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: June 30, 1997
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 six month period ended June 30,
1997, 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 June 30, 1997 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 six month periods ended June 30, 1997 and 1996.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the six month period ended June 30,
1997 and 1996.
During the six month period ended June 30, 1997, our revenues were
$1,761,398, compared to revenues of $1,368,104 for the similar period in 1996,
an increase of $393,294 (22.3%). Management believes that this increase was
attributable to additional advertising prompted by the efforts of management to
increase the visibility of our magazine. Further, the economic climate in the
United States was relatively favorable and our advertising clients tend to spend
more on advertising during good economic times. During this period, costs of
sales were $932,556, compared to $988,034 for the similar period in 1996, a
decrease of $55,478 (5.6%). This was due primarily to a decrease in paper costs.
Selling, general and administrative expenses were $4,296,459 for the six
months ended June 30, 1997, compared to $732,702 for the similar period in 1996,
an increase of $3,563,757 (486.4%). This increase was attributable to numerous
factors, including increases in factoring costs, professional fees, promotional
costs and commissions payable due to the increased advertising revenues. Our
sales advertising staff is paid on a commission basis. In addition, 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
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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. We also incurred
factoring fees of $12,678 and interest expense of $86,518.
As a result, we incurred a net loss of $(3,554,135) for the six month
period ended June 30, 1997, ($.71 per share) compared to a net loss of
$(412,915) ($.08 per share) for the six month period ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, we had $97,089 in cash. We increased our accounts
receivable to $292,542 from $220,988 for the similar period in 1996, an increase
of $71,554 (24.5%), which increase management attributes to increased
advertising.
We had two outstanding notes payable, each payable to non-affiliates,
including one note with an outstanding balance of $176,700 which accrues
interest at the rate of 12% per annum and is due on demand. The remaining
outstanding note aggregating $982,448 is payable to a shareholder. Relevant
thereto, in 1995, one of our stockholders loaned us the principal amount of
$932,313, which bears interest at the rate of 12% per annum and is due upon
demand. This obligation is secured by all of our assets. The note holder agreed
to subordinate this security position relevant to our accounts receivable. It is
our intention to repay this obligation in full with the proceeds derived from
the private equity offering described below.
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 sell a substantial portion of the
common stock being offered in a 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.
Management intends to undertake a plan of expansion and in order to
effectuate the same, has recognized our need for
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additional operating capital. In response thereto, in November 1997, we
commenced a private offering of our common stock wherein we are offering up to
2,350,000 shares of common stock at a price of $1.50 per share, for aggregate
gross proceeds of $3,500,000. There can be no assurances that all of the shares
being offered will be sold, or that we will generate sufficient interest in this
offering to solve our cash shortage. Previously, we issued options to an
overseas entity, allowing such entity to acquire up to 2,000,000 shares of our
common stock at an exercise price of $1.50 per share. However, the options
expired prior to exercise of the same as a result of a mutual decision between
the subscriber and us, as we elected to proceed with the private offering
instead.
As of June 30, 1997, our securities were not liquid, as there was no market
for our securities; however, subsequently, we filed an application to list our
common stock on the OTC Bulletin Board, which application was approved in
December 1997.
TRENDS
Management believes that we will continue to operate our business at a loss
for the next twelve months, but is optimistic that we will begin generating
profits from operations beginning in the 1998 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. 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 our results of operations
during the six month period ended June 30, 1997.
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
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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 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. 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.
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ITEM 2. CHANGES IN SECURITIES.
In June 1997, we issued an aggregate of 4,500,000 shares of our common
stock as part of the merger with Detour, Inc., a California corporation. We
relied upon the exemption from registration provided by Regulation D and/or
Section 4(2), promulgated under the Securities Act of 1933, as amended, to issue
the relevant shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Effective June 6, 1997, all of our shareholders executed a unanimous
consent authorizing the merger with Detour, Inc., a California corporation. No
proxy was disseminated to our shareholders and no solicitation by any of our
management was utilized to obtain these consents.
ITEM 5. OTHER INFORMATION.
Effective June 6, 1997, pursuant to a definitive agreement, we consummated
a merger with Detour, Inc. ("Detour"), a California corporation, and acquired
all of the issued and outstanding securities of Detour, issuing an aggregate of
4,500,000 shares of our "restricted" common stock to the former shareholders of
Detour in exchange for all of the issued and outstanding stock of Detour.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - none
(b) Reports on Form 8-K. We filed a report on Form 8-K on May 2, 1997,
which is incorporated herein by reference as though fully set forth, reporting
the execution of a letter of intent on April 30, 1997, with Detour, Inc.
("Detour"), a privately held California corporation, whereby the Registrant
agreed in principle to acquire all of the issued and outstanding shares of
Detour in exchange for issuance by the Registrant of 4,500,000 previously
unissued "restricted" common stock of the Registrant. A copy of the letter of
intent was annexed to the Form 8-K as an Exhibit. This transaction closed on
June 6, 1997.
On or about June 20, 1997, we filed a report on Form 8- K, which is
incorporated herein by reference, which report advised, among other things, of
the consummation of the transaction with Detour and that, pursuant to the terms
of an Agreement and Plan of Reorganization dated June 6, 1997, we acquired all
of the issued and outstanding securities of Detour in consideration for the
issuance of 4,500,000 shares of our "restricted" common stock to the former
shareholders of Detour in exchange for all of the issued and outstanding stock
of Detour. Detour did not survive the
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the transaction. We also changed our name to "Detour Magazine, Inc." A copy of
the Agreement and Plan of Reorganization was annexed to the Form 8-K as an
Exhibit.
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
CONDENSED BALANCE SHEET
(unaudited) (unaudited) (unaudited)
For the For the For the
Six Months Six Months Fiscal Year
Ended Ended Ended
June 30 June 30 December 31
1997 1996 1996
---------- ---------- -----------
ASSETS:
CURRENT ASSETS
Cash $ 97,089 $ 0 $ 0
Accounts receivable 292,542 220,988 174,079
Loan receivable-officers 0 26,121 0
Prepaid expenses and other current assets 21,395 56,968 35,548
---------- ---------- -----------
Total current assets 411,026 304,077 209,627
---------- ---------- -----------
PROPERTY AND EQUIPMENT, Net 139,296 153,785 148,885
---------- ---------- -----------
OTHER ASSETS
Loan to Officer 0 0 52,241
Security deposits 20,750 19,335 20,750
---------- ---------- -----------
Total other assets 20,750 19,335 72,991
---------- ---------- -----------
TOTAL ASSETS $ 571,072 $ 477,197 $ 431,503
========== ========== ===========
LIABILITIES:
CURRENT LIABILITIES
Bank overdraft $ 0 $ 22,873 $ 23,062
Accounts payable and accrued expenses 939,723 457,374 500,751
Deferred revenue 25,664 20,692 25,664
Notes payable 176,700 300,000 190,000
Accrued interest payable 0 0 0
Due to stockholder 0 309,399 0
Note payable stockholders 982,448 932,313 960,903
Interest payable, stockholders 152,580 69,963 79,247
---------- ---------- -----------
Total Current Liabilities 2,277,115 2,112,614 1,779,627
---------- ---------- -----------
EQUITY:
Common stock 5,000 8,445 9,366
Additional paid-in capital 4,055,743 155,875 855,161
Accumulated deficit (5,766,786 (1,799,737) (2,212,651)
---------- ---------- -----------
TOTAL EQUITY (1,706,043) (1,635,417) (1,348,124)
---------- ---------- -----------
TOTAL LIABILITIES AND EQUITY $ 571,072 $ 477,197 $ 431,503
========== ========== ===========
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Six For the Six For the Three For the Three
Months Ended Months Ended Months Ended Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
SALES $ 1,761,398 $ 1,368,104 $ 680,422 $ 684,052
COST OF SALES 932,556 988,034 464,358 494,017
------------- ------------- ------------- -------------
GROSS PROFIT 828,842 380,070 216,064 190,035
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,005,781 732,702 385,923 366,351
------------- ------------- ------------- -------------
OPERATING LOSS (176,939) (352,632) (169,859) (176,316)
Factoring fees (12,678) 0 3,341 0
Consulting fees (3,278,000) 0 (3,278,000) 0
Interest expense (86,518) (60,283) (50,000) (30,141)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (3,554,135) $ (412,915) $ (3,494,518) $ (206,457)
============= ============= ============= =============
Loss per share of
common stock $ (0.71) $ (0.08) $ (0.70)
============= ============= =============
Weighted average
shares outstanding 5,000,000 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 Six For the Six
Months Ended Months Ended
June 30, 1997 June 30, 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (3,554,135) $ (412,914)
------------- -------------
Depreciation and amortization 19,123 16,547
Bad debt expense 0 2,500
Value of warrants issued as consulting fees 3,278,000 -
Increase in accounts receivable (118,463) 44,409
Decrease in prepaid expenses and other current assets 14,153 20,005
Increase in accounts payable and accrued expenses 438,972 43,378
Increase in unexpired subscriptions 0 4,972
Increase in interest payable, stockholder 73,333 9,284
------------- -------------
TOTAL ADJUSTMENTS 3,705,118 141,094
------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 150,983 (271,820)
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (9,534) (11,647)
Net proceeds from officer 52,241 (26,121)
------------- -------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 42,707 (37,768)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in bank overdraft (23,062) -
Net disbursements on notes payable (13,300) -
Net proceeds from stockholder 21,545 -
Disbursements upon merger and recapitalization (81,784) -
Proceeds from additional paid in capital 0 309,399
------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (96,601) 309,399
------------- -------------
NET DECREASE IN CASH 97,089 (189)
CASH - beginning 0 (22,684)
------------- -------------
CASH - ending $ 97,089 $ (22,873)
============= =============
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DETOUR MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Month Period Ended June 30, 1997
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.
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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 six 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.
4. Subsequent Events
In December 1997 the Company undertook a forward split of its issued and
outstanding common stock, wherein two shares of common stock were issued in
exchange for each share then issued and outstanding. All references in this
report to the Company's issued and outstanding common stock are presented
on a pre-forward split basis, in order to allow the reader to avail himself
of a better understanding of the Company and its capitalization for the
period represented by this report.
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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 10, 2001
By:s/ Edward T. Stein
-------------------------------
Edward T. Stein, President
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