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
[ ] Transitional Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Commission File No. 0-25388
DETOUR MEDIA GROUP, INC.
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(Name of small business issuer in its charter)
Colorado 84-1156459
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
10008 National Blvd. #345
Los Angeles, California 90034
(323) 369-9444
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(Address, including zip code and telephone number, including area
code, of registrant's executive offices)
7060 Hollywood Blvd., Suite 1150
Los Angeles, California 90038
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(Former Address)
Securities registered under Section 12(b) of the Exchange Act:
none
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock
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(Title of class)
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 preceding 12
months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
(Continued on Following Page)
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, 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 its most recent fiscal year: $1,197,966.
State the aggregate market value of the voting stock held by non- affiliates,
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of April 11, 2002: $698,292.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of April 11, 2002 there were
42,242,965 shares of our common stock issued and outstanding.
Documents Incorporated by Reference: None
This Form 10-KSB consists of Forty Seven Pages.
Exhibit Index is located at Page Forty Five.
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
DETOUR MEDIA GROUP, INC.
PAGE
----
Facing Page
Index
PART I
Item 1. Description of Business.......................................... 4
Item 2. Description of Property.......................................... 13
Item 3. Legal Proceedings................................................ 13
Item 4. Submission of Matters to a Vote of
Security Holders............................................. 14
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.............................. 14
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................... 15
Item 7 Financial Statements............................................. 20
Item 8. Changes in and Disagreements on Accounting
and Financial Disclosure..................................... 41
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons, Compliance with
Section 16(a) of the Exchange Act............................ 41
Item 10. Executive Compensation........................................... 42
Item 11. Security Ownership of Certain Beneficial
Owners and Management........................................ 43
Item 12. Certain Relationships and Related
Transactions................................................. 44
PART IV
Item 13. Exhibits and Reports on Form 8-K................................. 45
SIGNATURES.................................................................. 47
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Detour Media Group, Inc., f/k/a Detour Magazine, Inc. ("we," "our," "us,"
the "Company" or "Detour") is engaged principally in the publication and
distribution of Detour Magazine ("Detour"), an internationally distributed
magazine best known for presentation of cutting-edge trends and strong editorial
focus in fashion, entertainment, lifestyle and contemporary social issues. Our
mission is to be the premier urban avant-garde publication devoted to these
topics, thereby attracting a readership consisting primarily of affluent and
style conscious men and women in the 18 to 35 age group. We have derived
revenues primarily from advertising in the magazine and, to a lesser extent,
from subscription and newsstand sales.
Our magazine has been published since 1987. Through December 31, 2000, the
magazine was published ten times a year, with two double issues per year. During
the fiscal year ended December 31, 2001, print runs were cut and only four
issues of the magazine were published. The last issue was the Fall Fashion issue
published in October 2001, after which we were forced to discontinue publication
caused by our lack of available cash and our distressed financial condition. We
intend to relaunch publication of our magazine in the third quarter of 2002, in
accordance with our new business plan discussed below under "New Business
Plan.".
DETOUR MAGAZINE
To distinguish itself from other entertainment publications, Detour
Magazine attempts to identify and feature entertainers and media personalities
well before they reach widespread recognition and the level of conventional
acceptance which typifies its competition, and is devoted to contemporary
lifestyles, entertainment and fashion. This in part accounts for Detour
Magazines's image as a "cutting-edge" magazine featuring tomorrow's
personalities.
Editorials follow the same focus, providing insight into and publicity for
entertainers and media personalities who have not yet received widespread
recognition, as well as new trends and styles as they first emerge. Detour
Magazine prides itself on some of the most talked about and respected photo
journalism and editorials in the industry.
Since inception, our magazine has been supported by over 375 national
advertisers, primarily in the fashion, footwear, eyewear, jewelry, watch,
fragrance, cosmetics, film, television, music, liquor and tobacco industries.
During 2001, our advertising
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customers included, among others, Apple Computers, Bacardi, Beefeater, Bombay
Sapphire, Calvin Klein, Christian Dior, Diesel, Evian, FILA, Gap, Hard Rock
Hotel, Helvetia Watches, Khalua, Lexus, Lucky Strike, Motorola, Parliament,
Perrier, Polo Jeans, PumaSketchers, Skyy Spirits, Tanquary, Universal Music,
Virginia Slims and Warner Bros. Records. Advertising revenues accounted for
virtually all of our total revenues during 2001. Other than Virginia Slims, who
accounted for approximately 6% ($62,300) of our revenues during 2001, no other
advertiser accounted for 5% or more of our advertising revenues.
Commencing with the May 2000 issue, the magazine has been distributed by
Curtis Circulation Company ("Curtis"). Curtis is a leading international
distributor.
Detour's reputation as a cutting-edge fashion and entertainment magazine
has translated into a readership profile comprised of an attractive audience for
advertisers. Detour's average reader is a 29 year old professional, with an
average income in excess of $75,000+ per year. Over 60% of the readers are
single, and 74% percent have obtained college degrees. The average reader of
Detour spends over $15,000 per year on clothing and dines out 2.6 times per week
based upon a reader's survey conducted in Detour Magazine during the year 2000.
We remain committed to our long-standing editorial mission: to be the
premier urban avant-garde publication devoted to entertainment, fashion
lifestyle and contemporary social issues. Our targeted audience of affluent,
educated and creative professionals thrives on new information about the latest
cultural trends. Long before assimilating into the mainstream, styles and trends
begin on the margins, which is where Detour, as its name implies, derives its
sensibility - off the beaten path, miles from the safe, familiar, well-paved
roads of the pop-culture highway.
Over the past year, in a dual effort to reinforce our image as an essential
fashion resource and to attract coveted fashion advertisers, we have featured
30-60 pages of fashion pictorials in each issue and it is expected that we will
continue to do so in the future, provided that we are financially able to begin
publishing the magazine again in the future. Our ability to do so is dependent
upon our ability to obtain additional financing, of which there can be no
assurance. In addition, we have expanded our style coverage to include service
pages devoted to health and beauty, as well as profiles of new stores,
restaurants, products and accessories, which we believe provides enhanced
opportunities for advertisers.
Management does not expect to change the content or format of Detour
Magazine materially beyond editorial changes necessary to
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broaden the magazine's appeal within the target readership, including making the
magazine more visual by continuing to seek out both established and rising
photographers.
NEW BUSINESS STRATEGY
During the fiscal year ended December 31, 2001, print runs were cut by
nearly half and only four issues of the magazine appeared, the Fall Fashion
issue being published in October 2001, after which we were forced to discontinue
publication as a result of our lack of cash availability and our distressed
financial condition. In January 2002, we completed a new business plan which we
believe approaches the future on a disciplined, focused, prioritized and phased
basis, which is described in detail below.
Phase 1
Execute a Financial Reorganization - We are currently in a distressed
financial condition that has resulted in a cessation of publication. While
measures have been taken to reduce the operating budget, an influx of
approximately $5 million dollars of equity capital is required to not only
effect a financial reorganization, but also to provide sufficient working
capital going forward. Liquidation of existing loans and accounts and
accrued expenses payable are anticipated to include conversion of debt to
equity, forgiveness of debt and prorated cash settlements. In the interim,
the magazine will remain on hiatus. Assuming we are able to secure such
financing by April 30, 2002, of which there can be no assurance,
publication would recommence with the September 2002 issue.
Phase 2
Effect Key Outsourcing Relationships - Many publishers, including Detour,
rely on outside entities for printing, single copy distribution,
subscription circulation and fulfillment services. Under the new business
plan, Detour will initially outsource a number of other key functions as
well, including advertising sales, barter sales, and licensing. While the
entities that perform such functions typically command a significant fee,
the rationale for pursuing this strategy is twofold. It will (i) enable us
to keep our operating expenses as low as possible; and (ii) significantly
elevate the magnitude and quality of resources working on our behalf. If
and when our business grows to a point where it makes both economic and
operational sense to bring one or more of these functions in-house, we will
do so.
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Relaunch the Magazine - Relaunching the magazine will entail the following:
Branding - We will transform the current Detour name and logotype into
a brand identity that captures and manifests the iconoclastic essence
of the magazine and its readers as trendsetters who "take the road
less traveled."
Circulation: To rebuild the magazine's circulation, we will undertake
the following measures:
- Single Copy Sales - Over the course of its history, Detour's
single copy sell-through rate has ranged from a low 14% to an
acceptable 42%. Going forward, we will seek to assure a
consistently high sell-through rate by:
(i) Hiring a quality distributor;
(ii) Focusing distribution in selected major, urban, hip
population centers like New York, Los Angeles, Chicago,
Washington D.C., San Francisco, Philadelphia, Boston, Dallas,
Houston, Miami, Atlanta and Seattle;
(iii) Further focusing distribution within each of these markets
into selected, demographically appropriate retail channels such
as newsstands, bookstores, airline terminals and commuter rail
terminals;
(iv) Supporting the retailers with meaningful POS promotions and
display materials.
(v) Refining our sales forecasting. Perhaps the single most
important component of achieving an acceptable sell-through rate
is the sales forecast. While quality distributors regularly
provide publishers with detailed reports that can serve as the
basis for formulating and assessing their sales forecasts, we
have not historically assigned someone to the task.
- Subscription Sales - At peak, Detour had a small fraction of
subscribers compared to the industry average of 84%. Going
forward, we will proactively pursue subscriptions. This will
entail:
(i) Investing in the printing and insertion of subscription
solicitation cards in the magazine.
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(ii) Hiring top quality subscription circulation and fulfillment
house services.
(iii) Providing complimentary copies to guests of selected
hotels, airline club lounges, beauty salons, etc.
(iv) Implementing an array of direct response campaigns, ranging
traditional direct mail to piggybacking samples or teasers of the
magazine with other demographically compatible, metro- oriented
publications.
- Expand Editorial/Advertising Appeal - We will seek to attract a
broader range of advertisers by:
(i) Hiring quality advertising and barter sales agencies.
(ii) Creating synergy between the magazine's editorial content
and the advertising community.
(iii) Consistent and concurrent with focusing single copy
distribution in major metro markets, expanding the magazine's
editorial coverage of happenings in these markets. By doing so,
the magazine will continue to appeal to national advertisers,
while also attracting a broad range of quality local advertisers,
e.g., hotels, restaurants and clubs, retail malls and stores,
beauty salons and spas, cultural and entertainment venues, new
residential developments, etc.
- Marketing - To effect the relaunch, we will stage a low-cost,
high-impact marketing, public relations, promotion, direct
mail/response and POS campaign.
It should be noted that a number of our advertisers, along with
various media outlets, will, as they traditionally do, contribute
to a significant portion of the cost of the sweepstakes
promotion.
- Web Site - We launched two web sites in 2000. However, neither
was modeled to generate revenues or yield efficiencies. Under the
new business plan, a web site will be maintained, but its
functions limited to the following:
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- A picture of the current issue's cover and a listing of
its table of contents, as well as a teaser of the content in
the next issue.
- A means for the consumer to obtain and renew a
subscription, change a mailing address, find a retailer that
sells the magazine, order a back issue, write a letter to
the editor or otherwise contact the magazine, as well as
purchase Detour branded merchandise (when available).
- A means for advertisers and agencies to order a Media Kit.
- Install a New Management Team - While Detour has some very
talented people, as is self-evident from looking at the magazine
itself, we are currently recruiting to fill the vacant positions
of Publisher/COO and CFO.
Phase 3
Catalyze International Editions - Although Detour's distribution to date
has been limited to North America, we ultimately foresee editions in Asia
(Japan), Europe (England, France, Germany, Italy and Spain) and South/Latin
America (a South/Latin America Spanish language edition, plus a separate
Portuguese language edition in Brazil). While no assurances can be provided
and subject to our receipt of sufficient equity capital, it is anticipated
that the first two international editions will not premier until September
2003, while the next four editions will be introduced over the course of
2004 and the remaining two editions beyond.
It is envisioned that these endeavors will be structured so that the
international publishers will: a) have the exclusive magazine publishing
and distribution rights to the Detour name, logo and editorial content, as
well as the latitude to create original content for their respective
territories, b) be responsible for all start-up and on-going expenses, and
c) pay us royalties against net revenues.
Exploit the Brand as an Intellectual Property - As with the international
editions, once the magazine has been reestablished, and the enhanced
branding concept has taken hold, we will hire a quality licensing agency to
begin to fulfill Detour's potential as an intellectual property asset that
can be legitimately extended and applied across other media platforms
including television, radio, film, books, music, etc., as well as against
various types of products and
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services such as apparel, accessories, cafes or clubs and travel.
Phase 4
Pursue Roll-Ups - The soft economic environment has put pressure on all
advertising dependent media, including the magazine publishing business. As
a result, there are, and will continue to be, a number of potentially
attractive magazines available for sale in the foreseeable future.
The operating efficiencies (overhead, advertising sales, etc.) and enhanced
leverage (printing, distribution, etc.) that accrue to a multi- versus
single-title publisher can be substantial. Therefore, we will assess
potential roll-up candidates and, should a compelling opportunity emerge,
may seek to acquire same using our stock as currency, augmented by discrete
financing. While we are committed to focusing on our core magazine
publishing business during the forecast period, our long-term vision
includes extending our content creation and intellectual property
exploitation expertise to other media as well.
CONSULTING AGREEMENTS
In order to assist us in our implementation of our new business plan and in
our efforts to raise additional capital, we entered into various agreements with
third parties, including the following:
In October 2001, we entered into a one year, non-exclusive Finder's Fee
Agreement and a non-exclusive Consulting Agreement with Lexington Ventures,
Inc,. Los Angeles, CA, ("Lexington"). These agreements provide for Lexington to
assist us in our attempts to raise additional funding. The Finder's Fee
Agreement provides for us to pay to Lexington a finder's fee equal to 10% of
gross proceeds which we may receive as a result of introductions to prospective
investors which are provided by Lexington. In addition, if we receive a minimum
of $1 million and a maximum of $2 million from investors introduced by
Lexington, we have agreed to issue to Lexington warrants to purchase shares of
our common stock in an amount equal to 0.0015%, multiplied by the fully diluted
number of shares our outstanding common stock immediately following the closing
of such financing (including any securities issued as part of such financing).
The exercise price of these warrants will be equal to the price at which our
common stock is sold in such financing and the agreement provides for
"piggyback" registration rights applicable to the shares underlying the
warrants. Further, we have also agreed to pay a transaction fee to Lexington in
an amount equal to 5% of the initial million dollars received, 4% of
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the second million, 3% of the third million, 2% of the fourth million and 1%
thereafter. If Lexington performs under this agreement and we elect not to
proceed, it is entitled to receive either one-third of the fees which would have
been payable.
Under the Consulting Agreement with Lexington, it has agreed to provide
assistance to us in identifying, developing and promoting the formation of
relationships with persons that may be beneficial to implementation of our new
business plan, including potential strategic partners, merger or acquisition
candidates, customers, business contacts, employees, agents, consultants or
other valuable contacts. In exchange therefore, we agreed to issue to Lexington
350,000 warrants, each warrant exercisable to purchase one share of our common
stock at an exercise price of $.04 per warrant and are exercisable for five (5)
years from the date of issuance.
In November 2001, we entered into a non-exclusive agreement with Rockann
Enterprises, Inc. ("REI"), a privately held company based in Los Angeles, CA, to
provide us with consulting services. The services are to be conducted in two
phases, including (i) preparation of a revised business plan, resolving
outstanding creditor issues, identifying potential prospective management
candidates and identifying potential investors. Phase two only commences if we
close a minimum of $2 million in financing from any sources within one year of
the commencement of the agreement. Thereafter, REI will assist us in developing
a branding concept, relaunching of our magazine, identifying potential strategic
partners, international partners, roll-up candidates and third party licenses.
As compensation therefore, we did agree to pay REI an aggregate of $55,000,
payable $25,000 upon execution and $5,000 a month thereafter for six (6) months.
However, if we receive financing resulting from an introduction provided by REI,
REI will also receive 10% of the gross proceeds of such financing, as well as
warrants equal to 10% of the number of shares issued in such financing, which
shall be exercisable at the financing offering price for a period of five years.
The shares of common stock underlying these warrants shall have "piggyback"
registration rights.
In December 2001, we entered into two (2) separate Engagement Fee
Agreements with EST Consulting, Inc, Boardman, Ohio and Suffield Financial
Group, LLC, Bloomfield, CT, respectively. These agreements provide for each of
the aforesaid entities to provide us with financial consulting services. The
terms of these agreements provide for the payment of fees in the event either of
the applicable entities provides us with equity capital, either directly or
indirectly.
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Subsequent Events
Between January 1, 2002 and March 31, 2002, we received $193,500 in
additional advances from Ed Stein, our President and Chairman. In addition, we
borrowed an additional $111,600 from 1970 Asset Management Corp., an
unaffiliated creditor. 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.
EMPLOYEES
At March 15, 2002, we had 3 full time employees retained as a "core-group"
during our reorganization period; president/CEO, editor in chief and creative
director, in addition to several consultants attending to financial,
administrative and going- forward business plan matters. If and when we receive
a commitment on obtaining a $5 million capital infusion, we will employ the new
management team and rehire and /or newly hire the staff necessary to relaunch
and publish the magazine. In that eventuality, we will also engage additional
persons on an "as needed" basis and outsource certain operational activities on
a part time or independent contractor basis. Management believes that our
relationship with our employees is satisfactory. No employee is a member of any
union.
COMPETITION
We compete with publicly and privately held companies in the publishing
business. Specifically, management views Interview (circulation 150,000), Paper
(circulation 75,000) and Surface Magazine (circulation 50,000) as our principal
magazine competitors, each of whom are believed to have greater resources, both
financial and otherwise, than the resources presently available to us.
TRADEMARKS
We have been issued a federal registration of the trademark Detour with the
United States Patent and Trademark Office, Washington, D.C. and the application
has been assigned a filing date of September 2, 1997, Serial No. 75-350798.
GOVERNMENT REGULATIONS
We are not subject to any extraordinary governmental regulations relating
to our business.
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ITEM 2. DESCRIPTION OF PROPERTY
We vacated our previous principal place of business at 7060 Hollywood
Blvd., Suite 1150, Los Angeles, California at the expiration of our lease on
February 28, 2002. Our temporary address is 10008 National Blvd. #345, Los
Angeles, California 90034, which is merely a mailing address which we have
rented for a three month period, at a cost of $30 per month. No formal business
activities are undertaken at this location as of the date of this Report.
Effective April 1, 2002, we also leased approximately 150 square feet of
executive office space at 1925 Century Park East, Suite 500, Los Angeles, CA
90067. We leased this space on a month to month basis at a cost of $950 per
month. As of the date of this Report, we are reviewing our space requirements
and are beginning to seek out a more permanent suitable location in anticipation
of relaunching the magazine during the third quarter 2002 in accordance with our
business plan. However, no definitive decision has been made concerning this
matter.
We own no other property, other than general office equipment.
ITEM 3. LEGAL PROCEEDINGS
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,
our complaint has been filed and we are awaiting the filing of an answer. While
no assurances can be provided, we are optimistic that we will be successful in
this matter.
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.
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.
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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. See "Part II, Item 6,
Management's Discussion - Liquidity and Capital Resources" below for a detailed
description of these 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. See "Part II, Item 6, Management's
Discussion - Liquidity and Capital Resources."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information. Our common stock is traded on the National
Association of Securities Dealers OTC Bulletin Board. The table below sets forth
the reported high and low bid prices for the periods indicated. The bid prices
shown reflect quotations between dealers, without adjustment for markups,
markdowns or commissions, and may not represent actual transactions in our
securities.
Bid Price
Quarter Ended High Low
------------- ---- ---
March 31, 2000 $1.02 $0.17
June 30, 2000 $1.09 $0.375
September 30, 2000 $1.01 $0.53
December 31, 2000 $0.688 $0.22
Bid Price
Quarter Ended High Low
------------- ---- ---
March 31, 2001 $0.34 $0.1675
June 30, 2001 $0.26 $0.10
September 30, 2001 $0.165 $0.025
December 31, 2001 $0.10 $0.011
As of April 11, 2002, the closing bid price of our common stock was $.02.
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(b) Holders. As of March 30, 2002, there were 100 holders of record of our
common stock, not including those persons who hold their shares in "street
name."
(c) Dividends. We did not pay any dividends on our common stock during the
two years ended December 31, 2001. Pursuant to the laws of the State of
Colorado, a corporation may not issue a distribution if, after giving its
effect, the corporation would not be able to pay its debts as they became due in
the usual course of business, or such corporation's total assets would be less
than the sum of their total liabilities plus the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution. As a result, management
does not foresee that we will have the ability to pay a dividend on our common
stock in the fiscal year ended December 31, 2001. See "Part II, Item 7,
Financial Statements."
ITEM 6. 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 fiscal years ended December 31, 2001 and 2000.
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RESULTS OF OPERATIONS
Comparison of Results of Operations for the fiscal years ended December 31,
2001 and 2000
Total revenues decreased from $3,995,820 in 2000 to $1,197,966 in 2001, a
decrease of $2,797,854 (70%). This decrease was attributable to only four issues
of our magazine being published during this period, compared to two double
issues and eight single issues being published during the year ended December
31, 2001, resulting in a decrease of advertising revenue, our principal source
of revenue, as well as newsstand and subscription revenues.
Costs of sales were $2,804,395 in 2000, compared to $782,692 in 2001, a
decrease of $2,021,702 (72%), which was also due to the publication of only four
issues of our magazine during the applicable period, compared to two double
issues and eight single issues in 2000.
Selling, general and administrative expenses were $6,141,071 in 2000,
compared to $3,000,130 in 2001, a decrease of $3,228,577 (53%). This decrease
was attributable to reduced salary costs, closing of the New York office, and a
significant reduction in financial marketing expenses, which included a
substantial reduction in issuances of the Company's warrants in lieu of cash
fees to financial consultants with regard to equity and debt financings and
consulting, and related costs.
Our interest expense decreased from $1,150,790 during 2000, to $921,019
during 2001, as a result of the conversion of $1,072,913 of principal debt
during the applicable period, thereby eliminating additional interest expense to
the extent of the principal reduction on those obligations. See "Liquidity and
Capital Resources" below.
As a result, we incurred a net loss of $(3,509,419) in 2001 ($0.11 per
share), as compared to our net loss of $(6,100,436) ($.30 per share) in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, we had $9,683 in cash. Accounts receivable decreased
to $92,778 from $397,447 for the similar period in 2000, a decrease of $304,669
(77%). The decrease is primarily due to the fact that we published only four
issues of our Magazine during the applicable period with considerably
advertising billings and related accounts receivable per issue and in the
aggregate.
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Due to our diminished accounts receivable, in June 2001 we terminated our
factoring arrangement with Receivable Financing Corp., Boca Raton, Florida
(RFI).
At December 31, 2001, we had a working capital deficiency of $9,211,609.
Due to a lack of working capital, we have been forced to discontinue publishing
the magazine following our October Fall Fashion issue. As a result, we do not
expect to generate cash flow from operations until the magazine is re-launched,
which is not expected until September 2002. We have a significant number of
notes payable, most of which were in default at December 31, 2001. We are
currently negotiating with these creditors to extend the repayment terms until
such time as our new business plan can be implemented, which may include some
forgiveness of debt and/or issuance of our common stock to these creditors.
There can be no guarantee that we will be able to renegotiate these notes
payable. If we are unable to renegotiate the repayment terms of these notes, the
impact would be severe. These outstanding notes payable include 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 at
December 31, 2001, interest was paid on a current basis and the principal
balance was $447,442. As of the date of this Report, we remain current on this
obligation.
In December 1999, we obtained a $200,000 loan from Sigmapath Corporation,
which accrues interest at the rate of 6% per annum and became due on March 8,
2000. We paid $100,000 on this obligation. In March 2001, an action was filed
against us by an officer of Sigmapath to collect the balance of $100,000
remaining due.
17
However, this action was dismissed by the court because the plaintiff who
brought the action was not the proper party in interest. Subsequently, we were
served with another copy of a complaint in November 2001. See "Part II, Item 1,
Legal Proceedings" above.
At December 31, 2001, we had eight other notes payable, in the aggregate
principal amount of $802,090, 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.
During the period October 1, 2001, to December 31, 2001 we borrowed, in the
aggregate, $252,000 from 1970 Asset Management Corp. bearing interest at the
rate of 10% per annum. Principal and accrued interest on this Note is payable in
full on June 30, 2002.
In 1995, our majority stockholder loaned us $932,313. In 1996, this note
was converted to a demand note, bearing interest at the rate of 12% per annum.
In 1996, this stockholder subsequently assigned this Note to JCM Capital Corp.,
a minority stockholder, who, upon information and belief, has assigned portions
of this note to other unaffiliated parties. In July 2001, the holders of these
various notes agreed to convert this obligation, including all principal and
accrued interest, into shares of our common stock at a conversion price of
approximately $.46 per share. They received 3,237,468 shares of our common stock
in the aggregate. These notes were secured by substantially all of our assets,
except for accounts receivable. Upon conversion of the notes, the security
interest was released.
In 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 December 31, 2001,
$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
18
resulting issuance of 991,533 shares of our common stock. At December 31, 2001,
$144,000 of principal remained outstanding.
Advances from stockholder represent advances made by 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 December 31, 2001, $2,952,293 of principal was outstanding
and classified as short-term. Accrued interest payable to the majority
stockholder at December 31, 2001, totaled $1,131,872. Interest expense on the
advances was $333,245 for the year ended December 31, 2001.
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.
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 $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.
19
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 2001.
ITEM 7. FINANCIAL STATEMENTS
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Detour Media Group, Inc.
We have audited the accompanying balance sheet of Detour Media Group, Inc
(formerly known as Detour Magazine, Inc.) as of December 31, 2001, and the
related statements of operations, deficit in stockholders' equity and cash flows
for the years ended December 31, 2001 and 2000. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Detour Media Group, Inc. as of
December 31, 2001, and the results of its operations and its cash flows for the
years ended December 31, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note C to the financial
statements, the Company has sustained losses from operations in recent years,
its total liabilities exceed its total assets, it has a net working capital
deficiency and the Company is in default on several of their obligations; these
factors, among others, raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note C. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Los Angeles, California
March 4, 2002
F-1
21
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
BALANCE SHEET
December 31, 2001
ASSETS
CURRENT ASSETS
Cash $ 9,683
Accounts receivable, less allowance
for doubtful accounts of $13,253 92,778
Prepaid expenses and other 30,511
------------
Total current assets 132,972
FURNITURE AND EQUIPMENT, net 20,912
DEPOSITS AND OTHER ASSETS 8,890
------------
$ 162,774
============
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,149,914
Current maturities of notes payable 2,776,532
Accrued interest payable 333,969
Advances from stockholder 2,952,293
Accrued interest payable to stockholder 1,131,873
------------
Total current liabilities 9,344,581
NOTE PAYABLE, less current maturities 144,400
COMMITMENTS AND CONTINGENCIES -
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,
38,020,154 shares issued and outstanding 38,021
Additional paid-in capital 12,120,858
Accumulated deficit (21,485,086)
------------
Total deficit in stockholders' equity (9,326,207)
------------
$ 162,774
============
The accompanying notes are an integral part of this statement.
F-2
22
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
STATEMENTS OF OPERATIONS
Years ended December 31,
2001 2000
----------- -----------
Revenue
Advertising $ 1,125,743 $ 3,670,035
Newsstand and subscription, net of returns 72,223 325,785
----------- -----------
Total revenue 1,197,966 3,995,820
----------- -----------
Cost and expenses
Cost of sales and other direct expenses 782,692 2,804,395
Selling, general and administrative expenses 3,000,130 6,141,071
----------- -----------
3,782,822 8,945,466
----------- -----------
Loss from operations (2,584,856) (4,949,646)
----------- -----------
Other expenses
Interest expense, net (921,019) (1,150,790)
Loss on disposal of assets (3,544) -
----------- -----------
Total other expenses (924,563) (1,150,790)
----------- -----------
Net loss $(3,509,419) $(6,100,436)
=========== ===========
Loss per share of common stock (basic and diluted) $ (0.11) $ (0.30)
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
23
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
STATEMENT OF DEFICIT IN STOCKHOLDERS' EQUITY
Years ended December 31, 2001 and 2000
Unamortized
Common Stock Additional Debt
-------------------- Paid-in Issuance Accumulated
Shares Amount Capital Costs Deficit Total
---------- -------- ------------ --------- ------------ -----------
Balance at January 1, 2000 16,002,669 $ 16,002 $ 5,020,426 $ - $(11,875,231) $(6,838,803)
Sale of restricted common stock,
net of costs of $317,312 4,000,000 4,000 1,178,688 - - 1,182,688
Issuance of restricted common stock in
connection with short-term borrowings 150,000 150 58,350 - - 58,500
Issuance of restricted stock in
connection with convertible debentures 500,000 500 147,950 (123,708) - 24,742
Beneficial conversion feature of
convertible debentures - - 212,687 - - 212,687
Issuance of restricted common stock in
exchange for release from consulting
agreement 600,000 600 393,000 - - 393,600
Issuance of restricted common stock for services 1,412,100 1,413 728,137 - - 729,550
Conversion of note payable to common stock 250,000 250 209,750 - - 210,000
Fair value of warrants issued for services - - 1,059,884 - - 1,059,884
Net loss for the year - - - (6,100,436) (6,100,436)
---------- -------- ----------- --------- ------------- -----------
Balance at December 31, 2000 22,914,769 22,915 9,008,872 (123,708) (17,975,667) (9,067,588)
Sale of restricted common stock 3,028,523 3,029 735,971 - - 739,000
Issuance of restricted common stock in
connection with short-term borrowings 335,000 335 80,065 - - 80,400
Issuance of restricted common stock to
cure violation of warranties under
stock purchase agreement 1,000,000 1,000 149,000 - - 150,000
Issuance of restricted common stock for services 1,780,000 1,780 330,520 - - 332,300
Conversion of stockholders' notes
payable to common stock 3,237,468 3,237 1,482,559 - - 1,485,796
Conversion of convertible
debentures to common stock 4,391,394 4,392 150,004 - - 154,396
Fair value of warrants issued for services - - 185,200 - - 185,200
Amortization of debt issuance costs - - - 123,708 - 123,708
Exercise of warrants 1,333,333 1,333 (1,333) - - -
Net loss for the year - - - - (3,509,419) (3,509,419)
---------- -------- ----------- ---------- ------------ -----------
Balance at December 31, 2001 38,020,154 $ 38,021 $12,120,858 $ - $(21,485,086) $(9,326,207)
========== ======== =========== ========== ============ ===========
The accompanying notes are an integral part of this statement.
F-4
24
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
STATEMENTS OF CASH FLOWS
Years ended December 31,
2001 2000
----------- ------------
Cash flows from operating activities:
Net loss $(3,509,419) $(6,100,436)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of debt issuance costs 123,708 24,742
Loss on disposal of equipment 3,544 -
Depreciation of furniture and equipment 18,297 22,049
Issuance of restricted common stock for:
Services 332,300 729,550
Release from consulting agreement - 393,600
Issuance of restricted common stock in connection
with short-term borrowings 80,400 58,500
Issuance of restricted common stock in connection
with debt conversion - 60,000
Issuance of restricted common stock issued to cure
violation of warranties under stock purchase agreement 150,000 -
Warrants issued for services 185,200 1,059,884
Expense of beneficial conversion feature of the
convertible debentures - 212,687
Decrease in accounts receivable 304,669 (204,435)
Increase in prepaid expenses (18,912) 87,588
Decrease (increase) in employee advances - 46,500
Decrease in other assets 7,235 (615)
Increase (decrease) in accounts payable
and accrued expenses 192,296 960,125
Decrease in unexpired subscriptions - (83,515)
Increase in accrued interest payable 591,883 513,666
----------- -----------
Net cash used in operating activities (1,538,799) (2,220,110)
----------- -----------
The accompanying notes are an integral part of these statements.
F-5
25
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
2001 2000
----------- ------------
Cash flows from investing activities:
Purchase of furniture and equipment $ - $ (15,656)
----------- ------------
Cash flows from financing activities:
Proceeds from short term borrowings - -
Principal payments of short term borrowings (222,688) (731,626)
Proceeds from long term borrowings, net of issuance costs - 1,160,000
Principal short-term borrowings 960,572 765,754
Proceeds from issuance of common stock, net 739,000 1,182,688
----------- ------------
Net cash provided by financing activities 1,476,884 2,376,816
----------- ------------
Net (decrease) increase in cash (61,915) 141,050
Cash (overdraft) at beginning of year 71,598 (69,452)
----------- ------------
Cash at end of year $ 9,683 $ 71,598
=========== ============
Supplemental disclosures of cash flow information
Cash paid during the years for:
Interest $ 273,678 $ 295,359
=========== ============
Income taxes $ - $ -
=========== ============
Noncash investing and financing activities:
In 2001, a major shareholder converted its debt into common stock. The
principal balance of the debt was $932,313 and the accrued interest was
$553,483 at the time of conversion. In connection with the debt conversion,
the Company issued 3,237,468 shares of common stock to the creditors.
In 2001, other creditors converted their debt into common stock. The
principal balance of the debt was $140,600 and the accrued interest was
$13,872 at the time of the conversion. In connection with the debt
conversion, the Company issued 4,391,394 shares of common stock to the
creditors.
In 2001, one creditor sold shares of the Company's common stock being held
as security resulting in a principal reduction of $46,089. The shares were
owned by the Company's major shareholder. The reduction of principal to the
creditor was offset by a corresponding increase in the amount due to the
shareholder.
In 2000, one creditor converted its debt into common stock. The principal
balance of the debt was $150,000 at the time of conversion. In connection
with the debt conversion, the Company issued an additional 72,000 shares of
common stock to the creditor resulting in a noncash financing charge
(included in interest expense) of $60,000.
The accompanying notes are an integral part of these statements.
F-6
26
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE A - DESCRIPTION OF BUSINESS
Detour Media Group, Inc. formerly known as Detour Magazine, Inc., (the
"Company"), was incorporated under the laws of the State of Colorado on May
18, 1990. The Company is in the business of publishing an international
fashion and entertainment magazine. The Company derives its revenue
primarily from advertising, with the balance from circulation. The magazine
has been published since 1987. Through December 31, 2000, the magazine was
published ten times a year with two double issues per year. During the
fiscal year ended December 31, 2001, print runs were cut and only four
issues of the magazine appeared. The last issue was the Fall Fashion issue
published in October 2001, after which the Company was forced to
discontinue publication caused by its lack of cash availability and its
distressed financial condition. The Company intends on relaunching
publication of the magazine in the third quarter 2002, in accordance with
its business plan discussed in Note C.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
-------------------
Periodicals published and distributed are sold on a fully returnable basis.
Revenue and related costs are recognized at the on-sale date and an
allowance for returns is established based upon historical experience,
current events and assumptions about future events. Management reviews and
revises the estimate for returns periodically. Adjustments to income
resulting from such revisions are recorded in the year in which the
revisions are made.
Revenue from the sale of magazine subscriptions, net of certain costs
related to their procurement, are deferred and recognized as income over
the term of the subscriptions.
Advertising revenue is recorded net of agency commissions and is recognized
at the on-sale date of related issues.
Prepaid Publishing Expenses
---------------------------
Certain production expenses and other prepaid expenses related to future
periodicals are incurred prior to sale. These costs are recorded as prepaid
expenses and charged to cost of sales and other direct expenses at the time
the related revenues are recognized.
F-7
27
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Furniture and Equipment
-----------------------
Furniture and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives. Leased improvements are amortized over the
shorter of the lives of the respective leases or over the service lives of
the assets. The straight-line method of depreciation is followed for
substantially all assets for financial reporting and income tax purposes.
The estimated lives used in determining depreciation are five to seven
years.
Income Taxes
------------
Income taxes are accounted for using the liability method, under which
deferred tax assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the currently enacted tax rate expected to apply to taxable income in
the periods in which the deferred tax asset or liability is expected to be
settled or realized.
At December 31, 2001, the Company has approximately $14,300,000 and
$10,200,000 of federal and state net operating loss carryforwards available
to offset future taxable income. The losses expire at various years through
2025 for federal purposes and 2015 for state purposes. The deferred tax
asset related to these net operating loss carryforwards is $5,800,000 at
December 31, 2000. There are no other significant deferred tax asset or
liability amounts at December 31, 2000. In the opinion of management, it is
more likely than not that these deferred tax assets will not be realized
and therefore a valuation allowance has been recorded for 100% of the
deferred tax asset.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory rate due to the
increase in the valuation allowance.
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable. The
Company has no significant off-balance sheet concentrations of credit risk,
such as foreign exchange contracts, option contracts or hedging
arrangements. Accounts receivable are typically unsecured and are derived
from transactions with and from customers primarily located in the United
States. The Company performs ongoing credit evaluations of its customers
and maintains reserves for potential credit losses. The Company maintains
an allowance for doubtful accounts based on the expected collectibility of
accounts receivable.
F-8
28
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist of cash, short-term trade
receivables and payables, short-term and long-term borrowings and amounts
due to stockholders. The carrying values of cash and short-term trade
receivables and payables approximate their fair values. Based on borrowing
rates currently charged to the Company for financing, the carrying values
of the short-term and long-term borrowings and amounts due to stockholders
approximate their estimated fair values.
Using Estimates
---------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising Costs
-----------------
Advertising costs are expensed as incurred and included in selling, general
and administrative expenses. Advertising expenses amounted to $379,969 and
$597,259 for the year ended December 31, 2001 and 2000, respectively.
Segment Reporting
-----------------
The Company is centrally managed and operates in one business segment:
publishing.
Loss per Share
--------------
Basic income (loss) per share excludes dilution and is computed by dividing
net loss by the weighted average number of common shares outstanding for
the period. Diluted income per share reflects the potential dilution that
could occur if options to acquire common stock were exercised. The weighted
average number of shares used in the basic and diluted loss per share
calculation was 31,895,892 and 20,009,185 for the year ended December 31,
2001 and 2000, respectively. All potential common shares from the exercise
of stock options and warrants have been excluded from the denominator of
the diluted per-share computation as a result of the net loss incurred by
the Company in 2001 and 2000.
F-9
29
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Warrants to purchase 3,520,000 and 3,035,000 shares of common stock were
not included in the computation of diluted loss per share for the year
ended December 31, 2001 and 2000 because to do so would have been
antidilutive for the periods presented.
NOTE C - GOING CONCERN MATTERS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. The Company has incurred net losses of
$3,509,419 and $6,100,436 during the years ended December 31, 2001 and
2000. At December 31, 2001, the Company's total liabilities exceeded its
total assets by $9,326,207 and the Company had a net working capital
deficiency of $9,211,609. Following the Fall Fashion issue which was
published in October 2001, the Company was forced to discontinue
publication of the magazine caused by its lack of cash availability and its
distressed financial condition. The Company is also in default of certain
notes payable. These factors, among others, indicate that the Company may
be unable to continue as a going concern.
Management has developed a business plan that they believe will improve the
operating results of the Company. The primary components of the plan are a
financial reorganization, new management team members, effect key
outsourcing relationships and re-launch of the magazine. The Company is
currently in a distressed financial condition that has resulted in a
cessation of publication. While measures have been taken to reduce the
operating budget, an influx of approximately $5,000,000 of equity capital
is required to not only effect a financial reorganization, but also to
provide sufficient working capital going forward. In addition, the
liquidation of existing loans and accounts payable will require the
conversion of debt to equity, forgiveness of debt and prorated cash
settlements. In the interim, the magazine will not be published. If the
Company is able to secure such financing by April 30, 2002, management
believes that the publication would recommence with the September 2002
issue.
Detour currently relies on outside entities for printing, single copy
distribution, subscription circulation and fulfillment services. Under the
new business plan, Detour will initially outsource a number of other key
functions as well, including advertising sales and licensing. The Company
believes that outsourcing such functions will keep operating expenses as
low as possible and improve the quality of resources.
F-10
30
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE C - GOING CONCERN MATTERS - Continued
Prior to resuming publishing of its magazine, the Company intends on
re-branding the Detour name and logo. In addition, the Company will attempt
to rebuild the magazine's circulation, focusing distribution in selected
urban centers and proactively pursuing subscriptions. The plan also calls
for the hiring of a new senior management team, including the Publisher/COO
position.
Going forward, significant amounts of additional cash will be needed to pay
the costs to implement the new business plan and to fund losses until the
Company is profitable. While there is no assurance that funding will be
available to execute the plan, the Company is continuing to seek financing
to support its business plan and is exploring a number of alternatives in
this regard. As of March 4, 2002, the Company has not raised the additional
funding required to effect a financial reorganization.
Management believes that, despite the financial hurdles and funding
uncertainties going forward, it has developed a business plan that, if
successfully funded and executed, can significantly improve operating
results. The support of the Company's vendors, customers, lenders,
stockholders and employees will continue to be key to the Company's future
success.
In view of the matters described above, recoverability of a major portion
of the recorded asset amounts shown in the accompanying balance sheet is
dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements on
a continuing basis, to maintain present financing, and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
NOTE D - ACCOUNTS RECEIVABLE
During 2001, the Company sold a portion of its advertising accounts
receivable to a finance company without recourse. The receivables were sold
at a discount ranging from 4.00% to 11.0% on a pre-approved basis (average
discount rate of 5% per month for 2001), with a "hold-back" of 12% on each
invoice until payment of the receivables. Therefore, the finance company
was only factoring 88% of the Company's eligible advertising receivables.
The finance company provided certain credit services for the Company, such
as obtaining credit reports on customers and collections. In June 2001, the
Company discontinued selling its accounts receivable and there is no
remaining amount due from the finance company at December 31, 2001. Finance
fees for the year ended December 31, 2001 is included in interest expense
on the statement of operations. Proceeds received from the sales of
accounts receivable in 2001 are included in cash flows from operating
activities in the statements of cash flows.
F-11
31
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE E - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 2001 consist of the following:
Office equipment $ 171,055
Furniture and fixtures 4,749
---------
175,804
Less accumulated depreciation (154,892)
---------
$ 20,912
=========
NOTE F - NOTES PAYABLE
Notes payable at December 31, 2001 consist of the following:
Note payable to a financial institution, principal and
unpaid interest was originally due in December 1998.
The note bore interest at 18% through its maturity date
and currently bears interest at 28%. In April 2001, the
Company entered into a forbearance agreement requiring
monthly principal and interest payments of $25,000. The
note is personally guaranteed by the Company's majority
stockholder and collateralized by the majority
stockholder's common stock of the Company. In September
2001, the financial institution sold shares of the
stockholder's common stock being held as security for an
aggregate principal reduction of $46,089. $ 447,442
Note payable, principal and unpaid interest was due on
March 8, 2000. The note bears interest at 6%. The note
was not repaid on the due date and the Company is
currently in default of this note. 100,000
Notes payable, principal and unpaid interest was due on
July 15, 1999. The note bore interest at 12% through
maturity and currently bears interest at 14%. The note
was not repaid on the due date and the Company is
currently in default of this note. 77,972
Convertible debentures maturing on June 19, 2003. The
debentures are issued to five creditors and bear interest
at 10%. The debentures require quarterly interest only
payments. 1,175,000
F-12
32
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE F - NOTES PAYABLE - Continued
Convertible debentures maturing in December 2005. The
debentures are issued to eight creditors and bear
interest at 6%. Principal and interest are due at
maturity. $ 144,400
Note payable to 1970 Asset Management Corp. bearing
interest at the rate of 10% per annum. Principal and
interest are payable in full on June 30, 2002. 252,000
Seven notes payable, bearing interest at rates
ranging from 10% to 12% and requiring monthly or
quarterly interest payments. All eight notes are
payable on demand. 724,118
-----------
2,920,932
Less current maturities 2,776,532
-----------
Long-term portion $ 144,400
===========
In connection with the issuance of convertible debentures in 2000, the
Company paid issuance costs to financial advisors totaling $ 141,032. The
debt issuance costs are included in interest expense in fiscal 2000. The
Company also issued 500,000 shares of its common stock to the same
financial advisors (see Note I). The convertible debentures can be
converted into common stock at an amount equal to 80% of the average three
lowest closing bid prices from the 20 days immediately preceding the
conversion date. This beneficial conversion feature resulted in a noncash
charge of $212,687 included in interest expense in fiscal 2000.
As of December 31, 2001, the Company did not make the quarterly interest
payments on the convertible debentures maturing in 2003. This is an event
of default under these agreements and the Company has not obtained a waiver
of the violations. In accordance with accounting principles generally
accepted in the United States of America, the debt is classified as current
as of December 31, 2001.
Interest expense on notes payable (excluding interest expense on amount due
to stockholders and debt issuance costs) totaled $293,000 and $209,000 for
the year ended December 31, 2001 and 2000, respectively.
F-13
33
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE F - NOTES PAYABLE - Continued
Future maturities of notes payable as of December 31, 2001 are as follows:
Year ending December 31.
----------------------------------
2002 $2,776,532
2003 -
2004 -
2005 144,400
2006 -
----------
$2,920,932
==========
NOTE G - RELATED PARTY TRANSACTIONS
In 1995, the majority stockholder loaned the Company $932,313. In 1996,
this note was converted to a demand note, bearing interest at the rate of
12% per annum. In 1996, this stockholder subsequently assigned this Note to
JCM Capital Corp., a minority stockholder, who assigned portions of this
note to other unaffiliated parties. In July 2001, the holders of these
various notes agreed to convert this obligation, including all principal
($932,313) and accrued interest ($553,483) into shares of our common stock
at a conversion price of approximately $.46 per share. They received
3,237,468 shares of common stock in the aggregate. These notes were secured
by substantially all of the Company's assets, except for account
receivable. Upon conversion of the notes, the security interest was
released.
Advances from stockholder represent advances made by the majority
stockholder of the Company for working capital purposes. The advances are
repayable in monthly principal installments of $24,000; however, the
Company has not made the monthly principal payments in 2001 and 2000. The
Company must use at least 25% of the net proceeds of any financing received
by the Company to repay the advances. Further, all of the advances are due
and payable in full at such time as the Company has received equity
financing of at least $10,000,000. At December 31, 2001, $2,952,293 of
principal is outstanding and classified as short-term. Accrued interest
payable to the majority stockholder at December 31, 2001 totaled
$1,131,873. Interest expense on the advances from stockholder was
approximately $333,000 and $304,000 for the year ended December 31, 2001
and 2000, respectively.
F-14
34
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE H - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
----------------
The Company vacated its principal place of business in Los Angeles,
California at the expiration of its lease which was extended through
February 28, 2002. The Company entered into a lease for approximately 150
square feet on a month-to-month basis commencing April 1, 2002 at a monthly
rental of $950.
Rent expense for the years ended December 31, 2001 and 2000 was $113,646
and $119,807, respectively.
2. Cease-and-Desist Proceeding by the Securities and Exchange Commission
---------------------------------------------------------------------
By notice dated March 30, 2000, the staff of the Salt Lake City District
Office of the Securities and Exchange Commission ("SEC" or "the
Commission") notified the Company and its Chairman that it was recommending
to the SEC that an enforcement action be filed against both the Company and
its Chairman relating to accuracy of certain of the Company's financial
statements in 1997 and 1998. The recommended enforcement action was based
on: (i) the improper presentation of certain quarterly financial
information; and (ii) the failure to record in accordance with generally
accepted accounting principles the proper compensation expense resulting
from the issuance to consultants in 1997 of options to purchase 4,400,000
shares of common stock. According to the notice from the Commission, the
SEC anticipates alleging that the Company has violated Section 17(a) of the
Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of
1934, rule 10b-5, Section 13(a) of the Exchange Act and various rules
promulgated thereunder.
The Company believes that the issue regarding improper presentation of
quarterly financial information relates to the Company's averaging of
certain costs and expenses in certain quarterly periods in 1997 and 1998
instead of calculating these costs and expenses precisely. To comply with
the staff's requirement, the Company would be required to determine the
actual costs and expenses for the affected quarters. The second issue
related to whether the Company recorded the proper amount of compensation
expense in connection with the issuance of the options to the consultants.
The Company recorded an expense of $21,991, based on the exercise price of
the options of $.005 per share. The Company understands that the staff
believes that the expense should be the fair market value of the options at
the time the options were issued. Under generally accepted accounting
principles, any such additional compensation expense in connection with the
options would result in a corresponding increase in the paid-in capital of
the Company. Thus, while the expense would increase the Company's net loss
for 1997, the paid-in capital would be similarly increased and there would
be no change to the Company's total deficit in stockholders' equity as of
the end of 1997.
F-15
35
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE H - COMMITMENTS AND CONTINGENCIES - Continued
In 2000, the Company advised the staff that it wished to cooperate fully
and reach an agreement on an appropriate remedy to resolve this matter. The
Company had determined to restate its financial statements to address the
concerns raised by the staff.
On November 22, 2000, the Commission issued a cease-and-desist proceeding
pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the
Securities Exchange Act of 1934. The Commission ordered the Company to
amend its filings with the Commission to properly reflect its financial
condition and operating results, and as required by Section 13(b)(2) of the
Exchange Act, make and keep books, record and accounts which, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company. The Commission further ordered the Company to
devise and maintain a system of internal accounting controls sufficient to
provide reasonable assurances that, among other things, transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles. The Company has
amended its filings with the Commission and believes it has complied fully
with the Commissions cease-and-desist proceeding.
3. Litigation
----------
The Company is a defendant in several other lawsuits in the normal course
of its business. In the opinion of management, after consulting with legal
counsel, the liabilities, if any, resulting from these matters will not
have a material effect on the Company's financial statements.
NOTE I - EQUITY
In December 1999, the Company and its majority stockholder entered into an
agreement with two financial advisors to assist the Company in obtaining
equity and debt financing and to provide other consulting services,
including identifying potential acquisitions and strategic partners,
analyzing potential acquisitions and other business arrangements, assisting
in strategic planning and business development, market support and
assisting in developing e-business plans. In connection with this
agreement, the Company issued to each advisor warrants to purchase 800,000
shares of its common stock at an exercise price of $.10 a share. The
vesting of such warrants was subject to certain conditions during a service
period that extended through September 30, 2000. Management believed the
agreement did not contain a performance commitment because the financial
advisors had no disincentive for nonperformance other than the loss of the
cash, options and warrants attributable to the work performed. Accordingly,
the options and warrants issued under this agreement were measured at the
fair value on the dates the
F-16
36
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE I - EQUITY - Continued
advisors were successful in obtaining financing for the Company. Between
January 1, 2000 and March 31, 2000, the Company received $1,800,000 of
financing (debt and equity) resulting in the vesting of warrants to
purchase 416,000 shares of the Company's common stock. The agreement was
amended in fiscal 2000 resulting in the vesting of the remaining warrants
to purchase an additional 1,184,000 shares of the company's common stock.
The vesting of the remaining warrants to purchase 1,184,000 resulted in a
noncash charge of $663,040 included in general and administrative expense
in fiscal 2000.
The agreement also provided the financial advisors an option to purchase
3,000,000 shares of common stock of the Company at an exercise price of
$.10. The options were exercisable if and only if the Company received at
least $5,000,000 in financing arranged by the financial advisors. The
agreement also provided for a cash financing fee of 10% of the funds
raised. In addition, the financial advisors may have been entitled to cash
consulting fees up to $10,000 per month, depending on the amount of funds
raised on behalf of the Company.
In September 2000, the Company terminated this agreement with the two
financial advisors. In addition to the 800,000 of stock warrants issued to
each advisor, the Company issued an additional 300,000 shares of its
restricted common stock to each advisor in order to terminate the
agreement. The issuance of these additional 600,000 shares resulted in a
noncash charge of $393,600 included in general and administrative expense
in fiscal 2000. In connection with this termination agreement, the option
to provide 3,000,000 shares of the Company's stock was cancelled.
In January 2000, the Company issued 20 units for $5,000 per unit, or a
total of $100,000. Each unit consists of promissory note of the Company in
a principal amount of $5,000, bearing interest at 10% per year due and
payable on April 25, 2000, and 5,000 warrants, each warrant entitling the
holder to purchase one share of common stock for $.10 per share at any time
through December 31, 2002. The notes were repaid in April 2000.
In February 2000, the Company issued two units for $100,000 per unit, or a
total of $200,000. Each unit consists of a promissory note of the Company
in a principal amount of $100,000, bearing interest at 10% per year due and
payable on January 31, 2001, and 75,000 warrants, each warrant entitling
the holder to purchase one share of common stock for $.10 per share, at any
time through December 31, 2004.
In March 2000, the Company issued 3,000,000 shares of common stock for $.33
1/3 per share, or a total of $1,000,000 (less stock issuance costs). The
purchasers received demand registration rights exercisable after September
14, 2000. The Company was in violation of certain representations and
warranties made in the stock purchase agreements and has not received
F-17
37
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE I - EQUITY - Continued
waivers of these violations. These violations could subject the Company to
damages, including the potential rescission of the shares, if waivers
cannot be obtained. In the opinion of management, the damages, if any,
resulting from the violations would not be material to the Company's
financial position or results of operations.
In April 2000, the Company issued 1,000,000 shares of common stock for $.50
per share, for a total of $500,000 (less stock issuance costs). The
purchaser received demand registration rights exercisable after April 30,
2001.
Between June 2000 and December 2000, the Company issued 1,412,100 shares of
common stock in exchange for various professional services, including
legal, marketing, promotional and financial services. The issuance of these
shares resulted in a noncash charge included in general and administrative
expenses of $729,550 in fiscal 2000.
In 2000, the Company also issued warrants to acquire approximately
2,120,000 shares of the Company's common stock in exchange for various
professional services including the 1,184,000 shares issued to the two
financial advisors described above. The fair value of the warrants issued
in fiscal 2000 totaled $1,259,884 and is included in selling, general and
administrative expense.
In February 2000, the Company issued 150,000 shares of its common stock in
connection with short-term borrowings. The issuance of the shares resulted
in a noncash financing charge (included in interest expense) of $58,500 in
fiscal 2000.
In November 2000, the Company issued 500,000 shares of its common stock to
financial advisors in connection with the issuance of certain convertible
debentures (Note F). The issuance of the shares has been reflected as a
debt issuance cost in the statement of deficit in stockholder's equity and
was fully amortized as of December 31, 2001.
In February 2001, the Company issued 335,000 shares of its common stock for
$.240 per share, or a total of $80,400, in connection with short-term
borrowings. The issuance of shares resulted in a noncash financing charge
(included in interest expense) of $80,400.
In March 2001, the Company issued 3,028,523 shares of common stock for
$.243 per share, for a total of $739,000. Also in March 2001, the Company
issued 1,000,000 shares of common stock for $.149 per share to cure
violations of warranties under a previous stock purchase agreement. The
issuance of the shares resulted in a noncash financing charge (included in
interest expense) of $150,000 in fiscal 2001.
F-18
38
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE I - EQUITY - Continued
Between March 2001 and June 2001, the Company issued 1,780,000 shares of
common stock in exchange for various professional services, including,
marketing, promotional, financial and administrative services. The issuance
of the shares resulted in a noncash charge included in general and
administrative expenses of $332,300.
Between the period June 1, 2001 and December 31, 2001, the holders of the
convertible debentures described in Note F converted $140,600 of principal
and $13,796 of accrued interest into common stock. The Company issued
4,391,394 of restricted common stock as a result of the debt conversion.
The Company also issued warrants to acquire approximately 2,100,000 shares
of the Company's common stock in exchange for various professional
services. The fair value of the warrants issued in fiscal 2001 totaled
$185,200 and is included in general and administrative expenses.
On April 9, 2001, the company's former financial advisors exercised
1,600,000 warrants in a cashless exercise that resulted in the issuance of
1,333,333 shares of the Company's common stock.
The following tables summarize the changes in the number of outstanding
common stock warrants during 2000 and 2001:
Weighted
Number of Average
Shares Exercise Price
---------- --------------
Outstanding at December 31, 1999 2,100,000 0.174
Granted 935,000 0.379
Cancelled (500,000) 0.41
Exercised - -
----------
Outstanding at December 31, 2000 3,253,000 0.203
Granted 2,100,000 0.197
Cancelled (15,000) 0.50
Exercised (1,600,000) 0.10
----------
Outstanding at December 31, 2001 3,020,000 0.252
==========
F-19
39
Detour Media Group, Inc.
(formerly known as Detour Magazine, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE I - EQUITY - Continued
The following table summarizes additional information about the Company's
common stock warrants at December 31, 2001:
Number outstanding Weighted average
and exercisable at remaining
Exercise Prices December 31, 2001 life (months)
--------------- ------------------ ----------------
$0.01 - 0.04 425,000 55
0.10 260,000 37
$0.20 - 0.25 1,765,000 55
$0.41 - 0.66 570,000 24
-----------
3,020,000
NOTE J - SUBSEQUENT EVENTS
Between January 1, 2002 and March 31, 2002, the Company received $193,500
in additional advances from its major stockholder. In addition, the Company
borrowed an additional $111,600 from 1970 Asset Management Corp, an
unaffiliated creditor. The funds were used principally for debt service and
to provide working capital for operations.
F-20
40
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and officers of our company as of the date of this Report are
as follows:
Name Age Position
---------------- --- ----------------------
Edward T. Stein 51 Chairman of Board,
President & CEO
Kevin Nesis 33 Secretary & Director
Directors are elected for one-year terms or until the next Annual Meeting
of Shareholders and until their successors are duly elected and qualified. Our
officers are appointed by our Board of Directors and serve at the pleasure of
the Board, subject to any rights under employment agreements.
There are no family relationships among the officers and directors. There
is no arrangement or understanding between us (or any of our directors or
officers) and any other person pursuant to which such person was or is to be
selected as a director or officer.
Resumes
Edward T. Stein has been Chairman of the Board and a Director of our
Company and our predecessor since January 1995. He was appointed our President
and CEO in August, 2001. Previously, from November 1999 to April 1999, Mr. Stein
also served as our President. Since 1986, he has also been President of Edward
T. Stein Associates, Ltd., a privately held financial services firm engaged in
money management, insurance and financial planning located in Melville, New
York, and Prima Capital Management Corp., an affiliated company. Mr. Stein
obtained a Bachelor of Science degree from Rider University, where he majored in
finance. He devoted substantially all of his time to our business activities
during the fiscal year 2000.
Kevin Nesis has been our Secretary and a director since November 1999. In
addition to his positions with us, since January
41
2000, Mr. Nesis has been employed by Time Capital Securities Corp., a privately
held New York corporation, where his duties included financial services, estate
and tax planning. From April 1997 through January 2000, Mr. Nesis was employed
by Edward T. Stein Associates, Ltd., where his duties included financial
services, estate and tax planning. From June 1996 through March 1997, Mr. Nesis
was unemployed. Mr. Nesis received a Bachelor of Arts degree from Boston
University in 1993 and a Juris Doctor degree from New York Law School in 1996.
He also holds a Series 7 and 63 license with the National Association of
Securities Dealers, Inc. He devotes approximately 30% of his business time to
our business affairs.
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and person who own more than 10% of our common stock to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. All of the aforesaid persons are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file. There were no
changes in the holdings of management during 2001.
ITEM 10. EXECUTIVE COMPENSATION.
REMUNERATION
The following table reflects all forms of compensation for services to us
for the years ended December 31, 2001 and 2000 of our then chief executive
officer, as well as those persons who received in excess of $100,000 in annual
compensation from us during the aforesaid time.
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------
Annual Compensation Awards Payouts
----------------------- ------------------ -------
Securities
Other Under- All
Name Annual Restricted lying Other
and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
----------- ---- -------- ----- -------- ------- ------- ------- -------
Edward T.
Stein,(1)
President & 2000 $105,417 $ 0 $ 0 $ 0 0 $ 0 $ 0
Director 2001 $ 22,917 $ 0 $ 0 $ 0 0 $ 0 $ 0
Andrew Left, 2000 $ 68,750 $ 0 $ 0 $ 0 0 $ 0 $ 0
President 2001 $152,656 $ 0 $ 0 $ 0 0 $ 0 $ 0
42
Long Term Compensation
---------------------------
Annual Compensation Awards Payouts
------------------------- ------------------ -------
Securities
Other Under- All
Name Annual Restricted lying Other
and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
----------- ---- -------- ----- -------- ------- ------- ------- -------
Barbara
Zowlocki, 2000 $ 60,000 $ 0 $157,000(2) $ 0 0 $ 0 $ 0
Publisher
-------------------------
(1) Mr. Stein resigned his position as President of the Company in April 1999
and was replaced by Mr. Left at that time. Mr. Stein re-assumed his
position as our President in August 2001.
(2) This compensation was in the form of commissions, which were paid to BZI
Media Services, Inc., Ms. Zowlocki's company. Ms. Zowlocki resigned her
position with our company in April 2001.
No member of management serves pursuant to a definitive employment
agreement.
We reimburse our officers and directors for out of pocket expenses incurred
by each of them in the performance of their relevant duties. We reimbursed Mr.
Stein, in the amounts of $53,096 and $240,925 in expenses during the fiscal
years ended December 31, 2000 and 2001, respectively, and Ms. Zowlocki in the
amount of $29,205 and $5,011 during the fiscal years ended December 31, 2000 and
2001, respectively.
We have no current stock plan for employees, but may adopt one in the
future.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below lists the beneficial ownership of our voting securities by
each person known by us to be the beneficial owner of more than 5% of such
securities, as well as by all directors and officers of the issuer, as of April
11, 2002. Unless otherwise indicated, the shareholders listed possess sole
voting and investment power with respect to the shares shown.
43
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner Ownership Class
-------- ------------------------- ---------- ----------
Common Edward T. Stein(1) 7,316,829 17.3%
201 N. Service Rd.
Suite 100
Melville, NY 11747
Common Kevin Nesis(1) 11,500 *
201 N. Service Rd.
Suite 100
Melville, NY 11747
Common All Officers and 7,328,329 17.3%
Directors as a Group
(3 persons)
------------------------
* Less than 1%
(1) Officer and/or director of our Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1995, Edward T. Stein, our majority stockholder, loaned us $932,313. In
1996, this note was converted to a demand note, bearing interest at the rate of
12% per annum. In 1996, this stockholder subsequently assigned this Note to JCM
Capital Corp., a minority stockholder, who, upon information and belief, has
assigned portions of this note to other unaffiliated parties. In July 2001, the
holders of these various notes agreed to convert this obligation, including all
principal and accrued interest, into shares of our common stock at a conversion
price of approximately $.46 per share. They received 3,237,468 shares of our
common stock in the aggregate. These notes were secured by substantially all of
our assets, except for accounts receivable. Upon conversion of the notes, the
security interest was released.
Advances from stockholder represent advances made by 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.
44
At December 31, 2001, $2,952,293 of principal was outstanding and classified as
short-term. Accrued interest payable to the majority stockholder at December 31,
2001, totaled $1,131,872. Interest expense on the advances was approximately
$333,000 and $304,000 for the year ended December 31, 2001 and 2000,
respectively.
Subsequent Events
Between January 1, 2002 and March 31, 2002, we received $193,500 in
additional advances from Ed Stein, our President and Chairman. In addition, we
borrowed an additional $111,600 from 1970 Asset Management Corp., an
unaffiliated creditor. 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.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
3.1* Certificate and Articles of Incorporation
3.2* Bylaws
3.3** Articles of Merger
3.4*** Certificate of Correction dated March 6, 2000
3.5**** Amendment to Articles of Incorporation
-----------------------
* Filed with the Securities and Exchange Commission in the Exhibits to Form
10-SB, filed in January 1995 and are incorporated by reference herein.
** Filed with the Securities and Exchange Commission in the Exhibits to Form
10-KSB filed in April 1998 and is incorporated by reference herein.
*** Filed with the Securities and Exchange Commission in the Exhibits to Form
10-KSB, filed in May 2000 and is incorporated by reference herein.
**** Filed with the Securities and Exchange Commission in the Exhibits to Form
10-KSB, filed in May 2001 and is incorporated by reference herein.
(b) Reports on Form 8-K
45
In the last fiscal quarter of the fiscal year ended December 31, 2001, we
did not file any reports on Form 8-K.
46
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on April 11, 2002.
DETOUR MEDIA GROUP, INC.
(Registrant)
By:s/ Edward T. Stein
--------------------------------
Edward T. Stein, President
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
indicated on April 11, 2002.
s/ Edward T. Stein
------------------------------------
Edward T. Stein, Director
s/ Kevin Nesis
------------------------------------
Kevin Nesis, Director
47