UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
AMENDMENT NO. 3
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
OPEN DOOR ONLINE, INC.
(Name of Small Business Issuer in its charter)
New Jersey 05-0507504
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46 Old Flat River Road,
Coventry, Rhode Island 02816
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (401) 272-3267
Securities to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which
to be registered each class of stock is to be registered
---------------- ---------------------------------------
Common Stock, par value $.0001 per share
Securities to be registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
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TABLE OF CONTENTS
PART I Page
ITEM 1. Description of Business .......................................... 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 12
ITEM 3. Description of Properties......................................... 18
ITEM 4. Security Ownership of Certain Beneficial Owners
and Management ................................................... 18
ITEM 5. Directors, Executive Officers, Promoters and
Control Persons .................................................. 20
ITEM 6. Executive Compensation............................................ 23
ITEM 7. Certain Relationships and Related Transactions.................... 25
ITEM 8. Description of Securities......................................... 25
PART II
ITEM 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters....................... 26
ITEM 2. Legal Proceedings................................................. 28
ITEM 3. Changes in and Disagreements with Accountants..................... 29
ITEM 4. Recent Sales of Unregistered Securities........................... 29
ITEM 5. Indemnification of Directors and Officers ........................ 31
PART F/S .................................................................. 32
PART III
ITEM 1 Index to Exhibits................................................. 63
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
(1) FORM AND YEAR OF ORGANIZATION
Open Door Online, Inc., formerly known as Genesis Media Group, Inc.,
was incorporated under the laws of the state of New Jersey on June 20, 1987. We
use the Internet in operating a music recording, distribution and publishing
business.
(2) ACQUISITION AGREEMENT
On June 4, 1999 the parties agreed to and on June 17, 1999 executed, a
Plan of Exchange and Acquisition Agreement, which is described later in this
registration statement as the "Acquisition Agreement," between Open Door
Records, Inc., a Rhode Island corporation, and Genesis Media Group, Inc., a New
Jersey corporation. This exchange was intended to qualify as a tax-free
reorganization pursuant to section 351 of the Internal Revenue Code of 1986, as
amended. Pursuant to the Acquisition Agreement, Genesis Media Group declared a 1
for 30 reverse stock split of its existing shares and issued 7,000,000 shares of
common stock in exchange for a contribution to Genesis Media Group of 1,000
shares of Open Door Records, which constituted 100% of the issued and
outstanding stock of Open Door Records. This transaction caused Open Door
Records to become a wholly owned subsidiary of Genesis Media Group. The
transaction also caused the former shareholders of Open Door Records to become
the controlling shareholders of Genesis Media Group, owning 7,000,000 shares, or
69%, of the total issued and outstanding shares of Genesis Media Group. As a
result of this transaction, the shareholders of Open Door Records obtained
control of Genesis Media Group's assets, which included office furniture and
equipment, leased recording equipment and facilities, and the non-exclusive
rights to a music library consisting of various artist titles. Genesis Media
Group then changed its name to Open Door Online, Inc. The existing officers and
directors of Genesis Media Group resigned, and new directors nominated by the
former shareholders of Open Door Online were elected. Prior to the execution of
the Acquisition Agreement, Genesis Media Group had operations in the record,
movie and advertising business in southern California. Genesis Media Group's
common stock was listed on the Over-The-Counter Bulletin Board (OTC:BB) market
prior to the completion of the Acquisition Agreement. The stock continued to be
so listed after the transactions in the Acquisition Agreement were complete. On
December 6, 1999, however, we were de-listed from the OTC:BB and began trading
on the Over-The-Counter pink sheets.
This Disclosure Statement is being filed for the purpose of allowing
Open Door Online, f/k/a Genesis Media Group, to re-establish listing on the
Over-The-Counter Bulletin Market exchange.
(3) PRIOR MERGER OF GENESIS GROUP, INC. AND HOLLYWOOD TELEVISION
NETWORK, INC.
Genesis Media Group, Inc., was a New Jersey corporation created from
the combination of the assets of Hollywood Showcase Television Network, Inc. and
Genesis Group, Inc. on August 17, 1997. The business of Genesis Group was
originating, developing, producing and financing low budget motion pictures,
with an emphasis on the action/adventure and family-comedy film genre.
(4) DISCONTINUED BUSINESS
Genesis Media Group maintained office space and operations in the Los
Angeles, California area. The business of Genesis Media Group was originating,
developing, producing and financing low budget motion pictures, with an emphasis
on the action/adventure and family-comedy film genre. These motion picture
projects typically had a budget of $1,000,000 to $5,000,000.
Prior to the transactions provided for in the Acquisition Agreement,
Genesis Media Group planned to expand this business and to increase utilization
of its office and operational facilities. However, on June 30, 1999, new
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management of Genesis Media Group determined that developing and maintaining the
capital expenditures and management intensity that were necessary to maintain
and expand this type of business were not in the best interests of Genesis Media
Group and its shareholders. Genesis Media Group cancelled certain outstanding
orders for specialized production equipment. Then in conjunction with the
Acquisition Agreement closing, Genesis Media Group's business operations were
then terminated and the successor company, Open Door Online, is now disposing of
the leased facilities and certain other operating assets of the former Genesis
Media Group's business that will not be necessary for the normal intended
operations of Open Door Online.
(b) BUSINESS OF THE ISSUER
(1) PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS
OPEN DOOR MUSIC. In February of 1999, Open Door Records, Inc. created
Open Door Music, an online music CD store. Our online CD store, located on the
Internet at www.opendoormusic.com, offers over 250,000 music titles. To assist
customers in making music selections, the web site contains product notes,
reviews, related articles and sound samples and is open 24 hours a day, seven
days a week. It offers its customers convenient and timely product fulfillment,
including standard and overnight delivery options. Our web site provides an
entertaining and informative resource enabling users to search and sample music
and artist information interactively through sound and graphics, including
online "sound stations" for each artist. Music posted on our web site in digital
form is available for downloading using Real Audio(TM) "plug-ins." Visitors to
the web site who are interested in the music they sample may purchase it
immediately online.
OPEN DOOR RECORDS. On November 21, 1997, Open Door Records, Inc.
established its own record label, "Open Door Records." Subsequent to the
acquisition of Open Door Records, Inc., we now use our web site, as well as
traditional distribution channels to promote, distribute and sell original and
licensed artists recordings. We intend to license master recordings from other
record labels, acquire master recordings and publishing catalogs and sign
artists to the record label. Through our web site, we intend to feature and
promote individual artists and independent record labels.
With respect to licensing master recordings from other record labels,
we are in the process of creating compilation recordings for release as
commercial items, corporate premiums for itself or outside clients, giveaways
and other promotional uses. To date the record label has three active projects,
none of which however we have entered into any formal agreements for as of this
date. Nevertheless, we anticipate entering into agreements for the licensing of
these projects prior to Fall 2000. Two of these projects are under consideration
by outside clients and one has been approved and is in production. The two
projects under consideration are for J.C. Penney and Hanes/Sara Lee, and
projected commencement dates are tentatively set for January 1st, 2001. The WHJY
Radio project has commenced meaning that requests for master licenses have been
sent to the various record labels and music publishers. We have commenced
negotiating the license fees with WHJY Radio, setting a budget, developing art
and manufacturing the product. WHJY Radio plans to release the project in
October 2000. In all cases, the client is responsible for the ultimate purchase
and/or sale depending upon if it is to be used as a premium item or as a
consumer product. An ongoing and active effort to secure other clients and
projects of this nature is part of our operational plan for Open Door Records
for the coming years.
In an effort to acquire master recordings and publish catalogues,
solicitation has been made to various individuals and organizations such as Zen
Archer Music, Cross Eyed Cat Songs, SESAC, Motown and Spirit Music. To date, the
record label has acquired the exclusive distribution rights to WMG Record's
entire catalogue, which is comprised of six artists from Spirit Music. Under the
terms of this distribution agreement, we are required to pay WMG Records, on a
quarterly basis, 75% of the wholesale price of all WMG products it sells. The
initial term of this agreement is for two years, with an expiration date of May
18, 2001. Thereafter, the agreement automatically renews for an additional
one-year term, unless WMG Records exercises its option to terminate the
agreement. In addition, we are in preliminary negotiations to acquire master
recordings by Stephen Bishop and Robert Lamm from Spirit Music.
We actively solicit the acquisition of publishing catalogues from all
artists signed to Open Door Records. As of this date, we have secured the
exclusive and entire right to 50% plus a 7.5% administration fee of all recorded
copyright works owned by the music group No Soap Radio for the group's next four
records. Under the exclusive recording contract, we are required to pay
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approximately $10,000 to the artists, 50% payable upon commencement of recording
each album and 50% upon approval and delivery of the album as an advance charged
against, and recoupable from, all royalties the artists receives from record
sales. Royalties received by the artists range from 6% to 13.5% on each sale.
The initial term of this agreement expires nine months after delivery of the
last master recordings comprising the artists' current recording obligations.
The artists anticipate delivering the master recordings by then end of May 2000,
with a release set for Fall 2000. Thereafter, we have the option to renew the
agreement for an additional term, whereby the artists will be obligated to
produce another recorded work. We have three such options, one of which has
already been exercised, thus giving us rights to the artists next four records
including the recorded work in production at this time. All subsequent optional
terms of the agreement expire nine months after delivery of the last master
recordings comprising the artists' recording obligations for each optional term.
On October 4, 1999, we entered into an agreement with Intershow
Records, Inc. whereby were granted an exclusive license to exploit two master
recordings of The Harlem Gospel Singers and Queen Esther Marrow. In exchange for
this license, we are required to pay $75,000 in advances to Intershow records,
payable by installments with the last advancement due on August 1, 2000. We
receive 70% of the wholesale price for each CD sold, and the artist receives 30%
after recoupment of all advances and expenses. With respect to non-Internet
related exploitation of the recordings, the license granted to us is limited to
the territories of the United States, Canada and Mexico. There is no territorial
restriction on Internet exploitation of the recordings. The agreement expires on
August 1, 2002, after which we would have to renegotiate a new contract in order
for Open Door Records to continue exploiting the recordings.
On June 1, 1999, we signed an exclusive distribution agreement with the
music artist "Jeru." Under the agreement, we are granted the exclusive right to
manufacture and distribute the artist's record "Jeru the Damaja Presents the
Supa-Human Klik Featuring MizMarvel" and any other records produced during the
term of the agreement for a two-year period. In exchange, we are required to pay
recoupable advances up to $25,000 for the artist's promotional expenses. After
recoupment of all advances, the royalty split on the wholesale purchase price of
the CD's is 50% for us and 50% for the artist. The initial term of the agreement
is for two years, after which the agreement automatically renews for an
additional one-year period unless the artist opts not to renew the agreement by
written notice to us prior to expiration of the agreement.
On July 1, 1999, we entered into an agreement with Live on the Net
whereby Live on the Net is granted the exclusive right to broadcast Open Door
Records artist performances on its website for a two year term. We are allowed
to keep 100% of any advertising revenues we generate. Live on the Net is granted
the right to use our trademarks and other intellectual property in its
programming and archiving. The agreement expires on July 1, 2001, after which
time we will have to renegotiate a new agreement for the continued performance
of these services.
Bowvau Records, Inc., owned by super DJ Quincy Vaughn, has joined the
Open Door Online distribution family. We entered into a two-year distribution
agreement with Bowvau Records on April 12, 1999, whereby we were made the
exclusive distributor of Bowvau's music productions. We are required to pay
Bowvau Records, on a quarterly basis, 75% of the wholesale price of all Bowvau
music products we sell. The agreement automatically renews for successive one
year terms unless Bowvau Records elects to terminate the agreement by giving us
thirty days written notice.
OPEN DOOR STUDIOS. As part of the Open Door Records division, we
recently opened our own digital recording studio to be utilized for both our own
in-house recording projects and outside commercial recording projects.
(2) DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES:
We have designed an ordering system we believe is easy-to-use and
simple to understand. At any time during a visit to our web site, a customer can
click on the "order now" button to place an item in his or her personal shopping
cart. The customer can continue to shop the website, adding chosen items. When
the customer is ready to submit an order, he or she simply returns to the order
page and chooses a shipping method. We offer shipping services by the U.S. Mail,
2-Day Federal Express or Federal Express Overnight. If not previously registered
with us, a customer is prompted to register at the time of purchase and enter
his or her name, address and password so that we can update our database.
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The customer has the option of securely submitting credit card
information on-line or calling or faxing the information to the Open Door Music
Customer Service Department. We also offer the option of payment by check or
money order. By assigning a password to every buyer, our ordering process
facilitates repeat business by eliminating the need to re-submit credit card and
shipping information for subsequent orders. We keep customers informed regarding
the status of their orders, receipt and shipment of each order and whether an
item is back-ordered.
We primarily use Sound Delivery, a division of Valley Media, Inc., as a
third-party fulfillment operation to ship CDs, cassettes, and our other
products. We anticipate using Baker and Taylor to supply CDs, cassettes and
related items purchased at our web site if these items are unavailable through
Sound Delivery. All inventory is owned and stored by Sound Delivery and Baker
and Taylor. Twice daily, we batch customer orders and electronically transmits
them to Sound Delivery. We use a secure network through which we transmit data
to Sound Delivery, thereby helping to ensure customer security as well as data
integrity. Sound Delivery picks, packs and ships customer orders in Open Door
Music boxes, and charges us the negotiated rates for merchandise, shipping and
handling.
Customer payment is received utilizing a third-party credit card
processor, First USA, Inc. If a customer's selection is not in stock, we will
notify the customer of the backlogged items. We believe that high levels of
customer service and support are critical to the value of our services and to
retaining and expanding our customer base. Our Customer Service representatives
are available from 10:00AM. to 10:00 PM EST on weekdays, and 10:00 AM to 6:00 PM
on weekends.
Open Door Records uses traditional retail music stores, as well as
online Internet music stores to distribute the record label's music productions.
(3) STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
We have no new publicly announced products or services for either Open
Door Music or Open Door Records.
(4) COMPETITIVE BUSINESS CONDITIONS
The market for Internet content providers is highly competitive and
rapidly changing. Since the Internet's commercialization in the early 1990's,
the number of web sites on the Internet competing for consumers, attention and
spending has proliferated. With little or no substantial barriers to entry, we
expect that competition will continue to intensify. With respect to competition
for consumers' attention, in addition to intense competition from Internet
content providers, we face competition from traditional media such as radio,
television and print.
With respect to recorded music sales, Open Door Music competes with
numerous Internet retailers, including traditional music retail stores, chains
and mega-stores, mass merchandisers, consumer electronics stores and music
clubs.
The US record industry grew to $8.7 billion dollars in the 1997 annual
survey completed by the National Association of Recording Manufacturers. The
report reflects CD sales of approximately $7.5 billion of the total annual
record industry revenue. The total of new releases grew by 36.2% in 1997 and
34.6% in 1996. We believe this trend is continuing and only assists companies
who are growth and artist oriented. The 1999 year end report published by RIAA,
another record industry association, reflects the US markets growth to
approximately $15 billion annually. The advent of Internet sites, attributed to
what were previously mail order houses and record clubs is providing the
majority of competition along with the newcomers CDNOW.com and Amazon.com. The
mail order sites comprised 14.3% of the total market while the Internet provided
0.3% in 1997. The interim 1999 report shows that Internet music sales had
increased to a 15.8% market share.
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The top 5 independent retail music Internet sites, according to Forbes
Magazine (11/15/99 issue) ranks Launch Media number one in sales with $17
million annually. Other competitors range from $9.9 million to $1.4 million.
We believe that the primary competitive factors in providing music
entertainment products and services via the Internet are name recognition,
variety of value-added services, ease of use, price, quality of service,
availability of customer support, reliability, technical expertise and
experience.
Many of our current and potential competitors in the Internet and the
music entertainment businesses have longer operating histories, significantly
greater financial, technical and marketing resources, greater name recognition
and larger existing customer bases than we do.
With respect to the recording industry, Open Door Records competes with
major and other independent record labels in signing individual artists and
groups to its record label. Some of the independent record labels Open Door
Records competes with include TVT, Aftermath, Cash Money, Republic, Righteous
Babe, Ruff Ryder and Rounder Records. Competition from the major recording
labels includes the five major labels of Sony, Universal, WEA, EMI and BMG.
Success in this industry is often based on the ability of the record label to
move decisively and quickly on music trends, artist signings and promotion. Open
Door Records may not be able to compete with other record labels that have
larger advertising and promotion budgets. Therefore, there is no guarantee that
we can successfully compete in this industry.
Our future success will depend heavily upon our ability to provide high
quality, entertaining content, along with cutting edge technology and value
added Internet service. Our failure to compete successfully in the music
entertainment business would have a material adverse effect on our business,
results of operations and financial condition. We currently have no significant
market penetration for any services provided by any of our divisions.
(5) PRINCIPAL SUPPLIERS
On August 26, 1998, we entered into an agreement to use Sound Delivery,
a division of Valley Media, Inc., to fill all online orders of CDs, cassettes
and other related products. This agreement has a two-year term and therefore
expires on August 26, 2000. At that time, we intend to renegotiate a new
agreement prior to the expiration of the agreement's current term. We intend to
use Baker and Taylor, another supplier, to fill customer orders if and to the
extent that Sound Delivery is unable to do so, or in the event we are unable to
renegotiate a second term with Sound Delivery. Nevertheless, as of this date, we
have not entered into any contracts with Baker and Taylor for the performance of
such services. All inventory is owned and/or stored by Sound Delivery and Baker
and Taylor.
(6) DEPENDENCE ON MAJOR CUSTOMERS
We are not currently dependent on any major customers for either of our
business divisions. The Internet has changed the way people shop by providing
convenience and the ability to shop without leaving their home or office. We
believe customers will log on to several sites searching for entertainment
products and services, and we hope that customers will look to our web site due
to its user-friendly environment and wide variety of products and services.
(7) INTELLECTUAL PROPERTY
SECURITY. We use an electronic data interchange, or "EDI", interface to
ensure the security of customer credit cards transactions and other order
information shared with our order fulfillment partner and third party billing
company, Sound Delivery. Currently, Sound Delivery owns the EDI interface we
utilize . Under our distribution agreement with Sound Delivery, we are allowed
the non-exclusive use of the EDI for the term of the agreement, which expires in
August 2000. The agreement does not automatically renew for successive terms,
and therefore we will have to renegotiate a new agreement with Sound Delivery,
or enter into an agreement with another distributor. While we believe we could
find with little difficulty another distributor to provide secured order
fulfillment services in the event we are unable to renegotiate a new agreement
with Sound Delivery, there is no guarantee that we will find such a distributor.
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(8) GOVERNMENTAL APPROVAL
At this point in time, there is no need for government approval of our
principal products or services.
(9) PROBABLE GOVERNMENTAL APPROVAL AND REGULATION
We are unaware of any existing governmental regulations of our
business, including the business of our divisions, as presently conducted. In
the future, we expect to be subject, both directly and indirectly, to various
laws and regulations relating to its business, although there are few laws or
regulations directly applicable today to access to the Internet. Due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations will be adopted governing commerce on the Internet. Such
laws and regulations may cover issues such as user privacy, pricing, content,
copyrights, distribution, sales and other use taxes and characteristics and
quality of products and services. Further, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on those companies conducting
business online. The enactment of any additional laws or regulations could
impede our ability to conduct our business, and could also impede the growth of
the Internet generally. Either or both of these events could, in turn, decrease
the demand for our business, or otherwise have an adverse effect on us. The
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, contests and
sweepstakes, libel, personal privacy, rights or publicity, language requirements
and content restrictions, is uncertain and could expose us to substantial
liability.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
For example, America's Carriers Telecommunications Association has recently
filed a petition with the FCC for this purpose. The growing popularity and use
of the Internet has burdened the existing telecommunications infrastructure, and
many areas with high Internet use have begun to experience interruptions in
phone service, local telephone carriers, such as Pacific Bell, have petitioned
the FCC to regulate Internet service providers and online service providers in a
manner similar to long distance telephone carriers and to impose access fees on
such providers. If either of these petitions are granted, or if the relief
sought therein is otherwise granted, the costs of communicating on the Internet
could increase substantially, potentially slowing the growth in use of the
Internet.
Any such new legislation, regulation, application or interpretation of
existing laws could have an adverse effect on our business, results of
operations and financial condition. U.S. and foreign laws regulate certain uses
of customer information and development and sale of mailing lists. We believe
that it is in material compliance with such laws, but new restrictions may arise
in this area that could have an adverse affect on Open Door Online.
(10) RESEARCH AND DEVELOPMENT
During 1998 and 1999, Open Door Online and its predecessors did not
engage in any research and development activities.
In the future, we intend to establish a small research and development
team composed of our current employees, along with a network of outside industry
experts, who will develop and adopt new products and Internet services. The
current budget for this area is less than one hundred thousand dollars over the
next two years.
(11) COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
We anticipate that we will have no material costs associated with
compliance with federal, state or local environmental law.
(12) EMPLOYEES
We currently have four (4) full time employees and thirteen (13)
part-time employees. These are the employees used for either Open Door Music or
Open Door Records. All of these employees have been hired on an "at-will" basis,
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and thus are not under contract for any definite term. However, Open Door Online
has entered into employment agreements with certain of its officers and
directors.
On November 15, 1999, we entered into three-year employment agreements
with Messrs. DeBaene and Carley. Under the agreements, each is entitled to
receive a base annual salary of $95,000 during the period of November 15, 1999
to December 31, 2000. The salary will be increased annually, effective January
1st of each year, except in year one, by an amount of 13% or higher as
determined by the Board of Directors. In addition to the base salary amounts,
each of Messrs. DeBaene and Carley will receive incentive bonuses ranging from
1-3% of our after-tax profits, standard benefits such as health and life
insurance, disability payments and reimbursement of reasonable business
expenses.
On March 1, 2000, we entered into three-year employment agreements with
Mr. Birmingham and Ms. Barbone. Under the agreements, each is entitled to
receive a base annual salary of $75,000 during the period of March 31, 2000 to
December 31, 2000. The salary will be increased annually, effective January 1st
of each year, except in year one, by an amount of 13% or higher as determined by
the Board of Directors. In addition to the base salary amounts, each will
receive incentive bonuses ranging from 1-3% of our after-tax profits, standard
benefits such as health and life insurance, disability payments and
reimbursement of reasonable business expenses.
We may terminate any of the employment agreements for cause, as defined
in the agreements, or without cause. In addition, the employee may terminate the
agreement for "good reason" or upon the occurrence of a "change in control", as
both terms are defined in the agreements. In the event we terminate the
employment agreement without cause, the employee terminates the agreement for
"good reason", or upon the death or disability of the employee at any time prior
to the end of the term of the agreement, the employee is entitled to receive a
severance payment in an amount equal to the balance of the employee's base
salary due through the balance of the term of the agreement.
Competition for qualified personnel in certain areas of our industry is
intense, particularly among software development and other technical staff. We
believe that our future success will depend in part on our continued ability to
attract, hire and retain qualified personnel.
(c) REPORTS TO SECURITY HOLDERS
Prior to filing this Form 10-SB, we were not required to deliver annual
reports. On January 4, 2000, however, we became a reporting company, subject to
the reporting requirements set forth under the 1934 Securities Exchange Act. We
anticipate filing Forms 10-KSB, 10-QSB, 8-K and Schedules 13D along with
appropriate proxy materials as they come due. In addition, Paragraph 16(a) of
the Securities Exchange Act requires our executive officers and directors, and
persons who own 10% or more of a registered class of our equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission if we and our equity securities meet certain requirements.
As of this date, we have not received or reviewed any filings under
Section 16(a) from such individuals, including any filing on Forms 3, 4 or 5. If
we issue additional shares, we may file additional registration statements for
those shares.
Also, to the extent we are required in the future to deliver annual
reports by the rules or regulations of any exchange upon which our shares are
traded, we intend to deliver annual reports. If we are not required to deliver
annual reports in the future for any reason, we do not intend to go to the
expense of producing and delivering such reports. If we are required to deliver
annual reports, they will contain audited financial statements as required.
The public may read and copy materials contained in our files with the
Securities and Exchange Commission at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The Internet
address of the Commission's site is (http://www.sec.gov).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein should be read in conjunction with the
financial statements of Genesis Media Group, Inc. for the two years ended
December 31, 1998 and the six months ended June 30, 1998 and 1999, Open Door
Records, Inc. for the year ended December 31, 1998 and the six months ended June
30, 1999 and 1998, and the financial statement of Open Door Online, Inc. for the
nine months ended September 30, 1999 and 1998, respectively, and the related
notes to each statement appearing elsewhere in this Form 10-SB. In addition to
historical information, the following discussion and other parts of this Form
10-SB contains forward-looking information that involves risks and
uncertainties. Actual results could differ materially from those anticipated by
this forward-looking information due to factors discussed in other sections of
this Form 10-SB.
HISTORICAL
Our historical financial data presented below has been derived from the
financial statements of Open Door Online and its predecessors, including the
notes thereto, appearing elsewhere herein.
The financial data includes the results of operations of Open Door
Online, Inc. for September 30, 1999, Open Door Records, Inc. for September 30,
1998 and the results of operations of Genesis Media Group, Inc. and its
predecessor, Hollywood Showcase Television Network, Inc. for 1998 and 1997.
September 30, December 31,
----------------------- ------------------------
1999 1998 1998 1997
----------- -------- ----------- ----------
Summary of Operations
Net Revenues $ 191,064 $ -- $ 521,562 $ 829,985
Cost of Sales 118,385 81,564 3,196
Gross Profit 72,679 439,998 826,789
Operating Expenses 223,917 8,729 6,172,837 575,031
Net Profit (Loss) (151,238) (8,729) (5,679,336) 151,055
Summary Balance Sheet Data
Total Assets $14,918,974 $ 96,622 $ 3,318,930 $2,218,216
Total Liabilities 1,518,780 33,076 558,241 180,941
Shareholder's Equity 13,400,194 63,546 2,760,689 2,037,275
1997 AND 1998
The operations of the company for 1998 and 1997 are those of Genesis
Media Group, Inc., and its predecessor, Hollywood Showcase Television Network,
Inc. The business of those entities was editing and production of movie and
television media and commercial advertising. Genesis Media Group was unable to
either generate sufficient liquidity or capital to expand its base of operations
and acquire the necessary infrastructure to attract large production
engagements. The primary sales revenue came from editing of advertising for
various television media. The expansion of the business would have required
substantial outlays of capital for additional state of the art editing and
production equipment. The production business is highly competitive and requires
continual updating of production techniques. Most contracts are awarded by
competitive bid to companies with demonstrated capability and personnel. Most
contracts obtained by Genesis Media Group were relatively short term in duration
and did not include the feature film market, which could extend beyond one year
in duration. Genesis Media Group was not able to develop its record library for
use in the production of films or television entertainment due to a lack of
working capital to develop and release such music.
Genesis Media Group did not have sufficient sources of capital or
liquidity to allow it to pursue its intended business lines with the intensity
and stability that was needed to compete in the west coast entertainment
industry.
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The business of Genesis Media Group was labor intensive in that they
required skilled technicians to operate the production and editing equipment. As
a result, the labor costs per hour of Genesis Media Group were greater than
those found in less skilled industries.
These factors were the major contributing circumstances, which lead
Genesis Media Group to enter into the Acquisition Agreement. In conjunction with
the Acquisition Agreement, the new management of the company abandoned those
operations upon completion of certain contracts in process and elected to pursue
its own business plan and implement the Internet operations and expand the
distribution operations of Open Door Online, Inc., acquired in the exchange with
Open Door Records, Inc.
Therefore, we do not believe that the historical results of operations
of Genesis Media Group and its predecessor are indicative of the future
operations of Open Door Online, Inc.
1999
The operations of Open Door Online, Inc., subsequent to the exchange,
effective June 30, 1999, through the quarter ended September 30, 1999 consisted
primarily of three phases.
The first phase was to wrap up the operations of the predecessor,
Genesis Media Group, Inc., to which the company completed open contracts as
required, laid-off all Genesis Media Group, Inc. employees and set about an
orderly liquidation of the owned and leased equipment .
The winding up of business of Genesis and continuing operations of Open
Door resulted in an operating loss for the quarter ended September 30, 1999 of
$58,407. In conjunction with the acquisition of Genesis the Company established
of a $500,000 reserve was provided for the liquidation of the lease obligations
of Genesis that existed at the date of the combination as presented in the table
below.
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<PAGE>
Lessor Lease Balance Reserve
------ ------------- -------
Colonial Pacific $170,267 $170,267
Granite 86,541 86,541
Eldorado 133,234 133,234
Bombardier* 132,999 109,958
Total $523,041 $500,000
* Portion of the lease was expected to be reduced by a sub lease
agreement
Second, we devoted substantial resources to completion of our web based
business sites and related programs, processing applications and marketing
plans. Portions of the Internet structure were up and operating in August, 1999.
However, we continue to add more services and products as quickly as possible to
capture a significant market share of the home entertainment and music
distribution markets while implementing our Internet sales presence.
Third, we devoted our time and resources to raising liquidity,
assembling a management team and developing strategic alliances with artists,
managers and promoters. During this period we raised approximately $558,000 of
new equity/liquidity.
RESULTS OF OPERATIONS
From inception to September 30, 1999, revenues have primarily been
derived from the commercial operations of Open Door Studios and from sales of
CD's from our distribution division, Open Door Records, and from . Minimal other
income was derived from sales of merchandise at locally sponsored concerts.
COST OF SALES
Cost of Sales primarily represent website operating costs, CD and
fulfillment operations and artist record promotions and royalties. Website
operating costs include Internet development, design and programming,
connectivity charges and equipment. Future costs may include costs of
acquisitions and development.
Cost of Sales for the nine-month period ended September 30, 1999 for
Open Door Online, Inc. was approximately 62% of gross revenue. The operations of
Genesis Media Group, the predecessor, were not comparative. As sales volume
increases, the cost of sales, as a percentage of sales, should decrease since
fixed costs are spread over a greater base.
SALES AND MARKETING
Sales and marketing expense consists primarily of direct marketing
expenses, promotional activities, salaries and costs related to website
maintenance and development. We anticipate that overall sales and marketing
costs will increase significantly in the future; however, sales and marketing
expense as a percentage of net revenue may fluctuate depending on the timing of
new marketing programs and addition of sales and marketing personnel.
In the future, we anticipate that we will enter into arrangements with
additional leading artists and record labels to secure distribution and
marketing services and obtain rights to their music. Future expenses may include
costs related to promotional events, which will be expensed in the period the
event is held.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of salaries,
legal and other administrative costs, fees for outside consultants and other
overhead. General and administrative expense was approximately 94% of Revenue
for the nine months ended September 30, 1999. It is anticipated that overall
general and administrative expense will decrease as a percentage of Revenue as
Revenue increases after this initial development stage.
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<PAGE>
INTEREST EXPENSE
Net interest expense for the nine-month period ended September 30, 1999
was $8,224. Interest costs may increase in future periods as the Company expands
through a combination of debt and equity offerings.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 we had approximately $78,580 of cash available
to support operations. Subsequent to September 30, 1999, we collected a
receivable in the amount of $518,000. We believe that we will be able to raise
such additional capital to meet our operating and financial obligations in the
future.
FUTURE PLAN OF OPERATION
Open Door Online, Inc., has discontinued the production operations of
the predecessor and focused on branding itself as a virtual "open door" bridging
together artists and consumers from around the world and ultimately maintaining
a loyal and appreciative entertainment community. Our objective is to build a
global entertainment company offering a broad range of entertainment commerce
related products and to deliver a wealth of original content in a highly
personalized interactive context.
We recognize that the nature and scope of our intended business will
require substantial additional financing. To meet this requirement, we plan to
finance our cash requirements through a combination of equity offerings and debt
financing. This process will allow us to complete the initial phases of our
Internet marketing plan. Once in place, we believe this should provide
sufficient operating revenue to expand the other intended areas of our business.
The Internet marketing arena is highly competitive. We believe that we
are well placed to take advantage of this growing market and look to become more
competitive in the entertainment and distribution sectors of that market.
We will expand our workforce to meet our business plan and growth
objectives while providing quality services and products.
The overall plan of operation and objectives is detailed earlier in
this Form 10-SB.
Our business plan estimates that revenue will be approximately $6.9
million for calendar year 2000 resulting in a net operational loss for the
period of approximately $450,000. The total revenues anticipate $3.0 million
from retail CD sales that are based on affiliation agreements and e-commerce
mall rental sites, currently being negotiated. An additional $3.5 million should
be derived from wholesale CD sales, cassette tapes and vinyl of artists under
distribution contracts. The first four months of the year 2000 shipments have
exceeded $500,000 and existing back orders will generate in excess of $160,000.
These wholesale sales are relative to our major artist's (Jeru) distribution
agreement that had a new release on February 22, 2000. We will have more
releases this year from other artists under contract. $ .2 million from Internet
advertising from agreements already disclosed most of which provide
approximately $10,000 per month with expected increase as marketing for
advertising and additional affiliation agreements come to fruition. The final
$.2 million is derived from product license and studio rental. Studio rental is
provided at $500 per day and product licensing of our recording library and of
existing artists. The loss for this first period is due in large part to
expensing costs related to the programming, promotion, setup and implementation
of the Internet presence necessary for our activities.
YEAR 2000 DISCLOSURE
We do not anticipate any problem in dealing with computer entries in
the year 2000 or thereafter, with any computers currently used at any of its
facilities. All of our computer systems are new and have been Year 2000
compliant since their acquisition. We keep current with all updates and
revisions with all software we currently use. It is anticipated that the
software updates reflect required revisions to accommodate transactions in the
Year 2000 and thereafter.
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<PAGE>
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. We do not believe that we have material exposure to the
Year 2000 issue with respect to our own information systems since our existing
systems correctly define the year 2000. We are currently unable to predict the
extent to which the Year 2000 issue will affect our clients, customers and
suppliers, or the extent to which any of them would be vulnerable to a failure
to remediate any Year 2000 issues on a timely basis.
In addition, most of the purchases on our web site are expected to be
made with credit cards, and our operations may be adversely affected to the
extent its customers are unable to use their credit cards due to any Year 2000
issues that are not rectified by their credit card vendors. In a worst case
scenario, if our customers' computer systems or that of suppliers and vendors do
not contain the necessary software updates to be Year 2000 compliant, a
multitude of problems could occur which may include, among others, lost orders,
merchandise not shipped or shipped to incorrect addresses and credit card
purchases incorrectly credited or debited. As a result, we could lose customers,
clients, and credibility, which could have a material adverse effect on our
business and our financial condition. Such problems could occur with Sound
Delivery, our supplier of music CDs, cassettes and other related products. We
have not independently verified whether Sound Delivery is Year 2000 compliant,
nor assessed the risk that this poses to our business. We have not taken any
steps in preparation for a worst-case scenario if our customers or suppliers are
not Year 2000 Compliant. We do not have, nor do we intend to create, a
contingency plan to handle such an event.
We have concluded, based on our review of our operations and computer
systems that our computer programs and operations have not had any problems
associated with the Year 2000 issue. However, we cannot guarantee that such
problems will not arise in the future.
ITEM 3. DESCRIPTION OF PROPERTIES
REAL PROPERTY. Our corporate headquarters are located at 46 Old Flat
River Road, Coventry, Rhode Island. We lease our facilities and certain other
equipment under operating and capital lease agreements. Our Metro Office is
located at 206 Bryans Road, Hampton, New Jersey. Our recording studio is located
at 40 Wilson Street, West Warwick, R.I.
EQUIPMENT. We currently own approximately $146,000 of equipment and
leasehold improvements that are used in conjunction with our recording and
production studio.
MUSIC LIBRARY. We have a music library consisting of original and
digitally mastered music media from numerous artists from the 1940's through the
1990's. We own certain of the master recordings in the Library, and have
nonexclusive license rights to the rest of the recordings. We are currently in
the process of purchasing those master recordings to which we currently have
only the nonexclusive license rights . This library can be used to produce
original singles and albums by the various artists, used to score motion picture
productions, television productions and specialty productions. We intend to
utilize this product through traditional CD production and sales and MP3 digital
sales over the Internet. Pursuant to industry standards, we are obligated to pay
artists royalties on units sold. We has valued this library at the lower of the
appraised value or the present value of the estimated cash flow from the sale
and utilization of these assets over the next three years, after consideration
of production and distribution costs.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (1)
Shares
Title of Beneficially Percent of
Class Name/Address of Owner Owned (ii) Class (i)
----- --------------------- ---------- ---------
Common Don R. & Barrie M. Logan
23355 Gondor Drive
Lake Forrest, California 90710 545,530 4.83%
Common DJS Investors (iii)
275 Crescent Street
West Bridgewater, MA 02379 2,105,000 18.64%
and
Donna Petronelli
275 Crescent Street
West Bridgewater, MA 02379 2,105,000 18.64%
Common Thomas R. Carley
46 Old Flat River Road
Coventry, Rhode Island (D) 1,977,000 17.51%
Common David N. DeBaene
46 Old Flat River Road
Coventry, Rhode Island (D) 3,020,858 26.75%
Common Camille M. Barbone
206 Bryan's Ferry Rd.
Hampton, NJ 08827 (D) 705,000 6.24%
Common All Officers and Directors
over 5% per Individual 5,702,858 50.51%
Common All Officers and Directors 5,702,858 50.51%
----------
Notes:
(1) Includes only officers and directors subsequent to the June 30, 1999
merger.
(D) Officer and Director of the Company
(i) All Percentages are calculated based upon 11,291,565 shares outstanding as
of the date of the filing of this Form 10-SB.
(ii) All common shares are entitled to 1 vote per share. There are no other
shares with voting rights.
(iii) Donna Petronelli owns 100% of the shares of DJS Investors, and therefore
is the beneficial owner of these shares. Her address is 275 Crescent
Street, Bridgewater, MA 02379.
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(b) SECURITY OWNERSHIP OF MANAGEMENT
Shares
Title of Beneficially Percent of
Class Name/Address of Owner Owned (ii) Class (i)
----- --------------------- ---------- ---------
Common David N. DeBaene 3,020,858 26.75%
Common Thomas R. Carley 1,977,000 17.51%
Common Camille M. Barbone 705,000 6.24%
----------
(1) All percentages are calculated based upon 11,291,565 shares of common stock
of Open Door Online issued and outstanding as of the date of filing of this
Form 10-SB.
(c) CHANGES IN CONTROL
There is no arrangement, which may result in a change of control.
(d) CURRENT SHARE ALLOCATION
As of May 17, 2000, we had 1,275,744 free trading shares outstanding and
10,015,821 restricted shares outstanding for a total of 11,291,565 shares.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) IDENTITY OF DIRECTORS AND EXECUTIVE OFFICERS
As of October 1, 1999, our directors and executive officers, their
ages, positions, the dates of their initial election or appointment as director
or executive officer, and the expiration of the terms as directors are as
follows:
Name Age Position
---- --- --------
David N. DeBaene 41 President, Chief Executive Officer
and Director
Thomas Carley 38 Vice President and Director
Edmond L. Lonergan 53 Director
Norman J. Birmingham 45 Treasurer and Chief Financial Officer
Steev Panneton 41 Secretary
Camille M. Barbone 48 Vice President and Chief Operating Officer
(1) BUSINESS EXPERIENCE
Mr. David DeBaene, one of the founders of Open Door Online, serves as
its President and CEO. In June 1991, David DeBaene founded JD American Workwear,
Inc., a publicly traded manufacturer and distributor of safety work wear, and
currently serves as Chairman of the Board and Chief Executive Officer. Mr.
DeBaene created four styles of industrial safety work pants, which are secured
by individual patents. These products are distributed worldwide. Entrepreneur
Magazine , in their November, 1994 issue recognized Mr. DeBaene as one of its
featured "outstanding entrepreneurs." Mr. DeBaene is also a musician and played
professionally for 10 years. Mr. DeBaene began serving as a director of Open
Door Records, Inc. in June 1997 and has been one of our directors since June 17,
1999.
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Mr. Thomas Carley, one of the founders of Open Door Records, Inc.,
serves as a Vice President and member of our Board of Directors. Thomas Carley
has actively been involved in the music industry as a freelance performer, as
lead guitarist for 22 years with such acts as Magic Bus from 1976 through 1978,
Avatar in 1979, Ritual from 1980 through 1986, Mill City Rockers during 1989 and
1990 and currently with a local Rhode Island group, Grumpy Old Men from1992 to
current. During 1984 Mr. Carley was a studio musician in affiliation with Peter
Holland, then a staff writer for RCA Records. During this period studio tracks
were recorded for such artists as Tina Turner, Rick Springfield and Dionne
Warwick. He began producing and acting as recording engineer for us upon signing
his employment contract in November 15, 1999. Prior to joining Open Door Online,
Mr. Carley was the owner and operator of C & C Contracting and Painting, a
general contracting firm, securing both union and non-union contracts, from June
1988 to August 1997. Mr. Carley has been a director of Open Door Records, Inc.,
and subsequently Open Door Online, since June 1997.
Edmond L. Lonergan, over the last five years, has been involved in
business consulting and the insurance field. From February 1994 to July 1996,
Mr. Lonergan was President of an Insurance Company called Insurance Providers of
American. He was self-employed from July 1996 to May 1998, as a business
consultant. Mr. Lonergan has owned and operated Corporate Architects, Inc., a
merger and acquisition consulting business specializing in reverse mergers of
private companies into inactive public companies, since May 1998. Mr. Lonergan
has been a one of our directors since June 17, 1999.
Norman J. Birmingham has served as President of Patina Corp., a holding
company for construction demolition and asbestos abatement companies, since
April of 1999. From September 1998 to January 1999, Mr. Birmingham served as
Chief Financial Officer of Mediforce, Inc., a medical products company. He
served as Chief Financial Officer for General Environmental Technologies, Inc.,
a holding company for three demolition companies, from January 1998 to September
1998. Mr. Birmingham was not employed from August 1997 to January 1998. From
November 1995 to August 1997, he served as President and Chief Financial Officer
for Westmark Group Holdings, Inc., a holding company for wholesale mortgage
companies. In addition, he served as President of Heart Labs of America, Inc.
from November 1995 to June 1996. Mr. Birmingham was President of Budget Services
and provided accounting, tax and financial planning services from September 1986
to July 1997. Mr. Birmingham became an officer of Open Door Online in February
2000.
Mr. Steev Panneton has served as Vice President of Manufacturing and
New Product Development for JD American Workwear, Inc. since June 1991. He has
also worked as a freelance commercial artist and illustrator for the past 10
years. He was elected a director of Open Door Records, Inc. in June 1997 and
has served as one of our directors since June 17, 1999.
Ms. Barbone has been involved in the music industry either as an artist
manager, part owner of a recording facility or in management of music operations
for over twenty-two years. She discovered Madonna in 1980, managing and
developing her from 1980 through 1983. Bittersweet which later became Bailie &
the Boys was discovered by Ms Barbone and she continued to develop the group
through her management until 1980. She assisted others in getting a start in the
music industry including musicians who were hired to play for or provide
services to Madonna such as producer David Frank, soundtrack composer and
drummer Steve Bray, and guitarist Paul Pesco all during the period from 1980
through1983. Ms. Barbone managed such acts as Birdbrain for TVT Records, Mistle
Thrush for Egg Records and Apache for Emerald City Records, a division of
Atlantic Records. Her last independent management endeavor, during this time,
was as co-manager of Nona Hendryx for Polygram Music. From January 1995 to March
2000, Ms. Barbone owned and had been employed by August Artist Management, where
she has managed several music artists. Miss Barbone was a one third owner of
Longview Farm recording studio from 1993 to 1997. Notable clients included The
Rolling Stones, Aerosmith, The Indigo Girls, Michael Bolton, The Monkees,
J.Giles, Edgar and Johnny Winters. Camille also produced the Gospel segment of
Woodstock `94 for a crowd of 350,000. She has lectured throughout the country at
seminars, workshops, and conventions and has been interviewed by major
newspapers, magazines and television specials such as 20/20, Entertainment
Tonight and Fox News. Since March 2000, Ms. Barbone has served as one of our
Vice Presidents as well as our Chief Operating Officer.
All prior directors and executive officers of Genesis Media Group, Inc,
our predecessor, tendered their resignations in conjunction with the Acquisition
Agreement dated June 17, 1999.
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Our directors are elected at the annual meeting of stockholders and
hold office until their successors are elected and qualified. Our officers are
appointed by the Board of Directors and serve at the pleasure of the Board and
subject to employment agreements, if any, approved and ratified by the Board.
(b) IDENTITY OF SIGNIFICANT EMPLOYEES
Name Age Position
---- --- --------
Timothy R. Dahler 29 Vice President Internet & Multimedia
Development & Production
Moses J. Calouro 29 Vice President Information Management Systems
Mr. Dahler, over the last five years, has co-founded of Concept-Link,
Ltd., a service bureau and Internet production corporation in Providence, Rhode
Island. Mr. Dahler has integrated his knowledge of art and design with leading
edge communications technology. Mr. Dahler has contracted with such companies as
Fuji Film, USA, United Technologies, Samsonite, and Fleet Bank. He has extensive
experience and commanding knowledge of both Microsoft and Macintosh operating
systems and is a graduate of Roger Williams University.
Mr. Calouro, over the last five years, has been operating Maritime
Information System and currently operates an Internet portal for the Maritime
Industry, Maritime Global Net at www.mgn.com. Mr. Calouro has over seven years
experience producing and maintaining Internet applications and database servers.
He has contracted with such companies as Motorola, Lloyd's of London, Arco, and
AT&T.
(c) SIGNIFICANT CONSULTANTS
BRIDGEWATER MANAGEMENT GROUP INC. Bridgewater Management Group Inc. has
been instrumental in the creation and implementation of the Internet activities
of Open Door Online Inc. The services Bridgewater Management Group has provided
for Open Door Online include coordination of Internet activities, research and
development of current and future Internet ventures, identifying potential
acquisition candidates, and general corporate strategic guidance. For each of
the services performed, Bridgewater Management Group has acted, and will
continue to act, in the capacity of a consultant. It is anticipated that
Bridgewater Management Group Inc. will continue to play an important role in the
coordination and growth of the Open Door Music division.
PAT ROGERS. Ms. Rogers brings well over twenty years of experience in
music publishing and licensing. The services that Ms. Rogers has provided for
Open Door Online include consultation services in music publishing for film and
television, consultation services with respect to new emerging technologies such
as MP3 and other digital download technology, and has assisted Open Door Online
in its composer/artist relations. For each of the services performed, Ms. Rogers
has acted, and will continue to act, in the capacity of a consultant. It is
anticipated that Ms. Rogers will play an important role in the future publishing
activities of Open Door Online Inc.
(d) FAMILY RELATIONSHIPS
There are no family relationships between the directors, executive
officers or any other person who may be selected as one of our directors or
executive officers.
(e) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of our officers, directors, promoters or control persons have been
involved in the past five (5) years in any of the following:
(1) Any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that
time;
(2) Any conviction in a criminal proceedings or being subject to a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
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<PAGE>
(3) Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, or any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities laws, and the judgment has not been reversed,
suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
No compensation or directors fees have been paid to any executive
officers or directors of Open Door Online or Open Door Records, Inc. from
November 1997, the date of Open Door Records' inception, to the date hereof. On
November 15, 1999, we entered into three-year employment agreements with Messrs.
DeBaene and Carley. Under the agreements, each is entitled to receive a base
annual salary of $95,000 during the period of November 15, 1999 to December 31,
2000. The salary will be increased annually, effective January 1st of each year,
except in year one, by an amount of 13% or higher as determined by the Board of
Directors. In addition to the base salary amounts, each of Messrs. DeBaene and
Carley will receive incentive bonuses ranging from 1-3% of our after-tax
profits, standard benefits such as health and life insurance, disability
payments and reimbursement of reasonable business expenses.
In addition, On March 1, 2000, we entered into three-year employment
agreements with Mr. Birmingham and Ms. Barbone. Under the agreements, each is
entitled to receive a base annual salary of $75,000 during the period of March
31, 2000 to December 31, 2000. The salary will be increased annually, effective
January 1st of each year, except in year one, by an amount of 13% or higher as
determined by the Board of Directors. In addition to the base salary amounts,
each will receive incentive bonuses ranging from 1-3% of our after-tax profits,
standard benefits such as health and life insurance, disability payments and
reimbursement of reasonable business expenses.
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Compensation paid to the officers and directors of Genesis Media Group
and Hollywood Showcase Television Network, Inc., and Open Door Online during
1997, 1998, 1999, or 2000 were as follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------------------ ------------------------ -------
Other Securities All
Name and Annual Restricted Underlying Other
Principal Compensa- Stock Options/ LTIP Compensa-
Position Year Salary($) Bonus($) tion ($) Award(s)($) SARs(#) Payouts($) tion($)
-------- ---- --------- -------- -------- ----------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CEO Don R. Logan 1997 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
1998 $66,500 $ -0- $ -0- $4,500,000 $ -0- $ -0- $ -0-
6 months
1999 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Secretary Barrie Logan 1997 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
1998 $30,826 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
6 months
1999 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Treasurer Carl Conte 1997 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
1998 $31,250 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
6 months
1999 $20,000 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
CEO David DeBaene 1997 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
1998 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
1999 $10,962 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
4 months
2000 $31,667 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 and 1999, Mr. DeBaene has been a lender of funds to Open
Door Records and subsequently to Open Door Online, Inc. As of December 31, 1998
and September 30, 1999, the outstanding balances due him are $113,643 and
$498,622, including interest expense of $3,643 and $8,224, respectively.
Interest rates range from 12% to 20% per annum. On March 7, 2000, Mr. DeBaene
converted $474,895 of this debt into 1,158,280 shares based on the average bid
price of our Common Stock over the twenty-day period preceding the conversion.
He has elected not to convert any of the remaining debt outstanding incurred
prior to the initial filing of this registration statement. Mr. DeBaene is the
only recipient of all shares related to the conversion.
On July 21, 1998, Genesis Media Group, Inc. distributed to its
shareholders shares of TranStar Communications, Inc., that Genesis Media Group
owned. The management assigned 50% of its carrying value to the 50% interest
being distributed and recognized a charge to retained earnings/(deficit) of
$332,522 during 1998. The remaining 50% of the shares were held by the Company
for future sale. During the six months ended June 30, 1999, Genesis sold some of
the shares at $235,168 recognizing no gain or loss from the sale. At June 30,
1999, there was no established market for the remaining shares and a quote could
not be obtained. Therefore, Genesis valued the remaining shares at no value and
recognized a write-down of $93,374.
On April 23, 1999, Genesis Media Group, Inc. issued to Don R. Logan,
the former chief executive officer and director of Genesis Media Group,
9,000,000 shares of restricted common stock in lieu of compensation. At the time
of the grant September 8, 1998, the fair market value of the stock based on the
asked price was $.50 per equivalent share issued. Genesis Media Group, Inc.
therefore recognized salary expense in the amount of $4,500,000 for the year
ended December 31, 1998.
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ITEM 8. DESCRIPTION OF SECURITIES
Our Articles of Incorporation authorize the issuance of 50,000,000
shares of Common Stock, $0.0001 par value per share. There is no preferred stock
authorized. The shares are fully paid, non-assessable, without pre-emptive or
other subscription rights and without cumulative voting rights. Holders of
Common Stock are entitled to one vote for each share on all matters to be voted
on by the stockholders. Holders of shares of Common Stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion from funds legally available therefore. In the
event of a liquidation, dissolution or winding up of our business, the holders
of shares of Common Stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities.
21
<PAGE>
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
(a) MARKET INFORMATION
On December 6, 1999, we were de-listed from the Over-The-Counter
Bulletin Board (OTC:BB). Prior to that time, our stock had been trading under
the trading symbol "NTER." The following tables set forth the highest and lowest
bid prices for our and our predecessors' common stock for each calendar month
during the period the stock was traded on the OTC:BB, as reported by the
National Quotation Bureau:
Predecessor: Hollywood Television Network, Inc.
Bid Prices Ask Prices
---------------- ----------------
1997 High Low High Low
---- --- ---- ---
January 1 - January 31 1 3/16 1-1/8 3/4
February 1 - February 28 1-3/16 5/8 13/16 5/8
March 1 - March 31 1-1/2 3/8 2 3/8
April 1 - April 30 2-1/4 1 2-3/8 1-9/16
May 1 - May 31 1-1/2 1 1-7/8 1
June 1 - June 30 1-1/2 7/8 1-7/8 7/8
July 1 - July 31 1-1/8 13/16 1-3/8 13/16
August 1 - August 31 3-1/16 1/2 3-15/16 11/16
September 1 - September 30 1-3/8 1 1-3/4 15/16
October 1 - October 31 1-1/8 3/4 1-1/8 3/4
November 1 - November 30 1 5/8 1 5/8
December 1 - December 31 3/4 3/8 7/8 7/16
Predecessor: Hollywood Television Network, Inc.
1998
January 1 - January 31 11/16 1/4 9/16 1/8
February 1 - February 28 1/4 1/8 1/4 3/16
March 1 - March 31 -- -- -- --
22
<PAGE>
Predecessor: Genesis Media Group, Inc.
Bid Prices Ask Prices
---------------- ----------------
1998 High Low High Low
---- --- ---- ---
April 1 - April 30 -- -- -- --
May 1 - May 31 1-5/8 1-5/16 1-15/16 1-5/8
June 1 - June 30 1-3/8 1-1/16 1-11/16 1-1/4
July 1 - July 31 1-3/8 5/8 1-7/16 13/16
August 1 - August 31 11/16 3/8 11/16 7/16
September 1 - September 30 11/16 3/8 11/16 7/16
October 1 - October 31 3/8 1/4 7/16 1/4
November 1 - November 30 5/16 .15 3/8 .18
December 1 - December 31 .15 .07 3/8 .11
Predecessor: Genesis Media Group, Inc.
1999
January 1 - January 31 .15 .09 .26 .12
February 1 - February 28 .22 1/8 .30 1/8
March 1 - March 31 .20 1/8 .26 1/8
April 1 - April 30 .23 .08 .37 .13
May 1 - May 31 .21 .16 .30 .17
June 1 - June 30 .17 .10 .18 .11
July 1 - July 31 .13 .08 3/16 .12
Open Door Online, Inc.
1999 1 for 30 reverse split
August 1 - August 31 3.60 1-9/16 3.90 2.00
September 1 - September 30 4-1/8 1-9/16 4-3/4 1-7/8
October 1 - October 31 3-3/16 1-1/8 3-7/8 1-5/8
November 1 - November 30 1-7/8 .15 2-5/8 .42
December 1 - December 31 .59 .3125 .75 .32
The above quotations are inter-dealer quotations, and the actual retail
transactions may involve dealer retail markups, markdowns, or commissions for
market makers of our stock. The prices quoted are based on the then stock
outstanding and has not been adjusted for mergers, exchanges, splits or reverse
splits. There can be no assurance the Common Stock will be accepted for trading
on an active public market. In addition, the shares of Common Stock are subject
to various governmental or regulatory body rules, which affect the liquidity of
the shares.
As of May 17, 2000, except for 1,275,744 free trading shares, all
shares issued by us are "restricted securities" within the meaning of Rule 144
under the Securities Act of 1933. Ordinarily, under Rule 144, a person holding
restricted securities for a period of one year may, every three months, sell in
ordinary brokerage transactions or in transactions directly with a market maker
an amount equal to the greater of one percent of our then-outstanding Common
Stock or the average weekly trading volume during the four calendar weeks prior
to such sale. Future sales of such shares could have an adverse effect on the
market price of the Common Stock.
(b) HOLDERS
As of May 17, 2000, there were approximately 237 registered holders of
free-trading shares and 79 holders of our restricted Common Stock, as reported
by our transfer agent. Some holders own both free trading and restricted shares
and would be included in both classifications above.
(c) DIVIDENDS
We have not paid any dividends on our Common Stock. We currently intend
to retain any earnings for use in our operations and to finance the development
and the expansion of our business. Therefore, we do not anticipate paying cash
23
<PAGE>
dividends in the foreseeable future. The payment of dividends is within the
discretion of the Board of Directors. Any future decision with respect to
dividends will depend on future earnings, future capital needs and our operating
and financial condition, among other factors.
ITEM 2. LEGAL PROCEEDINGS
We are currently vigorously defending the following suits that were
either know to have been, or threatened to be, filed against Genesis Media
Group, Inc. prior to the time of the acquisition and which were not disclosed to
the current management as required by the acquisition agreement between Open
Door Records and Genesis Media Group. We intend to seek indemnification from
prior management of Genesis Media Group for any and all losses and legal
expenses we incur in connection with these matters.
WILLETTE V. GENESIS MEDIA GROUP, INC. This suit, which was filed in
Crawford County, Michigan in 1998, involves a purported deficiency of
compensation payable to the plaintiff for the amount of $15,184.00. We have
reason to believe that the plaintiff has in fact been over paid by prior
management, and we intend to pursue a counterclaim for the recovery of the
excess payment. No settlement negotiations in connection with this matter are
taking place at this time.
PAMELA LANE V. GENESIS MEDIA GROUP, INC., ET. AL. In September 1999,
the plaintiff in this suit filed claims of breach of contract and other tortious
claims against Genesis Media Group, our predecessor, Don Logan and Shelly
Liebowitz in the Los Angeles County Superior Court, State of California. The
plaintiff is claiming $25,000 in damages. We intend to file a petition seeking
dismissal of the suit.
EMPIRE BURBANK STUDIOS, INC. V. LET'S DO IT AGAIN PRODUCTIONS, ET. AL.
This suit, which was filed in the Los Angeles County Superior Court in 1998,
involves a breach of contract claim for studio time that was allegedly
contracted for and never used. The plaintiff is seeking $70,000 in damages and
we are currently in the process of negotiating a settlement in this case.
OCTAVIA ENTERTAINMENT GROUP, INC., ET. AL. V. GENESIS MEDIA GROUP, INC.
ET. AL. This suit involves claims of fraudulent misrepresentation, fraudulent
conversion and breach of contract for prior management's alleged failure to pay
for certain equipment and not returning said equipment. This suit was just
recently filed this year by the plaintiff in Grand Traverse County, Michigan,
and the plaintiff is seeking $25,000 in damages. We intend to file a response to
this matter immediately.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements with our independent auditor. The
Independent Certified Public Accountant for Open Door Records, Inc., our
predecessor, also became the accountant for Genesis Media Group, Inc., another
predecessor.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On August 17, 1997, Hollywood Showcase Television Network, Inc. issued
an equivalent 303,418 shares of its common stock in conjunction with the merger
and exchange of shares of Genesis Group, Inc. We believe the exemption relied
for this share issuance, by prior management is included in Section 4(2) of the
Securities Act of 1933. Genesis Group, Inc. made representations and warranties
that these shares were issued to "accredited investors" as defined in Rule 501
of Regulation D, to be held for investment purposes only.
During the January through March quarter of 1998 Genesis Media Group,
Inc. issued a total of 1,082,860 common shares for a sum of $23,250 of which a
total of $1,000 was accepted in February and the remainder of $22,250 was
received in March. Theses free-trading share issuances included 1,000,000 shares
on February 20, 1998 to one individual and 82,860 shares on March 31, 1998 to
three individuals. We believe that prior management relied on an exemption
24
<PAGE>
provided for in Regulation D, Rule 504 for issuing free trading shares to this
small number representing themselves to be "accredited investors" as defined in
Rule 501 of Regulation D.
During the April through June quarter of 1998 Genesis Media Group, Inc.
issued a total of 2,205,000 common shares for the sum of $633,000 to seven
investors. The total dollars accepted consisted of $205,000 in April and
$430,000 in May of this period. The free-trading share issuances included
1,000,000 shares on April 3, 1998 to one investor and 500,000 shares to the same
investor on April 22, 1998. The Company also issued 175,000 shares on April 27,
1998 to an investor and 100,000 shares on April 30, 1998 to one investor. The
May share issuances included 120,000 shares on May 4, 1998, 200,000 shares on
May 14, 1998, 100,000 shares on May 18, 1998 and 10,000 shares on May 20, 1998
each of the above to a single investor. We believe that prior management relied
on an exemption provided in Regulation D, Rule 504 for issuing free trading
shares to this small number representing themselves to be "accredited investors"
as defined in Rule 501 of Regulation D.
In the same, second quarter of 1998 the Company also issued shares for
services to a director of the Company and an employee of the Company and to
three employees of a subsidiary and to one individual for services. The
issuances to the directors included 436,750 shares, 250,000 shares to complete
the acquisition of TranStar. We believe prior management issued these shares
with reliance on an exemption available under Section 4(2) of the Securities Act
of 1933 because of the limited number of recipients and the restricted nature of
these shares and the positions held by the directors and subsidiary employees
that further restricted the sale of these shares.
During the quarter including July through September of 1998 only 90,000
common shares were issued to a previous investor for a total of $900. These
shares were issued as free-trading shares on September 4, 1998. The reliance is
on Regulation D, Rule 504 as it was during the second quarter when shares were
originally issued to this investor.
Also, during the third quarter of 1998 the Company issued restricted
common shares to an employee and to an individual for services. On September 23,
1998 50,000 shares were issued to the employee and on September 30, 1998 75,000
shares were issued for legal services. We believe prior management issued these
shares with reliance on an exemption available under Section 4(2) of the
Securities Act of 1933 because of the limited number of recipients and the
restricted nature of these shares. The legal advisor represented himself to be
"accredited investors" as defined in Rule 501 of Regulation D.
During the October through December, 1998 quarter, prior management
issued 2,824,000 common shares to three individuals for the sum of $205,900. On
October 2, 1998 74,000 shares were issued to an individual, on November 11, 1998
625,000 shares were issued to an individual and on November 24, 1998 2,000,000
shares were issued to one investor. We believe that prior management relied on
an exemption provided in Regulation D, Rule 504 for issuing free trading shares
to this small number representing themselves as "accredited investors" as
defined in Rule 501 of Regulation D.
In January, 1999 3,600,000 free-trading common shares were issued to
one investor for the sum of $149,116. We believe that prior management relied on
an exemption provided in Regulation D, Rule 504 for issuing free trading shares
to this "accredited investor" as defined in Rule 501 of Regulation D.
On April 12, 1999, Genesis issued to Don R. Logan, the former chief
executive officer and director of Genesis, an equivalent 9,000,000 pre-reverse
shares of restricted common stock in lieu of compensation. At the time of the
grant, September 8, 1998, the fair market value of the stock based on the asked
price was $.50 per equivalent share issued. We believe prior management issued
these shares with reliance on an exemption provided in Section 4(2) of the
Securities Act of 1933. Mr. Logan was the President and Chairman of the Board at
the time these shares were issued and was therefore an "accredited investor" as
described in Regulation D, Rule 501.
In conjunction with the Acquisition Agreement described above, on June
17, 1999 Open Door Records, Inc. three shareholders were issued 7,000,000
restricted common shares of Genesis Media Group's common stock outstanding
immediately prior to the closing of the Acquisition Agreement. In exchange, Open
Door Records, Inc. shareholders submitted the 1,000 shares, representing the
total outstanding shares of Open Door Records, Inc. to Genesis Media Group, Inc.
The original terms of the share exchange agreement were agreed to and a letter
of intent was signed on June 4, 1999. The equivalent of 1,818,665 pre reverse
25
<PAGE>
shares of Genesis Media Group, Inc. were issued to ten individuals including
five employees of Genesis Media Group, Inc, and five promoters, commission
agents or individuals who provided services related to the agreement. The
issuance of these shares relied on an exemption provided in Section 4(2) of the
Securities Act of 1933 in the same respect as the prior merger described above.
On August 9, 1999, we issued 116,667 shares of our common stock to
three investors at the sum of $140,000 pursuant to an offering that relied on an
exemption provided in Regulation D, Rule 504 for issuing free trading shares to
this small number of "accredited investors" as described in Regulation D, Rule
501.
On September 17, 1999, we issued 557,333 shares of our common stock to
three investors for at a price of $0.75 per share pursuant in an offering that
relied on an exemption provided in Regulation D, Rule 504 for issuing free
trading shares to this small number of "accredited investors" as described in
Regulation D, Rule 501.
Mr. David DeBaene, President, was granted the right to convert up to
100% of the debt owed to him by us, plus accrued interest, into our Common Stock
on January 12, 2000. The conversion window allowed Mr. DeBaene to convert
starting February 29, 2000 through May 31, 2000 at the twenty-trading day moving
average prior to his conversion request. On March 7, 2000, he converted $474,895
of debt into 1,158,280 shares at a conversion price equal to the average bid
price over the 20-day period preceding the conversion. We relied on an exemption
provided in Section 4(2) of the Securities Act of 1933 to an accredited investor
as defined in Regulation D, Rule 501. These shares are restricted pursuant to
Rule 144 and further restricted by the position accorded Mr. DeBaene in the
Company.
For all of the above referenced offerings, we are relying on
information provided to us such as the number of investors solicited, the
information provided to and received from investors, and the representations
made to us by counsel and/or the issuers' prior and current management, that
such offerings were in compliance with federal and state securities laws.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our directors and officers may not be liable for errors in judgment or
other acts, or omissions not amounting to intentional misconduct, fraud or a
knowing violation of law, since provisions to limit such liability have been
made in the Articles of Incorporation and By-laws. These provisions allow for
indemnification of our officers and directors for any liability suffered by
them, or arising from their activities as officers and directors if they were
not engaged in intentional misconduct, fraud or a knowing violation of law.
Therefore, purchasers of our stock will have a more limited right of action than
they would have except for this limitation in the Articles of Incorporation and
By-laws.
Our officers and directors are accountable to us as fiduciaries, which
means such officers and directors are required to exercise good faith and
integrity in handling our affairs. A shareholder may be able to institute legal
action on behalf of himself and all other similarly stated shareholders to
recover damages where we have failed or refused to observe the law. Shareholders
may, subject to applicable rules of civil procedure, be able to bring a class
action or derivative suit to enforce their rights, including rights under
certain federal and state securities laws and regulations. Shareholders who have
suffered losses in connection with the purchase or sale of their interest in our
company, including misapplication by any such officer or director of the
proceeds from the sale of these securities, may be able to recover such losses
from us.
26
<PAGE>
PART F/S FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
----
OPEN DOOR ONLINE, INC.:
Report of Independent Accountants ......................................... 28
Balance Sheet - December 31, 1998 and September 30, 1999 and 1998
(Unaudited .............................................................. 29
Statements of Operations for the year ended December 31, 1998 and
the nine months ended September 30, 1999 and 1998 (Unaudited) ........... 30
Statements of Stockholders' Equity for the years ended December 31,
1998 and the nine months ended September 30, 1999 (Unaudited) ........... 31
Statements of Cash Flows for the year ended December 31, 1998 and
the nine months ended September 30, 1999 and 1998 (Unaudited) ........... 32
Notes to Financial Statements for the year ended December 31, 1998
and the nine months ended September 30, 1999 and 1998 (Unaudited) ....... 33
GENESIS MEDIA GROUP, INC.:
Report of Independent Accountants ......................................... 42
Balance Sheet - December 31, 1998 and 1997 and June 30, 1999 and
1998 (Unaudited) ........................................................ 43
Statements of Operations for the two years ended December 31, 1998
and the six months ended June 30, 1999 and 1998 (Unaudited) ............. 44
Statements of Stockholders' Equity for the two years ended December
31, 1998 and the six months ended June 30, 1999 (Unaudited) ............. 45
Statements of Cash Flows for the two years ended December 31, 1998
and the six months ended June 30, 1999 and 1998 (Unaudited) ............. 46
Notes to Financial Statements for the two years ended December 31,
1998 and the six months ended June 30, 1999 and 1998 (Unaudited) ........ 47
27
<PAGE>
Report of Independent Accountants
To the Board of Directors
Open Door Online, Inc. (formerly Genesis Media Group, Inc.)
Providence, Rhode Island
We have audited the accompanying balance sheet of Open Door Online,
Inc. (formerly Genesis Media Group, Inc.) as of December 31, 1998, and the
related statements of operations, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all materials respects, the financial position of Open Door Online,
Inc. (formerly Genesis Media Group, Inc.) as of December 31, 1998, and the
results of operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ James C. Marshall
James C. Marshall, CPA, PC
Scottsdale, Arizona
May 30, 2000
28
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Balance Sheet
December 31, 1998
and September 30, 1999 and 1998(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30,
----------------------------
December 31, 1999 1998
1998 (Unaudited) (Unaudited)
------------ ------------ ---------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 33 $ 78,580 $ 1,195
Accounts receivable - trade 37,185 261,582
Loans receivable - trade 12,500
Loans receivable - investors (Note 10) 164,000
Prepaid expenses 1,477 15,621
--------- ------------ ---------
38,695 532,283 1,195
Property and equipment, net of accumulated
depreciation (Note 5) 133,615 173,954 92,690
Master music library (Notes 1 and 3) 14,209,000
Other Assets 2,737 3,737 2,737
--------- ------------ ---------
$ 175,047 $ 14,918,974 $ 96,622
========= ============ =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $ 6,720 $ 109,942 $ 3,076
Payroll taxes and accrued expenses 212,138
Reserve for discontinued operations (Note 2) 500,000
Notes payable 110,000 471,700 30,000
Current portion of long term debt 75,000
--------- ------------ ---------
116,720 1,368,780 33,076
Long term debt 150,000
--------- ------------ ---------
Total liabilities 116,720 1,518,780 33,076
Stockholders' Equity
Common Stock (Notes 8 and 10) 1,000 1,013 1,000
Additional paid in capital 71,275 13,564,367 71,275
Retained earnings (deficit) (13,948) (165,186) (8,729)
--------- ------------ ---------
58,327 13,400,194 63,546
--------- ------------ ---------
$ 175,047 $ 14,918,974 $ 96,622
========= ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Statements of Operations
for the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
September 30,
--------------------------
December 31, 1999 1998
1998 (Unaudited) (Unaudited)
--------- --------- ---------
Revenue
Sales $ 37,185 $ 190,606 $
Other income 458
--------- --------- ---------
37,185 191,064
Cost of sales 10,485 118,385
--------- --------- ---------
Gross profit 26,700 72,679
Operating Expenses
Administrative expenses 23,530 71,376 5,677
Amortization and depreciation 11,321 18,942 2,158
Interest expense 3,888 8,224
Office expense 1,144 4,346 394
Professional and outside services 765 86,741 500
Rent 11,788
Salaries and payroll taxes 22,500
--------- --------- ---------
Total Operation Expense 40,648 223,917 8,729
--------- --------- ---------
Net Loss $ (13,948) $(151,238) $ (8,729)
========= ========= =========
Basic and diluted earnings/loss
per common share (Note 9) $ (0.00) $ (0.02) $ (0.00)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
Open Door Online, Inc.
Statements of Stockholders' Equity
for the year ended December 31, 1998 and
for the nine months ended September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------- Paid in Retained
Shares Amount Capital Earnings Total
---------- ------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 7,000,000 $ 1,000 $ 71,275 $ 72,275
New Income/(Loss) $ (13,948) (13,948)
---------- ------- ----------- --------- ------------
Balance December 31, 1998 7,000,000 1,000 71,275 (13,948) 58,327
Issuance of Common Stock for
combination of Genesis and
Open Door (Note 8) 1,277,626 (172) 11,917,486 11,917,314
Issuance for acquisition costs to
sponsors, promoters, and others
(Note 8) 1,181,665 118 1,411,673 1,411,791
Sale of Common Stock 673,994 67 163,933 164,000
Net Income/(Loss) (151,238) (151,238)
---------- ------- ----------- --------- ------------
Balance at September 30, 1999 10,133,285 $ 1,013 $13,564,367 $(165,186) $ 13,400,194
========== ======= =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Statements of Cash Flows
for the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
September 30,
-------------------------
December 31, 1999 1998
1998 (Unaudited) (Unaudited)
---- ----------- -----------
<S> <C> <C> <C>
Cash flows from Operations
Net Loss $ (13,948) $(151,238) $ (8,729)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization and depreciation 11,321 18,942 2,158
--------- --------- --------
Net cash flow provided by (used in)
operating activities (2,627) (132,296) (6,571)
Changes in operating assets and liabilities
(net of effects from acquisition of business):
Accounts receivable (37,185) (224,397)
Loans receivable - trade (12,500)
Prepaid expenses (1,477) (14,144)
Other assets (2,737) (1,000) (2,737)
Accounts payable 6,720 8,222 3,076
Accrued expenses 24,243
--------- --------- --------
Net cash flow used by operating activities (37,306) (351,72) (6,232)
--------- --------- --------
Cash Flows from investing activities
Acquisition of property, plant and equipment (73,661) (59,281) (23,575)
--------- --------- --------
Net cash used in investing activities (73,661) (59,281) (23,573)
--------- --------- --------
Cash flow from financing activities
Proceeds form issuance of debt 110,000 325,700 30,000
Proceeds for issuance of Common Stock 1,000 164,000 1,000
--------- --------- --------
Net cash provided by financing activities 111,000 489,700 31,000
--------- --------- --------
Net increase in cash and cash equivalents 33 78,547 1,195
Cash at January 1, -- 33 --
--------- --------- --------
Cash at end of period $ 33 $ 78,580 $ 1,195
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
NOTE 1 - ORGANIZATION
Open Door Records, Inc. ("Open Door") was incorporated in the state of
Rhode Island on November 20, 1997. The Company had no operations during 1997.
In June 1999, Open Door entered into a stock exchange agreement with
Genesis Media Group, Inc. ("Genesis") accounted for as a reverse acquisition
whereby all of Open Door's outstanding stock would be acquired in exchange for
stock of Genesis. On an aggregate basis, Genesis shareholders received 0.0333
shares of the Company for each share of Genesis common stock. In addition, the
agreement provides for the resignation of management and directors of Genesis
and the appointment of directors and executives selected by Open Door. This
agreement was completed as of June 30, 1999, whereupon the resulting entity
changed its name to Open Door Online, Inc. (the "Company") and state of
incorporation to New Jersey. The combination of Open Door with Genesis was
accounted for as a tax-free exchange under the Internal Revenue Code.
The purchase method of accounting was performed on Genesis based on the
fair market value at the transaction date. The fair market value of Genesis was
based on the $.18 per share value of Genesis common stock on the date the terms
were agreed to, June 4, 1999, although the signing date of the definitive
agreement was on June 17, 1999. Since the appraised value of the music library
was in excess of $38 million, the fair market value of the merger was allocated
music library and results in no goodwill being recorded. The valuation of
Genesis, including transaction costs of $120,000 was $13,370,115. A summary of
assets and liabilities acquired, at established fair market value was as
follows:
Assets - Music Library $ 14,209,000
------------
Total Assets $ 14,209,000
Current liabilities assumed (688,885)
Long-term liabilities assumed (150,000)
------------
Fair market value of Genesis $ 13,370,115
============
The accompanying financial statements include the results of Open Door
for all periods and the results of Genesis beginning on July 1, 1999. The
unaudited pro forma financial data does not purport to represent what the
Company's results from continuing operations would actually have been had the
transaction in fact occurred as of an earlier date, or project the results for
any future date or period.
33
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
NOTE 1 - ORGANIZATION (CONTINUED)
December 31, September 30,
1998 1999
------------ -------------
Pro Forma (unaudited)
Revenue $ 558,747 $ 244,164
Cost of good sold 92,049 123,885
----------- -----------
Gross Profit 466,698 120,279
Expenses
Selling, general and administrative (6,181,535) (460,955)
Interest expense (31,950) (18,502)
Provision for loss on TranStar (93,374)
----------- -----------
Loss from operations $(5,746,787) $ (452,552)
=========== ===========
Basic and diluted earnings/loss per share $ (0.61) $ (0.05)
=========== ===========
Weighted average number of shares 9,459,291 9,509,334
=========== ===========
NOTE 2 - DISCONTINUED OPERATIONS
In conjunction with the acquisition, the Company had certain
capitalized leases and operating lease obligations that extend through 2003.
Genesis had a number of capitalized leases and other obligations as of June 30,
1999 with scheduled payments of approximately $820,000 through 2003, which the
Company is in the process of eliminating. As of June 30, 1999, the Company
elected to discontinue the acquired movie production and editing business in
California and accordingly provided a reserve of $500,000 in excess of the net
carrying value of Genesis to terminate such leases and close the operations.
34
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of Open Door Records,
Inc. is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management. Management is responsible for their integrity. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements
LINE OF BUSINESS
The business of the Company to date has derived revenue from the
promotion, production and studio recording services to music artists. The
Company is in the process of developing and internet presence for the sales and
marketing of music and related products through the internet and expanding its
promotion, production and recording services to the entertainment and music
markets.
REVENUE RECOGNITION
It is the Company's policy to recognize revenue upon shipment to the
customer or upon completion of the services and is fully earned. Through
September 30, 1999, substantially all of the revenue is derived from the sale of
music production services to third parties.
The Company policy relating to each area of revenue complies with the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
101 which is summarized as the culmination of the earnings process when:
(1) Persuasive evidence of an arrangement exists;
(2) Delivery has occurred or services have been rendered;
(3) The seller's price to the buyer is fixed or determinable; and
(4) Collectibility is reasonably assured."
The Company enters into typical industry contracts for the editing and
production of music and related distribution. Each of these contracts call for
either a specified amount of final production media and distribution. The
arrangement has either a fixed set price or a price per unit depending on the
contract.
35
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998
(Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company delivers the completed segment of the contract to the
client and upon acceptance by the client records the revenue recognition. The
contract may call for a range of services such as studio production, editing,
final production, distribution and sales. Each of these would be a revenue
recognition point under the contracts and are recognized as billed upon the
terms of the individual contract. The contracts typically provide that they are
cancelable by either party, with notice, and work to date would be paid.
The contracts specify either fixed prices and/or percentages of sales
to be retained by the Company. Upon acceptance of the completion of each stage,
by the client, revenue is recognized. While the Company typically gets deposits
and advances against the work to be performed, these amounts are not recognized
until the sale is recognized. In certain circumstances revenue is recognized on
an average per unit basis over the contract.
The distribution contracts are of two types and the revenue will be
recognized on a contract dependent basis. The first method is related to the
Company ownership of the media being distributed. When the company owns the
media and is at risk for returns, defective products or disputed charges for
product sold via the Internet the complete sales price is recorded. In the event
that the company does not take title to the product and is not at risk only the
net revenue received is recognized as the sale.
The distribution of media at wholesale is recognized upon shipment less
any known returns that have been received for product previously shipped. The
Company contract specifies payment will be received monthly, in full for the
product shipped three months prior less authorized returns during that period.
Future returns after payment for a certain title is reserved for up to one year
at the then known return ratio for that artist and title.
Collectability is reasonably assured as a result of deposits, and
advances and any unpaid balance due the Company is collectible based on the
evaluation of the financial strength of the client, which are usually national
distributors, advertisers and advertising agencies. Release of product or the
start of the next contract is withheld until payment for currently completed
services have been paid. The period of time allotted is three months or the
service related receivable will be reserved for in total.
36
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND DEPRECIATION
Depreciation has been provided on a straight-line basis for financial
accounting purposes using the straight-line method over the shorter of the
asset's estimated life or the lease term. The estimated useful lives of the
assets are as follows:
Record and production equipment 5-7 Years
Website Development 5-7 Years
Leasehold improvements 3-10 Years
MASTER MUSIC LIBRARY
The master music library consists of original and digitized masters of
well known artists. The Company has the right to produce, sell, distribute or
otherwise profit from its utilization of this library subject to industry
standard royalty fees to be paid to artists as copies of the product are sold or
distributed. The Company will amortize the library on a units sold basis in
accordance with SFAS 50 that relates the capitalized costs to estimated net
revenue to be realized. When anticipated sales appear to be insufficient to
fully recover the basis, a provision against current operations will be made for
anticipated losses. To date the Company has not utilized the library nor
expensed any of the carrying value.
COMPREHENSIVE NET LOSS
There is no difference between the Company's net loss as reported for
any of the periods reported herein and the Company's comprehensive loss, as
defined by the Statement of Financial Accounting Standards No. 130.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income/(deficit)
by the average number of common shares outstanding during the period. Diluted
earnings per common share is calculated by adjusting outstanding shares assuming
conversion of all potentially dilutive stock options. The Company has no
potentially dilutive stock options outstanding during any period presented.
Therefore, basic and dilutive earnings/loss per share will be the same for the
periods presented.
37
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
NOTE 4 - ACCOUNTS RECEIVABLE
The company provided no reserve for uncollectable accounts since
management of the Company expects all receivables reported to be fully
collectable.
NOTE 5 - PROPERTY AND EQUIPMENT
Depreciation and amortization for the year ended December 31, 1998 and
the nine months ended September 30, 1999 and 1998 is $11,321, $18,942 and
$2,158, respectively.
Property plant and equipment consist of the following:
December 31, September 30,
1998 1999
--------- ---------
Production Equipment $ 105,306 $ 126,206
Office equipment, furniture and fixtures 33,985 57,855
Leasehold improvements 5,645 20,156
--------- ---------
144,936 204,217
Less accumulated depreciation and amortization (11,321) (30,263)
--------- ---------
$ 133,615 $ 173,954
========= =========
NOTE 6 - RELATED PARTY SHORT TERM DEBT
Short term debt is due to the president of the Company for cash
advances made to the Company for working capital. No repayments have been made
on the balances. Advances during the year ended December 31, 1998 and the nine
months ended September 30, 1999 and 1998 were $110,000, $361,700 and $30,000,
respectively. The ending balances at December 31, 1998, September 30, 1999 and
1998 were $110,000, $471,700 and $30,000, respectively. Interest expense for the
periods was $3,888, $8,224 and $0, respectively. See Note 9 for subsequent
events.
38
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
NOTE 7 - INCOME TAXES
The tax-free exchange with Genesis creates a difference in the basis of
the assets between tax basis and accounting basis. At July 1, 1999, the tax
basis of the assets is approximately $906,000 greater than the accounting basis.
In the future, as assets are disposed of, depreciated, or amortized or
liabilities paid, the deduction for tax purposes will be greater than the book
basis, resulting in reduced tax expense or greater net operating loss carryover
for tax purposes than would otherwise be expected. There is no certainty as to
the timing of such recognition nor that the Company will be able to fully
utilize these differences.
The components of deferred tax assets and liabilities are as follows:
December 31, September 30,
1998 1999
--------- ---------
Tax effect of assets acquired in business
combination $ -- $ 362,000
Tax effects of reserve for discontinued operations 00 200,000
Tax effects of carry forward benefits:
Net operating loss carryforwards 5,600 60,000
------- ---------
Tax effects of carryforwards
Tax effects of future taxable differences and
carryforwards 5,600 622,000
Less deferred tax asset valuation allowance (5,600) (622,000)
------- ---------
Net deferred tax asset $ -- $ --
======= =========
Realization of the net deferred tax assets is dependent on generating
sufficient taxable income prior to their expiration. Tax effects are based on a
9.0% state and 34.0% federal income tax rates for a net combined rate of 40%.
The tax effects of the acquired business combination have not been recognized in
the current or prior periods but will be recognized in future periods, at which
time if the current period taxable income is insufficient to offset such charges
for tax purposes, the effect will be available to the Company over the
succeeding 20 years. The realized net operating losses expire over the next 19
years, the majority of which expire in 2018. A valuation allowance has been
provided for the fully deferred tax asset amount due to the lack of operating
history and operating losses in recent periods. When realization of the deferred
tax asset is more likely than not to occur, the benefit related to the
differences will be recognized as a reduction of income tax expense.
39
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998
(Unaudited)
NOTE 8 - COMMON STOCK
Genesis was the nominal acquirer in the Open Door transaction in which
Open Door was the nominal acquiree in the reverse acquisition. The December 31,
1998 and September 30, 1998 financial statements represent the activities of
Open Door only. As the legal acquirer, the Genesis balances at January 1, 1999
were adjusted to reflect the business combination and to give effect to the one
for 30 reverse split of the Genesis shares as of June 30, 1999 which resulted in
the issuance of 1,277,626 shares to former holders of Genesis stock. The Company
issued a total of 8,181,665 shares, 7,000,000 shares for former Open Door
Records, Inc. holders and 1,181,665 shares consisting of 665,000 shares to
promoters and sponsors of the transaction and 516,665 share to former employees
of Genesis to terminate employment agreements. The outstanding stock of the
Company was 7,000,000 as of December 31, 1998 and 10,133,285 shares and
7,000,000 shares at September 30, 1999 and 1998, respectively, after giving
effect to the Open Door stock split.
NOTE 9 - EARNINGS PER COMMON SHARE
As of December 31, 1998 and September 30, 1998, the weighted average
number of shares outstanding was 7,000,000. The weighted average number of
shares used to compute the earnings per share at September 30, 1999, after
giving effect to the acquisition on June 30, 1999 by Genesis, the legal acquirer
of Open Door Records, Inc., was 7,878,815.
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1998 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Loss from continuing operations $ (13,948) $ (151,238) $ (8,729)
Denominator:
Denominator for basic and dilutive
earnings per share - weighted
average shares 7,000,000 7,878,815 7,000,000
----------- ----------- -----------
Basic and dilutive earning/(loss)
per common share $ (0.00) $ (0.02) $ (0.00)
=========== =========== ===========
</TABLE>
40
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998
(Unaudited)
NOTE 10 - STOCK TRANSACTIONS - SUBSEQUENT EVENTS
During the third quarter, the Company sold 673,994 shares of its common
stock pursuant to a private offering for an aggregate price of $204,000. In
October 1999, the Company received the amount due on the sale of $164,000. The
stock is shown as outstanding at September 30, 1999 and a receivable of the
unpaid amount at that date.
On January 12, 2000 the Company granted and on March 7, 2000 the
president of the Company exercised his option to convert his loans to the
Company to common stock. The conversion price was based on the average of the
last 20 days average price of the stock immediately preceding the exercise. The
Company issued a total of 1,183,853 shares which included principal and interest
due of $473,541 and the Company reduced its liability for the debt.
NOTE 11 - RESTATEMENT OF CHANGE IN ACCOUNTING
The Company has restated herein the application of APBO 16 to reflect
the value of the music library based on the fair market value of the stock
issued for the acquisition of Genesis rather than the fair market value of the
music library. This change had the effect of reducing the music library and paid
in capital by approximately $7,491,000. The changes to the results of operations
were not material.
41
<PAGE>
Report of Independent Accountants
To The Board of Directors
Genesis Media Group, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of Genesis Media Group,
Inc. as of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all materials respects, the financial position of Genesis Media
Group, Inc. as of December 31, 1998 and 1997, and the results of operations and
its cash flows for the two years then ended in conformity with generally
accepted accounting principles.
/s/ James C. Marshall
James C. Marshall, CPA, PC
Scottsdale, Arizona
May 30, 2000
42
<PAGE>
Genesis Media Group, Inc.
Balance Sheet
December 31, 1998 and 1997 and
June 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, JUNE 30,
-------------------------- ---------------------------
1998 1997 1999 1998
----------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 400 $ 10,025 $ 2,077 $ 155,952
Accounts receivable - trade (Note 3) 186,437 13,814 176,436 198,913
Loans receivable - trade 50,000 50,000 50,000
Prepaid expenses 102,951 51,416 395,640 83,744
Market securities (Note 7) 332,522 665,043
----------- ---------- ----------- -----------
Total Current Assets 672,310 75,255 624,153 1,153,652
Property and equipment, net of
accumulated depreciation of $37,333
and $15,733 for 1998 and 1997,
respectively. (Notes 4 and 6) 661,666 158,914 638,038 161,581
Master music library (Note 5) 108,329 52,500 108,331 77,814
Goodwill, net of accumulated
amortization of $94,378 and $21,311
for 1998 and 1997, respectively 1,732,287 1,805,354 1,695,754 1,768,821
Other assets 144,338 126,193 143,647 139,092
----------- ---------- ----------- -----------
Total Assets $ 3,318,930 $2,218,216 $ 3,209,923 $ 3,300,960
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 17,286 $ 109,840 $ -- $ 8,000
Payroll taxes and accrued expenses 46,735 17,588 113,895 4,649
Income taxes payable (Note 8) 53,503 92,703
Current portion of long-term debt
(Note 6) 114,096 163,320 4,276
----------- ---------- ----------- -----------
Total Current Liabilities 178,117 180,931 277,215 109,628
Long-term debt - capitalized lease (Note 6) 380,124 334,594 3,500
----------- ---------- ----------- -----------
Total liabilities 558,241 180,931 611,809 113,128
Stockholders' Equity
Common stock - par value $0.000, Authorized,
50,000,000 shares issued and outstanding
28,130,607 and 17,499,327, 1998 and 1997
respectively (Notes 1, 9 and 10) 3,713 2,470 3,833 2,582
Additional paid in capital 8,688,579 1,954,560 8,827,198 3,690,513
Retained earnings (deficit) (5,531,603) 80,255 (6,232,917) (505,263)
----------- ---------- ----------- -----------
Total Stockholders' Equity 2,760,689 2,037,285 2,598,114 3,187,832
----------- ---------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 3,318,930 $2,218,216 $ 3,209,923 $ 3,300,960
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Genesis Media Group, Inc.
Statements of Operations
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
For the year ended For the six months ended
------------------------- -------------------------
1998 1997 1999 1998
----------- --------- --------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Sales $ 521,562 $ 829,985 $ 53,100 $ 461,121
----------- --------- --------- -----------
521,562 829,985 53,100 461,121
Cost of sales 81,564 3,196 5,500 53,271
----------- --------- --------- -----------
439,998 826,789 47,600 407,850
Operating Expenses
Administrative expenses 145,128 60,836 15,930 53,851
Amortization and depreciation 102,813 37,044 62,686 47,089
Office expense 11,624 40,131 5,228 29,724
Professional and outside services 137,014 201,025 10,500 83,498
Rent 106,327 27,339 18,902 54,074
Salaries and payroll taxes 5,641,869 208,656 132,016 778,635
----------- --------- --------- -----------
Total Operation Expense 6,144,775 575,031 245,262 1,046,871
----------- --------- --------- -----------
Income/(Loss) from operations (5,704,777) 251,758 (197,662) (639,021)
Interest expense 28,062 10,278
Provision for loss on sale of
Transtar Stock (Note 7) 93,374
----------- --------- --------- -----------
Income/(Loss) before benefit/
(provision) for income taxes (5,732,839) 251,758 (301,314) (639,021)
Benefit/(provision) for income taxes 53,503 (100,703) -- 53,503
----------- --------- --------- -----------
Net Income/(Loss) $(5,679,336) $ 151,055 $(301,314) $ (585,518)
=========== ========= ========= ===========
Loss per common share (Note 10) $ (0.19) $ 0.01 $ (0.01) $ (0.02)
=========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
Genesis Media Group, Inc.
Statements of Stockholders' Equity
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 2,680,000 $ 2,680 $ 26,144 $ (12,989) $ 15,835
Merger of Genesis and Hollywood 22,019,327 (210) 1,928,416 (57,811) 1,870,395
Net Income/(Loss) 151,055 151,055
---------- ------- ---------- ----------- -----------
Balance at December 31, 1997 24,699,327 2,470 1,954,560 80,255 2,037,285
Sale of Common Stock 2,552,703 255 954,266 954,521
Stock Compensation to Employees 9,626,750 963 5,357,903 5,358,866
Stock Issued in Conjunction with TranStar 250,000 25 421,850 421,875
Spin off of 50% of TranStar (332,522) (332,522)
New Income/(Loss) (5,679,336) (5,679,336)
---------- ------- ---------- ----------- -----------
Balance at December 31, 1998 37,128,780 3,713 8,688,579 (5,931,603) 2,760,689
Issuance of Common Stock 1,200,000 120 138,619 138,739
Net Income/(Loss) (301,314) (301,314)
---------- ------- ---------- ----------- -----------
Balance at June 30, 1999 38,328,780 $ 3,833 $8,827,198 $(6,232,917) $ 2,598,114
========== ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Genesis Media Group, Inc.
Statements of Cash Flows
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
For the year ended For the six months ended
------------------------- ------------------------
1998 1997 1999 1998
----------- --------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income (Loss) $(5,679,336) $ 151,055 $(301,314) $(585,518)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization and depreciation 102,813 37,044 62,686 47,089
Non-monetary compensation 5,358,866 737,016
Provision for loss on Transtar 93,374
Income tax provision (53,503) 100,703 (53,503)
----------- --------- --------- ---------
Net cash flow provided by (used in)
operating activities (271,160) 288,802 (145,254) 145,084
Changes in assets and liabilities
Accounts receivable (172,623) (13,814) 10,001 (185,099)
Notes receivable (50,000) (50,000)
Prepaid expenses (59,614) (41,230) (283,709) (79,528)
Other assets (18,145) (158,673) 691 (12,899)
Accounts payable (92,564) (55,626) (17,276) (101,850)
Accrued expenses 29,147 17,588 67,160 (12,939)
----------- --------- --------- ---------
(363,799) (251,755) (233,133) (442,315)
Net cash flow provided/(used) by
operating activities (634,959) 37,047 (368,387) (297,231)
Cash flows from investing activities:
Marketable securities purchases (235,168) (243,168)
Marketable securities sales 235,168
Purchase of property, plant and equipment (532,498) (30,509) (2,525) (13,223)
Payments on production of music library (55,829) (2) (25,314)
----------- --------- --------- ---------
(823,495) (30,509) 232,641 (281,705)
Cash flow from financing activities:
Principal payments on long-term debt -
capitalized leases (60,530) (45,350) (810)
Proceeds from issuance of long-term debt -
capitalized leases 554,750 49,044 8,586
Proceeds from issuance of common stock 954,609 133,729 717,087
----------- --------- --------- ---------
1,448,829 137,423 724,863
Net increase (decrease) in cash (9,625) 6,538 1,677 145,927
Cash at January 1 10,025 3,487 400 10,025
----------- --------- --------- ---------
Cash at end of period $ 400 $ 10,025 $ 2,077 $ 155,952
=========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
NOTE 1 - ORGANIZATION
The predecessor of the Genesis media Group, Inc. ("Genesis") was
incorporated in the state of New Jersey on July 27, 1987. In August 1997,
Hollywood Showcase Television Network, Inc. acquired in a reverse acquisition
all of the assets of Genesis Group, Inc. and changed its name to Genesis Media
Group, Inc.
1997 MERGER
On August 17, 1997 (the "Merger Date"), Genesis Group, Inc. merged into
Hollywood Showcase Television Network, Inc. ("Hollywood"). The shareholders of
Hollywood received shares of Genesis Group, Inc. for each share of Hollywood
common stock. In total, approximately 2,680,000 shares were exchanged for the
outstanding stock of Hollywood.
The Merger was accounted for as a reverse acquisition whereby Genesis
Group, Inc. was treated as the acquirer and Hollywood as the acquiree, because
Genesis Group, Inc. shareholders owned a majority of the surviving entity stock
as of the Merger Date and Genesis owned a majority of the assets. Purchase
accounting was performed on Hollywood based on the fair market value of the
transaction date.
The value of Hollywood was based on the fair market value of the
assets, net of liabilities acquired by Genesis Group, Inc. at the Merger Date. A
summary of the assets and liabilities acquired, at estimated fair market value
was as follows:
Current Assets $ 16,456
Property, Plant & Equipment 42,757
Goodwill 1,826,665
-----------
Total Assets 1,885,878
-----------
Current Liabilities (43,378)
-----------
Fair market value of Hollywood $ 1,842,500
===========
The accompanying financial statements include the results of Genesis
Group, Inc. for all periods and the results of Hollywood beginning on the Merger
Date. The following 1997 pro forma selected financial data reflect the Merger as
if it had occurred at the beginning of 1997. The unaudited pro forma financial
data does not purport to represent what the results from continuing operations
would actually have been had the transaction in fact occurred as of an earlier
date, or project the results for any future date or period.
47
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
NOTE 1 - ORGANIZATION (CONTINUED)
Pro Forma (unaudited) 1997
-----------
Revenues $ 888,317
Cost of good sold 31,039
Selling, general and administrative 655,044
-----------
Operating Income 202,234
-----------
Net Income $ 121,334
===========
Income (loss) per share $ 0.01
===========
Weighted average number of shares 24,699,329
===========
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of Genesis Media Group,
Inc. is presented to assist in understanding Genesis's financial statements. The
financial statements and notes are representations of Genesis's management.
Management is responsible for their integrity. The accounting policies conform
to generally accepted accounting principles and have been consistently applied
in the preparation of the financial statements.
LINE OF BUSINESS
Genesis was primarily engaged in media production and advertising
production services.
ACCOUNTS RECEIVABLE
Genesis provides allowances against accounts receivable to maintain
sufficient reserves to cover anticipated losses.
EQUIPMENT AND DEPRECIATION
Depreciation has been provided on the same basis for tax and financial
accounting purposes using the straight-line, accelerated and declining balance
methods. The estimated useful lives of the assets are as follows:
Production equipment 5-7 Years
Office equipment furniture and fixtures 5-10 Years
Leasehold improvements 3-10 years
48
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MASTER MUSIC LIBRARY
The master music library is stated at cost for additions and
improvements to the library since being acquired by Genesis and the cost
incurred by the majority shareholder of Genesis prior to the library's
contribution to the Genesis. Genesis was in the process of upgrading the master
media before production and marketing of the various music products. Genesis
intended to amortize the carrying cost of the library over the estimated useful
net sales lives of the recordings in such a way that the costs would be
amortized against net revenue in accordance with SFAS 50.
Goodwill is amortized on the straight-line method over a 25 years.
REVENUE RECOGNITION
Revenue is recognized when the individual media products have been
completed, delivered to the client and accepted by the client. At times, this
may include the allocation of income for portions or segments of contracts that
have been completed and accepted by the clients. Income is recognized in these
circumstances ratably over the total units of the contract.
COPYRIGHTS AND AMORTIZATION
Copyrights were purchased and are subject to the 15 year amortization
rules. For purposes of these financial statements, copyrights are amortized on
the straight-line basis over 15 years.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
December 31, June 30,
------------------- --------------------
1998 1997 1999 1998
-------- ------- -------- --------
Trade receivables $206,437 $13,814 $196,436 $198,913
Less: Allowance for
doubtful accounts 20,000 -- 20,000 --
-------- ------- -------- --------
Total $186,437 $13,814 $176,436 $198,913
======== ======= ======== ========
49
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
NOTE 3 - PREPAID EXPENSES
Included in prepaid expenses is a note for $20,000 from an officer of
Genesis. The officer has pledged his shares of Genesis's common stock as
collateral for said note.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at cost:
1998 1997
--------- --------
Computer equipment $ 34,114 $ 32,057
Office furniture 27,356 21,436
Office equipment 46,172 46,172
Production equipment 55,371 55,371
Capitalized lease production equipment 515,810
Signs 335
Software 230
Leasehold improvements 19,611 19,611
--------- --------
698,999 174,647
Less accumulated depreciation (37,333) (15,733
--------- --------
$ 661,666 $158,914
========= ========
Depreciation expense for the years ended December 31, 1998 and 1997 and
the six months ended June 30, 1999 and 1998 was $29,746, $15,733, $26,153 and
$10,556, respectively.
Property, plant and equipment include certain capitalized leases.
Leased production equipment represents capitalized leases whereby Genesis has
the right to exercise a nominal purchase option at the end of the lease period.
NOTE 5 - MASTER MUSIC LIBRARY
The master music library consists of movie films, music tapes and CD
ROM interactive tapes. With the masters comes the rights to market, reconfigure,
compile, manufacture, distribute, license, sell and lease originals or copies
thereof. Genesis has an independent appraisal that identifies each item and
evaluates it. The appraisal value of this library is approximately $41,000,000.
Also included in inventory are the costs incurred to date in developing the
movie production of the "Diary of James Dean."
50
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
NOTE 6 - LEASES
Genesis leases certain real estate and equipment. Commitments for
minimum rentals under non-cancelable leases, by year, of the future minimum
payments under these leases, together with the present value of the net minimum
payments under the capital leases, together with the present value of the net
minimum payments as of December 31, 1998:
Capital Operating
Leases Leases
------ ------
Year ending December 31,
1999 $163,320 $99,191
2000 163,320 49,595
2001 144,952
2002 127,816
2003 66,323
-------- --------
Total minimum lease payments 665,731 $148,786
========
Less amount representing interest 171,511
--------
Total present value of minimum payments 494,220
Less current portion of such obligations 114,096
--------
Long-term obligations with interest rates ranging from
11.0% to 15.0% averaging approximately 12.95% $380,124
========
Property, plant and equipment included the following amounts for
capitalized leases:
December 31, June 30,
---------------- --------------------
1998 1997 1999 1998
-------- ---- -------- --------
Capitalized lease production equipment $515,810 $ -- $515,810 $232,025
Less allowance for depreciation 14,727 -- 37,567 5,832
-------- ---- -------- --------
$501,083 $ -- $478,243 $226,193
======== ==== ======== ========
Rent expense under operating leases for the years ended 1998
and 1997 and the six months ended June 30, 1999 and 1998 amounted to
approximately $106,327, $51,095, $37,775, and $54,074, respectively.
51
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
NOTE 7 - INVESTMENT IN TRANSTAR COMMUNICATIONS, INC.
During 1998, the Company acquired all of the outstanding stock of
TranStar Communications, Inc. (formerly EDMAR, Inc.), an affiliate. Also in
1998, the Company issued approximately 50% of the interest it held in TranStar
to shareholders of the Company as a tax free. The Company recorded the
transaction at the book value with a charge to retained earnings/(deficit). The
remaining shares held by the Company are held for trading. At December 31, 1998,
Genesis holds 576,535 rule 144 restricted shares of common stock of TranStar
Communications, Inc. The carrying basis approximates the market value of the
stock at December 31, 1998. At June 30, 1999 the remaining shares had obtainable
no market value and the Company recognized a charge to operations for the
remaining balance.
NOTE 8 - INCOME TAXES
The Company had a net operating loss carryforward from 1996 of
$118,000. The tax benefit of this carry forward was recognized in 1997 and
resulted in a reduction of the tax liability of $47,200. The remaining tax
liability for 1997 was offset by the net operating loss for 1998 resulting in a
carryback of $53,503. Any remaining unused net operating losses from 1998 and
1999 have been offset by the valuation allowance since it is more likely than
not that the Company will not realize the benefits of such carryforwards.
The components of deferred tax assets and liabilities are as follows:
December 31, June 30,
1998 1999
-------- ---------
Tax effects of carryforward benefits:
Federal; net operating loss carryforwards $ 74,700 $ 313,600
-------- ---------
Tax effects of carryforwards
Tax effects of future taxable differences
and carryforwards 74,700 313,600
-------- ---------
Less deferred tax asset valuation allowance (74,700) (313,600)
-------- ---------
Net deferred tax asset $ -- $ --
======== =========
At December 31, 1998, Genesis has net operating loss carryforwards
("NOLs") of approximately $1,675,000 available at December 31, 1998 to offset
its future U.S. taxable income. This amount may not be available or available
only in limited amounts as a result of the stock exchange agreement discussed in
note 12. However, the successor may authorize other tax planning techniques to
utilize a portion of the remaining NOLs before they expire. These net operating
losses expire over the next 19 years, the majority of which expire 2018. Any tax
benefits subsequently recognized will be allocated to additional paid in
capital.
52
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
NOTE 9 - STOCKHOLDERS' EQUITY
Genesis has 50,000,000 shares of stock authorized at $0.0001 par value,
37,128,780 and 24,699,327 shares outstanding at December 31, 1998 and 1997,
respectively and 38,328,780 and 25,817,357 shares outstanding at June 30, 1999
and 1998.
During 1998, Genesis issued 9,626,750 shares of common stock in lieu of
monetary compensation to its chief executive (9,000,000 shares) and other
employees and service providers. These issuances were recorded at the fair
market value of the payments, based on the market price of the Genesis stock as
of the dates the board of directors authorized each issuance. The aggregate
value of these issuances was $5,358,891 during 1998.
In addition the Company issued 250,000 shares in conjunction with the
acquisition of TranStar Communications, Inc. The fair market value of the stock
issued based on the market price of the Genesis stock as of the date the board
authorized the issuance was $421,875.
NOTE 10 - EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing the net
income/(loss) by the average number of common shares and common stock
equivalents outstanding during the period. The weighted average number of common
shares outstanding during the periods were approximately 29,309,948 and
10,944,788 at December 31, 1998 and 1997 and 38,295,447 and 26,864,851 at June
30, 1999 and 1998.
Common stock equivalents are the net additional shares which would be
issuable upon the exercise of the outstanding common stock options, assuming
that Genesis reinvested the proceeds to purchase additional shares at market
value. Common stock equivalents had no material effect on the computation of
earnings per share for any period.
NOTE 11 - RESTATEMENT OF 1997 RESULTS OF OPERATIONS AND CHANGE IN ACCOUNTING
The 1997 income has been restated to eliminate the installment sale of
films since the transaction has not been completed by Genesis. The result is
that sales have been reduced by $5,400,000, operating income, net income and
retained earnings at December 31, 1997 have been reduced by $3,215,892.
Additionally, the Company has restated herein the application of APBO 16,
interpretation 39, to reflect the value of the music library based on the cost
paid the majority shareholders rather than the fair market value at the date of
the contribution. This change had the effect of reducing the music library and
paid in capital by approximately $41,000,000. The changes to the results of
operations were not material.
NOTE 12 - SUBSEQUENT COMPANY EXCHANGE AGREEMENT
In June 1999, Genesis entered into a stock exchange agreement with Open
Door Music, Inc. whereby Genesis would acquire all of the issued and outstanding
stock of Open Door Records, Inc. in exchange for stock of Genesis. In addition,
the agreement provides for the resignation of management and directors and the
appointment of directors and executives selected by Open Door. This agreement
was completed as of June 30, 1999, whereupon Genesis changed its name to Open
Door Online, Inc. The exchange referred to in this note is not reflected in
these financial statements.
53
<PAGE>
PART III. EXHIBITS
ITEM 1. INDEX TO EXHIBITS
The following exhibits are filed with this Form 10-SB:
Number Description
------ -----------
3(i)* Articles of Incorporation
3(ii)* By-laws
10.1* Stock Exchange Agreement between Genesis Media Group, Inc.
and Open Door Records, Inc.
10.2* Employment Agreement between Open Door Online, Inc. and
David N. DeBaene
10.3* Employment Agreement between Open Door Online, Inc. and
Camille M. Barbone
10.4* Employment Agreement between Open Door Online, Inc. and
Norman J. Birmingham
10.5* Employment Agreement between Open Door Online, Inc. and
Thomas Carley
10.6* Exclusive Distribution Agreement between Richard Wagner
d/b/a Wagner Music Group and Open Door Music Distribution
10.7* Exclusive Recording Contract between Open Door Records, Inc.
and Christopher O'Hara, Daniel Roselle, James Farrell, and
Walter Lockhart (No Soap Radio)
10.8* License Agreement between Intershow Records AG and Open Door
Music
10.9* Agreement between LiveOnTheNet.com and Open Door Music, Inc.
10.10* Exclusive Distribution Agreement between KnowSavage
Productions, Inc. and Open Door Music Distribution
10.11* Bowvau Distribution Agreement
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
----------
* Previously filed.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
OPEN DOOR ONLINE, INC.
Date: May 30, 2000
By: /s/ David N. DeBaene
----------------------------
David N. DeBaene, Chairman
55
