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, 1999
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
(Address of principal executive offices)
90028
(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, 1999, was 15,974,669 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the nine month period ended
September 30, 1999, 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. 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 80% of
its revenues from advertising, with the balance from circulation. The Company
maintains offices in both Los Angeles and New York City.
The Magazine is been published monthly, with the exception of the issues
for December/January and June/July, for which one issue is published. The
Magazine has been, in general, approximately 164 pages in length, comprised of
about 60 to 70 pages of advertising, with the balance in editorial pages.
The following information is intended to highlight developments in the
Company's operations to present the results of
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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 periods ended September 30,, 1999 and 1998.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Nine Month Periods Ended
September 30, 1999 and 1998
During the nine month period ended September 30, 1999, the Company's
revenues decreased, as it generated revenues of $2,560,479, compared to revenues
of $3,308,173 for the similar period in 1998, a decrease of $747,694 (22.6%).
This decrease in revenues was attributable to a decline in advertising and
subscription revenues. Ad pages were down during the first half of fiscal year
1999; however, based upon current indications, ad pages are expected to increase
during the second half of fiscal 1999. Subscriptions decreased due to the
Company no longer accepting promotional and agency subscriptions. In the nine
month period ended September 30, 1999, costs of sales also decreased 34.4%, to
$1,753,470 compared to $2,671,868 for the similar period in 1998, a decrease of
$918,398. This was due primarily to a decrease in the number of copies of the
Magazine printed by the Company and a new printing contract with R.R. Donnelly &
Sons during the applicable nine month period. As a direct result, printing costs
decreased $575,000, distribution costs decreased $180,000 and editorial and
photo costs decreased $160,000. Selling, general and administrative expenses
were $1,340,493 for the nine months ended September 30, 1999, compared to
$2,800,625 for the similar period in 1998, a decrease of $1,460,132 (52.4%).
This decrease came about due primarily to staff reductions and decrease in
promotional spending. The Company's administrative and executive staffs were
reduced. Current management believes that this reduction has had no effect on
the editorial content of the Company's magazine or on ad revenue.
Interest expense rose as a result of the Company's need to borrow
additional working capital from affiliates, from $238,386 in the nine month
period ended September 30, 1998, to $394,889 for the nine month period ended
September 30,, 1999, an increase of $156,503 (65.6%). See "Liquidity and Capital
Resources" below. As a result, the Company generated a net loss of $(917,054)
for the nine month period ended September 30, 1999, compared to a net loss of
$(2,402,706) for the nine month period ended September 30, 1998. 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 increase ad
revenue to a level consistent with past ad revenue and maintain the current
printing costs and general and administrative costs. While no assurances can be
provided, management anticipates that the Company will be operating on a break
even basis in the second half of fiscal 1999.
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LIQUIDITY AND CAPITAL RESOURCES
At the end of the nine month period ended September 30, 1999, the Company
had no cash and cash equivalents. Accounts receivable decreased to $261,911 from
$526,398 for the similar period in 1998, a decrease of $264,487 (50.2%), which
management attributes to a reduction in sales over the previous period.
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 December 19, 1998, including a one time extension fee paid to
this lender of $5,500. In December 1998, the Company repaid $27,500 of the
principal balance. As of the date of this report, this loan is in default but
the Company is in communication with this lender and they are working out a
proposed repayment plan. As of the date of this report, no definitive agreement
has been reached. The loan provides for an exit fee equal to 3% of the loan
($16,500). 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. No action
against the Company has been threatened and the Company is tendering all
interest payments due under the loan.
The Company has three other outstanding notes payable to non-affiliates,
including one note with an outstanding balance of $100,500, which accrues
interest at the prime rate, plus 2% per annum and is due on demand and which is
currently in default. This obligation is part of the liabilities assumed by the
Company in the Milton Magazine acquisition. As of the date of this report,
management is in discussions with the note holder to resolve this obligation,
but no definitive arrangement has been reached and there can be no assurances
that an agreement will be reached in the future. The second note in the amount
of $139,951 was due July 15, 1999 and accrues interest at the rate of 12% per
annum. Pursuant to an agreement between the Company and this lender, the due
date for this obligation has been extended until October 30, 1999. The third
note is owed to a minority shareholder in the principal amount of $60,000, which
accrues interest at the rate of 12% per annum and is due on demand.
In 1995, the majority 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. In 1996, this stockholder subsequently assigned this Note
to JCM Capital Corp., a minority stockholder. This note is secured by
substantially all of the assets of the Company, but is subordinated
4
to the Company's factoring arrangement. See below for a description of this
factoring agreement. As of September 30, 1999, the outstanding balance owed on
this obligation totalled $960,375.
The Company also owes Edward T. Stein, principal shareholder and an officer
and director of the Company, the principal amount of $2,455,745, which accrues
interest at the rate of 12% per annum and is due upon demand. It is not
anticipated that Mr. Stein will tender demand for repayment of this obligation
in the foreseeable future.
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 in the capacity
of credit manager for the Magazine by performing credit checks, mailing
invoices, making collection calls and posting receivables.
Management recognizes that, in order to allow the Company to commence
profitable operations, it will be necessary for the Company to raise additional
equity capital of between $2-3 million. In this regard, management has had
numerous discussions with potential investors, but as of the date of this
report, no definitive arrangement has been reached with any party who has agreed
to inject such capital into the business. Failure to obtain additional equity
capital into the Company will force management to reduce editorial expense,
which may affect the quality of the Magazine. Alternatively, management may also
reduce the number of copies printed, which will result in a reduction in
newsstand and advertising revenue. If these methods are not successful, it is
doubtful that the Company will be able to survive and the Company will be forced
to liquidate.
TRENDS
Management believes that the Company will continue to operate the Company's
business at a loss until the third calendar quarter of fiscal 1999 and is
cautiously optimistic that the Company will begin generating profits from its
operations beginning in the 2000 fiscal year, provided that additional capital
is invested in the Company. This will occur as a result of the cost cutting
measures previously adopted by management and reflected in the reduced cost of
sales and general and administrative expenses described elsewhere in this
report, as well as anticipation of increased advertising in the Company's
magazine and corresponding revenues
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therefrom. 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 inflation had a material affect on
the results of operations during the nine month period ended September 30, 1999.
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.
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DETOUR MAGAZINE, INC.
CONDENSED BALANCE SHEET
(unaudited) (audited)
For the Nine For the
Month Period Fiscal Year
Ended Ended
September 30, December 31,
1999 1998
---------- ----------
ASSETS:
CURRENT ASSETS
Cash $ 0 $ 139,459
Accounts receivable 261,911 81,796
Prepaid expenses and
other current assets 97,310 147,384
---------- ----------
Total Current Assets 359,221 368,639
---------- ----------
PROPERTY AND EQUIPMENT, Net 59,146 90,801
---------- ----------
OTHER ASSETS
Other 214,258 261,290
Security Deposits 15,510 15,510
---------- ----------
Total Other Assets 229,768 276,800
---------- ----------
TOTAL ASSETS $ 648,135 $ 736,240
========== ==========
LIABILITIES AND EQUITY:
CURRENT LIABILITIES
Bank overdraft $ 1,006 $ 0
Accounts payable and
accrued expenses 1,538,629 1,684,567
Deferred Revenue 84,310 138,831
Note payable 912,951 762,951
Note payable stockholders 932,313 932,313
Interest payable stockholders 575,846 496,450
---------- ----------
Total Current Liabilities 4,045,055 4,015,112
---------- ----------
OTHER LIABILITIES
Due to stockholder 2,689,829 1,987,823
Interest payable 0 0
---------- ----------
Total Other Liabilities 2,689,829 1,987,823
---------- ----------
Total Liabilities 6,734,884 6,002,935
---------- ----------
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(unaudited) (audited)
For the Nine For the
Month Period Fiscal Year
Ended Ended
September 30, December 31,
1999 1998
---------- ----------
EQUITY
Common stock 15,975 15,587
Additional paid-in capital 1,761,453 1,664,841
Accumulated deficit (7,864,177) (6,947,123)
---------- ----------
TOTAL EQUITY (6,086,749) (5,266,695)
---------- ----------
TOTAL LIABILITIES
AND EQUITY $ 648,135 $ 736,240
========== ==========
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30,
-----------------------------------------
1999 1998
------------------- -------------------
SALES $ 2,560,479 $ 3,308,173
COST OF SALES 1,753,470 2,671,868
------------------- -------------------
GROSS PROFIT 807,009 636,305
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,340,493 2,800,625
------------------- -------------------
OPERATING LOSS (533,484) (2,164,320)
Loss on Sale
of Assets (9,048) 0
Factoring fees (115,558) 0
Forgiveness of debt 135,925 0
Interest expense (394,889) (238,386)
------------------- -------------------
NET (LOSS) $ (917,054) $ (2,402,706)
=================== ===================
LOSS PER SHARE OF
COMMON STOCK $ (0.06) $ (0.15)
=================== ===================
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended September 30,
-----------------------------------------
1999 1998
------------------- -------------------
SALES $ 875,395 $ 1,268,783
COST OF SALES 606,971 1,105,413
------------------- -------------------
GROSS PROFIT 268,424 163,370
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 433,560 829,429
------------------- -------------------
OPERATING LOSS (165,136) (666,059)
Loss on Sale
of Assets 0 0
Factoring fees (62,319) 0
Forgiveness of debt 135,925 0
Interest expense (92,018) (113,067)
------------------- -------------------
NET (LOSS) $ (183,548) $ (779,126)
=================== ===================
LOSS PER SHARE OF
COMMON STOCK $ (0.01) $ (0.15)
=================== ===================
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months
Ended September 30,
-------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (917,054) $(2,402,706)
----------- -----------
Depreciation and amortization 77,032 26,730
Bad debt expense 36,611 0
Loss on disposal of fixed assets 9,048 0
Decrease (increase) in
accounts receivable (216,727) (126,818)
Decrease (increase) in prepaid
expenses and other current assets 50,074 (160,044)
Increase (decrease) in accounts
payable and accrued expenses (145,938) 531,031
Increase (decrease) in
deferred revenue (54,521) 243,552
Increase in interest payable,
stockholder 79,396 185,486
----------- -----------
TOTAL ADJUSTMENTS (165,025) 699,937
----------- -----------
NET CASH (USED IN)
OPERATING ACTIVITIES (1,082,079) (1,702,769)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (7,392) (26,114)
Purchase of other assets 0 (198,000)
----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (7,392) (224,114)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank overdraft 1,006 0
Net proceeds from notes payable 150,000 305,500
Net proceeds from stockholder 702,006 982,466
Proceeds from issuance of stock 97,000 634,991
--------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 950,012 1,922,957
--------- -----------
NET DECREASE IN CASH (139,459) (3,926)
CASH - beginning 139,459 11,089
--------- -----------
CASH - ending $ 0 $ 7,163
========= ===========
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DETOUR MAGAZINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Period Ended September 30, 1999
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.
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).
13
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.
14
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: December 1, 1999
By: s/Edward T. Stein
-----------------------
Edward T. Stein, President
15
DETOUR MAGAZINE, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30,, 1999
EXHIBITS Page No.
EX-27 Financial Data Schedule..............................................17
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