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 JUNE 30, 2002
[ ] 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 05-0460102
(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) 397-6800
(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 issuer's classes
of common stock, as of the last practicable date.
Common Stock, $.0001 par value per share, 21,842,943 shares outstanding at
August 15, 2002
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
OPEN DOOR ONLINE, INC.
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of June 30, 2002 3
Statements of Operations for the three months ended June 30, 2002
and June 30, 2001 4
Statements of Cash Flows for the three months ended June 30, 2002
and June 30, 2001 5
Statements of Operations for the six months ended June 30, 2002
and June 30, 2001 6
Statements of Cash Flows for the six months ended June 30, 2002
and June 30, 2001 7
Notes to Financial Statements 8
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 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
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.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPEN DOOR ONLINE, INC.
BALANCE SHEET
(UNAUDITED)
June 30,
2002
------------
ASSETS
Cash and cash equivalents $ 0
Accounts receivable, net of allowance $16,663 66,650
Inventories 9,848
Recoupable artist advances 104,535
Loans receivable 5,624
------------
Total current assets 186,657
Property and equipment, net 42,414
Intellectual assets, net 29,000
Goodwill, indefinite 10,000
Music library 10,255,005
------------
TOTAL ASSETS $ 10,523,076
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current portion of long-term debt $ 150,000
Accounts payable and accrued expenses 745,393
Accrued wages 215,879
Reserve for discontinued operations 413,514
Short-term notes payable 308,138
Accrued royalties 22,653
Accrued interest on notes payable 62,814
------------
Total liabilities 1,918,391
Stockholders' equity:
Common stock, $.0001 par value; authorized,
50,000,000 shares; issued and outstanding,
21,842,943 shares and 17,847,628 shares at
June 30, 2002 and June 30, 2001, respectively 2,184
Additional paid-in capital 11,061,883
Accumulated deficit (2,459,382)
------------
Total Stockholders' equity 8,604,685
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,523,076
============
See accompanying notes to these financial statements
4
OPEN DOOR ONLINE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
June 30, June 30,
2002 2001
------------ ------------
Revenues
Net sales $ 0 $ (5,757)
Cost of sales 0 0
------------ ------------
Gross profit 0 (5,757)
Operating Expenses:
Payroll and payroll taxes 23,750 23,750
Depreciation and amortization 4,810 10,429
Professional fees 5,000 108,400
Other 15,247 4,416
------------ ------------
Total operating expenses 48,807 146,995
Operating income (loss) (48,807) (152,752)
Interest income (expense) (13,856) (11,059)
------------ ------------
NET INCOME (LOSS) $ (62,663) $ (163,811)
============ ============
Net loss per common share $ (0.003) $ (0.01)
============ ============
Weighted average number of common shares outstanding 20,574,122 15,734,938
============ ============
See accompanying notes to these financial statements
5
OPEN DOOR ONLINE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
June 30, June 30,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ (62,663) $(163,811)
Adjustments to reconcile net income (loss) to net cash (used in)
operating activities:
Depreciation and amortization 4,810 10,429
--------- ---------
Changes in cash flows provided (used in) operating activities (57,853) (153,382)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 0 4,605
(Increase) decrease in loans receivable 0 (1,359)
(Increase) decrease in inventories
(Increase) decrease in other assets
Increase (decrease) in accounts payable 0 (11,475)
Increase (decrease) in royalties payable (5,208) 69,817
Increase (decrease) in accrued expenses 37,182 19,166
--------- ---------
Net cash (used in) operating activities (25,879) (72,628)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment
CASH FLOWS FROM FINANCING ACTIVITIES
Principal advances on notes payable and long-term debt 25,879 62,290
Issuance of stock for interest 0 10,338
Sale of common stock -- --
--------- ---------
Net cash (used in) provided by financing activities 25,879 72,628
--------- ---------
NET INCREASE (DECREASE) IN CASH 0 0
Cash and cash equivalents - beginning of period 0 0
--------- ---------
Cash and cash equivalents - end of period $ 0 $ 0
========= =========
See accompanying notes to these financial statements
6
OPEN DOOR ONLINE, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
June 30, June 30,
2002 2001
------------ ------------
Revenues:
Net sales $ 0 $ (5,757)
Cost of sales 0 0
------------ ------------
Gross profit 0 (5,757)
Operating Expenses:
Payroll and payroll taxes 47,500 23,750
Consulting expenses 172,755 53,666
Depreciation and amortization 9,620 20,858
Professional fees 31,250 108,400
Other 24,117 6,014
------------ ------------
Total operating expenses 285,242 212,688
Operating income (loss) (285,242) (218,445)
Interest income (expense) (24,060) (28,436)
------------ ------------
NET INCOME (LOSS) $ (309,302) $ (246,881)
============ ============
Net loss per common share $ (0.01) $ (0.02)
============ ============
Weighted average number of common shares outstanding 20,574,122 15,734,938
============ ============
See accompanying notes to these financial statements
7
OPEN DOOR ONLINE, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
June 30, June 30,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $(309,302) $(246,881)
Adjustments to reconcile net (loss) to net cash (used in) operating
activities:
Stock issued for services 151,505 50,000
Depreciation and amortization 9,620 20,858
--------- ---------
Changes in cash flows provided (used in) operating activities (148,177) (176,023)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 0 4,605
(Increase) decrease in loans receivable 0 (1,359)
(Increase) decrease in other assets 0 (11,475)
Increase (decrease) in accounts payable (1,795) 75,841
Increase (decrease) in accrued expenses (42,906) 33,783
--------- ---------
Net cash (used in) operating activities (192,878) (74,628)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (31,000) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Principal advances on notes payable and long-term debt 45,488 64,290
Issuance of stock for interest 0 10,338
Issuance of common stock for repayment of debt 178,390 0
Sale of common stock -- --
--------- ---------
Net cash (used in) provided by financing activities 223,878 74,628
--------- ---------
NET INCREASE (DECREASE) IN CASH 0 0
Cash and cash equivalents - beginning of period 0 0
--------- ---------
Cash and cash equivalents - end of period $ 0 $ 0
========= =========
See accompanying notes to these financial statements
8
OPEN DOOR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
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 2000, 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, 2001, 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.
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, 2002.
LINE OF BUSINESS
The Company is in the process of changing its business to that of a holding
company to consist of entertainment product sales and management of construction
operations. Acquisitions are currently being negotiated in both segments.
The Company will no longer provide recording studio services or distribute
pre-recorded music of parties other than those under a management contract.
Promotion of artists through concert management operations is a likely outcome
from these negotiations.
9
OPEN DOOR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue recognition policies are being modified to be acceptable for the
acquisitions expected to be completed. Currently no revenue is being produced.
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 FASB Statement No. 50, which 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. The Company intends to release a
compilation CD in August 2001.
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 FASB
Statement 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.
10
OPEN DOOR ONLINE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
NOTE 3 - PROPERTY AND EQUIPMENT
Depreciation for the six months ended June 30, 2002 and 2001 were $9,620 and
$20,858, respectively.
Property plant and equipment consist of the following:
June 30,
----------------------
2002 2001
--------- ---------
Production equipment $ 124,305 $ 124,305
Web site development 51,555
Office equipment, furniture and fixtures 10,376 10,376
Intellectual property 29,000 19,700
--------- ---------
205,936
Less accumulated depreciation (92,266) (95,802)
--------- ---------
$ 71,415 $ 110,134
========= =========
NOTE 4 - STOCK TRANSACTIONS - RELATED PARTY
During 2001 and 2002 Mr. DeBaene has been a lender of funds to Open Door Online,
Inc. As of December 31, 2001 and June 30 2002, the outstanding balances due Mr.
DeBaene were $107,757 and $159,304, including interest expenses of $6.059 and
$15,672, respectively.
NOTE 6 - EARNINGS PER COMMON SHARE
Earnings per share of common stock have been computed based on the weighted
average number of shares outstanding. The weighted average number of shares used
to compute the earnings per share at June 30, 2002, 20,574,122 and 15,734,938 at
June 30, 2001.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended June 30, 2002 and June 30, 2001.
SALES
Sales were non-existent of pre-recorded media. No sales were recorded from
any other division of the Company. Sales were $0 for the quarter ending June 30,
2002 compared to $(5,757) in the quarter ended June 30, 2001. All distribution
contracts have ceased.
COST OF SALES
Cost of Sales are normally primarily represented by CD fulfillment
operations, artist record promotions and royalties plus studio engineering cost.
The artist royalties would normally be the only cost relative to the net returns
of pre-recorded media. No costs were recognized this period. The cost of sales
for the quarter ended June 30, 2002 was $0 compared to $0 in the quarter ended
June 30, 2001.
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 June 30, 2002 and were
$0 in the prior comparative quarter ended June 30, 2001. No marketing expenses
have been expended as no new artists or productions have been released since
fiscal year 2000.
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 $48,807 for the quarter ended June 30,
2002 a decrease of 64% from the $136,526 for the period ended June 30, 2001. The
decrease is directly attributable to the reduction in professional fees of
$103,000.
DEPRECIATION EXPENSE
Depreciation and amortization expenses declined to $4,810 from $10,429 in
the quarters ended June 30, 2002 and June 30, 2001, respectively. The decrease
is attributed to the write prior write off of all web site development expenses
and leasehold improvements.
12
INTEREST EXPENSE
Net interest expense for the quarter ended June 30, 2002 was $13,856.
Comparable interest costs for the corresponding quarter ended 2001 was $11,059.
This increase was caused by the increase in borrowing for short-term debt.
Interest costs may increase in future periods as the Company expands through a
combination of debt and equity offerings.
For the six months ended June 30, 2002 and June 30, 2001.
SALES
Sales were non-existent. Sales were $0 for the six months ended at June 30,
2002 from $(5,757) in the comparative six-month period ended June 30, 2001. The
2001 sales were returned pre-recorded media.
COST OF SALES
Cost of Sales are normally primarily represented by CD fulfillment
operations, and artist record promotions and royalties plus studio engineering
cost. Only nominal costs were incurred and are therefore not reflected. The Cost
of Sales for the six months ended June 30, 2002 was $0 compared to $0 in the
comparative six months ended June 30, 2001.
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 $264,384 for the six months
ended June 30, 2002 compared to $191,830 in the corresponding period ended June
30, 2001. The increase is attributable to salaries for management $23,750, and a
reduction in professional fees of $77,150 and an increase in consulting fees of
$119,089.
DEPRECIATION EXPENSE
Depreciation and amortization expenses declined to $9,620 from $20,858 in
the six months ended June 30, 2002 and June 30, 2001, respectively. The decrease
is attributed to the prior write off of web site development and leasehold
improvement costs.
INTEREST EXPENSE
Net interest expense for the six months ended June 30, 2002 was $24,060.
Comparable interest costs for the corresponding six months ended June 30, 2001
was $28,436. This decrease was caused by the payment in the first quarter of
certain interest due.
13
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002 we had cash of $0. 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 six months we issued new debt
for cash of approximately $45,488. Significant increases in capital will be
required to fund our aggressive business plan and support acquisitions and new
lines of business. There is no assurance that we will be successful in raising
the required capital.
ACCOUNTS RECEIVABLE
As of June 30, 2002 we had receivables that consisted of the sales mainly
from fiscal year 2000. The receivables are being received and sufficient
allowances were set aside when the sales were recorded.
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. The Company will not advance more than $20,000 in
costs for any given artist unless the pre-orders for the artists' next release
exceed this amount. 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 Statement No. 50 paragraph 10 relating advances against future
royalties.
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 of
pre-recorded media 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 Company is seeking to expand the
operations of its divisions.
14
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 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.
FUTURE PLAN OF OPERATION
Open Door Online, Inc. has discontinued the production and sales operations
of its recording studios and pre-recorded music business. A new direction is
being pursued and is expected to begin producing revenues no later than the
fourth quarter.
We recognize that the nature and scope of our intended business will
require substantial additional financing. Loans and equity capital based raises
are being sought to fulfill our short-term needs and to provide funding for new
projects.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 2001 the Company brought an action against two former directors and
officers in Rhode Island alleging theft of corporate property, breach of
fiduciary duty and interference with the Company to transact its business.
Negotiations are underway for the settlement of these suits with all benefit
likely to inure to the Company.
In management's opinion there are no other material pending legal
proceedings, other than ordinary routine litigation incidental to its business
or that of its predecessor, to which the Company is a party.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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: August 15, 2002 David N. DeBaene
President and Chief Executive Officer
/s/ Norman J. Birmingham
----------------------------------------
Dated: August 15, 2002 Norman Birmingham
Treasurer and Chief Financial Officer
16