U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1997
Commission File Number: 0-25388
DETOUR MAGAZINE, 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.)
6855 Santa Monica Boulevard
Suite 400
Los Angeles, California
(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 June 30, 1997, was 5,000,000 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The 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
the unaudited financial statements and notes thereto included
herein. In connection with, and because it desires to take
advantage of, the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions
readers regarding certain forward looking statements in the
following discussion and elsewhere in this report and in any other
statement made by, or on the behalf of the Company, 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 the Company's 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 behalf of, the
Company. The Company disclaims any obligation to update forward
looking statements.
Overview
Detour Magazine, Inc., f/k/a Ichi-Bon Investment Corporation
(the "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, the Company acquired
all of the issued and outstanding securities of Detour, Inc., a
California corporation, in exchange for 4,500,000 "restricted"
common shares of the Company. As a result, the Company was the
surviving entity. As part of the terms of the aforesaid
transaction, the Company amended its Articles of Incorporation
changing its name to its present name.
Detour Magazine, Inc. is 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. It derives approximately 90% of its
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revenues from advertising, with the balance from circulation. The
Company maintains offices in both Los Angeles and New York City.
The 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.
The following information is intended to highlight
developments in the Company's operations to present the results of
operations of the Company, to identify key trends affecting the
Company's businesses and to identify other factors affecting the
Company's results of operations for the six month period ended June
30, 1997.
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, the Company's
revenues were $2,019,568, compared to revenues of $1,368,104 for
the similar period in 1996, an increase of $651,463 (32.3%).
Management believes that this increase was attributable to
additional advertising prompted by the efforts of management to
increase the visability of the Company's magazine. Further, the
economic climate in the United States was relatively favorable and
the Company's advertising clients tend to spend more on advertising
during good economic times. During this period, costs of sales
were $1,154,503, compared to $988,034 for the similar period in
1996, an increase of $166,469 (14.4%). This was due primarily to
the increased book size of the Company's magazine, which resulted
in increased printing and paper costs as a factor of such growth.
General and administrative expenses were $1,149,651 for the six
months ended June 30, 1997, compared to $732,702 for the similar
period in 1996, an increase of $416,949 (36.3). 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. The Company's sales
advertising staff is paid on a commission basis. As a result, the
Company generated a net loss of $(357,919) for the six month period
ended June 30, 1997, compared to a net loss of $(412,914) for the
six month period ended June 30, 1996.
Comparison of Results of Operations for the three month
periods ended June 30, 1997 and 1996
During the three month period ended June 30, 1997, the
Company's revenues increased significantly, as it generated
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revenues of $1,009,784, compared to revenues of $684,052 for the
similar period in 1996, an increase of $325,732 (32.2%). In the
three month period ended June 30, 1997, costs of sales remained
relatively constant at $577,251, compared to $494,017 for the
similar period in 1996, an increase of $83,234 (14.4%). This was
due primarily to the increased size of the Company's magazine,
which resulted in increased printing and paper costs as a factor of
such growth. During this period, however, there was a decrease in
the Company's paper costs, which accounts for the increased
percentage of revenues but a smaller percentage increase in costs
of sales. General and administrative expenses were $574,825 for
the three months ended June 30, 1997, compared to $366,351 for the
similar period in 1996, an increase of $208,474 (36.3%). This
increase came about due to additional commissions paid by the
Company to its salespersons relating to the increased advertising.
As a result, the Company generated a net loss of $(178,960) for the
three month period ended June 30, 1997, compared to a net loss of
$(206,457) for the three month period ended June 30, 1996.
Liquidity and Capital Resources
In the six month period ended June 30, 1997, the Company had
$157,165 in cash. It also increased its 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.
The Company has 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, a
stockholder of the Company loaned the Company $932,313 which bears
interest at the rate of 12% per annum and is due upon demand. The
obligation is secured by all of the assets of the Company. The
note holder agreed to subordinate this security position relevant
to the Company's accounts receivable. It is the intention of the
Company to repay this obligation in full with the proceeds derived
from the private equity offering described herein.
The Company presently factors its 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, the Company pays a fee to
Riviera of approximately 4.5% per month. Historically, the Company
factors approximately $3 million per annum in accounts receivable
with Riviera. Riviera's maximum fee for factoring the Company's
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 the Company's total eligible domestic advertising
receivables. In addition, Riviera also acts in the capacity of
credit manager for the Magazine by performing credit checks,
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mailing invoices, making collection calls and posting receivables.
It is anticipated that, provided the Company successfully sells a
substantial portion of its 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 the Company.
However, there are no assurances that the Company will sell a
sufficient number of shares of its common stock to allow it to
terminate.
Management intends to undertake a plan of expansion and in
order to effectuate the same, has recognized the Company's need for
additional operating capital. In response thereto, in November
1997 the Company commenced a private offering of its common stock
wherein it is offering up to 2,350,000 shares of the Company's
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 the Company will
generate sufficient interest in this offering to solve its cash
shortage. Previously, the Company issued options to an overseas
entity, allowing such entity to acquire up to 2,000,000 shares of
the Company's 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 the Company,
as the Company elected to proceed with the private offering
instead.
As of June 30, 1997, the Company's securities were not liquid,
as there was no market for the Company's securities; however,
subsequently, the Company filed an application to list its
securities on the OTC Bulletin Board, which application was
approved in December 1997.
Trends
Management believes that the Company will continue to operate
the Company's business at a loss for the next twelve months, but is
optimistic that the Company will begin generating profits from its
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 the Company's magazine and corresponding revenues
therefrom. However, there can be no assurances that the Company
will become profitable within the time parameters described herein,
or at all.
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Inflation
Although the operations of the Company are influenced by
general economic conditions, the Company does not believe that
inflation had a material affect on the results of operations during
the six month period ended June 30, 1997.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective June 6, 1997, all of the Company's shareholders
executed a unanimous consent authorizing the merger of the Company
with Detour, Inc., a California corporation. No proxy was
disseminated to the Company's shareholders and no solicitation by
any of the Company's management was utilized to obtain these
consents.
ITEM 5. OTHER INFORMATION
Effective June 6, 1997, the Company, pursuant to a definitive
agreement, 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 its "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
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed a 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.
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On or about June 20, 1997, the Company 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, the Company acquired all
of the issued and outstanding securities of Detour and the issuance
of 4,500,000 shares of its "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
transaction. The Company also changed its 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 MAGAZINE, INC.
BALANCE SHEET
ASSETS
(unaudited) (unaudited) (audited)
6/30/97 6/30/96 12/31/96
--------- --------- ---------
CURRENT ASSETS
Cash 97,089 0 0
Accounts receivable 292,542 220,988 174,079
Loan receivable-officers 0 26,121 52,241
Prepaid expenses and
other current assets 21,395 56,968 36,778
--------- --------- ---------
Total Current Assets 411,026 304,077 263,098
--------- --------- ---------
PROPERTY AND EQUIPMENT, Net 139,296 153,785 148,885
--------- --------- ---------
OTHER ASSETS
Security Deposits 20,750 19,335 19,520
--------- --------- ---------
Total Other Assets 20,750 19,335 19,520
--------- --------- ---------
TOTAL ASSETS 571,072 477,197 431,503
========= ========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Cash Overdrafts 0 22,873 23,062
Accounts payable and
accrued expenses 939,723 457,374 500,751
Unexpired subscriptions 25,664 20,692 25,664
Note payable 176,700 300,000 190,000
Due to stockholder 0 309,399 28,590
Note payable stockholders 982,448 932,313 932,313
Interest payable stockholders 152,580 69,963 79,247
--------- --------- ---------
Total Current Liabilities 2,277,115 2,112,614 1,779,627
EQUITY
Common stock 9,366 8,445 9,366
Additional paid-in capital 855,161 155,875 855,161
Accumulated deficit (2,570,570) (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 MAGAZINE, INC.
INCOME STATEMENT
(unaudited) (unaudited)
For the For the
Six Months Ended Three Months Ended
6/30/97 6/30/96 6/30/97 6/30/96
---------- --------- --------- ---------
SALES 2,019,568 1,368,104 1,009,784 684,052
COST OF SALES 1,154,503 988,034 577,251 494,017
--------- --------- --------- ---------
GROSS PROFIT 865,065 380,070 432,532 190,035
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,149,651 732,702 574,825 366,351
--------- --------- --------- ---------
OPERATING LOSS (284,586) (352,632) (142,293) (176,316)
Interest expense (73,333) (60,283) (36,667) (30,141)
--------- --------- --------- ---------
NET INCOME (357,919) (412,914) (178,960) (206,457)
========= ========= ========= =========
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DETOUR MAGAZINE, INC.
STATEMENT OF CASH FLOWS
Six Six
Months Months
Ended Ended
6/30/97 6/30/96
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (357,919) (412,914)
--------- ---------
Depreciation 19,123 16,547
Bad debt expense 0 2,500
Decrease (increase) in accounts
receivable (118,463) 44,409
Decrease (increase) 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 427,118 141,094
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES 69,199 (271,820)
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (9,534) (11,647)
Loan to officer 52,241 (26,121)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES 42,707 (37,768)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of note payable 0 0
Principal repayments of note payable (13,300) 0
Proceeds from stockholder 0 0
Net proceeds of loan payable,
stockholder 21,545 0
Capital contributed upon inception 0 0
Proceeds from additional paid-in capital 0 309,399
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,245 309,399
--------- ---------
NET DECREASE IN CASH 120,151 (189)
CASH - beginning (23,062) (22,684)
--------- ---------
CASH (OVERDRAFT) - ending 97,089 (22,873)
========= =========
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DETOUR INC.
DETOUR MAGAZINE
SCHEDULE OF COST OF SALES
(Unaudited)
For the For the
Six Months Ended Three Months Ended
6/30/97 6/30/96 6/30/97 6/30/96
--------- --------- --------- ---------
Paper printing and binding 872,531 733,655 436,265 366,828
Production salaries 132,000 131,250 66,000 65,625
Fashion/photo 95,151 83,035 47,576 41,517
Editorial 53,972 38,300 26,986 19,150
Art 849 955 424 478
Miscellaneous 0 840 0 420
--------- --------- --------- ---------
TOTAL COST OF SALES 1,154,503 988,034 577,251 494,017
========= ========= ========= =========
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DETOUR INC.
DETOUR MAGAZINE
SCHEDULE OF SELLING GENERAL AND ADMINISTRATIVE EXPENSES
(Unaudited)
For the For the
Six Months Ended Three Months Ended
6/30/97 6/30/96 6/30/97 6/30/96
--------- --------- --------- ---------
Salaries - officers 68,149 60,000 34,074 30,000
Salaries - other 132,288 116,631 66,144 58,316
Payroll taxes 42,093 28,835 21,047 14,417
Travel 61,187 50,783 30,594 25,392
Entertainment 15,030 1,717 7,515 858
Auto leases and expenses 17,745 11,397 8,872 5,698
Bank charges 1,455 2,914 728 1,457
Bad debt expenses 0 12,402 0 6,201
Contributions 4,500 233 2,250 116
Commissions 169,353 72,351 84,677 36,175
Computer supplies 2,928 1,708 1,464 854
Delivery 19,435 19,917 9,717 9,958
Depreciation 19,123 16,547 9,561 8,273
Dues and subscriptions 3,059 4,731 1,529 2,365
Equipment rental 3,225 2,830 1,612 1,415
Insurance 42,085 33,307 21,043 16,654
Miscellaneous 11,443 2,967 5,721 1,483
Moving expense 0 0 0 0
Office 60,110 36,435 30,055 18,217
Postage 39,815 28,273 19,908 14,137
Factoring fee 159,879 17,463 79,940 8,732
Professional fees 111,835 72,257 55,917 36,129
Subscription processing 10,218 11,419 5,109 5,710
Promotion 50,573 30,111 25,286 15,055
Rent 50,298 48,834 25,149 24,417
Telephone 45,973 42,536 22,986 21,268
Utilities 7,853 6,111 3,926 3,056
--------- --------- --------- ---------
TOTAL SELLING GENERAL AND
ADMINISTRATIVE EXPENSES 1,149,651 732,702 574,825 366,351
========= ========= ========= =========
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DETOUR MAGAZINE, 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
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DETOUR MAGAZINE, INC.
(Registrant)
Dated: February 10, 1998
By:/s/ John C. Evans
John C. Evans, President
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DETOUR MAGAZINE, INC.
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1997
EXHIBITS Page No.
EX-27 Financial Data Schedule 17
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