-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LZYlNHFsQ9AiHuISqfWOJ2wlBAYpPVxwdvbGr7NVRnlP6S9vzjQwp4k3GU0kUFjn THSzQVLRjMY+ddUQwEVcOw== 0001052809-01-500008.txt : 20010502 0001052809-01-500008.hdr.sgml : 20010502 ACCESSION NUMBER: 0001052809-01-500008 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010131 FILED AS OF DATE: 20010501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONLINE INTERNATIONAL CORP /NV/ CENTRAL INDEX KEY: 0000831378 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 760251547 STATE OF INCORPORATION: NV FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 033-20966 FILM NUMBER: 1617541 BUSINESS ADDRESS: STREET 1: 150 LASER COURT CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 6312317575 MAIL ADDRESS: STREET 1: 1825 EYE STREET, N.W., SUITE 400 CITY: WASHINGTON STATE: DC ZIP: 20006 FORMER COMPANY: FORMER CONFORMED NAME: CONDOR WEST CORP DATE OF NAME CHANGE: 19920703 10KSB 1 online10k.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended 01/31 ------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT for the transition period from to ----------------------------- ----------------- Commission file number 033-20966 --------------------------------------- Online International Corporation - ------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 76-0251547 - ------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer if incorporation or organization) Identification No.) 1825 I Street, N.W., Suite 400, Washington, D.C. 20009 - ------------------------------------------------------------------------------- (Address of principal executive offices) (202) 429-2001 Registrant's telephone number, including area code 202-429-2001 ----------------------------- n/a - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the 90 days. Yes x No ------ ------- (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the issuer=s classes of common equity, as of the latest practicable date: 7,800,156 Series ---------------- A Preferred Shares, convertible into one share of common stock per preferred - ------------------------------------------------------------------------------- share; 8,358,280 common shares - ------------------------------------------------------------------------------- Item 1. Business Description of the Company's Business Online International Corporation ("Online") was engaged in the business of printing lottery tickets. The company is a Nevada corporation whose shares are registered with the U.S. Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934. On May 10, 2000 the Board of Directors formalized its decision to discontinue operations. On July, 17 2000 the company sold all of its design and manufacture business for approximately $3,935,000.00 of which cash was received for $1,000,000.00 and a note receivable for $829,000.00 and the assumption of liability of approximately $2,100,000.00 by the purchasers. THE LOTTERY TICKET AND PARI-MUTUEL PRINTING BUSINESS Online, through its wholly owned subsidiary, Printing Associates, Inc. ("Printing Associates"), which it acquired on January 31, 1997, was engaged in the business of designing, printing, and manufacturing lottery tickets and play slips for automated on-line contractors and on track and off-track betting. As a result of the sale of its only operating subsidiary, the company has no current operations. ONLINE'S REPORTING STATUS Online is now a fully reporting company. Prior to September 1999, Online was neither a reporting company nor were its shares traded in any public market. On September 22, 1999, Online merged with and into Condor West Corporation in a share for share exchange in which Condor West was the surviving company and Online ceased to exist. Contemporaneously with the merger, Condor changed its name to Online International Corporation. Condor West was a reporting company at the time of the merger. Therefore, as a result of the merger, Online is now a fully reporting company that files quarterly and annual reports with the Securities and Exchange Commission ("SEC"). Shareholders may review these filings by visiting the SEC's web site at www.sec.gov and accessing Online's filings through the SEC's EDGAR database. Condor West was formed in Nevada in 1987 with a view towards combining with a business operation and had no business operations for the three years prior to the merger. From Online's inception until January 31, 1997, when it acquired Printing Associates, Online was in the lottery management consulting business. Item 3. Legal Proceedings Online is not currently a party to any material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders No matters have been submitted for a vote to security holders during the reporting period. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Online's shares have not traded on any exchange or any other public trading market. Approximately 700,000 shares were subject to outstanding options to purchase common equity of Online over the next ten years. However, all of those options were cancelled. Only one person has an option to purchase common stock, which was granted by the Board of Directors on October 17, 2000. The options expire on April 16, 2002. As of January 31, 2001, Online's common equity is held by approximately 969 holders of record. It has not declared or paid any cash dividends on any class of common equity in the last three fiscal years. The Articles of Merger restrict Online's ability to pay dividends. It may not pay any dividends on common equity shares until full cumulative dividends on all outstanding preferred stock have been paid. Online may not pay dividends if doing so would result in a consolidated current ratio of less than two, that is, current assets equaling less than twice current liabilities. Common equity may not receive dividends if paying dividends would result in the consolidated surplus being less than two years' dividend requirements on preferred shares. Dividends may not be paid on common equity if doing so would result in net tangible assets being less than 200% of the sum of an amount equal to $3.00 per share on outstanding preferred stock and the amount received as consideration upon the issuance of any outstanding shares ranking equally with or prior to the preferred stock and of any outstanding preferred stocks of subsidiaries, owned by others than Online and its subsidiaries. Finally, Online may not pay dividends on common equity if doing so would reduce the company's consolidated net tangible assets plus consolidated long-term debt to less than 175% of the sum of the consolidated long-term debt and an amount equal to $5.00 per share on outstanding preferred stock and the amount of received as consideration upon the issuance of any outstanding shares ranking equally with or prior to the preferred stock and of any outstanding preferred stocks of subsidiaries, owned by others than the Corporation and its subsidiaries. The Series A Preferred shares are not traded in any public market. The company has no operations, therefore there are no retained earnings from which to pay dividends. Recent Sales Of Unregistered Securities The company has not sold any securities during the period covered by this report. Item 6. Selected Financial Data Description 1/31/01 1/31/00 1/31/99 1/31/98 1/31/97 Net Sales $ 4,165,777 $ 7,733,829 $ 8,118,659 $ 10,056,262 $ 10,420,341 Income (loss) from continuing operations $ (200,672) $ (278,605) $ 297,529 $ 734,311 $ 295,667 Income (loss) from continuing operations per share of common stock Basic $ (0.04 ) $ (0.05) $ 0.05 $0 .14 $ 0.04 Diluted $ (0.04) $ (0.05) $ 0.02 $ 0.06 $ 0.04 Total assets $ 1,617,586 $ 4,116,221 $ 3,660,697 $ 4,361,951 $ 5,078,841 Long-term obligations $ - $ 938,042 $ 153,689 $ 199,567 $ 196,190 Cash dividends declared per share of common stock $ - $ - $ - $ - $ -
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS JANUARY 31, 2001 As part of the Company's strategy to seek a trading status for its publicly held shares the Company has been reviewing potential investment opportunities in various sectors as diverse as medical record/artificial intelligence, biotechnology and internet currency trading. As the Company has limited resources, the choices have been somewhat restricted. Towards the end of the fiscal year, the Company commenced negotiations with a view of acquiring a large portion of a company whose software and web site seeks to offer foreign exchange investments to the general public. It was anticipated that should the negotiations come to a positive conclusion, new shares in the Company would be issued to the vendors and control would pass to them. On closing of the deal, the Company intended to take steps to re-apply for SEC registration. The legal requirements to achieve a closing which would immediately be followed by the filing of a Registration Statement covering all the outstanding shares of the Company were constraining the Company's investment opportunity. Both the Company and vendors are committed to finalizing the agreement but the pending legal matters have delayed the closing. The Company nevertheless recognized the urgent need to assist the vendors in the immediate development and agreed to assist by advancing funds against adequate security. Accordingly, in March 2001, the Board of Directors approved an investment by the Company in Priority Marketing Ltd. ('Priority'), an Isle of Man Corporation, in accordance with the terms and conditions of a promissory note in the amount of US$250,000, bearing interest at the prime rate. The promissory note is due June 15, 2001. The terms of the promissory note provide that in the event of non-repayment of the loan, the Company would be entitled to 10% of the equity of Priority. Liquidity and Capital Resources - ------------------------------- The Company's cash position, including cash equivalents, at January 31, 2001 was approximately $803,000, an increase of approximately $762,000 from January 31, 2000. This increase is primarily from the sale of the subsidiary's business. As a result of the sale, total assets decreased by approximately $2,499,000 and total liabilities decreased by approximately $2,298,000. Results of Operations - --------------------- Sales during the year ended January 31, 2001 were approximately $4,166,000 a decrease of approximately $3,568,000 from the year ended January 31, 2000. This decrease is primarily attributable to the sale of the subsidiary's business on July 17, 2000. Income before income taxes increased by approximately $1,098,000 primarily from the gain on the sale of the subsidiary's business in the amount of $1,059,000. Income tax expense for the year ended January 31, 2001, increased by approximately $1,020,000 from the year ended January 31, 2000, resulting in a net loss of approximately $201,000. Increase in income tax expense is primarily attributable to recording a reserve against the net deferred tax asset of approximately $691,000. This deferred tax asset represents the future tax benefit of accumulated net operating losses. Since the sale of the subsidiary's business on July 17, 2000, there will be less opportunities to utilize the net operating loss from the Company's operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk This Item is inapplicable. Item 8. Financial Statements and Supplementary Data ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT JANUARY 31, 2001 C O N T E N T S Page ------ INDEPENDENT AUDITORS' REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEETS 2 STATEMENTS OF OPERATIONS 3 STATEMENTS OF STOCKHOLDERS' EQUITY 4 STATEMENTS OF CASH FLOWS 5 NOTES TO FINANCIAL STATEMENTS 6-12 INDEPENDENT AUDITORS' REPORT - ---------------------------- Board of Directors Online International Corporation We have audited the accompanying consolidated balance sheets of Online International Corporation and Subsidiary, as of January 31, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended January 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Online International Corporation and Subsidiary as of January 31, 2001, and the consolidated results of their operations and their cash flows for the years ended January 31, 2001 and 2000, in conformity with generally accepted accounting principles. New York, NY April 18, 2001 ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS JANUARY 31, 2001 ASSETS CURRENT ASSETS Cash and cash equivalents $ 803,468 Interest receivable 3,196 ---------- Total Current Assets 806,664 NOTE RECEIVABLE 810,922 ---------- $ 1,617,586 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accrued expenses and other current liabilities 112,406 ---------- Total Current Liabilities 112,406 ---------- STOCKHOLDERS' EQUITY 5% preferred stock, no par value; 20,000,000 shares authorized, 7,800,156 shares issued and outstanding ($39,000,780 liquidation preference) 1,584,855 Common stock, $.001 par value; 100,000,000 shares authorized, 5,818,547 shares issued, 5,617,089 outstanding 5,818 Additional paid-in capital 1,436,559 Accumulated deficit (1,522,052) Treasury stock, at cost, 201,458, shares - ---------- Total Stockholders' Equity 1,505,180 ---------- $ 1,617,586 ========== See notes to consolidated financial statements. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended January 31, ------------ 2001 2000 ------ ------- NET SALES $ 4,165,777 $ 7,733,829 COST OF GOODS SOLD 3,896,674 7,055,502 ---------- ---------- GROSS PROFIT 269,103 678,327 SALARIES AND RELATED COSTS (184,828) (404,897) OTHER SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (469,810) (300,069) MERGER EXPENSES - (355,000) ---------- ---------- LOSS FROM OPERATIONS (385,535) (381,639) ---------- ---------- OTHER INCOME (EXPENSE) Interest income 63,257 - Miscellaneous income - 3,459 Interest expense (59,094) (31,020) Gain (loss) on investment in deferred compensation trusts - (10,699) Gain on sale of assets 1,059,276 - ---------- ---------- Total Other Income (Expense) 1,063,439 (38,260) ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 677,904 (419,899) INCOME TAX EXPENSE (BENEFIT) 878,576 (141,294) ---------- ---------- LOSS FROM CONTINUING OPERATIONS (200,672) (278,605) DISCONTINUED OPERATIONS Loss from operations of discontinued business segment (less applicable tax benefit of $501,240 in 2000) - (212,376) ---------- ---------- NET LOSS $ (200,672) $ (490,981) ========== ==========
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Preferred Stock Additional Treasury Stock ------------ --------------- -------------- Number Par Number Par Paid-in Accumulated Number of Shares Value of Shares Value Capital Deficit of Shares Cost Total -------- ----- --------- ------- ------- ------- ----- ----- Balance at January 31, 1999 5,507,244 $ 5,507 7,800,156 $ 1,584,855 $ 1,436,870 $ (830,399) - $ - $ 2,196,833 Additional stock issued from merger on September 9, 1999 311,303 311 - - (311) - 201,458 - - Net Loss for Year Ended January 31, 2000 - - - - - (490,981) - - (490,981) ----------- ----------- ----------- ----------- ----------- ------------- --------- ------ ------------- Total Stockholder's Equity at January 31, 2000 5,818,547 5,818 7,800,156 1,584,855 1,436,559 (1,321,380) 201,458 - 1,705,852 Net Loss for Year Ended January 31, 2001 - - - - - (200,672) - - (200,672) ----------- ----------- ----------- ----------- ----------- ------------- --------- ------ ------------- Total Stockholder's Equity at January 31, 2001 5,818,547 $ 5,818 7,800,156 $ 1,584,855 $ 1,436,559 $ (1,522,052) 201,458 $ - $ 1,505,180 =========== =========== =========== =========== =========== ============= ========= ====== =============
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 31, ----------- 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (200,672) $ (490,981) Adjustments to reconcile net loss to net cash used in operating activities: Loss on sale/retirement of fixed assets - 3,020 Gain on sale of Printing Associates assets (1,059,276) - Depreciation and amortization 124,851 293,373 Bad debts - 65,000 Loss on investment in foreign lottery operation - 214,925 Deferred taxes 823,000 (648,400) Change in: Accounts receivable 106,334 (226,915) Inventories 26,667 (168,576) Prepaid expenses and other current assets 33,841 11,062 Prepaid income taxes 82,273 (20,643) Deferred compensation trust - 10,699 Accounts payable (30,853) 456,501 Accrued expenses and other current liabilities (52,049) (13,296) Deposits 21,655 4,142 Deferred compensation - (10,699) ---------------- ------------------ Net Cash Used in Operating Activities (124,229) (520,788) ---------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Collection of notes receivable 35,240 50,852 Investment in foreign lottery operation - (114,925) Acquisitions of property and equipment (51,971) (493,293) Proceeds from sale of assets 1,040,948 - ---------------- ------------------ Net Cash Provided by (Used in) Investing Activities 1,024,217 (557,366) ---------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank line-of-credit - 330,000 Proceeds from capital lease obligations - 348,940 Payments of long-term debt (84,060) (105,268) Payments of obligations under capital leases (53,416) (59,673) ---------------- ------------------ Net Cash Provided by (Used in) Financing Activities (137,476) 513,999 ---------------- ------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 762,512 (564,155) CASH AND CASH EQUIVALENTS Beginning of year 40,956 605,111 ---------------- ------------------ End of year $ 803,468 $ 40,956 ================ ================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 17,180 $ 48,332 ================ ================== Interest $ 59,094 $ 86,362 ================ ================== Refund received during the year for: Income taxes $ 43,877 $ - ================ ==================
See notes to consolidated financial statements ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2001 1. DESCRIPTION OF BUSINESS AND ORGANIZATION Description of Business - ----------------------- The Company's operations had consisted of the design and manufacture of lottery tickets and play slips for automated on-line contractors and parimutuels (on track and off track betting). As discussed in Note 3, the Company discontinued its lottery management consultation segment of the business. Merger Transaction - ------------------ On September 9, 1999 ("the merger date") the corporation previously known as Online International Inc. ("old Online") merged with Condor West Corporation ("Condor") an SEC registered Nevada corporation with no material assets, liabilities or operations. Prior to the merger, Condor effected a 48-for-1 reverse stock split. Condor was the surviving legal entity and old Online ceased to exist. Condor, however, changed its name to Online International Corporation ("new Online"). Each common shareholder of old Online received one share of new Online common for each share of old Online common (5,507,244 issued and outstanding on the merger date). Each holder of old Online Series A Preferred shares (7,800,156 issued and outstanding on the merger date) received one share of new Online Series A Preferred for each share of old Online Series A Preferred. Each common shareholder of Condor (311,303 issued and outstanding on the merger date) received one share of new Online common for each share of Condor common. The Condor shareholders', as part of this merger, surrendered 201,458 shares which were recorded as Online's treasury stock. Although Condor (now with the legal name of Online International Corporation) is legally the surviving corporation, old Online is the continuing, surviving entity for accounting purposes. The accounting for the transaction is similar to a reverse takeover wherein old Online was merged into Condor. For financial reporting purposes the transaction is being recorded as if old Online issued 311,303 new shares of common stock of which 201,458 were recorded as treasury shares with no cost. $275,000 that was paid to Condor shareholders, along with $80,000 of professional fees incurred, has been recorded as merger expense in the statement of operations. The Series A Preferred shares of new Online have rights that exceed those of the series A preferred shares of old Online. Each new Series A preferred share has the same voting rights of a share of common stock except that in the case of certain defaults the Series A Preferred acquires additional rights. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition - ------------------- Sales are recorded on the date of shipment of the merchandise. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of Online International Corporation and its wholly-owned subsidiary, Printing Associates, Inc. collectively referred to as "The Company". All material intercompany transactions and balances have been eliminated in consolidation. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JANUARY 31, 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories - ----------- Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out method. Property and Equipment - ---------------------- Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by both the straight-line and declining balance methods over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the life of the lease. Maintenance and repairs are charged to income as incurred. Renewals and replacements of a routine nature are charged to income, while those which significantly improve or extend the life of existing property are capitalized. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation are eliminated from the respective accounts and the related gain or loss is included in current income. Cash and Cash Equivalents - ------------------------- The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. The cash and cash equivalents at January 31, 2001 are funds on deposit in a Canadian bank in U.S. dollar denominations. These amounts are not insured under the Canada Deposit Insurance Corporation Act. Stock Options - ------------- Stock based compensation is recognized using the intrinsic value method under which compensation cost for stock options is measured as the excess, if any, of market value of the Company's stock at the measurement date over the exercise price. For disclosure purposes, pro-forma net income is provided as if the fair value method had been applied. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. 3. DISCONTINUED OPERATIONS On May 10, 2000, the Company's Board of Directors formalized its decision to discontinue operations in the lottery management segment of the business which had substantially ceased activity in June 1999. The results of operations of the lottery management operations have been classified as discontinued operations for the year ended January 31, 2000. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JANUARY 31, 2001 3. DISCONTINUED OPERATIONS (Continued) Revenue and loss from discontinued operations are as follows: Years Ended January 31, ----------------------- 2001 2000 ---- ---- Revenue $ - $ 2,717 ========= ========= Operating loss - (653,261) Loss on retirement of assets - (3,020) Interest expense - (57,335) Pre-tax loss - (713,616) Income tax benefit - (501,240) --------- --------- Loss from discontinued operations $ - $(212,376) ========= ========= At January 31, 2001 there were no remaining material assets related to the discontinued operation. During the year ended January 31, 1999, the Company entered into an agreement with a company that holds a license to the Cambodian Lottery (partly owned by an entity affiliated with a former director of the Company). The Company advanced $114,925 and $805,000 during the years ended January 31, 2000 and 1999, respectively, to this foreign corporation in the form of a non-interest bearing loan which is payable as cash flow is available and prior to the payment of certain fees by the foreign corporation. The agreement also calls for the Company to receive a management fee for managing the lottery. This management fee is not payable until the Company first recovers its loan. Despite the legal form of a loan, the transaction was recorded as an equity investment as the payments are first to be recouped out of the investee's cash flow. Of the total investment of $919,925, $705,000 was written off during the year ended January 31, 1999 and $214,925 was written off during the year ended January 31, 2000. 4. SALE OF SUBSIDIARY'S BUSINESS On July 17, 2000, the Company sold all the assets of its design and manufacture of lottery tickets business for approximately $3,935,000, of which cash was received for $1,000,000, a note receivable for $829,000 and the assumption of liabilities of approximately $2,100,000 by the purchaser. The note receivable represents a contingent payment based on projected sales from the lottery ticket manufacturing segment for a term of five years discounted at 9.50%. Due to the inherent uncertainties in estimating the future net sales of the debtor, it is at least reasonably possible that the estimate of the amount to be collected, and therefore, the fair value of the receivable, will change materially in the near term. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JANUARY 31, 2001 5. DEFERRED COMPENSATION The Company's subsidiary, Printing Associates, Inc., had a deferred compensation plan for key employees of the subsidiary. This plan was assumed by the purchaser of the assets of Printing Associates, Inc. Contributions to the Plan were at the discretion of the Board of Directors. Annual contributions for each beneficiary were placed in a trust with a third party fiduciary. At a predetermined date, the beneficiary was entitled to receive the assets of the trust, including investment earnings and appreciation. The Company had access to the assets of each trust in certain limited circumstances but would still be liable to the beneficiary for the assets removed. The investment earnings of the trusts were recorded as income to the Company and the Company's income was reduced by deferred compensation expense, which equals the contributions to the trust plus the earnings of the trust. The securities held by the trust were considered trading securities and carried at fair value. Deferred compensation expense (benefit) amounted to $-0- and $(10,699) for the years ended January 31, 2001 and 2000, respectively. 6. PREFERRED STOCK The 5% non-cumulative preferred stock is convertible into 1 share of common stock for each share of preferred. Dividends, when declared, are payable semi-annually and commence July 31, 2001. The preferred shareholders are entitled to a liquidation preference, upon which the 5% non-cumulative preferred dividend is calculated, of $5 per preferred share. 7. STOCK OPTIONS As of February 1, 2000, the Company had 700,000 options outstanding which were cancelled during the year. On October 17, 2000, the Company granted 100,000 options. The options gives the holder the right to buy one share of common stock for one dollar ($1.00). Each option expires on April 16, 2002. As described in Note 2, the Company accounted for the granting of stock options under the intrinsic value method and accordingly, no compensation cost has been recognized for stock options in these financial statements. In 2001 and 2000, had the Company determined compensation cost based on the fair value at the date of grant, there would have been no compensation cost as the estimated fair value of the cancelled options exceeded that of the options granted. 8. NON-CASH INVESTING TRANSACTION The Company issued 311,303 shares of common stock as part of the merger on September 9, 1999 with a par value of $311 which was transferred from additional paid-in capital. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JANUARY 31, 2001 9. RENT EXPENSE Rent expense for the years ended January 31, 2001 and 2000 amounted to $106,480 and $227,030, respectively. 10. INCOME TAXES The provision for income taxes consists of the following components: Years Ended January 31, ----------- 2001 2000 ---- ---- Current Federal $ (19,725) $ - State and foreign 75,301 5,866 ---------- ---------- 55,576 5,866 ---------- ---------- Deferred Relating to current net operating loss Federal - (621,000) ---------- ---------- Relating to change in beginning of year Valuation allowance Federal 515,766 - State - 85,200 ---------- ---------- Other Federal 277,034 (86,100) State 30,200 (26,500) ---------- ---------- 307,234 (112,600) ---------- ---------- Total Deferred 823,000 (648,400) ---------- ---------- $ 878,576 $(642,534) ========== ========== The current state income tax expense in the amount of $75,301 may be recoverable from the purchaser of the subsidiary's assets. Deferred income taxes at January 31, 2001 consists of the following: Deferred tax assets $ 691,166 Deferred tax liabilities - Valuation allowance (691,166) ---------- $ - ---------- The valuation allowance increased by $568,300 and $346,500 during the years ended January 31, 2001 and 2000 respectively. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JANUARY 31, 2001 10. INCOME TAXES (Continued) The 2001 deferred tax asset balances primarily relate to consolidated federal net operating loss carryforwards of $1,633,000 for Online International Corp. The deferred tax asset balance is completely offset by a valuation allowance. These carryforwards begin to expire in 2019. The reconciliation between the actual and expected Federal tax is as follows: Years Ended January 31, ----------- 2001 2000 ----- ------ Income tax provision at 34% $ 230,487 $ (142,765) Change in estimate for valuation allowance 515,766 - State and local income taxes net of Federal income tax effect 31,191 3,872 Change in estimate of prior year Federal income tax 78,878 (5,493) Effect of nondeductible expenses 22,254 3,092 ---------- ---------- Actual income tax provision $ 878,576 $ (141,294) ========== ========== 11. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments ("SFAS 107") requires entities to disclose the fair values of financial instruments except when it is not practicable to do so. The Company's financial instruments at January 31, 2001, and the related amounts recorded on the balance sheet, to which SFAS 107 would be applied include the following: Assets: ------- Cash $ 803,468 Note receivable 810,922 The fair values of cash and the note receivable do not differ materially from their carrying amounts. See Note 4 for more information about the balance due. None of these are derivative financial instruments and none are held for trading purposes. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) JANUARY 31, 2001 12. EARNINGS PER SHARE Years Ended January 31, ----------------------- 2001 2000 ---- ---- Net loss $ (200,672) $ (490,981) ---------- ---------- Net Income Per Common share-basic and diluted: From continuing operations $ (0.04) $ (0.05) From discontinued operations - (0.04) ---------- ---------- $ (0.04) $ (0.09) ========== ========== For the year ended January 31, 2000 and 2001, diluted earnings per share does not assume the conversion of the preferred stock and the stock options because the conversion would have an anti-dilutive effect on income from continuing operations. 13. SUBSEQUENT EVENTS Since the year-end, the Company has advanced $250,000 to Priority Marketing Ltd. ('Priority'), an Isle of Man Corporation, bearing interest at the prime rate. The loan is evidenced by a promissory note and matures on June 15, 2001. The terms of the promissory note provide that in the event of non-repayment of the loan the Company would be entitled to 10% of the equity of Priority. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The accounting firm of Marks Paneth,& Shron, LLP in New York, NY serves as independent accountant to Online. On September 22, 1999, Online's predecessor, Condor West Corporation, merged with old Online, which was a private company. After the merger, Condor West changed its name to Online International Corporation, which was the name of the formerly private company. As a result of the merger, the accountants for Condor were no longer required, and the accountants for old Online became the accountants for new Online. Prior to the change in accountants, the former accountants for old Online had not rendered any adverse opinion to Condor, nor had they rendered any disclaimer of opinion, modification or qualification of opinion. There had been no disagreements with the former accountants regarding accounting principles or practices, financial statement disclosures, or auditing scope or procedure. Item 10. Directors and Executive Officers of the Registrant The officers of the Online International are as follows: NAME AGE POSITION(S) TERM OF OFFICE Moses L. Garson 50 President, Secretary, 1 year (August 5, 2001) Moses J. Hassan 52 Director 1 year (August 5, 2001) Roy A. Cannon 54 Director 1 year (August 5, 2001) In the event of a vacancy, the remaining members of the board of directors are empowered to fill the vacancy until the next annual meeting. Moses L. Garson has over 20 years of combined experience in accounting and management. He is currently the Director of Gray's Management Services. Prior to that, Mr. Garson was the director of GLC Ltd. He is a 1980 Accountancy graduate of the Institute of Chartered Accountants of England and Wales. Moses J. Hassan is currently self-employed. For the last 23 years, Mr. Hassan has the sole principal in his own business in Gilbraltar. He is a 1971 civil engineering graduate of Manchester University. Roy A. Cannon is currently self-employed as a solicitor. From July 1998 to December 1999, Mr. Cannon was a Director of GLC Ltd. Prior to that, Mr. Cannon was a principal of Cannon & Co. in which he worked as a lawyer for approximately seven years. He is a 1969 law graduate of Liverpool College of Law. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ONLINE INTERNATIONAL CORPORATION - ----------------------------------------------------------- (Registrant) Date April 30, 2001 /S/ --------------------------- ---------------------- (Signature) MOSES L. GARSON, DIRECTOR ------------------------- (Printed Name and Title) See notes to consolidated financial statements. - 27 - -----END PRIVACY-ENHANCED MESSAGE-----