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, 1997
Commission File Number: 0-25388
DETOUR MEDIA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Colorado
(State or other jurisdiction of incorporation or organization)
84-1156459
(IRS Employer Identification No.)
7060 Hollywood Blvd., Suite 1150
Los Angeles, California
(Address of principal executive offices)
90028
(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 nine month period ended
September 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
We are engaged in 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.
We were 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 of our
"restricted" common shares. As a result, we were the surviving entity. As part
of the terms of the aforesaid transaction, we amended our Articles of
Incorporation, changing our name to "Detour Magazine, Inc."
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Our magazine is been published monthly, with the exception of the issues
for January/February and July/August, 1997, for which one issue is 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, 1997 in
accordance with a consent order entered between us and the Securities and
Exchange Commission. See "Part II, Item 1" below, for an explanation of this
consent order. For a better understanding of our current 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 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 business and to identify other factors affecting our results of
operations for the nine month period ended September 30, 1997.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the nine month period ended
September 30, 1997 and 1996.
During the nine month period ended September 30, 1997, our revenues were
$3,027,292, compared to revenues of $2,052,155 for the similar period in 1996,
an increase of $975,137 (47.5%) from the similar period in 1996. Management
believes that this increase was attributable to the increased size of our
magazine, which allowed for additional advertising. 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 remained consistent with the similar period in 1996
of $1,482,050 for the similar period in 1996, an increase of $320 (0%). During
this period, however, there was a decrease in our paper costs, but an increase
in the number of pages printed, which offset the reduced paper costs.
Selling, general and administrative expenses were $5,141,499 for the nine
months ended September 30, 1997, compared to $1,099,052 for the similar period
in 1996, an increase of $4,042,447 (367.8%). This significant increase was
attributable to the fact 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
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of the options granted (2 years). See "Part II, Item 1, Legal Proceedings"
below. This increase was also attributable to numerous factors, including the
retention of a new President, John Evans, who assumed his duties 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. Our sales advertising staff is paid on a
commission basis. Further, we incurred approximately $50,000 in professional
fees over and above fees normally incurred during previous quarterly periods
during the nine month period ended September 30, 1997, as a result of settlement
of an outstanding litigation.
As a result, we generated a net loss of $(3,733,095) for the nine month
period ended September 30, 1997 ($0.75 per share), compared to a net loss of
$(619,371) for the nine month period ended September 30, 1996 ($0.12 per share).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, we had $157,165 in cash. We also increased our
accounts receivable to $351,773 from $197,534 for the similar period in 1996, an
increase of $154,239 (43.8%), which management attributes to increased
advertising.
At September 30, 1997, 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 $1,219,438 is payable to an 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. It is our
intention to repay this obligation in full with the proceeds derived from the
private equity offering described herein.
During the three month period ending September 30, 1997, an outstanding
loan receivable from one of our officers and directors was repaid in full.
We presently 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
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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 this relationship to be
terminated.
Management intends to undertake 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 intend to undertake a private offering
of our common stock wherein we intends to offer 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 to be 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, 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.
Our securities are currently not liquid. There is currently no market for
our securities; however, we recently filed an application to list our securities
on the OTC Bulletin Board and are presently engaged in responding to various
comments and concerns expressed by the NASD relevant thereto. While no
assurances can be provided, management believes that our common stock will begin
trading on the Bulletin Board in the very near future.
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
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on the results of operations during the nine month period ended September 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 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
6
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.
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
We filed a Report on Form 8-K on November 4, 1997, which is incorporated
herein by reference as though fully set forth, reporting of an amendment to our
bylaws, changing our fiscal year end from October 31, to December 31. This was
done to provide continuity, as our predecessor, Detour, Inc., had a calendar
fiscal year.
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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
Nine Months Nine Months Fiscal Year
Ended Ended Ended
September 30 September 30 December 31
1997 1996 1996
------------ ------------ -----------
ASSETS:
CURRENT ASSETS
Cash $ 157,165 $ 0 $ 0
Accounts receivable 351,773 197,534 174,079
Loan receivable-officers 0 39,181 0
Prepaid expenses and other current assets 31,819 46,965 35,548
------------ ------------ -----------
Total current assets 540,757 283,680 209,627
------------ ------------ -----------
PROPERTY AND EQUIPMENT, Net 134,501 151,335 148,885
------------ ------------ -----------
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 $ 696,008 454,350 $ 431,503
============ ============ ===========
LIABILITIES:
CURRENT LIABILITIES
Bank overdraft $ 0 22,684 $ 23,062
Accounts payable and accrued expenses 1,159,209 479,062 500,751
Deferred revenue 25,664 23,178 25,664
Notes payable 176,700 300,000 190,000
Due to stockholder 0 464,381 0
Note payable stockholders 1,030,191 932,313 960,903
Interest payable, stockholders 189,247 74,605 79,247
------------ ------------ -----------
Total Current Liabilities 2,581,011 2,296,223 1,779,627
------------ ------------ -----------
EQUITY:
Common stock 5,000 9,366
Detour, Inc. common stock 8,445
Additional paid-in capital 4,055,743 155,875 855,161
Accumulated deficit (5,945,746) (2,006,193) (2,212,651)
------------ ------------ -----------
TOTAL EQUITY (1,885,003) (1,841,873) (1,348,124)
------------ ------------ -----------
TOTAL LIABILITIES
AND EQUITY $ 696,008 $ 454,350 $ 431,503
============ ============ ===========
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DETOUR MEDIA GROUP, INC.
F/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
(unadited) (unaudited)
For the For the
Nine Months Ended Three Months Ended
9/30/97 9/30/96 9/30/97 9/30/96
----------- ----------- ----------- -----------
SALES $ 3,027,292 $ 2,052,155 $ 1,265,894 $ 684,052
COST OF SALES 1,482,370 1,482,050 549,814 494,017
----------- ----------- ----------- -----------
GROSS PROFIT 1,544,922 570,105 716,080 190,035
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,856,588 1,099,052 850,807 366,351
----------- ----------- ----------- -----------
OPERATING LOSS (311,666) (528,947) (134,727) (176,316)
Factoring fees (6,911) - 5,767 -
Consulting fees (3,278,000) - 0 -
Interest expense (136,518) (90,424) (50,000) (30,141)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(3,733,095) $ (619,371) $ (178,960) $ (206,457)
=========== =========== =========== ===========
Loss per share of
common stock $ (0.75) $ (0.12) $ (0.04) -
=========== =========== =========== ===========
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
Nine Months Nine Months
Ended Ended
9/30/97 9/30/96
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(3,733,095) $ (619,371)
----------- -----------
Depreciation and amortization 28,684 24,820
Bad debt expense 0 3,750
Value of warrants issued as consulting fees 3,278,000 0
Increase in accounts receivable (177,694) 66,614
Decrease in prepaid expenses and other current assets 3,729 30,007
Increase in accounts payable and accrued expenses 658,458 65,067
Increase in unexpired subscriptions 0 7,458
Increase in interest payable, stockholder 110,000 13,926
----------- -----------
TOTAL ADJUSTMENTS 3,901,177 211,641
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 168,082 (407,730)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (14,300) (17,471)
Net proceeds from officer 52,241 (39,181)
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 37,941 (56,651)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in bank overdraft (23,062) 0
Net disbursements on notes payable (13,300) 0
Net proceeds from stockholder 69,288 464,381
Disbursements upon merger and recapitalization (81,784) 0
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (48,858) 464,381
----------- -----------
NET DECREASE IN CASH 157,165 0
CASH - beginning 0 (22,684)
----------- -----------
CASH - ending $ 157,165 $ (22,684)
=========== ===========
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DETOUR MEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Nine Month Period Ended September 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 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 10, 2001
By:s/ Edward T. Stein
----------------------------
Edward T. Stein, President
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