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, 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 March 31, 1999, was 15,586,669 shares.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month period ended
March 31, 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., 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 (pre forward split). 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 80% 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 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 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, 1999 and 1998.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three Month
Periods Ended March 31, 1999 and 1998
During the three month period ended March 31, 1999, the Company's
revenues decreased, as it generated revenues of $973,368, compared to revenues
of $1,410,867 for the similar period in 1998, a decrease of $437,499 (31.0%).
This decrease in revenues was attributable to a decline in advertising and
subscription revenues. Ad pages were down during the first quarter 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
three month period ended March 31, 1999, costs of sales also decreased 29.3%, to
$564,238, compared to $798,238 for the similar period in 1998, a decrease of
$234,000. 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 three month period. As a direct result, printing
costs decreased $112,762, distribution costs decreased $91,388 and editorial and
photo costs decreased $29,850. Selling, general and administrative expenses were
$621,231 for the three months ended March 31, 1999, compared to $1,101,671 for
the similar period in 1998, a decrease of $480,440 (43.6%). This decrease came
about due primarily to staff reductions and decrease in promotional spending.
Interest expense rose as a result of the Company's need to borrow
additional working capital from affiliates, from $45,387 in the three month
period ended March 31, 1998, to $125,858 for the three month period ended March
31, 1999, an increase of $80,471 (177.3%). See "Liquidity and Capital Resources"
below. As a result, the Company generated a net loss of $(371,622) for the three
month period ended March 31, 1999, compared to a net loss of $(534,429) for the
three month period ended March 31, 1998. It is
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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.
LIQUIDITY AND CAPITAL RESOURCES
At the end of the three month period ended March 31, 1999, the Company
had $11,335 in cash and cash equivalents. Accounts receivable decreased to
$272,055 from $948,310 for the similar period in 1998, a decrease of $676,255
(71.3%), which management attributes to the elimination of subscription
promotional programs, higher advertiser collections and lower amounts due from
the newsstand national distributor due to renegotiated terms of the applicable
contract.
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.
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. See "Part I, Item 1,
Description of Business." 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 is due
July 15, 1999 and accrues interest at the rate of 12% per annum. 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.
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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 to the
Company's factoring arrangement. See below for a description of this factoring
agreement. As of March 31, 1999, the outstanding balance owed on this obligation
totalled $932,313.
The Company also owes Edward T. Stein, principal shareholder and an
officer and director of the Company, the principal amount of $2,274,045, 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 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
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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 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, 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.
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DETOUR MAGAZINE, INC.
CONDENSED BALANCE SHEET
(unaudited) (audited)
For the Three For the
Month Period Fiscal Year
Ended Ended
March 31, December 31,
1999 1998
---------- ----------
ASSETS:
CURRENT ASSETS
Cash $ 11,335 $ 139,459
Accounts receivable 272,055 81,876
Loan receivable-officers 0 0
Prepaid expenses and
other current assets 155,499 147,384
---------- ----------
Total Current Assets 438,889 368,639
---------- ----------
PROPERTY AND EQUIPMENT, Net 88,193 90,801
---------- ----------
OTHER ASSETS
Other 248,190 261,290
Security Deposits 15,510 15,510
---------- ----------
Total Other Assets 263,700 276,800
---------- ----------
TOTAL ASSETS $ 790,782 $ 736,240
========== ==========
LIABILITIES AND EQUITY:
CURRENT LIABILITIES
Accounts payable and
accrued expenses $1,687,982 $1,684,567
Deferred Revenue 115,358 138,831
Note payable 822,951 762,951
Note payable stockholders 932,313 932,313
Interest payable stockholders 596,450 496,450
---------- ----------
Total Current Liabilities 4,155,054 4,015,112
---------- ----------
OTHER LIABILITIES
Due to stockholder 2,274,045 1,987,823
Interest payable 0 0
---------- ----------
Total Other Liabilities 2,274,045 1,987,823
---------- ----------
Total Liabilities 6,429,099 6,002,935
---------- ----------
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(unaudited) (audited)
For the Three For the
Month Period Fiscal Year
Ended Ended
March 31, December 31,
1999 1998
---------- ----------
EQUITY
Common stock 15,587 15,587
Additional paid-in capital 1,664,841 1,664,841
Accumulated deficit (7,318,745) (6,947,123)
---------- ----------
TOTAL EQUITY (5,638,317) (5,266,695)
---------- ----------
TOTAL LIABILITIES
AND EQUITY $ 790,782 $ 736,240
========== ==========
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended March 31,
-----------------------------------------
1999 1998
------------------- -------------------
SALES $ 973,368 $ 1,410,867
COST OF SALES 564,238 798,238
------------------- -------------------
GROSS PROFIT 409,130 612,629
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 621,231 1,101,671
------------------- -------------------
OPERATING LOSS (212,101) (489,042)
Gain/Loss Sale
of Assets (33,663) 0
Interest expense (125,858) (45,387)
------------------- -------------------
NET (LOSS) $ (371,622) $ (534,429)
=================== ===================
LOSS PER SHARE OF
COMMON STOCK $ (0.02) $ (0.05)
=================== ===================
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DETOUR MAGAZINE, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the Three Months
Ended March 31,
---------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(371,622) $(534,429)
--------- ---------
Depreciation 23,100 9,700
Increase in accounts receivable (190,259) (548,730)
Decrease (increase) in prepaid
expenses and other current assets (8,115) (333,233)
Increase in accounts payable
and accrued expenses 3,415 423,146
Increase in deferred revenue (23,473) 333,233
Increase in interest payable,
stockholder 100,000 45,387
--------- ---------
TOTAL ADJUSTMENTS (95,332) (70,497)
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (466,954) (604,926)
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (7,392) (16,613)
Loan to officer 0 0
Purchase of assets 0 (198,000)
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (7,392) (214,613)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in note payable 60,000 130,000
Proceeds from stockholder 286,222 0
Proceeds from issuance of stock 0 693,000
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 346,222 823,000
--------- ---------
NET INCREASE IN CASH (128,124) 3,461
CASH - beginning 139,459 11,089
--------- ---------
CASH - ending $ 11,335 $ 14,550
========= =========
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DETOUR MAGAZINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Month Period Ended March 31, 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).
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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 18, 1999
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, 1999
EXHIBITS Page No.
EX-27 Financial Data Schedule.....................................16
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS FOR THE
FISCAL QUARTER ENDED MARCH 31, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,335
<SECURITIES> 0
<RECEIVABLES> 272,055
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 438,889
<PP&E> 88,193
<DEPRECIATION> 0
<TOTAL-ASSETS> 790,782
<CURRENT-LIABILITIES> 4,155,054
<BONDS> 0
0
0
<COMMON> 15,587
<OTHER-SE> (5,653,904)
<TOTAL-LIABILITY-AND-EQUITY> 790,782
<SALES> 973,368
<TOTAL-REVENUES> 973,368
<CGS> 564,238
<TOTAL-COSTS> 564,238
<OTHER-EXPENSES> 621,321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,858
<INCOME-PRETAX> (371,622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (371,622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (371,622)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
