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: March 31, 1998
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 March 31, 1998, was 11,293,336
shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month period
ended March 31, 1998, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the Company's 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 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 72% 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 being published monthly, with the exception of
the issues for January/February and July/August, 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.
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 three month periods ended
March 31, 1998 and 1997.
Results of Operations
Comparison of Results of Operations for the Three Month
Periods Ended March 31, 1998 and 1997
During the three month period ended March 31, 1998, the
Company's revenues increased significantly, as it generated
revenues of $1,410,867, compared to revenues of $1,009,784 for the
similar period in 1997, an increase of $401,083 (39.7%). In the
three month period ended March 31, 1998, costs of sales also rose
38.3%, to $798,238, compared to $577,251 for the similar period in
1997, an increase of $220,987. This was due primarily to the
increase in print orders of the Company's magazine (number of
copies printed), caused by management's efforts to expand
circulation, which resulted in increased printing and paper costs
as a factor of such expansion. Selling, general and administrative
expenses were $1,101,671 for the three months ended March 31, 1998,
compared to $574,825 for the similar period in 1997, an increase of
$526,846 (91.7%). This increase came about due to increased
circulation expense (subscription and newsstand promotions) caused
by management's efforts to expand circulation, as well as an
increase in salaries due to the appointment of new management to
supplement prior existing management. Management believes that its
efforts to increase circulation of the Company's magazine is
beginning to show signs of success, based upon numerous factors,
including the fact that prior to the three month period ended March
31, 1998, approximately 90% of the Company's revenues were
generated from advertising. In the three month period ended March
31, 1998, revenues continued to increase, but advertising accounted
for only 72% of such revenue. While there can be no assurances,
management believes that the Company's revenues should continue to
increase over the foreseeable future as a result of these efforts.
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Interest expense rose as a result of the Company's need to
borrow additional working capital from affiliates, from $36,667 in
the three month period ended March 31, 1997, to $45,387 for the
three month period ended March 31, 1998, an increase of $8,720
(23.9%). See "Liquidity and Capital Resources" below. As a
result, the Company generated a net loss of $(534,429) for the
three month period ended March 31, 1998, compared to a net loss of
$(178,959) for the three month period ended March 31, 1997. It is
anticipated that the Company will continue to incur operating
losses in the foreseeable future, until such time as the Company is
able to put new magazine acquisitions in place. There can be no
assurances that the Company will successfully consummate new
acquisitions, or, if so accomplished, that the new magazines will
allow the Company to generate profits from operations in the
future.
Liquidity and Capital Resources
At the end of the three month period ended March 31, 1998, the
Company had $14,550 in cash and cash equivalents. It also
increased its accounts receivable to $948,310 from $399,580 during
the three months beginning January 1, 1998, an increase of $548,730
(137.3%), which management attributes to subscription receivables,
as well as a conversion by the Company from 4th class postage to
2nd class postage. As a result in this latter change, the Company
is anticipating receiving a significant refund from the US Postal
Service.
The Company has outstanding notes payable to non-affiliates in
the aggregate amount of $502,000, including the following:
(i) A note in the principal amount of $190,000, which is due
upon demand and bears interest at the rate of 18%, payable
quarterly. This note is personally guaranteed by Ed Stein, an
officer, director and principal shareholder of the Company.
(ii) A note in the principal amount of $122,000, which bears
interest at the rate of 8% per annum. All principal and interest
on this note was due January 22, 1998, but the due date was
extended by mutual agreement until June 30, 1998. This note is
also personally guaranteed by Mr. Stein.
(iii) Notes with an outstanding balance of $60,000, which
accrues interest at the prime rate, plus 2%. In May, 1998, the
Company repaid $45,000 of this obligation. Principal and interest
on this note is due in one remaining installment of $15,000, which
was due on March 15, 1998. This payment was not made when due;
however, the Company has a $30,000 credit with the note holder and
management and the note holder are presently involved in
negotiations relating to the balances due and applicable payment
dates thereon.
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(iv) Two new notes which arose as part of the acquisition
consummated by the Company during the three month period ended
March 31, 1998 of Milton Magazine, including one note with an
outstanding principal balance of $105,000, which accrues interest
at prime rate plus 2% and which is to be repaid over a two year
period, with principal and interest payments escalating over the
life of the note, beginning with monthly payments of $3,164 and
escalating to $6,125 and a second note in the principal amount of
$25,000, which accrues no interest and is payable in monthly
payments of $5,000, which commenced in May 1998.
The remaining outstanding note payable to an unaffiliated
party in the principal amount of $932,313 arose out of a loan
originally due to an affiliated party. Relevant thereto, in 1995,
Mr. Stein loaned 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 factoring arrangement. This
stockholder subsequently assigned this Note to JCM Capital Corp.
("JCM"). It is the intention of the Company to repay a portion of
this obligation with some of the proceeds derived from the
Company's initial private equity offering described hereinbelow,
which closed in May 1998. The balance is proposed to be repaid
from subsequent fund raising activities which the Company
anticipated undertaking in the near future. However, there can be
no assurances that the Company will raise a sufficient amount of
funds to enable it to repay this obligation, as well as to
implement the Company's business plan described in prior reports
filed with the Securities and Exchange Commission.
Mr. Stein has also loaned the Company the principal sum of
$609,976, which loan bears interest at the rate of 12% per annum,
calculated on the average monthly outstanding balance and which is
due upon demand. Applicable thereto, Mr. Stein has provided the
Company with a letter advising that he will abstain from demanding
any repayment on this obligation at least through December 31,
1998.
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,
mailing invoices, making collection calls and posting receivables.
5
It is anticipated that, provided the Company successfully raises
additional capital in the near future, of which there can be no
assurance, the factoring relationship with Riviera will be
terminated, as management believes that it will no longer be
necessary due to sufficient cash then available to the Company.
Management has undertaken 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 offered up to 4,700,000 shares of the Company's
common stock (post forward split) at a price of $.75 per share, for
aggregate gross proceeds of up to $3,525,000. As of the date of
this report, this offering has closed with the Company receiving
gross proceeds of $913,000 from the sale of 1,217,333 common
shares. In management's view, the funds generated from this
offering have not been sufficient to meet the Company's needs for
additional working capital in order to allow the Company to fully
implement its expanded business plan. Numerous scenarios are
presently being explored by management, including discussions with
investment banking firms who have expressed an interest in working
with the Company to raise additional equity capital. However, as
of the date of this report, no definitive arrangements have been
made between the Company and any third party wherein such third
party has agreed to raise additional capital for the Company and,
while management is optimistic that it will be successful in this
regard, there are no assurances that any additional funds will be
raised. Failure of the Company to raise additional funds, either
debt or equity, will have a significant negative impact on the
Company's ability to generate profitable operations.
Trends
Management believes that the Company will continue to operate
the Company's business at a loss for the foreseeable future, but is
optimistic that the Company will begin generating profits from its
operations beginning in the year 2000, and possibly earlier if
sufficient working capital discussed in Liquidity and Capital
Resources, above, is raised. This will occur as a result of
increased circulation of Detour Magazine and new acquisitions of
existing unaffiliated magazines, of which there can be no
assurance. The new magazine acquisitions will allow the current
management team to spread its cost over the new titles. The
current back office structure can add two to three additional
magazines without adding any additional personnel. However, there
can be no assurances that the Company will become profitable within
the time parameters described herein, or at all.
Inflation
Although the operations of the Company are influenced by
general economic conditions, the Company does not believe that
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inflation had a material affect on the results of operations during
the three month period ended March 31, 1998.
Year 2000 Disclosure
Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed
and developed without considering the impact of the upcoming change
in the century. If not corrected, many computer applications could
fail or create erroneous results by or at the Year 2000. As a
result, many companies will be required to undertake major projects
to address the Year 2000 issue. The Company presently owns
approximately $80,000 worth of computers. It utilizes outside
contractors for the bulk of its computer work. These consultants
have advised the Company that they have made all necessary
revisions to their software to avoid any potential problems arising
in the year 2000. Relevant to the Company's computers, management
is in the process of retaining outside computer consultants to
assist the Company in insuring that its computers will not fail in
2000. However, as of the date of this report, the Company does not
have available a definitive cost applicable to any service to be
undertaken on its computer software to avoid any problems in this
regard. While no assurances can be provided, management believes
that such cost will not be material to the Company.
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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
None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None.
8
DETOUR MAGAZINE, INC.
CONDENSED BALANCE SHEET
(unaudited) (audited)
For the Three For the
Month Period Fiscal Year
Ended Ended
March 31, December 31,
1998 1997
---------- ----------
ASSETS:
CURRENT ASSETS
Cash $ 14,550 $ 11,089
Accounts receivable 948,310 399,580
Loan receivable-officers 0 0
Prepaid expenses and
other current assets 492,312 61,079
---------- ----------
Total Current Assets 1,455,172 471,748
---------- ----------
PROPERTY AND EQUIPMENT, Net 139,504 132,591
---------- ----------
OTHER ASSETS
Other 100,000 0
Security Deposits 13,750 13,750
---------- ----------
Total Other Assets 113,750 13,750
---------- ----------
TOTAL ASSETS $1,708,426 $ 618,089
========== ==========
LIABILITIES AND EQUITY:
CURRENT LIABILITIES
Accounts payable and
accrued expenses $1,352,540 $ 929,394
Unexpired subscriptions 525,290 192,057
Note payable 502,000 372,000
Note payable stockholders 932,313 932,313
Interest payable stockholders 236,048 208,960
---------- ----------
Total Current Liabilities 3,548,191 2,634,724
---------- ----------
OTHER LIABILITIES
Due to stockholder 609,976 609,976
Interest payable 53,170 34,871
---------- ----------
Total Other Liabilities 663,146 644,847
---------- ----------
Total Liabilities 4,211,337 3,279,571
---------- ----------
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(unaudited) (audited)
For the Three For the
Month Period Fiscal Year
Ended Ended
March 31, December 31,
1998 1997
---------- ----------
EQUITY
Common stock 11,293 10,369
Additional paid-in capital 1,727,144 1,035,068
Accumulated deficit (4,241,348) (3,706,919)
---------- ----------
TOTAL EQUITY (2,502,911) (2,661,482)
---------- ----------
TOTAL LIABILITIES
AND EQUITY $1,708,426 $ 618,089
========== ==========
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended March 31,
-----------------------------------------
1998 1997
------------------- -------------------
SALES $ 1,410,867 $ 1,009,784
COST OF SALES 798,238 577,251
------------------- -------------------
GROSS PROFIT 612,629 432,533
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,101,671 574,825
------------------- -------------------
OPERATING LOSS (489,042) (142,292)
Interest expense (45,387) (36,667)
------------------- -------------------
NET LOSS $ (534,429) $ (178,959)
=================== ===================
LOSS PER SHARE OF
COMMON STOCK $ (0.05) $ (0.02)
=================== ===================
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the Three Months
Ended March 31,
---------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(534,429) $(178,959)
--------- ---------
Depreciation 9,700 9,561
Increase in accounts receivable (548,730) (66,222)
Decrease (increase) in prepaid
expenses and other current assets (333,233) 14,153
Increase in accounts payable
and accrued expenses 423,146 245,629
Increase in unexpired subscriptions 333,233 0
Increase in interest payable,
stockholder 45,387 36,666
--------- ---------
TOTAL ADJUSTMENTS (70,497) 239,787
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (604,926) 60,828
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (16,613) (6,176)
Purchase of assets (198,000) 0
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (214,613) (6,176)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in note payable 130,000 0
Proceeds from stockholder 0 (28,590)
Proceeds from issuance of stock 693,000 0
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 823,000 (28,590)
--------- ---------
NET INCREASE IN CASH 3,461 26,062
CASH - beginning 11,089 (23,062)
--------- ---------
CASH - ending $ 14,550 $ 3,000
========= =========
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DETOUR MAGAZINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Month Period Ended March 31, 1998
1. Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been
prepared in accordance with the instructions for Form 10-QSB
and do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation,
have been included. Operating results for any quarter are
not necessarily indicative of the results for any other
quarter or for the full year.
2. Basis of Presentation
Business combination
On June 6, 1997, pursuant to the terms of an Agreement and
Plan of Reorganization, Ichi-Bon Investment Corporation
("IBI") acquired all of the outstanding common stock of
Detour, Inc. ("Old Detour") in exchange for 4,500,000
unregistered shares of IBI's common stock. As a result
of the transaction, the former shareholders of Old Detour
received shares representing an aggregate of 90% of IBI's
outstanding common stock, resulting in a change in control of
IBI. As a result of the merger, IBI was the surviving entity
and Old Detour ceased to exist. Simultaneously therewith,
IBI amended its articles of incorporation to reflect a change
in IBI's name to "Detour Magazine, Inc." References to the
"Company" or "Detour" refer to Detour Magazine, Inc. together
with the predecessor company, Old Detour.
The acquisition of Old Detour has been accounted for as a
reverse acquisition. Under the accounting rules for a reverse
acquisition, Old Detour is considered the acquiring entity.
As a result, historical financial information for periods
prior to the date of the transaction are those of Old Detour.
Under purchase method accounting, balances and results of
operations of Old Detour will be included in the accompanying
financial statements from the date of the transaction, June 6,
1997. The Company recorded the assets and liabilities
(excluding intangibles) at their historical cost basis which
was deemed to be approximate fair market value. The reverse
acquisition is treated as a non-cash transaction except to the
extent of cash acquired, since all consideration given was in
the form of stock.
Earnings per share
Earnings per share have been computed based on the weighted
average number of common shares outstanding. For the nine
month period prior to the reverse acquisition discussed in
the business combination section of Note 2 above, the number
of common shares outstanding used in computing earnings per
share is the number of common shares outstanding as a result
of such reverse acquisition (5,000,000 shares).
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3. History and Business Activity
Detour was originally incorporated as Ichi-Bon Investment
Corporation on May 18, 1990, under the laws of the State of
Colorado. The name was changed to Detour Magazine, Inc.
concurrent with the business combination described in Note 2.
Prior to such business combination, Detour had not engaged in
any operations or generated any revenue.
Old Detour was a publisher of a nationally distributed
magazine entitled "Detour" which is published monthly and
contains articles and pictorial displays on fashion, music
and social commentary.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
and Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DETOUR MAGAZINE, INC.
(Registrant)
Dated: May 22, 1998
By: s/Barry Ross
--------------------------------
Barry Ross, Secretary
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DETOUR MAGAZINE, INC.
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1998
EXHIBITS Page No.
EX-27 Financial Data Schedule . . . . . . . . . . . . . 17
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