U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 2002
Commission File Number: 0-25388
DETOUR MEDIA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Colorado
(State or other jurisdiction of incorporation or organization)
84-1156459
(IRS Employer Identification No.)
10008 National Blvd. #345
Los Angeles, California 90034
-----------------------------
(Address of registrant's executive offices)
90034
(Zip Code)
(323) 469-9444
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
__X__ No ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of June 13, 2002, was 42,242,965 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
Our unaudited financial statements for the three month period ended March
31, 2002, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or our behalf. We disclaim any obligation to update forward
looking statements.
The following information is intended to highlight developments in our
operations, to present the results of our operations, to identify key trends
affecting our business and to identify other factors affecting our results of
operations for the three month periods ended March 31, 2002 and 2001.
OVERVIEW
We have historically been engaged in publishing of a monthly magazine
entitled Detour, which included advertisements and articles relating to fashion,
contemporary music and entertainment and social issues. Management describes the
magazine as an "urban, avant-garde" publication. We derived approximately 80% of
our revenues from advertising, with the balance from circulation. We maintain an
office in Los Angeles.
Our Magazine has normally been published monthly, with the exception of the
issues for December/January and June/July, for which one double issue has been
published. However, due to our
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impaired financial condition, we published only one issue during each calendar
quarter during 2001, with the last issue published in October 2001. We have
conducted no business operations during the three month period ended March 31,
2002. As of the date of this Report, we plan to again commence publishing our
Magazine beginning in the Spring of 2003, provided that we have sufficient
working capital to fund future publications. There are no assurances that we
will have sufficient capital available to being publishing our Magazine in the
future. See "Liquidity and Capital Resources" below.
The following information is intended to highlight developments in our
operations to present our results of operations, to identify key trends
affecting our business and to identify other factors affecting our results of
operations for the three month periods ended March 31, 2002 and 2001.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three Month Periods Ended March
31, 2002 and 2001
During the three month period ended March 31, 2002, we generated no
revenues as a result of our ceasing publication of our Magazine. During the same
period in 2001, we generated revenues of $399,569.
In the three month period ended March 31, 2002, we incurred no costs of
sales, also as a result of our ceasing publication as described above. Our cost
of sales during the three month period ended March 31, 2001, was $237,316.
Selling, general and administrative expenses were $306,766 for the three
months ended March 31, 2002, compared to $528,644 for the similar period in
2001, a decrease of $221,878 (42%). Relevant expenses during the three month
period ended March 31, 2002 included consulting and professional fees, salaries
and rent. We have eliminated a significant number of our employees, keeping only
a skeleton staff in order to allow us to supplement our fund raising activities
described below under "Liquidity and Capital Resources."
Interest expense decreased from $194,500 in the three months ended March
31, 2001, to $166,475 for the three months ended March 31, 2002, a decrease of
$28,025 (14%) as a result of certain outstanding liabilities being paid down.
See "Liquidity and Capital Resources" below. As a result, we generated a net
loss of $(484,738) for the three month period ended March 31, 2002, ($0.01 per
share) compared to a net loss of $(710,891) for the three month period ended
March 31, 2001 ($.03 per share).
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, we had $9,942 in cash. Accounts receivable decreased
from 92,778 at March 31, 2001, to $26,957 for the similar period in 2002, a
decrease of $65,821 (71%), which decrease is attributable to the fact that we
have not published our Magazine since October 2001.
We have numerous outstanding notes payable, including the following:
In August 1998, we obtained a loan in the principal amount of $550,000 from
IBF Special Purpose Corporation II to be used for general working capital. This
loan currently bears interest at the default rate of 28% per annum and was due
December 19, 1998, including a one-time extension fee paid to this lender of
$5,500. The loan provides for an exit fee equal to 3% of the original principal
amount of the loan ($16,500) and is secured by 1,000,000 shares of our common
stock, which were provided by 7 shareholders, including Mr. Stein, who tendered
190,000 shares as part of the security. Mr. Stein has also personally guaranteed
this obligation. In December 1998, we repaid $27,500 of the principal balance.
We have also paid all interest which had accrued through June 30, 2000. In April
2001, we tendered a payment of $173,760 on this obligation, applied to accrued
interest and late fees, and entered into a Forbearance Agreement which provides,
among other things, for us to pay this lender $25,000 per month applicable first
to interest and then to principal until the entire balance is paid in full. In
September and October, 2001, shares of our common stock being held as security
were sold for an aggregate principal reduction in the amount of $46,089. Upon
payment in full of this loan, the lender will return the balance of the stock
provided as security. Interest continues to accrue at the default rate. As of
the date of this Report, Mr. Stein has loaned us the monthly $25,000 payment due
under the Forbearance Agreement and we are current under the terms of said
Agreement. At March 31, 2002,the principal balance due this lender was $429,079.
In December 1999, we obtained a $200,000 loan from Sigmapath Corporation,
an unaffiliated entity, which loan accrued interest at the rate of 6% per annum
and became due on March 8, 2000. We paid $100,000 on this obligation. The lender
did file an action against us to collect all balances due and a judgment was
entered against us in May 2002. See "Part II, Item 1, Legal Proceedings" below.
At March 31, 2002, we had eight other notes payable, in the aggregate
principal amount of $727,090, bearing interest at rates ranging from 10% to 14%
per annum, all of which require a monthly or quarterly payment of principal
and/or interest. These notes are due on demand or past due.
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During the periods ended June 30, 2000 and March 31, 2001, we borrowed a
total of $1,300,000 in 10% Convertible Debentures from five creditors. Among
other terms, the debentures may be converted at any time during a three year
term at a conversion price equal to the lesser of $.90 per share, or 80% of the
average three lowest closing bid prices of our common stock during the 22 day
trading period prior to conversion. In June, July and December, 2001 a total of
$125,000 of principal and $13,872 in accrued interest was converted, with the
resulting issuance of 3,399,861 shares of our common stock. At March 31, 2002,
$1,175,000 of principal remained outstanding.
In December 2000, we borrowed $160,000 in 6% Convertible Debentures from
eight entities. Among other terms, the debentures may be converted at any time
during a five year term at a conversion price equal to the lesser of 120% of the
closing bid price or 80% of the average three lowest closing bid prices of our
common stock during the 22 day trading period prior to conversion. In December
2001, $15,600 of principal was converted, with the resulting issuance of 991,533
shares of our common stock. In January and February 2002, $60,000 in principal
and $1,300 in accrued interest was converted into 4,222,470 shares of our common
stock. At March 31, 2002, $84,400 of principal remained outstanding.
Advances from stockholder represent advances made by Mr. Stein, our
majority stockholder for working capital purposes. At September 30, 2000, the
advances bore interest at 8% per annum and were payable on demand. In March
2000, our majority stockholder agreed to reduce the annual interest rate to 8%
from 12%, effective January 1, 2000, and modify the repayment terms. Under the
new repayment terms, the advances are repayable in monthly principal
installments of $24,000 commencing January 1, 2001. We did not make the
principal payments in 2001 and 2000. However, we must use at least 25% of the
net proceeds of any financing received by us to repay the advances. Further, all
of the advances are due and payable in full at such time as we have received
equity financing of at least $10 million. At March 31, 2002, $2,835,729 of
principal was outstanding and classified as short-term. Accrued interest payable
to the majority stockholder at March 31, 2002, totaled $1,217,567. Interest
expense on the advances was $85,695 for the three month period ended March 31,
2002.
We are in default in most of these obligations and some have demanded
repayment of the outstanding principal and interest. Our management has been and
is currently negotiating with each of these creditors to extend the repayment
terms until such time as our business plan is capitalized and the financial
reorganization plan can be implemented, which may include some forgiveness of
debt and/or issuance of our common stock to these creditors. If we are unable to
renegotiate the repayment terms of these notes payable, the impact could be
severe.
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During the period October 1, 2001, to December 31, 2001, we borrowed, in
the aggregate, $252,000 from 1970 Asset Management Corp., an unaffiliated
entity, which loan bears interest at the rate of 10% per annum. Principal and
accrued interest on this Note is payable in full on or before June 30, 2002. It
is doubtful that we will be able to repay this obligation in a timely manner,
and the lender has been advised of the same. No other arrangements relating to a
prospective default have been discussed as of the date of this Report. Between
January 1, 2002 and March 31, 2002, we received $218,500 in additional advances
from Ed Stein, our President and Chairman. In addition, we borrowed an
additional $136,600 from 1970 Asset Management Corp. These funds were utilized
to pay certain obligations necessary to allow us to continue to remain in
business. These loans accrue interest at the rate of 11% per annum and are due
upon demand.
Our viability as a company is dependent upon our ability to raise
additional capital to continue as a going concern. We are in discussions with
investment bankers and others to provide or assist in providing this financing.
However, we do not have any written commitments for any of this financing and no
assurances can be provided that we will obtain any additional financing. The
failure to infuse additional capital into our Company will affect our ability to
implement our new business plan. These issues raise substantial doubt about our
ability to continue as a going concern.
TRENDS
In order to implement our business strategy described herein, we need to
raise approximately $6.5 million of capital. In the event all current
discussions toward that endeavor terminate, we will have to enter a joint
publishing arrangement with other magazine publishers or liquidate.
INFLATION
Although our operations are influenced by general economic conditions, we
do not believe that inflation had a material affect on our results of operations
during the three month period ended March 31, 2002.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1999, we obtained a $200,000 loan from Sigmapath Corporation,
an unaffiliated entity, which loan accrued interest at the rate of 6% per annum
and became due on March 8, 2000. We paid $100,000 on this obligation. The lender
did file an action against us to collect all balances due and a judgment was
entered against us in May 2002 in the amount of $113,496.66.
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In February 2002, we commenced an action against Andrew Left, our former
President, which action has been filed in the Superior Court for the State of
California for the County of Los Angeles, Case No. BC269050, for the recovery of
approximately $25,000, plus costs, interest and exemplary and punitive damages.
Our complaint alleges fraud and deceit, negligent misrepresentation, breach of
fiduciary duty and unlawful monetary conversion. As of the date of this Report,
we have filed a motion for default judgment in this matter and are awaiting
entry of a judgment in our favor.
In June 2001, our former publisher, Barbara Zowlocki and her company, BZI
Media Services, Inc. obtained a judgment against us in the principal amount of
$59,186, arising out of sums due Ms. Zowlocki for services rendered to us.
Approximately $52,000 remains due on this judgment as of the date of this
Report.
In August 2001, a judgment in the principal amount of $144,714 was entered
against us and in favor of Western Laser Graphics, Inc., one of our prior
printers. As of the date of this Report, this judgment remains outstanding.
In July 2001, a judgment in the principal amount of $180,473 was entered
against us and in favor of Gottesman, Inc. This judgment remains outstanding as
of the date of this Report.
Numerous other judgments have been entered against us and we have been
named as a defendant in several other lawsuits in the normal course of our
business. We have also received numerous threats of pending litigation from our
creditors who hold delinquent notes and other obligations. It is anticipated
that we will enter into settlement negotiations to resolve these matters if and
when we receive additional funding. Except for those matters specifically
discussed above, and in the "Liquidity and Capital Resource" section, in the
opinion of management, the liabilities, if any, resulting from these matters
will not have a material affect on our financial statements.
ITEM 2. CHANGES IN SECURITIES
In December 2000, we borrowed $160,000 in 6% Convertible Debentures from
eight entities. Among other terms, the debentures may be converted at any time
during a five year term at a conversion price equal to the lesser of 120% of the
closing bid price or 80% of the average three lowest closing bid prices of our
common stock during the 22 day trading period prior to conversion. In January
and February 2002, $60,000 in principal and $1,300 in accrued interest was
converted into 4,222,470 shares of our common stock.
We relied upon the exemption from registration provided by Section 4(2)
under the Securities Act of 1933, as amended, to issue these shares.
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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 -
(a) Exhibits - NONE
(b) Reports on Form 8-K - NONE.
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DETOUR MEDIA GROUP, INC.
BALANCE SHEET
Unaudited Audited
March 31, 2002 December 31, 2001
-------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 9,942 $ 9,683
Accounts receivable, net 26,957 92,778
Prepaid expenses and other current assets 22,331 30,511
-------------- -----------------
Total Current Assets 59,230 132,972
Property and Equipment, net 16,412 20,912
Security Deposits and other assets - 8,890
-------------- -----------------
TOTAL ASSETS $ 75,642 $ 162,774
============== =================
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 62,633 $ -
Accounts payable and accrued expenses 2,197,327 2,149,913
Notes payable 2,904,170 2,920,932
Accrued interest payable 386,899 333,969
Due to stockholder 3,054,229 2,952,293
Interest payable, stockholders 1,220,025 1,131,873
-------------- -----------------
Total Current Liabilities 9,825,283 9,488,980
DEFICIT IN STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value 10,000,000
shares authorized, none issued and outstanding - -
Common stock, $0.001 par value, 100,000,000
shares authorized 42,245 38,022
Additional paid-in capital 12,177,936 12,120,858
Accumulated deficit (21,969,822) (21,485,086)
-------------- -----------------
Total deficit in stockholders' equity (9,749,641) (9,326,206)
-------------- -----------------
TOTAL LIABILITIES & EQUITY $ 75,642 $ 162,774
============== =================
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DETOUR MEDIA GROUP, INC
UNAUDITED STATEMENT OF OPERATIONS
For the Three Months
Ended March 31, 2002
---------------------------
2002 2001
------------ -------------
SALES - 399,569
COST OF SALES - 237,316
------------ ------------
GROSS PROFIT - 162,253
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 306,766 528,644
------------ ------------
OPERATING LOSS (306,766) (366,391)
Financing fees - (150,000)
Interest expense (186,475) (194,500)
Other income 8,503 -
------------ ------------
NET INCOME (LOSS) (484,738) (710,891)
============ ============
Loss per share of
common stock (0.01) (0.03)
============ ============
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DETOUR MEDIA GROUP, INC.
UNAUDITED STATEMENT OF CASH FLOWS
For the Three Months
Ending March 31,
----------------------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (484,738) $ (710,891)
Depreciation and Amortization 4,500 6,600
Decrease (increase) in accounts receivable 65,821 109,046
Decrease (increase) in prepaid expenses and other current assets 8,180 (177,837)
Decrease (increase) in stock subscriptions receivable - (500,000)
Decrease (increase) in other assets 8,890 (18,584)
Increase (decrease) in accounts payable and accrued expenses 47,416 (68,406)
Increase (decrease) in accrued interest payable 52,930 92,000
Increase in interest payable, stockholder 88,152 102,497
---------- ----------
Total Adjustments 275,889 (454,684)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (208,849) (1,165,575)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase (disposal) of fixed assets - 1,572
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES - 1,572
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease (increase) in bank overdraft 62,633 -
Net proceeds from (payments on) notes payable (16,762) 300,000
Net proceeds from (payments to) stockholders 101,936 (93,512)
Proceeds from issuance of stock - 289,000
Common stock issued for services - 605,368
Common stock issued for debt conversion 4,223 -
Additional paid-in capital for debt converted to equity 57,078 -
Fair value of warrants issued to non-employees for services - -
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 209,108 1,100,856
---------- ----------
NET INCREASE (DECREASE) IN CASH 259 (63,147)
CASH - beginning 9,683 71,598
---------- ----------
CASH - ending $ 9,942 $ 8,451
========== ==========
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DETOUR MEDIA GROUP, INC.
f/k/a DETOUR MAGAZINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Month Period Ended March 31, 2002
1. Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-QSB and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Operating results
for any quarter are not necessarily indicative of the results for any other
quarter or for the full year.
2. Basis of Presentation
Business combination
On June 6, 1997, pursuant to the terms of an Agreement and Plan of
Reorganization, Ichi-Bon Investment Corporation ("IBI") acquired all of the
outstanding common stock of Detour, Inc. ("Old Detour") in exchange for
4,500,000 unregistered shares of IBI's common stock. As a result of the
transaction, the former shareholders of Old Detour received shares
representing an aggregate of 90% of IBI's outstanding common stock,
resulting in a change in control of IBI. As a result of the merger, IBI was
the surviving entity and Old Detour ceased to exist. Simultaneously
therewith, IBI amended its articles of incorporation to reflect a change in
IBI's name to "Detour Magazine, Inc." References to the "Company" or
"Detour" refer to Detour Magazine, Inc. together with the predecessor
company, Old Detour.
The acquisition of Old Detour has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition, Old
Detour is considered the acquiring entity. As a result, historical
financial information for periods prior to the date of the transaction are
those of Old Detour. Under purchase method accounting, balances and results
of operations of Old Detour will be included in the accompanying financial
statements from the date of the transaction, June 6, 1998. The Company
recorded the assets and liabilities (excluding intangibles) at their
historical cost basis which was deemed to be approximate fair market value.
The reverse acquisition is treated as a non-cash transaction except to the
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extent of cash acquired, since all consideration given was in the form of
stock.
Earnings per share
Earnings per share have been computed based on the weighted average number
of common shares outstanding. For the three month period prior to the
reverse acquisition discussed in the business combination section of Note 2
above, the number of common shares outstanding used in computing earnings
per share is the number of common shares outstanding as a result of such
reverse acquisition (5,000,000 shares).
3. History and Business Activity
Detour was originally incorporated as Ichi-Bon Investment Corporation on
May 18, 1990, under the laws of the State of Colorado. The name was changed
to Detour Magazine, Inc. concurrent with the business combination described
in Note 2. Prior to such business combination, Detour had not engaged in
any operations or generated any revenue. Old Detour was a publisher of a
nationally distributed magazine entitled "Detour" which is published
monthly and contains articles and pictorial displays on fashion, music and
social commentary.
In March, 2001, our shareholders approved amendments to our Articles of
Incorporation, which amendments included changing our name to "Detour Media
Group, Inc." and increasing the number of authorized common shares to
100,000,000 shares.
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SIGNATURES
Pursuant to the requirements of Section 12 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.
DETOUR MEDIA GROUP, INC.
(Registrant)
Dated: June 13, 2002
By:/s Edward T. Stein
------------------------------
Edward T. Stein, President
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