U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 2001
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File No. 0-30584
OPEN DOOR ONLINE, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 05-0507504
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
46 Old Flat River Road, Coventry, Rhode Island 02816
(Address of Principal Executive Offices)
(401) 397-5987
(Issuers Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the last practicable date.
Common Stock, $.0001 par value per share, 17,128,364 shares outstanding at
May 22, 2001
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
OPEN DOOR ONLINE, INC.
INDEX TO FORM 10-QSB
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of March 31, 2001 and March 31, 2000 3
Statements of Operations for the three months ended
March 31, 2001 and March 31, 2000 4
Statements of Cash Flows for the three months ended
March 31, 2001 and March 31, 2000 5
Notes to Financial Statements 6
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submissions of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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 their associated notes.
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.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPEN DOOR ONLINE, INC.
BALANCE SHEETS
MARCH 31, 2001 AND 2000
(UNAUDITED)
March 31, March 31,
2001 2000
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowance $ 107,603 $ 445,078
Inventories 8,603 10,301
Recoupable Artist Advances 105,893 193,894
------------ ------------
Total current assets 222,099 649,273
Property and equipment, net 58,781 83,050
Web Site Development, net 53,781 48,977
Music Library 10,255,005 10,255,005
Other assets 6,000 --
------------ ------------
TOTAL ASSETS $ 10,595,666 $ 11,028,835
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Current portion of long-term debt $ 150,000 $ 75,000
Accounts payable and accrued expenses 537,051 513,919
Reserve for discontinued operations 500,000 500,000
Short-term notes payable 111,793 72,397
Accrued royalties 22,653 195,947
Accrued payroll 230,769 --
Accrued interest on notes payable 45,837 10,860
------------ ------------
Total current liabilities 1,598,103 1,368,123
Long-term debt, net of current portion 75,000 150,000
------------ ------------
Total liabilities 1,673,103 1,518,123
Stockholders' equity
Common stock, $.0001 par value; authorized, 50,000,000 shares;
issued and outstanding, 17,128,364 shares and 11,291,565 shares
at March 31, 2001 and 2000, respectively 1,713 1,129
Additional paid-in capital 10,501,621 10,085,151
Accumulated deficit (1,580,771) (568,098)
------------ ------------
Total Stockholders' equity: 8,922,563 9,518,182
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,595,666 $ 11,028,835
============ ============
See accompanying notes to these financial statements
3
OPEN DOOR ONLINE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
March 31, March 31,
2001 2000
------------ ------------
Revenues
Net sales $ -- $ 425,741
Cost of goods sold -- 195,947
------------ ------------
Gross profit -- 229,794
Operating Expenses
Payroll and payroll taxes -- 74,000
Selling Expenses -- 3,112
Bad Debt Expense -- 24,094
Consulting Expenses 53,666 19,185
Depreciation and amortization 10,429 9,578
Professional fees -- 21,401
Rent -- 5,700
Supplies 239 1,739
Telephone 1,359 2,463
Travel and Entertainment -- 7,877
Other -- 3,562
------------ ------------
Total operating expenses 65,693 172,711
Operating income (loss) (65,693) 57,083
Interest income (expense) (17,377) (5,175)
------------ ------------
NET INCOME (LOSS) $ (83,070) $ 51,908
============ ============
Net gain (loss) per common shareholder $ (0.01) $ 0.01
============ ============
Weighted average number of shares outstanding 14,685,644 10,445,510
============ ============
See accompanying notes to these financial statements
4
OPEN DOOR ONLINE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
March 31, March 31,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ (83,070) $ 51,908
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Stock issued for services 50,000
Depreciation and amortization 10,429 9,578
--------- ---------
Changes in cash flows provided (used in) operating activities (22,641) 61,486
CHANGES IN OPERATING ASSETS AND LIABILITIES
(Increase) decrease in accounts receivable (240,589)
(Increase) in loans receivable (163,144)
(Increase) in inventories (10,301)
(Increase) decrease in other assets
Increase in accounts payable 6,024 6,072
Increase in royalties payable 195,947
Increase (decrease) in accrued expenses 14,617 10,860
--------- ---------
Net cash (used in) operating activities (2,000) (139,669)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Equipment
CASH FLOWS FROM FINANCING ACTIVITIES
Principal advances on notes payable and long-term debt 2,000 153,665
Principal repayment of short-term debt (180,000) (48,653)
Common stock issued for repayment of debt 180,000 --
--------- ---------
Net cash (used in) provided by financing activities 2,000 105,012
--------- ---------
NET INCREASE (DECREASE) IN CASH (34,657)
Cash and cash equivalents - beginning of period 34,657
--------- ---------
Cash and cash equivalents - end of period $ 0 $ 0
========= =========
See accompanying notes to these financial statements
5
Open Door Online, Inc.
Notes to Financial Statements
for the three months ended March 31, 2001 and 2000
NOTE 1 - ORGANIZATION
Open Door Records, Inc. ("Open Door") was incorporated in the state of Rhode
Island on November 20, 1997.
NOTE 2 - 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. The results of operations for
the interim periods shown in this report are not necessarily indicative of
results to be expected for the fiscal year ending December 31, 2001.
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 also has
artist distribution contracts for the sale of recorded music for which the
Company receives up to 75% of the wholesale price of each recording sold.
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. No sales have been concluded from the Internet site to date. The studio
is currently dismantled while awaiting a move to more commercially viable
location. No sales under the distribution contracts are currently being made. We
are actively seeking new markets and consultants or employee's to move the
Company forward and create value.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
REVENUE RECOGNITION
RECORDING STUDIO REVENUE
Our recording studio revenue is derived mainly from studio rental for which we
supply the facility, recording equipment, and the studio engineer. Recording
studio time is billed at $350 per day and recognized upon the completion of the
recording days contracted.
The engineering of the recording is the most time consuming function of
producing recorded music. We recognize engineering revenue upon the release of
the recording for mastering or upon acceptance of the demo by the client if no
mastering is to occur. The contracts typically provide that they are cancelable
by either party, with notice, and work to date would be paid upon the
cancellation.
6
Open Door Online, Inc.
Notes to Financial Statements
for the three months ended March 31, 2001 and 2000
ARTIST DISTRIBUTION AGREEMENTS
The distribution of music recorded on CD's, cassettes, and single or extended
play vinyl at wholesale is recognized upon shipment. The Company contract with
Red Eye Distribution specifies payment will be received monthly, at 80% of the
product shipped three months prior. Returns of product shipped must be approved
within 90 days of shipment but may not be physically received during the 90-day
period. Starting with the first shipments in the first quarter of 2000, a
reserve of 20% will be maintained. The reserve of 20% is withheld from payment
for sixty days after the payment is due and any returns received are applied
against the reserve account. Any balance remaining in that months reserve
account 150 days after the month of shipment is then remitted to the Company or
any shortfall is applied against the next months reserve before remittance. To
comply with FASB 5 Accounting for contingencies the Company relies on historical
data per artist and title to determine the return allowance required.
Collectability is reasonably assured as a result of deposits, and advances and
any unpaid balance due the Company is collectible or the recordings completed in
our studio are not released. Payment from our distribution agreement with Red
Eye Distribution is the responsibility of Red Eye and is not dependent on their
receipt from their customers. However, they evaluate their customers financial
strength and credit worthiness prior to shipment. These customers are usually
national retailers or distributors, advertisers or advertising and promotion
agencies. We have no reason to believe the Red Eye is unable or unwilling to pay
for product shipment.
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
7
Open Door Online, Inc.
Notes to Financial Statements
for the three months ended March 31, 2001 and 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
CONTINGENT LIABILITIES
We have been advised that the issuance of free trading common stock in August
and September of 2000 were issued without a valid exemption even though the
Company relied on opinions of counsel for these issuances believing that the
shares were exempt under Rule 504 of Regulation D of the Securities Act of 1933.
The maximum liability is $558,000 based on 116,667 common shares at a sales
price $1.20 and 557,333 common shares at a sales price of $0.75 It appears that
the investors may have a right of rescission, pursuant to Section 12 of the
Securities Act of 1933, to recover the consideration paid for such securities.
For accounting purposes the amount of the contingent liability is not classified
outside of permanent equity as the company believes that it is not probable that
a holder would pursue rescission and prevail in asserting a right of action for
rescission.
8
Open Door Online, Inc.
Notes to Financial Statements
for the three months ended March 31, 2001and 2000
NOTE 3 - PROPERTY AND EQUIPMENT
Depreciation and amortization for the three months ended March 31, 2001 and 2000
were $10,429, and $9,578, respectively.
Property plant and equipment consist of the following:
March 31,
------------------------
2001 2000
--------- ---------
Production equipment $ 95,306 $ 95,306
Web site development 60,677 48,977
Office equipment, furniture and fixtures 33,985 33,985
Leasehold improvements 13,573
--------- ---------
189,968 191,841
Less accumulated depreciation and amortization (77,406) (59,814)
--------- ---------
$ 112,562 $ 132,027
========= =========
NOTE 4 - 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, 2000, 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.
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.
9
Open Door Online, Inc.
Notes to Financial Statements
for the three months ended March 31, 2001 and 2000
NOTE 5 - STOCK TRANSACTIONS - RELATED PARTY
During 1998 and 2000, Mr. DeBaene has been a lender of funds to Open Door
Records and subsequently to Open Door Online, Inc. As of December 31, 1998 and
September 30, 2000, the outstanding balances due him are $113,643 and $498,622,
including interest expense of $3,643 and $8,224, respectively. Interest rates
range from 12% to 20% per annum. On January 12, 2000 Mr. DeBaene was granted a
option to convert debt owed to him into common shares at the a conversion price
equal to the average of the closing bid price for the twenty trading days prior
to the date of the request for conversion. The closing bid price on the date of
the grant was $0.31.The option could be exercised immediately requiring a
calculation to identify any possible accounting charge for a beneficial
conversion. The calculation requires the identification of the average closing
bid price for the twenty trading days immediately preceding January 12, 2000,
which was $0.33 or $0.02 higher than the closing bid price on the grant date
indicating no beneficial conversion charge required. On March 7, 2000, Mr.
DeBaene converted $474,895 of this debt into 1,158,280 shares based on the
average closing bid price of our Common Stock over the twenty-day period
preceding the conversion at a value of $0.41. He has elected not to convert any
of the remaining debt outstanding incurred prior to the initial filing of this
registration statement. Mr. DeBaene is the only recipient of all shares related
to the conversion.
NOTE 6 - COMMON STOCK
The outstanding stock of the Company was 17,128,364 shares and 11,317,138 shares
at March 31, 2001 and 2000, respectively.
NOTE 7 - EARNINGS PER COMMON SHARE
Earnings per share of common stock have been computed based on the weighted
average number of shares outstanding.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES
Sales consisted primarily of revenues derived from shipments recorded music
related to various distribution contracts for CD's by our distribution division,
Open Door Records, and from the commercial operations of Open Door Studios.
Sales decreased 100% to $0 for the quarter ending at March 31, 2001 from
$425,741 in the comparative quarterly period ended March 31, 2000. The sales
decrease was directly attributable to the lack of cash to promote or distribute
product.
COST OF SALES
Cost of Sales are normally primarily represented by CD and fulfillment
operations and artist record promotions and royalties plus studio engineering
cost. All costs for shipments this quarter were of products we paid for but
which are recoupable from the royalties of the artists and therefore carried as
a receivable. The artist royalties were the only costs in the period ended March
31, 2000. The Cost of Sales for the quarter ended March 31, 2001 decreased to
$0, a 100% decrease over the comparative quarter ending March 31, 2000 of
$195,947, all of these costs were for artist royalties.
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 $ 0 were incurred for the quarter ended March 31, 2001 a
decrease of 100% over the $3,112 expended in the prior comparative quarter ended
March 31, 2000. This decrease is directly relational to the lack of available
cash for promotional expenses.
CONSULTING EXPENSES
Consulting expenses for web site maintenance and hosting after the
completion of the initial development process was completed and consultants who
maintain the site added $3,000 to the expenses for the quarter ended March 31,
2001 a decrease of 84.3%. Site maintenance in the quarter ended March 31, 2000
was $19,185.
BAD DEBT EXPENSE
Bad debt expense increased to $0 for the quarter ended March 31, 2001 a
100% decrease from $24,094 over the corresponding quarter in 2000.
11
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 expenses were $1,598 for the quarter ended March 31,
2001, a decrease of $124,722 from $126,320 for the quarter ended March 31, 2000.
DEPRECIATION EXPENSE
Depreciation and amortization expenses rose to $10,429 from $9,578 in the
quarters ended March 31, 2001 and March 31, 2000, respectively. The increase is
attributed to additional web site cost capitalization.
INTEREST EXPENSE
Net interest expense for the quarter ended March 31, 2001 was $17,377.
Comparable interest costs for the corresponding quarter ended 2000 was $5,175.
This increase was caused by the increase in outstanding short-term debt that
occurred in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001 we had a cash deficit of $2,765. Sufficient cash to
finance operations for the short term are required. 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 current quarter we issued
net new debt for cash of approximately $2,000. 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.
ACCOUNTS RECEIVABLE
As of March 31, 2001 we had receivables that consisted of the sales of
prerecorded music from fiscal 2000. We have no indication that Red Eye
Distribution is unable or unwilling to pay us for the product shipped.
RECOUPABLE ARTIST ADVANCES
Our distribution agreements with artists require us to pay certain costs up
front for the artist. These costs, depending on the contract, may include
promotion, production, manufacturing, advertising, travel, etc. All of these
advances are to be received from the sales of the artist recordings before any
payment to the artist is made. In some instances the artist is to receive 50% of
the net wholesale price we receive, in others only 25% goes to the artist. We
have no reason to believe that these recoupable costs will not be received. In
the event that the artists music does not sell successfully to recoup these
costs within six months of the release of the recording we will take a charge to
earnings for these costs. This account contains four artists at this time with
the majority being from Jeru whose latest release on February 22, 2000 has
already sold enough for us to recover the majority of our costs when payment for
these shipments is received during the fiscal 2000. At no time will the Company
advance costs that exceed the amount recoupable from the pre-orders plus
$20,000. This method is in compliance with FASB 50 paragraph 10 relating
advances against future royalties.
12
CONTINGENT LIABILITIES
We have been advised that the issuance of free trading common stock in
August and September of 2000 were issued without a valid exemption even though
the Company relied on opinions of counsel for these issuances believing that the
shares were exempt under Rule 504 of Regulation D of the Securities Act of 1933.
The maximum liability is $558,000 based on 116,667 common shares at a sales
price $1.20 and 557,333 common shares at a sales price of $0.75 It appears that
the investors may have a right of rescission, pursuant to Section 12 of the
Securities Act of 1933, to recover the consideration paid for such securities.
For accounting purposes the amount of the contingent liability is not classified
outside of permanent equity as the company believes that it is not probable that
a holder would pursue rescission and prevail in asserting a right of action for
rescission.
OPERATIONS
Open Door Online, Inc. is an entity supporting traditional sales and
recording operations. 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.
Open Door Music. In February of 2000, 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. Currently the site and all distribution have
ceased.
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 adverting 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.
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.
13
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.
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 was detailed earlier on Form 10-KSB.
The sales from this period are not expected to be representative of the
fiscal year sales as the distribution has ceased while the Company refocuses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently a party to 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 and some that
were defended but for which judgments were received. However a charge of
$500,000 was taken in fiscal 1999 to establish a reserve for known debts and
contingencies of prior management. These judgments, when paid, will be applied
to the reserve with no further charge to the Company until the reserve is
depleted.
To date eight suits filed after the merger of Open Door Records and Genesis
Media Group, Inc. have been awarded judgments or have been settled in an
aggregate amount of approximately $202,000 plus fee's, costs and interest.
There are eight additional suits either filed or threatened resulting from
the prior operations of Genesis Media Group, Inc. These suits may cause the
reserve to be inadequate. No additional charge has been taken as none of the
suits expected to reach the judgment stage in fiscal 2001in the aggregate will
cause the reserve to be exceeded.
Management will be required to take action against the former officers,
directors and counsel that issued opinions that no litigation was known or
threatened prior to June 1, 1999 to recover the damages for the cost of defense
and the judgments and associated costs. In the event that such recovery becomes
a reality the Company expects that no additional charges will be needed to add
to the reserve. Of course legal fee's to cause the recovery are likely.
Open Door Online, Inc. has five suits that have either reached a judgment
phase or pending in courts. All suits have arisen in the normal course of
operations and are direct result of the lack of cash flow available to pay
operational debts or repay loans previously made to the Company. The case
involving the loan requires a $2,500 payment on May 1, 2001 and $1,400 per month
plus interest @12% until paid in full. The additional suits have a total face
value of $11,590 plus fee's and costs. All amounts for these suits have been
previously expensed as they occurred except for the fees, costs and interest, as
they are unknown at this reporting.
Various artists and individuals threaten additional lawsuits over accrued
royalties, failure of distribution agreements and other contractual obligations.
All known amounts for these have been accrued. The Company believes it has
adequately provided for all such costs, net of recoverable amounts from third
parties.
14
Prior officers and directors have threatened suit against the Company to
recover unpaid payroll and expenses and to reinstate notes previously payable
for which stock had been paid in settlement of such amounts. A suit of similar
nature was filed in New Jersey and dismissed for lack of jurisdiction. This suit
did not include the Company as a defendant. The known expenses and payroll plus
estimates of additional expenses have been accrued. No additional liabilities
have been added to the accounting records as none of the disputed shares
received for the payment of notes have been returned nor would they be accepted.
The Company will vigorously defend any action that may be filed. The Board of
Directors has given the President the authority to file an action against these
parties to recover the damages caused by their actions and breach of fiduciary
responsibility.
In February 2001 the Company filed an action against Thomas R. Carley
seeking to enjoin him from selling 175,000 free-trading shares which he had not
paid for. The action was amended in May 2001 alleging breach of fiduciary duties
and other matters and added a defendant Camille Barbone.
On May 21, 2001 Mr. Carley and Ms. Barbone filed a motion in Bergen County,
New Jersey requesting the court to allow them to file an amended complaint and
include the Company as a defendant in an action that had previously been
dismissed with prejudice because of a lack of jurisdiction and in which they
claimed to be acting on behalf of the Company and its shareholders as a class.
ITEM 2. CHANGES IN SECURITIES
In February 2001, Open Door Online, Inc. issued 3,333,333 restricted common
shares to David N. DeBaene and 1,666,666 to Corporate Architects, Inc. for the
conversion of debt. Additionally, 200,000 restricted common shares were issued
to Steev Panneton for the acquisition of certain board games that he had
developed. Mr. Randolph Beimel received 34,400 shares in conversion of $8,600.
These shares were issued with reliance on an exemption from registration
requirements provided in Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPEN DOOR ONLINE, INC.
(Registrant)
/s/ David N. DeBaene
----------------------------------------
Dated: May 22, 2001 David N. DeBaene
President and Chief Executive Officer
/s/ Norman Birmingham
----------------------------------------
Dated: May 22, 2001 Norman Birmingham
Treasurer and Chief Financial Officer
16