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: September 30, 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.)
7060 Hollywood Blvd., Suite 1150
Los Angeles, California 90028
(Address of principal executive office)
6855 Santa Monica Boulevard, Suite 400
Los Angeles, California
(Former address of principal executive offices)
90038
(Zip Code)
(213) 469-9444
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes
X No .
- ----- ----
The number of shares of the registrant's only class of common stock
issued and outstanding, as of September 30, 1998, was 15,202,665
shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the nine month period
ended September 30, 1998, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the 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,
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avant-garde" publication. The Company maintains offices in both
Los Angeles, California 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 172 pages in length, comprised of about 44 to 73
pages of advertising, with the balance in editorial pages. This
reflects the limited, but growing, advertising base which typifies
new publications. However, due to losses experienced by the
Company from operations, management has decided to decrease the
number of pages included in the Magazine, reducing the amount of
pages set aside for editorial content while attempting to maintain
the current level of advertising.
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 nine month period ended
September 30, 1998.
Results of Operations
Comparison of Results of Operations for the nine month period
ended September 30, 1998 and 1997.
During the nine month period ended September 30, 1998, the
Company's revenues were $3,308,173, compared to revenues of
$3,029,351 for the similar period in 1997, an increase of $278,822
(9.2%) from the similar period in 1997. This increase was
attributable to increased subscriptions and newsstand sales.
During this period, costs of sales were $2,671,868, compared to
$1,593,477 for the similar period in 1997, an increase of
$1,078,391 (67.7%). 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, paper and distribution costs as a
factor of such expansion. Management anticipated these costs in
the Company's budget, as the Company is engaged in a program to
increase visibility of the Magazine, in order to increase revenues
in the future. It is management's belief that the increased costs
associated with various promotions will result in greater
visibility and market share in the future, provided that the
Company is able to obtain additional financing in the future. The
Company expects to incur significant losses during the promotional
period. However, there can be no assurances that the Company will
generate greater revenues in the future as a result of these
additional marketing efforts. Further, management has decided that
its attempt to increase circulation of the Magazine by printing
additional copies will not continue in the future. Rather, as a
result of management's attempt to stem losses, the Magazine's print
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orders and book size are expected to decrease in the immediate
future, by reducing the amount of editorial content while
attempting to maintain the increased revenues derived by the
Company from its current advertising.
General and administrative expenses were $2,800,625 for the
nine months ended September 30, 1998, compared to $1,862,753 for
the similar period in 1997, an increase of $937,872 (50.3%). This
increase was attributable to numerous factors, including the
retention of a new management staff on August 1, 1997, the
execution of a consulting agreement and fees payable thereon, also
which took place on August 1, 1997 and increase commissions payable
due to the increase advertising revenues. Mr. Evans resigned his
positions with the Company in November 1998. The Company's sales
advertising staff is paid on a commission basis. As a result, the
Company generated a net loss of $(2,402,706) for the nine month
period ended September 30, 1998 ($.15 per share), compared to a net
loss of $(536,879) for the nine month period ended September 30,
1997 ($.03 per share).
Liquidity and Capital Resources
In the period ended September 30, 1998, the Company had $7,163
in cash. It increased its accounts receivable to $526,398 from
$351,773 for the similar period in 1997, an increase of $174,625
(49.6%), which management attributes to increased advertising.
In August 1998, the Company obtained a new loan in the
principal amount of $550,000 from IBF Special Purpose Corporation
II, Washington, D.C.. to be used for general working capital. This
loan bears interest at the rate of 18% per annum and was due
November 20, 1998. As of the date of this report, this loan is in
default but has been extended for an additional 30 day period. The
loan provides for an exit fee equal to 3% of the loan ($16,500).
The 30 day extension period provided by the lenders required a one
time extension fee of $5,500. Management is currently reviewing
its options regarding this obligation, including seeking out other
long term lenders. However, no assurances can be provided that
such other arrangements will be made to insure that the Company
does not enter into a default of this obligation.
The Company has two other outstanding notes payable to non-
affiliates, including one note with an outstanding balance of
$100,500, which accrues interest at the rate of 12% per annum and
is due on demand. The remaining outstanding note aggregating
$7,000 is payable to an unaffiliated entity. 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. This
stockholder subsequently assigned this Note to JCM Capital Corp.
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The Company also owes Ed Stein, an officer and director of the
Company, the principal amount of $1,592,442, which accrues interest
at the rate of 12% per annum. Mr. Stein has entered into an
agreement with the Company not to require any repayment of this
obligation at least until December 31, 1998, or more likely, until
such time as the Company has sufficient capital resources available
in which to repay this obligation without jeopardizing its ability
to continue its business operations.
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 $2.5 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 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 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.
Trends
Management believes that the Company will continue to operate
the Company's business at a loss for the next year or two, but is
cautiously optimistic that the Company will begin generating
profits from its operations beginning in the 2000 fiscal year.
This will occur as a result of cost cutting measures which have
been adopted by management and anticipation of increased
circulation of and advertising in the Company's magazine and
corresponding revenues therefrom. Management has reduced its staff
and moved to smaller offices. In addition, all operating expenses
are being reduced. Relevant thereto, a new printing contract with
R.R. Donnelly & Sons, Inc. was signed in November 1998, further
reducing costs of sales. However, there can be no assurances that
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
5
inflation had a material affect on the results of operations during
the nine month period ended September 30, 1998.
Forward Looking Statements
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") concerning the Company's operations, economic
performance and financial conditions. These statements are based
upon a number of assumptions and estimates which are inherently
subject to significant uncertainties and contingencies, many of
which are beyond the control of the Company and reflect future
business decisions which are subject to change. Some of these
assumptions inevitably will not materialize and unanticipated
events will occur which will affect the Company's results.
Consequently, actual results will vary from the statements
contained herein and such variance may be material. Prospective
investors should not place undue reliance on this information.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
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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
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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: November 23, 1998
By: s/Ed Stein
--------------------------------
Ed Stein, President
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DETOUR MAGAZINE, INC.
CONDENSED BALANCE SHEET
(unaudited) (unaudited) (audited)
For the Nine For the Nine For the
Month Period Month Period Fiscal Year
Ended Ended Ended
September 30, September 30, December 31,
1998 1997 1997
---------- ---------- ----------
ASSETS:
CURRENT ASSETS
Cash $ 7,163 $ 157,165 $ 11,089
Accounts receivable 526,398 351,773 399,580
Loan receivable-officers 0 0 0
Prepaid expenses and
other current assets 221,123 31,819 61,079
---------- ---------- ----------
Total Current Assets 754,684 540,757 471,748
---------- ---------- ----------
PROPERTY AND EQUIPMENT, Net 131,975 134,501 132,591
---------- ---------- ----------
OTHER ASSETS
Other 198,000 0 0
Security Deposits 13,750 20,750 13,750
---------- ---------- ----------
Total Other Assets 211,750 20,750 13,750
---------- ---------- ----------
TOTAL ASSETS $1,098,409 $ 696,008 $ 618,089
========== ========== ==========
LIABILITIES AND EQUITY:
CURRENT LIABILITIES
Accounts payable and
accrued expenses $1,460,425 $1,159,209 $ 929,394
Deferred Revenue 435,609 25,664 192,057
Note payable 677,500 176,700 372,000
Note payable stockholders 932,313 1,030,191 932,313
Interest payable stockholders 277,525 189,247 208,960
---------- ---------- ----------
Total Current Liabilities 3,783,372 2,581,011 2,634,724
---------- ---------- ----------
OTHER LIABILITIES
Due to stockholder 1,592,442 0 609,976
Interest payable 151,792 0 34,871
---------- ---------- ----------
Total Other Liabilities 1,744,234 0 644,847
---------- ---------- ----------
Total Liabilities 5,527,606 2,581,011 3,279,571
---------- ---------- ----------
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(unaudited) (unaudited) (audited)
For the Nine For the Nine For the
Month Period Month Period Fiscal Year
Ended Ended Ended
September 30, September 30, December 31,
1998 1997 1997
---------- ---------- ----------
EQUITY
Common stock 11,216 9,366 10,369
Additional paid-in capital 1,669,212 855,161 1,035,068
Accumulated deficit (6,109,625) (2,749,530) (3,706,919)
---------- ---------- ----------
TOTAL EQUITY (4,429,197) (1,885,003) (2,661,482)
---------- ---------- ----------
TOTAL LIABILITIES
AND EQUITY $1,098,409 $ 696,008 $ 618,089
========== ========== ==========
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
SALES $ 3,308,173 $ 3,029,351 $ 1,268,783 $ 1,009,784
COST OF SALES 2,671,868 1,593,477 1,105,413 531,159
----------- ----------- ----------- -----------
GROSS PROFIT 636,305 1,435,874 163,370 478,625
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,800,625 1,862,753 829,429 620,918
----------- ----------- ----------- -----------
OPERATING LOSS (2,164,320) (426,879) (666,059) (142,292)
Interest expense (238,386) (110,000) (113,067) (36,667)
----------- ----------- ----------- -----------
NET LOSS $(2,402,706) $ (536,879) $ (779,126) $ (178,959)
=========== =========== =========== ===========
LOSS PER SHARE OF
COMMON STOCK $ (0.15) $ (0.03) $ (0.05) $ (0.02)
=========== =========== =========== ===========
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months
Ended September 30,
-------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(2,402,706) $ (536,879)
----------- -----------
Depreciation 26,730 28,684
Increase in accounts receivable (126,818) (177,694)
Decrease (increase) in prepaid
expenses and other current assets (160,044) 3,729
Increase in accounts payable
and accrued expenses 531,031 658,458
Increase in deferred revenue 243,552 0
Increase in interest payable,
stockholder 185,486 110,000
----------- -----------
TOTAL ADJUSTMENTS 699,937 623,177
----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (1,702,769) 86,298
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (26,114) (14,300)
Loan to officer 0 52,241
Purchase of assets (198,000) 0
----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (224,114) 37,941
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in note payable 305,500 (13,300)
Proceeds from stockholder 982,466 69,288
Proceeds from issuance of stock 634,991 0
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,922,957 55,988
----------- -----------
NET INCREASE IN CASH (3,926) 180,227
CASH - beginning 11,089 (23,062)
----------- -----------
CASH - ending $ 7,163 $ 157,165
=========== ===========
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DETOUR MAGAZINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Period Ended September 30, 1998
1. Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been
prepared in accordance with the instructions for Form 10-QSB
and do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation,
have been included. Operating results for any quarter are
not necessarily indicative of the results for any other
quarter or for the full year.
2. Basis of Presentation
Business combination
On June 6, 1998, pursuant to the terms of an Agreement and
Plan of Reorganization, Ichi-Bon Investment Corporation
("IBI") acquired all of the outstanding common stock of
Detour, Inc. ("Old Detour") in exchange for 4,500,000
unregistered shares of IBI's common stock. As a result
of the transaction, the former shareholders of Old Detour
received shares representing an aggregate of 90% of IBI's
outstanding common stock, resulting in a change in control of
IBI. As a result of the merger, IBI was the surviving entity
and Old Detour ceased to exist. Simultaneously therewith,
IBI amended its articles of incorporation to reflect a change
in IBI's name to "Detour Magazine, Inc." References to the
"Company" or "Detour" refer to Detour Magazine, Inc. together
with the predecessor company, Old Detour.
The acquisition of Old Detour has been accounted for as a
reverse acquisition. Under the accounting rules for a reverse
acquisition, Old Detour is considered the acquiring entity.
As a result, historical financial information for periods
prior to the date of the transaction are those of Old Detour.
Under purchase method accounting, balances and results of
operations of Old Detour will be included in the accompanying
financial statements from the date of the transaction, June 6,
1998. The Company recorded the assets and liabilities
(excluding intangibles) at their historical cost basis which
was deemed to be approximate fair market value. The reverse
acquisition is treated as a non-cash transaction except to the
extent of cash acquired, since all consideration given was in
the form of stock.
13
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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DETOUR MAGAZINE, INC.
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1998
EXHIBITS Page No.
EX-27 Financial Data Schedule . . . . . . . . . . . . . 16
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