U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB\A1
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1998
Commission File Number: 0-25388
DETOUR MEDIA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
DETOUR MAGAZINE, INC.
(Former Name)
Colorado
(State or other jurisdiction of incorporation or organization)
84-1156459
(IRS Employer Identification No.)
7060 Hollywood Blvd., Suite 1150
Los Angeles, California
(Address of principal executive offices)
90038
(Zip Code)
(323) 469-9444
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
__X__ No ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of October 10, 2001, was 36,572,364 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
Our unaudited financial statements for the three month period ended March
31, 1998, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
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 on our behalf. We disclaim any obligation to update
forward looking statements.
OVERVIEW
Detour Media Group, Inc., f/k/a Detour Magazine, Inc., f/k/a Ichi-Bon
Investment Corporation ("we," "us," "our" or our "company"), was incorporated
under the laws of the State of Colorado on May 18, 1990. On June 6, 1997,
pursuant to the terms of an Agreement and Plan of Reorganization, we acquired
all of the issued and outstanding securities of Detour, Inc., a California
corporation, in exchange for 4,500,000 shares of our "restricted" common stock.
As a result, we were the surviving entity.
We are engaged in the publishing of a monthly magazine entitled Detour,
which includes advertisements and articles relating to fashion, contemporary
music and entertainment and social issues. Management describes the magazine as
an "urban, avant-garde" publication. We derive approximately 80% of our revenues
from advertising, with the balance from circulation. We maintain offices in both
Los Angeles and New York City.
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Our magazine is published monthly, with the exception of the issues for
January/February and July/August, 1997, for which one issue was published. The
magazine has been, in general, approximately 192 pages in length, comprised of
about 60 to 70 pages of advertising, with the balance in editorial pages. This
reflects the limited, but growing, advertising base which typifies new
publications.
This amendment is being filed in order to provide investors with revised
financial statements for the six month period ended March 31, 1998 in accordance
with a consent order entered between us and the Securities and Exchange
Commission. See "Part II, Item 1, Legal Proceedings" below. For a current
understanding of our operations and business plan, readers are advised to review
our annual report on Form 10-KSB/A1 for the fiscal year ended December 31, 2000,
as well as our Form 10-QSB/A1 for the six month period ended June 30, 2001.
The following information is intended to highlight developments in our
operations, to present our results of operations, to identify key trends
affecting our businesses and to identify other factors affecting our results of
operations for the three month periods ended March 31, 1998 and 1997.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three Month Periods Ended March
31, 1998 and 1997
During the three month period ended March 31, 1998, our revenues increased
significantly, as it generated revenues of $1,540,594, compared to revenues of
$1,080,976 for the similar period in 1997, an increase of $459,978 (42.5%). In
the three month period ended March 31, 1998, costs of sales also rose to
$825,570, compared to $468,198 for the similar period in 1997, an increase of
$357,372. This was due primarily to the increase in print orders of our magazine
(number of copies printed), caused by management's efforts to expand
circulation, which resulted in increased printing and paper costs as a factor of
such expansion.
Selling, general and administrative expenses were $1,050,135 for the three
months ended March 31, 1998, compared to $635,877 for the similar period in
1997, an increase of $414,258 (65.1%). This increase was attributable to
increased factoring fees of approximately $30,000, increased salaries
attributable to our new management team and our incurring significant
professional fees as a result of our becoming a reporting company.
Interest expense rose as a result of our need to borrow additional working
capital from affiliates, from $36,518 in the three month period ended March 31,
1997, to $45,387 for the three month period ended March 31, 1998, an increase of
$8,869 (24.2%).
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See "Liquidity and Capital Resources" below. As a result, we generated a net
loss of $(380,498) for the three month period ended March 31, 1998, compared to
a net loss of $(59,617) for the three month period ended March 31, 1997. It is
anticipated that we will continue to incur operating losses in the foreseeable
future, until such time as we are able to put new magazine acquisitions in
place. There can be no assurances that we will successfully consummate new
acquisitions, or, if so accomplished, that the new magazines will allow us to
generate profits from operations in the future.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, we had $38,061 in cash and cash equivalents. We also
increased our accounts receivable to $318,382 from $281,889 during the three
months beginning January 1, 1998, an increase of $36,493 (12.9%), which
management attributes to subscription receivables.
We had outstanding notes payable to non-affiliates in the aggregate amount
of $502,000, including the following:
(i) A note in the principal amount of $190,000, which is due upon demand
and bears interest at the rate of 18%, payable quarterly. This note is
personally guaranteed by Ed Stein, one of our officers, a director and our
principal shareholder.
(ii) A note in the principal amount of $122,000, which bears interest at
the rate of 8% per annum. All principal and interest on this note was due
January 22, 1998, but the due date was extended by mutual agreement until June
30, 1998. This note is also personally guaranteed by Mr. Stein.
(iii) Notes with an outstanding balance of $60,000, which accrues interest
at the prime rate, plus 2%. In May, 1998, we repaid $45,000 of this obligation.
Principal and interest on this note is due in one remaining installment of
$15,000, which was due on March 15, 1998. This payment was not made when due;
however, we had a $30,000 credit with the note holder and management and the
note holder are presently involved in negotiations relating to the balances due
and applicable payment dates thereon.
(iv) Two new notes which arose as part of the acquisition consummated by us
during the three month period ended March 31, 1998 of Milton Magazine, including
one note with an outstanding principal balance of $105,000, which accrues
interest at prime rate plus 2% and which is to be repaid over a two year period,
with principal and interest payments escalating over the life of the note,
beginning with monthly payments of $3,164 and escalating to $6,125 and a second
note in the principal amount of $25,000, which accrues no interest and is
payable in monthly payments of $5,000, which commenced in May 1998.
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The remaining outstanding note payable to an unaffiliated party in the
principal amount of $932,313 arose out of a loan originally due to an affiliated
party. Relevant thereto, in 1995, Mr. Stein loaned us $932,313 which bears
interest at the rate of 12% per annum and is due upon demand. The obligation is
secured by all of our assets. The note holder agreed to subordinate this
security position relevant to our accounts receivable factoring arrangement.
This stockholder subsequently assigned this Note to JCM Capital Corp. ("JCM").
It is our intention to repay a portion of this obligation with some of the
proceeds derived from our initial private equity offering described hereinbelow,
which closed in May 1998. The balance is proposed to be repaid from subsequent
fund raising activities which we anticipate undertaking in the near future.
However, there can be no assurances that we will raise a sufficient amount of
funds to enable us to repay this obligation, as well as to implement our
business plan described in prior reports filed with the Securities and Exchange
Commission.
Mr. Stein has also loaned us the principal sum of $609,976, which loan
bears interest at the rate of 12% per annum, calculated on the average monthly
outstanding balance and which is due upon demand. Applicable thereto, Mr. Stein
has provided us with a letter advising that he will abstain from demanding any
repayment on this obligation at least through December 31, 1998.
We factor our monthly domestic accounts receivable with Riviera Financial,
Inc., Los Angeles, California ("Riviera"). The majority of factoring provided by
Riviera is on a non-recourse basis. On average, we pay a fee to Riviera of
approximately 4.5% per month. Historically, we have factored approximately $3
million per annum in accounts receivable with Riviera. Riviera's maximum fee for
factoring our receivables is 9% per month, with a hold back of 11% on each
invoice until receipt of funds. Therefore, Riviera is only factoring 89% of our
total eligible domestic advertising receivables. In addition, Riviera also acts
in the capacity of credit manager for the Magazine by performing credit checks,
mailing invoices, making collection calls and posting receivables. It is
anticipated that, provided we successfully raise additional capital in the near
future, of which there can be no assurance, the factoring relationship with
Riviera will be terminated, as management believes that it will no longer be
necessary due to sufficient cash then available to us.
Management has undertaken a plan of expansion and in order to effectuate
the same, has recognized our need for additional operating capital. In response
thereto, in November 1997, we commenced a private offering of our common stock
wherein we offered up to 4,700,000 shares of our common stock (post forward
split) at a price of $.75 per share, for aggregate gross proceeds of up to
$3,525,000. As of the date of this report, this offering has closed with our
receiving gross proceeds of $913,000 from the sale of 1,217,333 common shares.
In management's view, the funds
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generated from this offering have not been sufficient to meet our needs for
additional working capital in order to allow us to fully implement our expanded
business plan. Numerous scenarios are presently being explored by management,
including discussions with investment banking firms who have expressed an
interest in working with us to raise additional equity capital. However, as of
the date of this report, no definitive arrangements have been made between us
and any third party wherein such third party has agreed to raise additional
capital for us and, while management is optimistic that it will be successful in
this regard, there are no assurances that any additional funds will be raised.
Our failure to raise additional funds, either debt or equity, will have a
significant negative impact on our ability to generate profitable operations.
TRENDS
Management believes that we will continue to operate our business at a loss
for the foreseeable future, but is optimistic that we will begin generating
profits from operations beginning in the year 2000, and possibly earlier if
sufficient working capital discussed in "Liquidity and Capital Resources,"
above, is raised. This will occur as a result of increased circulation of Detour
Magazine and new acquisitions of existing unaffiliated magazines, of which there
can be no assurance. The new magazine acquisitions will allow the current
management team to spread its cost over the new titles. The current back office
structure can add two to three additional magazines without adding any
additional personnel. However, there can be no assurances that we will become
profitable within the time parameters described herein, or at all.
INFLATION
Although our operations are influenced by general economic conditions, we
do not believe that inflation had a material affect on the results of operations
during the three month period ended March 31, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 us and our Chairman that it was recommending to the SEC that an
enforcement action be filed against both us and our Chairman relating to
accuracy of certain of our 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
6
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
we had 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.
In 2000, we advised the staff that we wished to cooperate fully and reach
an agreement on an appropriate remedy to resolve this matter. We had determined
to restate our financial statements to address the concerns raised by the staff.
On November 22, 2000, the matter was resolved by the Commission issuing 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
us to amend our filings with the Commission to properly reflect our 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 our
assets. This amendment is being filed as a result of the aforesaid order.
The Commission further ordered us 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. We have advised the Commission of our intention to amend
our filing with the Commission. No civil penalties were assessed against us
relevant to the settlement of this matter.
We believed that the issue regarding improper presentation of quarterly
financial information relates to our 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, we would be
required to determine the actual costs and expenses for the affected quarters.
The second issue related to whether we recorded the proper amount of
compensation expense in connection with the issuance of the options to the
consultants. We recorded an expense of $21,991, based on the exercise price of
the options of $.005 per share. Based upon our restated financial statements, we
actually incurred consulting fees of $3,278,000 arising from revised valuations
of stock options issued by us in 1997. This new valuation takes into account the
market value of our common stock following issuance of the options ($1.50 per
share) as opposed to the option exercise price per share ($0.01) and the term of
the options granted (2 years). The SEC staff believes that the expense should be
the fair market value of the options at the time the options were issued.
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We have been named as a defendant in several other lawsuits in the normal
course of our business. With the exception of one prospective matter, 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 our
financial statements.
ITEM 2. CHANGES IN SECURITIES
In November 1997, we commenced a private offering of our common stock
wherein we offered up to 4,700,000 shares of our common stock (post forward
split) at a price of $.75 per share, for aggregate gross proceeds of up to
$3,525,000. As of the date of this report, this offering has closed with our
receiving gross proceeds of $913,000 from the sale of 1,217,333 common shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
CONDENSED BALANCE SHEET
(unaudited) (audited)
For the For the
Three Months Fiscal Year
Ended Ended
March 31 December 31
1998 1997
------------ ------------
ASSETS:
CURRENT ASSETS
Cash $ 38,061 $ 11,089
Accounts receivable 318,382 281,889
Prepaid expenses and other current assets 133,701 61,079
------------ ------------
Total current assets 490,144 354,057
------------ ------------
PROPERTY AND EQUIPMENT, Net 148,799 132,591
------------ ------------
OTHER ASSETS
Security deposits 15,700 13,750
------------ ------------
Total other assets 15,700 13,750
------------ ------------
TOTAL ASSETS $ 654,643 $ 500,398
============ ============
LIABILITIES:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,105,349 $ 870,714
Deferred revenue 192,057 192,057
Notes payable 501,744 372,000
Accrued interest payable 0 19,216
Due to stockholder 979,442 932,313
Note payable stockholders 932,313 609,976
Interest payable, stockholders 22,738 224,615
------------ ------------
Total Current Liabilities 3,733,643 3,220,891
------------ ------------
EQUITY:
Common stock 14,769 10,369
Additional paid-in capital 4,330,659 4,313,068
Accumulated deficit (7,424,428) (7,043,930)
------------ ------------
TOTAL EQUITY (3,079,000) (2,720,493)
------------ ------------
TOTAL LIABILITIES
AND EQUITY $ 654,643 $ 500,398
============ ================
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Three Months
Ended March 31,
----------------------------
1998 1997
------------ ------------
SALES $ 1,540,594 $ 1,080,976
COST OF SALES 825,570 468,198
------------ ------------
GROSS PROFIT 715,024 612,778
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,004,479 619,858
------------ ------------
OPERATING LOSS (289,455) (7,080)
Factoring fees (45,656) (16,019)
Interest expense (45,387) (36,518)
------------ ------------
NET INCOME (LOSS) $ (380,498) $ (59,617)
============ ============
Loss per share of
common stock $ (0.03) $ (0.01)
============ ============
Weighted averages
shares outstanding 14,769,336 9,330,760
============ ============
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENT OF CASH FLOW
For the Three Months
Ended March 31,
1998
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (380,498)
-------------------
Depreciation and amortization 9,700
Increase in accounts receivable (36,493)
Increase in prepaid expenses and other current assets (74,572)
Increase in accounts payable and accrued expenses 234,635
Decrease in accrued interest payable (19,216)
Increase in interest payable, stockholder (201,877)
-------------------
TOTAL ADJUSTMENTS (87,823)
-------------------
NET CASH USED IN
OPERATING ACTIVITIES (468,321)
-------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (25,908)
-------------------
NET CASH USED IN INVESTING ACTIVITIES (25,908)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 129,744
Net proceeds from stockholder 369,466
Proceeds from issuance of stock 21,991
-------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 521,201
-------------------
NET DECREASE IN CASH 26,972
CASH - beginning 11,089
-------------------
CASH - ending $ 38,061
===================
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DETOUR MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Month Period Ended March 31, 1998
1. Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-QSB and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Operating results
for any quarter are not necessarily indicative of the results for any other
quarter or for the full year.
2. Basis of Presentation
Business combination
On June 6, 1997, pursuant to the terms of an Agreement and Plan of
Reorganization, Ichi-Bon Investment Corporation ("IBI") acquired all of the
outstanding common stock of Detour, Inc. ("Old Detour") in exchange for
4,500,000 unregistered shares of IBI's common stock. As a result of the
transaction, the former shareholders of Old Detour received shares
representing an aggregate of 90% of IBI's outstanding common stock,
resulting in a change in control of IBI. As a result of the merger, IBI was
the surviving entity and Old Detour ceased to exist. Simultaneously
therewith, IBI amended its articles of incorporation to reflect a change in
IBI's name to "Detour Magazine, Inc." References to the "Company" or
"Detour" refer to Detour Magazine, Inc. together with the predecessor
company, Old Detour.
The acquisition of Old Detour has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition, Old
Detour is considered the acquiring entity. As a result, historical
financial information for periods prior to the date of the transaction are
those of Old Detour. Under purchase method accounting, balances and results
of operations of Old Detour will be included in the accompanying financial
statements from the date of the transaction, June 6, 1997. The Company
recorded the assets and liabilities (excluding intangibles) at their
historical cost basis which was deemed to be approximate fair market value.
The reverse acquisition is treated as a non-cash transaction except to the
extent of cash acquired, since all consideration given was in the form of
stock.
Earnings per share
Earnings per share have been computed based on the weighted average number
of common shares outstanding. For the nine month period prior to the
reverse acquisition discussed in the business combination section of Note 2
above, the number of common shares outstanding used in computing earnings
per share is the number of common shares outstanding as a result of such
reverse acquisition (5,000,000 shares).
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3. History and Business Activity
Detour was originally incorporated as Ichi-Bon Investment Corporation on
May 18, 1990, under the laws of the State of Colorado. The name was changed
to Detour Magazine, Inc. concurrent with the business combination described
in Note 2. Prior to such business combination, Detour had not engaged in
any operations or generated any revenue.
Old Detour was a publisher of a nationally distributed magazine entitled
"Detour" which is published monthly and contains articles and pictorial
displays on fashion, music and social commentary.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and
Exchange Act of 1934, the Registrant has duly caused this amendment to its
report to be signed on its behalf by the undersigned, thereunto duly authorized.
DETOUR MEDIA GROUP, INC.
(Registrant)
Dated: October 15, 2001
By: s/Edward T. Stein
---------------------------------
Edward T. Stein, President
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