a piece that can otherwise only be found in a gallery. We attempt to
continually add to our collection of art pieces, following the demand of the
members and listening to what they are looking for.
Buyers are able to purchase art pieces from the website using different forms of
payment. We are focusing on buyers and art collectors who are using the Internet
to find what they are looking for. Members are able to enter the website and log
into their account.
Principal Products and Services
- -------------------------------
We are developing an online art gallery/auction house that allows members and
users to purchase original art pieces online. We currently do not have an
inventory of art pieces. Eventually, the available artwork will include
paintings, drawings, prints, and sculptures from artists, art owners and members
of the site. Members of the site, one-time users and we will sell these pieces.
Fees and commissions will be charged for the services we provide.
11
Plan of Operation
As soon as funds are available, we are planning to rework and update our website
to better reflect current social network trends. We are continuing to contact
both experienced and unpublished artists in order to introduce our marketing
plan. We will continue to develop our membership program and have contacted the
local tourist bureau in order to market our products though their international
contacts.
We are continuing the sale of memberships and inventory items when available. We
have no employees at the present time. We will continue to operate with very
limited administrative support. Our current officers will continue without
compensation, for at least the next three months. This will enable us to
continue to preserve capital during this stage of our development.
We do not anticipate making any major purchases of capital assets, or conducting
any research and development. Our current corporate employee count is expected
to remain the same for the next year.
We are actively seeking to add new products and/or services that we can offer
through our website. A new marketing strategy will be developed as new products
and services are identified.
Liquidity
At February 28, 2010, our cash balance was $248. In addition, we have prepaid
expenses of $159. Cash on hand is currently our only source of liquidity. We do
not have any lending arrangements in place with banking or financial
institutions and we do not anticipate that we will be able to secure these
funding arrangements in the near future.
At February 28, 2010, we had a working capital deficit of $9,217 compared to a
working capital deficit of $8,950 at November 30, 2009. At February 28, 2010,
our total assets consisted of cash of $248 and prepaid expenses of $159. This
compares with total assets at November 30, 2009 consisted of cash of $2,841,
prepaid expenses of $109 and capital assets of $476.
At February 28, 2010, our total current liabilities decreased to $9,624 from
$11,900 at November 30, 2009. During the three months ended February 28, 2010,
accounts payable and accrued liabilities decreased by $2,276.
We recognized revenues of $3,520 from operations during the three months ending
February 28, 2010. We believe our existing cash balances will not be sufficient
to carry our normal operations over the next three (3) months. Our short and
long-term survival is dependent on revenues from commission sales or funding
from sales of securities as necessary or from shareholder loans, and thus, to
the extent that we require additional funds to support our operations or the
expansion of our business, we will attempt to sell additional equity shares or
issue debt. Any sale of additional equity securities will result in dilution to
our stockholders. Recent events in worldwide capital markets may make it more
difficult for us to raise additional equity or capital. There can be no
assurance that additional financing, if required, will be available to us or on
acceptable terms.
Result of Operations
For The Three Months Ended February 28, 2010 Compared To The Three Months Ended
February 28, 2009.
We recognized revenues of $3,520 from operational sales during the three months
ending February 28, 2010, compared to nil revenues during the three months ended
February 28, 2009.
For the three months ended February 28, 2010, operating expenses were $4,264
compared to $2,820 for the three months ended February 28, 2009. The increase of
$1,444 was due to an increase in our operational activities over the prior
12
period. Operating expenses during the three months ended February 28, 2010,
consisted of professional fees of $2,835, amortization and depreciation of $477
and office and administration costs of $952, compared to professional fees of
$1,683, amortization and depreciation of $907 and office and administration
costs of $230, for the three months ended February 28, 2009.
We recognized a net loss of $744 for the three months ended February 28, 2010,
compared to a net loss of $2,820 for the three months ended February 28, 2009.
The decrease in the loss of $2,076 was a result of the increase in operational
sales coupled with an increase in operational expenses as discussed above.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the
Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the 1934 Act). Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the 1934 Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission rules and
forms.
ITEM 4T. CONTROLS AND PROCEDURES
Management's Quarterly Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the quarter ended February
28, 2010. We believe that our internal control over financial reporting was not
effective due to material weaknesses in the system of internal control.
Specifically, management identified the following control deficiency:
The Company has installed accounting software that does not prevent
erroneous or unauthorized changes to previous reporting periods and
does not provide an adequate audit trail of entries made in the
accounting software.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
This quarterly report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
13
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended February 28, 2010, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Removed and Reserved
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Pursuant to Item 601 of Regulation S-K, the following exhibits are included
herein or incorporated by reference.
Exhibit
Number Description
31.1 Section 302 Certification - Chief Executive Officer / Chief
Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
Chief Executive Officer / Chief Financial Officer.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 12th day of April,
2010.
ONLINE ORIGINALS, INC.
Date: April 12, 2010 By: /s/ Shari Sookarookoff
----------------------
Name: Shari Sookarookoff
Title: President/Chief Executive Officer
and Chief Financial (Accounting)
Officer
15