SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________________ to _____________
Commission file No. 0-30584
OPEN DOOR ONLINE, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 05-0460102
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
46 Old Flat River Road Coventry, Rhode Island 02816
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 397-5987
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filings pursuant to Item 405
of Regulation S-K contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X].
Issuer's revenues for the 12 months ended December 31, 1999: $46,164
The aggregate market value of the voting and non-voting common equity of
the registrant held by non-affiliates of the registrant at April 7, 2000 was
approximately $1,271,809 based upon the closing sale price of $0.56 for the
Registrant's Common Stock, $.0001 par value, as reported by the National
Association of Securities Dealers OTC on April 7, 2000.
As of April 7, 2000 the registrant had 10,133,285 shares of Common Stock,
$.0001 par value, outstanding.
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OPEN DOOR ONLINE, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to Vote of Securities Holders 11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters 12
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure 20
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of Exchange Act 21
Item 10. Executive Compensation 22
Item 11. Security Ownership of Certain Beneficial Owners and
Management 24
Item 12. Certain Relationships and Related Transactions 25
PART IV
Item 13. Exhibit List and Reports on Form 8-K 26
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PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
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. In addition, we are establishing a streaming channel comprised of a
24/7 Internet radio site, webcasted events and specialty shows.
ACQUISITION AGREEMENT
On June 17, 1999, Open Door Records, Inc., a Rhode Island corporation,
entered into a Plan of Exchange and Acquisition Agreement, which is described
later in this registration statement as the "Acquisition Agreement," with
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 its listing on the
Over-The-Counter Bulletin Market exchange.
FORWARD LOOKING STATEMENTS
When used in this report, the words "may, will, expect, anticipate,
continue, estimate project or intend" and similar expressions identify
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E Securities Exchange Act of 1934 regarding events,
conditions and financial trends that may effect our future plan of operation,
business strategy. Operating results and financial position. Current
stockholders and prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors are described under the headings "Business-Certain Considerations,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial Statements and there associated notes.
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Important factors that may cause actual results to differ from projections
include, for example:
* the success or failure of management's efforts to implement their
business strategy;
* our ability to protect our intellectual property rights;
* our ability to compete with major established companies;
* our ability to attract and retain qualified employees; and
* other risks which may be described in future filings with the SEC.
GENERAL
Open Door Online, Inc. is a bona fide "brick and click" entity supporting
traditional sales and recording operations with a broad Internet backbone.
Through strategic planning and partnering, the components of each division are
structured to grow with the implementation of dynamic divisional plans. The
management of each division is aggressive in its approach to marketing,
adherence to its well defined goals, and flexibility to lead or respond to the
ever changing malleability of the Internet, related technologies, and consumer
product demand.
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 for sale. 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 and conventional advertising and promotional companies, 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, however we
have not entered into any agreements for these projects as of this date. 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 for WHJY Radio,
with labels and publishers owning the masters and copyrights, respectively,
setting a budget, developing art and manufacturing the product. WHJY Radio plans
to release the project in Fall 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
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other clients and projects of this nature is part of the 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 catalog, 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
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 the 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 Ester 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 artitsts receive
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.
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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.
DISTRIBUTION METHODS AND SOURCES OF SUPPLY:
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. 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 by artists and labels and
warehoused by Sound Delivery and Baker and Taylor. Twice daily, we batch
customer orders and electronically transmit 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 billing is performed 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.
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 stored by Sound Delivery and Baker and
Taylor.
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On July 22, 1999, we entered into a distribution agreement with Red Eye
Distribution to distribute CD's, cassettes and vinyl recordings of artists
produced by or who have distribution agreements with Open Door Records. These
products are manufactured by their sister company Red Eye Manufacturing or by
third parties who have won the bid for each separate project. The distribution
contract allows us to receive 80% of the wholesale price of each CD sold. The
contract can be renegotiated prior to the end of its term on July 21, 2001.
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. An inter-year 1999 report published by RIAA,
another record industry association, reflects the US markets growth to $12.6
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.
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 $7.5 million to $3 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.
Financial Times 1998 Magazine expects these five labels' market share to decline
from 78%, its current market share, to 64% of the total market, and that they
will maintain this market share through 2008 only by their web sites assistance.
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.
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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.
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.
Sales through our distribution system to conventional music retailers are not
the primary source of our retail sales and with their projected decline in
market share become less of a dependency factor as we compete directly with
their marketing efforts. Any adverse economic factors will likely impact the
industry as a whole.
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, the EDI interface we utilize is owned and/or
licensed by Sound Delivery. 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 another distributor to provide
secured order fulfillment services in the event we are unable to renegotiate a
new agreement with Sound Delivery or cannot come to terms with a current
affiliate for the utilization of their EDI, there is no guarantee that we will
find such a provider to ensure security of our customer orders.
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 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
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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.
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.
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, and thus
are not under contract for any definite term. However, Open Door Online, Inc.
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.
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CERTAIN KEY CONSULTANTS
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.
Ms. Pat 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.
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.
ITEM 2. PROPERTIES
Real Property. In January, 2000 we entered into a month to month rental
arrangement to rent approximately 600 sq ft of office space at 46 Old Flat River
Rd., Coventry, RI. This office is temporary while we search for the required
space to house our corporate office and Internet related operations. The monthly
rental is $600 per month.
We also rent 800 sq ft of space at 40 Wilson, West Warwick, RI for pre
production and mixing of artist under contract or from third parties who pay for
studio rental. This space rents for $500 per month on a month to month
arrangement.
Our New York/New Jersey Metro office is located at 206 Bryan's Rd, Hampton,
NJ where 530 sq ft. are rented on a monthly arrangement for $600 per month. This
facility comprises office space and fulfillment of certain small quantity CD
orders.
Equipment. Open Door Online currently owns approximately $146,000 of
equipment and leasehold improvements that are used in conjunction with its
recording and production studio.
Music Library. Open Door Online has a music library consisting of original
and digitally mastered music media from numerous artists from the 1940's through
the 1990's. Open Door Online owns certain of the master recordings in the
Library, and has nonexclusive license rights to the rest of the recordings. Open
Door Online is currently in the process of purchasing those master recordings to
which it currently has 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. Open Door Online intends to utilize this product through
traditional CD production and sales and MP3 digital sales over the Internet.
Pursuant to industry standards, Open Door Online is obligated to pay artists
royalties on units sold. Open Door Online 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 seven years, after
consideration of production and distribution costs.
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ITEM 3. LEGAL PROCEEDINGS
We are currently vigorously defending suits that were either known to have
been or threatened to be filed against Genesis Media Group, Inc. prior to the
time of the acquisition and were not disclosed to the current management.
Willette v Genesis Media Group, Inc.
Crawford County, Michigan, Circuit Court
This suit involves a purported deficiency of compensation of $15,184 of
which more than one-half has been paid. However, it appears that the plaintiff
has in fact been over paid in cash by prior management and that he has failed to
account for such funds. We intend to pursue a counterclaim for the recovery of
the excess payments.
Pamela Lane v Genesis Media Group, Inc., Donald R. Logan, Shelly Liebowitz and
Does 1 through 50.
Superior Court of the State of California for the County of Los Angeles
The complaint alleges fraud and conspiring to commit fraud; breach of oral
contract, assault and battery, intentional infliction of emotional distress,
negligent infliction of emotional distress, false imprisonment, and breach of
fiduciary duty.
Our California counsel will file a petition seeking dismal of the suit.
Counsel expects the claims to be dismissed without liability.
Empire Studios, Inc. v Let's Do It Again Production (Open Door Online
Productions, Inc.)
Superior Court of the State of California for the County of Los Angeles
Complaint alleges breech of production facility agreements that Genesis
Media Group, Inc. was peripherally involved in. The claim is for $70,000 of
studio time that was contracted for and never used. It appears that some
monetary settlement, in installments will have to be paid. Additional, parties
who provided guarantees may be brought in to mitigate any liability.
Octavia Entertainment Group, Inc. v Genesis Media Group, Inc.(Open Door Records,
Inc.) and Don R. Logan
Grand Traverse County Michigan, Circuit Court
Suit alleges fraudulent misrepresentation, fraudulent conversion and breach
of contract for failing to pay for the equipment and not returning the recording
equipment. A response will be forthcoming when the particulars of the situation
are known and within the 45 days allowed by the court. Damages are expected to
minimal after return of the equipment. Specified claim maximum $25,000.
ITEM 4. SUBMISSION OF MATTERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
1. MARKET INFORMATION
The following table sets forth high and low bid and asked prices derived
from the National Association of Securities Dealers Over the Counter Bulletin
Board Quotation System or for the month of December 1999 the OTC Pink Sheets.
Bid Prices Ask Prices
------------- ---------------
High Low High Low
---- --- ---- ---
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 -- -- -- --
Predecessor: Genesis Media Group, Inc.
1998
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
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The above quotations are inter-dealer quotations, and the actual retail
transactions may involve dealer retail markups, markdowns, or commissions for
market makers of Open Door Online's 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 April 7, 2000, except for 1,273,910 free trading shares, all shares
issued by Open Door Online 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 Open Door Online's
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 April 7, 2000, there were approximately 236 registered holders of
free-trading shares and 90 holders of Open Door Online's restricted Common
Stock, as reported by Open Door Online's transfer agent. Some holders own both
free-trading and restricted shares and would be included in both classifications
above.
(c) DIVIDENDS
Open Door Online has not paid any dividends on its Common Stock. Open Door
Online currently intends to retain any earnings for use in its operations and to
finance the development and the expansion of its business. Therefore, Open Door
Online does not anticipate paying cash 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 the registrant's operating and financial condition, among
other factors.
(d) 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.
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We believe that the following officers or former officers are delinquent in
certain filings described below. We have undertaken steps to insure the filing
of these documents within 5 days of the filing of this Form 10KSB.
Don R. Logan failure to file Form 4 for the acquisition or sale of shares
as required for periods beginning as early as January 3, 2000 or others under
Section 13D of the Securities Act of 1933.
David N. DeBaene failure to file Form 3 for the month of January, 2000
Thomas Carley failure to file Form 3 for the month of January, 2000
DJS Investors failure to Form 3 for the month of January, 2000
Other documents may require filing and compliance will be forthcoming on
the advice of counsel.
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).
2. RECENT SALES OF UNREGISTERED SECURITIES
On May 18, 1998, Genesis Media Group, Inc, the predecessor, completed an
offering under Regulation D, Rule 504 whereby 21,529,607 shares of Genesis Media
Group's common stock were sold. Of these shares, 5,452,857 were freely trading,
while 16,076,750 were subject to trading restrictions.
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. These shares were issued pursuant to
the exchange agreement between those companies.
In 1999, Genesis Media Group, Inc. issued to Don R. Logan, the former chief
executive officer and director of Genesis Media Group, Inc., an equivalent
9,000,000 pre-reverse shares of restricted common stock in lieu of compensation.
At the time of the issue, the fair market value of the stock based on the asked
price was $.064 per equivalent share and discounted 20% to allow for the
restricted nature of the securities issued.
In conjunction with the Acquisition Agreement described above, on June 30,
1999 Open Door Records, Inc. was issued 7,000,000 shares of Genesis Media
Group's common stock outstanding immediately prior to the closing of the
Acquisition Agreement. In exchange, Open Door Records, Inc. issued 1,000 of its
shares to Genesis Media Group, Inc.
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In conjunction with the Acquisition Agreement, we granted Mr. DeBaene the
right to convert up to 100% of the debt owed to him by us, plus accrued
interest, into our Common Stock. 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 prior 20 day period preceding the conversion.
On August 9, 1999, we issued 116,667 shares of our common stock to three
investors at a price of $1.20 per share pursuant to an offering under Regulation
D, Rule 504.
On September 17, 1999, we issued 557,333 shares of our common stock to
three investors at a price of $.075 per share pursuant to an offering under
Regulation D, Rule 504.
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' management, that such offerings were in compliance
with federal and state securities laws.
ITEM 6. 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 December 31, 1997, Open Door Records, Inc. for the year
ended December 31, 1998 and Open Door Online, Inc. for the year ended December
31, 1999, respectively, and the related notes to each statement appearing
elsewhere in this Form 10-KSB. In addition to historical information, the
following discussion and other parts of this Form 10-KSB contain 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-KSB.
SIGNIFICANT ACCOUNTING POLICIES
REVENUE
We have adopted revenue recognition procedures in accordance with SEC Staff
accounting Bulletin No. 101 which requires different methods for various sales.
Revenue is recognized based on these four salient facts;
Does the registrant
1. act as principal in the transaction,
2. take title to the products,
3. have the risk and rewards of ownership, such as loss of collection,
delivery, or return, and
4. act as agent or broker (by performing services, in substance, as an
agent or broker) with compensation on a commission or fee basis.
Based on these qualification and in keeping with APB Opinion No. 22
paragraph 12 which states that, "the disclosure should encompass important
judgments as to the appropriateness of principles relating to revenue
recognition"' we offer the following:
Revenue from sales of studio time are recorded when known.
Revenue from the sale of merchandise, recordings or marketable items owned
by us are recorded at the time of sale. The exception to this statement is
for items sold wholesale to retailers or other distributors who have the
right to return product for up to one year. Our distribution agreement with
Red Eye Distribution stipulates that we will receive 60 days after the end
of each quarter 80% of the gross value (currently $8.15 per single CD)
shipped that quarter. We will book the known receipt and carry the
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remaining value as a consignment with the requisite reserve account
established to provide for the possible risk of return.
Revenue from advertising is recognized at the end of each month that
advertisers ran banners or other solicitations on Open Door channels or for
which affiliates pay in cash but not in kind per their contractual
agreements.
Revenue from Internet sales for products that we, do not own and
substantially act as agent for are recorded at the amount of compensation
to be received by us at the time of sale.
STOCK BASED COMPENSATION
We have adopted the provisions of SFAS 123, Accounting of Stock-Based
Compensation, in accounting for stock-based transactions of non-employees and,
accordingly, record compensation expense in the consolidated statements of
operations for such transactions. We continue to apply the provisions of APB 25
for transactions with employees, as permitted by SFAS 123.
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 December 31, 1999, Open Door Records, Inc. for December 31, 1998 and
the results of operations of Genesis Media Group, Inc. and its predecessor,
Hollywood Showcase Television Network, Inc. for 1998 and 1997.
December 31, December 31,
----------------------- -----------------------
1999 1998 1998 1997
----------- ------- ---------- ----------
Summary of Operations
Net Revenues $ 46,164 $ 37,185 $ 521,562 $ 829,985
Cost of Sales 1,560 10,485 81,564 3,196
Gross Profit 44,604 26,700 439,998 826,789
Operating Expenses 650,662 40,648 813,971 575,031
Net Profit (Loss) (606,058) (13,948) 320,470) 151,055
Summary Balance Sheet Data
Total Assets $14,620,411 175,047 $3,229,655 $2,218,216
Total Liabilities 1,675,037 116,720 558,241 180,941
Shareholder's Equity 1,945,374 58,327 2,671,414 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 the 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, Inc. 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.
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Genesis Media Group, Inc. 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. The business of Genesis Media Group, Inc. 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, Inc.
were greater than those found in less skilled industries. These factors were the
major contributing circumstances, which lead Genesis Media Group, Inc. 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, Inc. 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 year ended December 31, 1999 consisted
primarily of three phases. The first phase was to wrap up the operations of the
predecessor, Genesis Media Group, to which the Company completed open contracts
as required, laid-off all West Coast personnel, and set about the orderly
liquidation of the owned and leased equipment of the predecessor. This resulted
in an operating loss from discontinued operations for the period of
approximately $783,940 in addition to the establishment of a reserve for
discontinued operations of $500,000 to buy-out and terminate certain long term
leases of production equipment.
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 by December,
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 $393,000 of new
equity/liquidity.
RESULTS OF OPERATIONS
SALES
From inception to December 31, 1999, revenues have primarily consisted of
the sale of CD's from our distribution division, Open Door Records, and from the
commercial operations of Open Door Studios. Minimal other income was derived
from sales of merchandise at locally sponsored concerts. Sales increased 24% to
$46,164 at December 31, 1999 from $37,185 the period ended December 31, 1998.
The majority of the sales increase was directly attributable to the operations
of the recording studio that added new revenue of $30,600.
COST OF SALES
Cost of Sales, primarily represent CD and fulfillment operations and artist
record promotions and royalties plus studio engineering cost. Future costs may
include Internet site maintenance and programming, connectivity charges and
supplies. The Cost of Sales for the year ended December 31, 1999 decreased to
$1,560, an 85% decrease over the prior year ending December 31, 1998.
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Cost of Sales for the year ended December 31, 1999 for Open Door Online,
Inc. was approximately 3% 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 EXPENSE
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.
Expenses of $20,099 were incurred for the year ended December 31, 1999 an
increase of 388% over the $4,121 expended in the prior year ended December 31,
1998. This increase is directly relational to the promotional expenses of newly
signed artist that are not recoupable and promotional concerts sponsored to
introduce Open Door Records, Inc.
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.
CONSULTING EXPENSES
Consulting expenses for web site maintenance and hosting after the
completion of the initial development process was completed and consultants
surrounding the implementation of artist signing and promotions added $71,371 to
the expenses for the year ended December 31, 1999. There were no comparative
expenses in 1998.
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 1,048% of Revenue for the
year ended December 31, 1999. The year ended December 31, 1998 saw these
expenses at 477% of Revenue. It is anticipated that overall general and
administrative expense will decrease as a percentage of revenue as revenue
increases.
DEPRECIATION EXPENSE
Depreciation and amortization expenses rose to $38,915 from $11,321 in the
years ended December 31, 1999 and December 31, 1998, respectively. The increase
is attributed to the addition of certain assets being retained from the
Acquisition agreement and the remainder of the assets being depreciated for a
full year.
INTEREST EXPENSE
Net interest expense for the year ended December 31, 1999 was $66,376.
Comparable interest costs for the year ended 1998 were $3643. This increase was
caused by additional $332,200 of borrowing during 1999. Interest costs may
increase in future periods as the Company expands through a combination of debt
and equity offerings.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999 we had approximately $34,567 in cash. Sufficient
cash to finance operations for the short term were received in the first week of
January, 2000. Historically we have financed our operations with short-term
convertible debt or through the issuance of equity in the form of our common
stock. During the period between June 30, 1999 and December 31, 1999 we raised
$393,000 through issuance of 674,000 common shares. Significant increases in
capital will be required to fund our aggressive business plan and support the
manufacturing and distribution requirements of our current artist distribution
contracts. While there is no assurance that we will be successful in raising the
required capital all indications through our current financing negotiations
suggest that we will receive substantial capital.
FUTURE PLAN OF OPERATION
The post acquisition company, Open Door Online, 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-KSB.
Our business plan estimates that revenue will be approximately $6.9 million
in the first full year of operations subsequent to the exchange resulting in a
net operation loss for the period of approximately $450,000. The total revenues
anticipate $3.0 million from retail CD sales, $3.5 million from wholesale CD
sales of artists under distribution contracts, $ .2 million from Internet
advertising and $.2 million from product license and studio rental. Our basis
for arriving at these figures include developing sales patterns from our first
quarter 2000 and current industry conditions. 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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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 and those of our major suppliers and distributors 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 7. FINANCIAL STATEMENTS
The financial statements for this section may be found beginning with
Appendix page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no disagreement with our independent auditor. The
independent auditor for Open Door Records, Inc., our predecessor, also became
the accountant for Genesis Media Group, Inc. another predecessor.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
As of April 7, 2000, 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
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 has 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.
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, producer
and recording engineer. 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. Mr.
Birmingham was Chief Financial Officer for General Environmental Technologies,
Inc., a holding company for three demolition companies, from January 1998 to
September 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.
21
<PAGE>
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
and is a graduate of the College of Rhode Island. Mr. Panneton has developed
several new products, including a patented game called Vegas Run . He currently
has several other patents pending. 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 for over twenty-two
years. She has discovered, developed and managed many significant artists. From
January 1995 to March 1999, Ms. Barbone has owned and been employed by August
Artist Management, where she has managed several music artists. Her clients have
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. Ms. Barbone elected Vice President of Open Door Records,
Inc. in March 1999 and has served as our Chief Operating Officer since March
2000. 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.
Donna Petronelli is the beneficial owner of one hundred percent of the
outstanding shares of DJS Investors whose ownership of 20.77% of the outstanding
common shares makes her a control person. Ms. Petronelli is not active in the
company.
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.
ITEM 10. 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 $75,000 during the period of March
31, 2000 to December 31, 2000. The salary will be increased annually, effective
January 1st of each year, except in year one, by an amount of 13% or higher as
determined by the Board of Directors. In addition to the base salary amounts,
each will receive incentive bonuses ranging from 1-3% of our after-tax profits,
standard benefits such as health and life insurance, disability payments and
reimbursement of reasonable business expenses.
22
<PAGE>
Compensation paid to the officers and directors of Genesis Media Group,
Inc., Hollywood Showcase Television Network, Inc., Open Door Records, Inc., and
Open Door Online, Inc. during 1997, 1998, or 1999 were as follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
----------------------------------- ---------------------- -------
Securities
Name and Other Restricted Underlying
Principal Annual Stock Options/ LTIP All Other
Position Year Salary($) Bonus($) Compensation($) Award(s)($) SARs(#) Payouts($) Compensation($)
-------- ---- --------- -------- --------------- ----------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Don R. Logan 1997 $-0- $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
CEO 1998 $66,500 $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
6 months 1999 $-0- $ -0- $ -0- $576,000 $ -0- $ -0- $ -0-
Barrie Logan 1997 $-0- $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
Secretary 1998 $30,826 $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
6 months 1999 $-0- $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
Carl Conte 1997 $-0- $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
Treasurer 1998 $31,250 $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
6 months 1999 $20,000 $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
David DeBaene 1997 $-0- $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
CEO 1998 $-0- $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
1999 $10,962 $ -0- $ -0- $-0- $ -0- $ -0- $ -0-
</TABLE>
DEFERRED SALARY
Messrs DeBaene and Carley have each deferred their respective 1999 salary
of $10,962 each until our required capitalization is in place.
STOCK OPTION PLAN
We currently provide no stock option plan. However, we, with the approval
of the Board of Directors, may ask the shareholders to approve such a plan at
any meeting of the shareholders following the submission of this Form 10-KSB.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
None.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
None.
23
<PAGE>
COMPENSATION COMMITTEE
The compensation committee currently consists of David N. DeBaene, Edmond
L. Lonergan and Camille M. Barbone. This committee is empowered to review the
personnel needs in key management positions, review and revise pay scales and
make recommendations with respect to officers, key employees and certain key
consultants. The role of this committee is expected to expand for the review and
award of bonuses, the granting of employee stock options and any other stock
based compensation.
LIMITATION OF DIRECTORS' LIABILITY
Our Articles of Incorporation eliminate, to the fullest possible extent
permitted by New Jersey law, the personal liability of our directors for
monetary damages in relation to breaches of fiduciary duty. However, these
articles do not provide for the elimination or limitation of the personal
liability of a director for acts or omissions that involve intentional
misconduct, fraud or knowing violation of the law, or unlawful corporate
distributions. These provisions will limit the remedies available to the
stockholder who is dissatisfied with a decision of the board of directors
protected by these provisions, and the stockholders' only remedy may be to bring
suit to prevent the action of the board. This remedy may not be effective in
many situations because stockholders' are often unaware of a transaction or an
event before the board's action. In these cases, our stockholders and our
company could be injured by a board's decision and have no effective remedy.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Shares
Beneficially Percent of
Title of Class Name/Address of Owner Owned Class
- -------------- --------------------- ----- -----
Common Don R. & Barrie M. Logan 545,530 5.38%
23355 Gondor Drive
Lake Forrest, California 90710
Common DJS Investors (iv) 2,105,000 20.77%
275 Crescent Street
West Bridgewater, MA 02379
Common Thomas R. Carley 1,977,000 19.517%
46 Old Flat River Road
Coventry, Rhode Island (D)
Common David N. DeBaene 1,837,000 18.13%
46 Old Flat River Road
Coventry, Rhode Island (D)
Common Camille M. Barbone 705,000 6.96%
206 Bryan's Ferry Rd.
Hampton, NJ 08827 (D)
Common All Officers and Directors 4,519,000 44.59%
over 5% per Individual
Common All Officers and Directors 5,044,000 49.78%
24
<PAGE>
- ----------
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 10,133,285 shares outstanding as
of the date of the filing of this Form 10-KSB.
(ii) As of April 7, 2000, we had 1,275,744 free trading shares outstanding and
8,857,541 restricted shares outstanding for a total of 10,133,285 shares.
(iii) All common shares are entitled to 1 vote per share. There are no other
shares with voting rights.
(iv) 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.
SECURITY OWNERSHIP OF MANAGEMENT
Shares
Beneficially Percent of
Title of Class Name/Address of Owner Owned Class
- -------------- --------------------- ----- -----
Common David N. DeBaene 1,837,000 18.13%
Common Thomas R. Carley 1,977,000 19.51%
Common Camille M. Barbone 705,000 6.96%
(1) All percentages are calculated based upon 10,133,285 shares of common
stock of Open Door Online issued and outstanding as of the date of filing this
Form 10-kSB.
CHANGES IN CONTROL
There are no known or contemplated arrangement which may result in a change
of control.
ESCROW OF SHARES
We currently have held through our Escrow Agent, Mr. Thomas Connors, Esq.
100,000 restricted common shares of the stock belonging Don R. Logan pursuant to
the fulfillment or completion of certain provisions of the Acquisition Agreement
dated June 17, 1999 between Genesis Media Group, Inc. and Open Door Records,
Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 and 1999, Mr. DeBaene has been a lender or guarantor of funds
to Open Door Online. As of December 31, 1998 and September 30, 1999, the
outstanding balances due him to lenders for which he has guaranteed amounts 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 guaranteed debt outstanding
incurred prior to the initial filing of this registration statement. At no time
has Mr. DeBaene received any consideration, directly or indirectly, for the
amounts he has guaranteed.
On February 22, 1999, Genesis Media Group, Inc. distributed to its
shareholders shares of TranStar Communications, Inc., that Genesis Media Group
received in exchange for certain assets, based on the book value of those
assets. The assets consisted of equipment valued at $70,000 and certain
receivables in the amount of $165,168. The fair market value of the shares at
the time of distribution was $.50 per share. These shares were subsequently sold
by the shareholders in a private transaction on April 9, 1999 at a price of $.50
per share.
25
<PAGE>
On April 12, 1999, Genesis Media Group 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 issue, the
fair market value of the stock based on the asked price was $.064 per equivalent
share and discounted 20% to allow for the restricted nature of the securities
issued. Genesis Media Group therefore recognized salary expense in the amount of
$576,000 for the six months ended June 30, 1999.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of this Form 10-KSB,
all items have been previously filed with Form 10-SB/a:
Exhibit No. Identification of Exhibit
- ----------- -------------------------
3.1* Articles of Incorporation
3.2* By-laws
Stock Exchange Agreement between Genesis Media Group, Inc. and
10.1* Open Door Records, Inc.
Employment Agreement between Open Door Online, Inc. and David N.
10.2* DeBaene
Employment Agreement between Open Door Online, Inc. and Camille
10.3* M. Barbone
Employment Agreement between Open Door Online, Inc. and Norman J.
10.4* Birmingham
Employment Agreement between Open Door Online, Inc. and Thomas
10.5* Carley
Exclusive Distribution Agreement between Richard Wagner d/b/a
10.6* Wagner Music Group and Open Door Music Distribution
Exclusive Recording Contract between Open Door Records, Inc. and
Christopher O'Hara, Daniel Roselle, James Farrell, and Walter
10.7* 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.
Exclusive Distribution Agreement between KnowSavage Productions,
10.10* Inc. and Open Door Music Distribution
10.11* Bowvau Distribution Agreement
F-1 Auditors Opinion and Financial Statements
* Previously filed as exhibits to Form 10-SB/A
26
<PAGE>
SIGNATURES
In accordance with the section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATED: April 13, 2000 OPEN DOOR ONLINE, INC.
By: /s/ David N. DeBaene
----------------------------------
David N. DeBaene
President and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Thomas Carley Vice President and Director April 13, 2000
- ---------------------------
/s/ Norman J. Birmingham Treasurer and April 13, 2000
- --------------------------- Chief Financial Officer
/s/ Camille M. Barbone Vice President and April 13, 2000
- --------------------------- Chief Operating Officer
/s/ Steev Panneton Secretary April 13, 2000
- ---------------------------
/s/ Edmond L. Lonergan Director April 13, 2000
- ---------------------------
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
OPEN DOOR ONLINE, INC.:
Report of Independent Accountants......................................... F-1
Balance Sheets - December 31, 1999 and 1998............................... F-2
Statements of Operations for the two years ended December 31, 1999........ F-3
Statements of Stockholders' Equity for the two years ended
December 31, 1999 ...................................................... F-4
Statements of Cash Flows for the two years ended December 31, 1999........ F-5
Notes to Financial Statements for the two years ended
December 31, 1999 ...................................................... F-6
28
<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 sheets of Open Door Online, Inc.
(formerly Genesis Media Group, Inc.) as of December 31, 1999 and 1998, and the
related statements of operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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, 1999 and 1998, and the
results of operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
James C. Marshall, CPA, PC
Scottsdale, Arizona
April 13, 2000
F-1
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
December 31,
-------------------------
1999 1998
------------ ---------
Current Assets
Cash and cash equivalents $ 34,567 $ 33
Accounts receivable - trade 204,489 37,185
Loans receivable - trade 30,750
Prepaid expenses 1,477
------------ ---------
269,806 38,695
Property and equipment, net of accumulated
depreciation (Note 4) 141,605 133,615
Master music library (Notes 1 and 3) 14,209,000
Other assets 2,737
------------ ---------
$ 14,620,411 $ 175,047
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 393,952 $ 6,720
Payroll taxes and accrued expenses 113,885
Reserve for discontinued operations (Note 2) 500,000
Notes payable 442,200 110,000
Current portion of long term debt 75,000
------------ ---------
1,525,037 116,720
Long term debt 150,000
------------ ---------
Total liabilities 1,675,037 116,720
Stockholders' Equity(1),
Common Stock (Notes 7 and 9) 1,013 1,000
Additional paid in capital 13,564,367 71,275
Retained earnings (deficit) (620,006) (13,948)
------------ ---------
12,945,374 58,327
------------ ---------
$ 14,620,411 $ 175,047
============ =========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
December 31,
--------------------------
1999 1998
--------- --------
Revenue
Sales $ 46,164 $ 37,185
--------- --------
46,164 37,185
Cost of sales 1,560 10,485
--------- --------
Gross profit 44,604 26,700
Operating Expenses
Administrative expenses 244,318 23,530
Amortization and depreciation 38,915 11,321
Interest expense 66,376 3,888
Office expense 60,264 1,144
Professional and outside services 87,099 765
Rent 38,690
Salaries and payroll taxes 115,000
--------- --------
Total Operation Expense 650,662 40,648
--------- --------
Net Loss $(606,058) $(13,948)
========= ========
Net loss per common share (Note 8) $ (0.11) $ (13.95)
========= ========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OPEN DOOR ONLINE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWO YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
-------------------- Paid in Retained
Shares Amount Capital Earnings Total
---------- ------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 1,000 $ 1,000 $ 71,275 $ 72,275
New Income/(Loss) $ (13,948) (13,948)
---------- ------- ----------- --------- -----------
Balance December 31, 1998 1,000 1,000 71,275 (13,948) 58,327
Adjustment to reflect Genesis
acquisition of Open Door
Records (Note 7) 936,626 (63) 2,839,417 (226,267) 2,613,087
---------- ------- ----------- --------- -----------
Restated Balance at
January 1, 1999 937,626 937 2,910,692 (240,215) 2,671,414
Issuance of Common Stock of
Genesis prior to acquisition of
Open Door Records (Note 7) 340,000 340 714,399 714,739
Issuance for acquisition of Open
Door Records (Note 7) 8,181,665 (331) 9,775,343 226,267 10,001,279
Issuance of Common Stock 673,994 67 163,933 164,000
Net Income/(Loss) (606,058) (606,058)
---------- ------- ----------- --------- -----------
Balance at December 31, 1999 10,133,285 $ 1,013 $13,564,367 $(620,006) $12,945,374
========== ======= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
December 31,
------------------------
1999 1998
--------- ---------
Cash Flows from Operations
Net loss $(606,058) $ (13,948)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 38,915 11,321
Changes in cash flows provided (used) by
operating activities (567,143) (2,627)
Changes in operating assets and liabilities
(net of effects from acquisition of business):
accounts receivable (167,304) (37,185)
loans receivable - trade (30,750)
prepaid expenses 1,477 (1,477)
other assets 2,737 (2,737)
accounts payable 236,222 6,720
accrued expenses
--------- ---------
Net cash flow used by operating activities (524,761) (37,306)
--------- ---------
Cash Flows from investing activities
Acquisition of property, plant and equipment (46,905) (73,661)
--------- ---------
Net cash used in investing activities (46,905) (73,661)
--------- ---------
Cash flow from financing activities
Proceeds from issuance of debt 442,200 110,000
Proceeds for issuance of Common Stock 164,000 1,000
--------- ---------
Net cash provided by financing activities 606,200 111,000
--------- ---------
Net increase in cash and cash equivalents 34,534 33
Cash at January 1, 33 --
--------- ---------
Cash at end of period $ 34,567 $ 33
========= =========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
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 per share value of Genesis common stock near June 30, 1999, the
closing date of the merger. 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.
F-6
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
NOTE 1 - ORGANIZATION (CONTINUED)
December 31
--------------------------
Pro Forma (unaudited) 1999 1998
----------- -----------
Revenue $ 99,264 $ 558,747
Cost of good sold 7,060 92,049
----------- -----------
Gross profit 92,204 466,698
Expenses
Selling, general and administrative (1,369,517) (749,602)
Interest expense (76,765) (31,950)
----------- -----------
Loss from operations $(1,353,967) $ (314,854)
=========== ===========
Loss per share $ (0.14) $ (0.04)
=========== ===========
Weighted average number of shares 9,573,069 9,119,291
=========== ===========
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.
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.
F-7
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is generally recognized upon shipment to the customer or upon
completion of the services and is fully earned. Through December 31, 1999,
substantially all of the revenue is derived from the sale of music production
services to third parties.
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.
F-8
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
NOTE 4 - PROPERTY AND EQUIPMENT
Depreciation and amortization for the years ended December 31, 1999 and
1998 were $38,915, and $11,321, respectively.
Property plant and equipment consist of the following:
December 31,
----------------------
1999 1998
--------- ---------
Production equipment $ 144,251 $ 105,306
Office equipment, furniture and fixtures 33,985 33,985
Leasehold improvements 13,605 5,645
--------- ---------
191,841 144,936
Less accumulated depreciation and amortization (50,236) (11,321)
--------- ---------
$ 141,605 $ 133,615
========= =========
NOTE 5 - 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 years ended December 31, 1999 and 1998 were
$332,200 and $110,000, respectively. The ending balances at December 31, 1999
and 1998, were $442,200, and $110,000, respectively. Interest expense for the
periods was $8,224 and $0, respectively. See Note 9 for subsequent events.
F-9
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
NOTE 6 - 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,
---------------------
1999 1998
--------- -------
Tax effect of assets acquired in business
combination $ 362,000 $ --
Tax effects of reserve for discontinued operations 200,000 --
Tax effects of carryforward benefits:
Net operating loss carryforwards 242,000 5,600
--------- -------
Tax effects of carryforwards
Tax effects of future taxable differences
and carryforwards 804,000 5,600
Less deferred tax asset valuation allowance (804,000) (5,600)
--------- -------
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 20
years, the majority of which expire in 2019. A valuation allowance has been
provided for the full 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.
F-10
<PAGE>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1998
NOTE 7 - COMMON STOCK
Genesis was the nominal acquirer in the Open Door Records, Inc. transaction
in which Open Door was the nominal acquiree in the reverse acquisition. The
December 31, 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 retroactive to
January 1, 1999 in accordance with SFAS 128. The Company issued a total of
8,181,665 shares for former Open Door Records, Inc. holders and to promoters and
sponsors of the transaction. The outstanding stock of the Company was 10,133,285
shares and 1,000 shares at December 31, 1999 and 1998, respectively.
NOTE 8 - EARNINGS PER COMMON SHARE
Earnings per share of common stock have been computed based on the weighted
average number of shares outstanding. As of December 31, 1998, the weighted
average number of shares outstanding was 1,000. The weighted average number of
shares used to compute the earnings per share at December 31, 1999, after giving
effect to the acquisition on June 30, 1999 by Genesis, the legal acquirer of
Open Door Records, Inc., and giving retroactive effect to January 1, 1999 of the
one for 30 reverse stock split of Genesis was 5,432,863.
NOTE 9 - STOCK TRANSACTIONS - SUBSEQUENT EVENTS
In March, 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.
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
COMPUTATION OF NET INCOME PER COMMON SHARE
For the year ended December 31: 1999 1998
--------- ---------
Income (Loss) as reported $(606,058) $ (13,948)
Income tax expense -- --
--------- ---------
Net income (loss) $(606,058) $ (13,948)
========= =========
Basic earnings per share $ (0.11) $ (13.95)
========= =========
Diluted earnings per share $ (0.11) $ (13.95)
========= =========
Weighted average shares outstanding: 5,432,863 1,000
========= =========
Fully diluted average shares outstanding: 5,432,863 1,000
========= =========
[JAMES C. MARSHALL, CPA, PC LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our audit of the balance sheets of Open Door
Records Online, Inc. as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended in the Form 10-KSB of Open Door Online, Inc.
/s/ James C. Marshall, CPA, PC
Scottsdale, Arizona
April 13, 2000
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<PERIOD-START> JAN-01-1999
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