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: September 30, 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 90028
(Address of principal executive office)
6855 Santa Monica Boulevard, Suite 400
Los Angeles, California
(Former address of principal executive offices)
90038
(Zip Code)
(213) 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 nine month period ended
September 30, 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 the 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 nine month period ended September 30, 1998 in
accordance with a consent order entered between us and the Securities and
Exchange Commission. 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 nine month periods ended September 30, 1998 and 1997.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the nine month period ended
September 30, 1998 and 1997.
During the nine month period ended September 30, 1998, our revenues were
$3,545,332, compared to revenues of $3,027,292 for the similar period in 1997,
an increase of $518,040 (17.1%) from the similar period in 1997. This increase
was attributable to increased subscriptions and newsstand sales. During this
period, costs of sales were $2,625,335, compared to $1,482,370 for the similar
period in 1997, an increase of $1,142,965 (77.7%). 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, paper and distribution costs as a factor of such expansion. Management
anticipated these costs in our budget, as we are engaged in a program to
increase visibility of our Magazine, in order to increase revenues in the
future. It is management's belief that the increased costs associated with
various promotions will result in greater visibility and market share in the
future, provided that we are able to obtain additional financing in the future.
We expect to incur significant losses during the promotional period. However,
there can be no assurances that we will generate greater revenues in the future
as a result of these additional marketing efforts. Further, management has
decided that its attempt to increase circulation of the Magazine by printing
additional copies will not continue in the future. Rather, as a result of
management's attempt to stem losses, the Magazine's print orders
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and book size are expected to decrease in the immediate future, by reducing the
amount of editorial content while attempting to maintain the increased revenues
derived by us from our current advertising.
Selling, general and administrative expenses were $2,844,506 for the nine
months ended September 30, 1998, compared to $5,141,499 for the similar period
in 1997, a decrease of $2,296,993. The primary reason behind this decrease was
that we 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). See "Part II, Item 1, Legal Proceedings" below.
In addition, this increase was also attributable to the retention of a new
management staff on August 1, 1997, the execution of a consulting agreement and
fees payable thereon, also which took place on August 1, 1997 and increase
commissions payable due to the increase advertising revenues. Mr. Evans resigned
his positions with us in November 1998. Our sales advertising staff is paid on a
commission basis. As a result, we generated a net loss of $(2,063,078) for the
nine month period ended September 30, 1998 ($.13 per share), compared to a net
loss of $(3,733,095) for the nine month period ended September 30, 1997 ($.75
per share).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, we had $21,381 in cash. We increased our accounts
receivable to $505,444 from $371,773 for the similar period in 1997, an increase
of $153,671 (43.7%), which management attributes to increased advertising.
In August 1998, we obtained a new loan in the principal amount of $550,000
from IBF Special Purpose Corporation II, Washington, D.C.. to be used for
general working capital. This loan bears interest at the rate of 18% per annum
and was due November 20, 1998. As of the date of this report, this loan is in
default but has been extended for an additional 30 day period. The loan provides
for an exit fee equal to 3% of the loan ($16,500). The 30 day extension period
provided by the lenders required a one time extension fee of $5,500. Management
is currently reviewing its options regarding this obligation, including seeking
out other long term lenders. However, no assurances can be provided that such
other arrangements will be made to insure that we do not enter into a default of
this obligation.
We had two other outstanding notes payable to non-affiliates, including one
note with an outstanding balance of $100,500, which accrues interest at the rate
of 12% per annum and is due on demand. The remaining outstanding note
aggregating $7,000 is payable to an
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unaffiliated entity. Relevant thereto, in 1995, one of our stockholders 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. This
stockholder subsequently assigned this Note to JCM Capital Corp. We also owes Ed
Stein, one of our officers and a director, the principal amount of $1,592,442,
which accrues interest at the rate of 12% per annum. Mr. Stein has entered into
an agreement with us not to require any repayment of this obligation at least
until December 31, 1998, or more likely, until such time as we had sufficient
capital resources available in which to repay this obligation without
jeopardizing our ability to continue our business operations.
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 factor approximately $2.5 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
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 sell a substantial portion of our
common stock in the private offering described herein, 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.
However, there are no assurances that we will sell a sufficient number of shares
of our common stock to allow us to terminate.
TRENDS
Management believes that we will continue to operate our business at a loss
for the next year or two, but is cautiously optimistic that we will begin
generating profits from operations beginning in the 2000 fiscal year. This will
occur as a result of cost cutting measures which have been adopted by management
and anticipation of increased circulation of and advertising in our magazine and
corresponding revenues therefrom. Management has reduced staff and moved to
smaller offices. In addition, all operating expenses are being reduced. Relevant
thereto, a new printing contract with R.R. Donnelly & Sons, Inc. was signed in
November 1998, further reducing costs of sales. However, there can be no
assurances that we will become profitable within the time parameters described
herein, or at all.
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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 nine month period ended September 30, 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 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.
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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 have
determined 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. The revised
financial statements included in this amended Report reflect the expense
recorded at the fair market value of the options at the time the options were
issued.
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 - NONE
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
Nine Months Fiscal Year
Ended Ended
September 30 December 31
1998 1997
----------- ------------
ASSETS:
CURRENT ASSETS
Cash $ 21,381 $ 11,089
Accounts receivable 505,444 281,889
Prepaid expenses and other current assets 415,432 61,079
----------- ------------
Total current assets 942,257 354,057
----------- ------------
PROPERTY AND EQUIPMENT, Net 131,569 132,591
----------- ------------
OTHER ASSETS
Security deposits 15,700 13,750
Total other assets 15,700 13,750
----------- ------------
TOTAL ASSETS $ 1,089,526 $ 500,398
=========== ============
LIABILITIES:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,357,507 $ 870,714
Deferred revenue 551,394 192,057
Notes payable 832,754 372,000
Accrued interest payable 4,825 19,216
Due to stockholder 1,592,442 932,313
Note payable stockholders 932,313 609,976
Interest payable, stockholders 134,871 224,615
----------- ------------
Total Current Liabilities 5,406,106 3,220,891
----------- ------------
EQUITY:
Common stock 15,362 10,369
Additional paid-in capital 4,775,066 4,313,068
Accumulated deficit (9,107,008) (7,043,930)
----------- ------------
TOTAL EQUITY (4,316,580) (2,720,493)
----------- ------------
TOTAL LIABILITIES
AND EQUITY $ 1,089,526 $ 500,398
=========== ============
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
------------------------ -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
SALES $ 3,545,332 $ 3,027,292 $ 1,175,446 $ 1,265,894
COST OF SALES 2,625,335 1,482,370 1,019,887 549,814
----------- ----------- ----------- -----------
GROSS PROFIT 919,997 1,544,922 155,559 716,080
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,728,182 1,856,588 844,217 850,807
----------- ----------- ----------- -----------
OPERATING LOSS (1,808,185) (311,666) (688,658) (134,727)
Factoring fees (116,324) (6,911) (61,090) 5,767
Consulting fees 0 (3,278,000) 0 0
Interest expense (138,569) (136,518) (8,250) (50,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(2,063,078) $(3,733,095) $ (757,998) $ (178,960)
=========== =========== =========== ===========
Loss per share of
common stock $ (0.13) $ (0.75) $ (0.05) $ (0.04)
=========== =========== =========== ===========
Weighted averages
shares outstanding 15,362,669 5,000,000 15,362,669 5,000,000
=========== =========== =========== ===========
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENT OF CASH FLOW
For the Nine Months
Ended September 30,
-------------------------
1998 1997
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(2,063,078) $(3,733,095)
----------- -----------
Depreciation and amortization 26,730 28,684
Value of warrants issued as consulting fees 0 3,278,000
Increase in accounts receivable (223,555) (177,694)
Decrease (increase) in prepaid expenses
and other current assets (356,303) 3,729
Increase in accounts payable and accrued expenses 486,793 658,458
Increase (decrease) in deferred revenue 359,337 0
Decrease in accrued interest payable (14,391) 0
Increase (decrease) in interest payable, stockholder (89,744) 110,000
----------- -----------
TOTAL ADJUSTMENTS 188,867 3,901,177
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,874,211) 168,082
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (25,708) (14,300)
Net proceeds from officer 0 52,241
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (25,708) 37,941
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdraft 0 (23,062)
Net proceeds from (disbursements on) notes payable 460,754 (13,300)
Net proceeds from stockholder 982,466 69,288
Proceeds from issuance of stock 466,991 0
Disbursements upon merger and recapitalization 0 (81,784)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,910,211 (48,858)
----------- -----------
NET DECREASE IN CASH 10,292 157,165
CASH - beginning 11,089 0
----------- -----------
CASH - ending $ 21,381 $ 157,165
=========== ===========
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DETOUR MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Period Ended September 30, 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, 1998, pursuant to the terms of an Agreement and Plan of
Reorganization, Ichi-Bon Investment Corporation ("IBI") acquired all of the
outstanding common stock of Detour, Inc. ("Old Detour") in exchange for
4,500,000 unregistered shares of IBI's common stock. As a result of the
transaction, the former shareholders of Old Detour received shares
representing an aggregate of 90% of IBI's outstanding common stock,
resulting in a change in control of IBI. As a result of the merger, IBI was
the surviving entity and Old Detour ceased to exist. Simultaneously
therewith, IBI amended its articles of incorporation to reflect a change in
IBI's name to "Detour Magazine, Inc." References to the "Company" or
"Detour" refer to Detour Magazine, Inc. together with the predecessor
company, Old Detour.
The acquisition of Old Detour has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition, Old
Detour is considered the acquiring entity. As a result, historical
financial information for periods prior to the date of the transaction are
those of Old Detour. Under purchase method accounting, balances and results
of operations of Old Detour will be included in the accompanying financial
statements from the date of the transaction, June 6, 1998. The Company
recorded the assets and liabilities (excluding intangibles) at their
historical cost basis which was deemed to be approximate fair market value.
The reverse acquisition is treated as a non-cash transaction except to the
extent of cash acquired, since all consideration given was in the form of
stock.
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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).
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 17, 2001
By:s/Edward T. Stein
-----------------------------
Edward T. Stein, President
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