SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[ ] Transitional Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File No. 0-25388
DETOUR MAGAZINE, INC.
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(Name of small business issuer in its charter)
Colorado 84-1156459
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7060 Hollywood Blvd., Suite 1150
Los Angeles, California 90038
(323) 469-9444
(Address, including zip code and telephone number, including area
code, of registrant's executive offices)
Securities registered under Section 12(b) of the Exchange Act:
none
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock
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(Title of class)
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 preceding 12
months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
---
(Continued on Following Page)
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Issuer's revenues for its most recent fiscal year: $3,335,912
State the aggregate market value of the voting stock held by non-affiliates,
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of May 1, 2000: $8,735,864.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 1, 2000 there were
20,152,669 shares of the Company's common stock issued and outstanding.
Documents Incorporated by Reference: None
This Form 10-KSB consists of Fifty-Eight Pages.
Exhibit Index is located at Page Fifty-One.
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
DETOUR MAGAZINE, INC.
PAGE
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Facing Page
Index
PART I
Item 1. Description of Business............................ 4
Item 2. Description of Property............................ 14
Item 3. Legal Proceedings.................................. 14
Item 4. Submission of Matters to a Vote of
Security Holders............................... 16
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters................ 16
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 17
Item 7 Financial Statements............................... 22
Item 8. Changes in and Disagreements on Accounting
and Financial Disclosure....................... 44
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons, Compliance with
Section 16(a) of the Exchange Act.............. 44
Item 10. Executive Compensation............................. 46
Item 11. Security Ownership of Certain Beneficial
Owners and Management.......................... 47
Item 12. Certain Relationships and Related
Transactions................................... 48
PART IV
Item 13. Exhibits and Reports on Form 8-K................... 49
SIGNATURES.................................................... 50
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Detour Magazine, Inc. (the "Company" or "Detour") is engaged principally in
the publication and distribution of Detour, an internationally distributed
magazine best known for its presentation of cutting-edge trends and strong
editorial focus in fashion, entertainment, lifestyle and contemporary social
issues. The Company's mission is to be the premier urban avant-garde publication
devoted to these topics, thereby attracting a readership consisting primarily of
affluent and style conscious men and women in the 18 to 35 age group. The
Company derives revenues primarily from advertising in the magazine and, to a
lesser extent, from subscription and newsstand sales.
In addition to the continuation of publication of Detour, management is
implementing a new business strategy in areas related to the Internet and custom
publishing. This new business strategy is described in detail below.
DETOUR MAGAZINE
The Company publishes ten issues of the magazine each year, including two
double issues. The magazine has been published since 1987.
To distinguish itself from other entertainment publications, Detour
Magazine attempts to identify and feature entertainers and media personalities
well before they reach widespread recognition and the level of conventional
acceptance which typifies its competition. This in part accounts for Detour
Magazines's image as a "cutting-edge" magazine featuring tomorrow's
personalities and today's trends.
Editorials follow the same focus, providing insight into and publicity for
entertainers and media personalities who have not yet received widespread
recognition. Detour Magazine prides itself on some of the most talked about and
respected photo journalism and editorials in the industry. In this regard,
Detour Magazine received awards for photo journalism in 1998, including 5 awards
from the First Annual Alfred Eisenstadt Awards, as part of the Collectors
Edition for Life Magazine published in the Spring of 1998, including Best
Magazine Photography of the Year.
During 1999, each issue (other than double issues) of Detour Magazine was
approximately 150 pages in length, with approximately 50 pages of advertising.
The 10 covers featured Robert Downey, Jr., Sarah Michelle Geller, Cate
Blanchett, Claudia Schiffer, Dennis Rodman, Hugh Grant, Jennifer Love Hewitt,
Nicholas Cage, Denise Richards and Johnny Depp.
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Management does not expect to change the content or format of Detour
Magazine materially beyond editorial changes necessary to broaden the magazine's
appeal within the target readership, including making the magazine more visual
by continuing to seek out both established and rising photographers.
In addition, starting in 2000, the Company plans to publish two special
issues each year under the name "Detour Space". Detour Space takes its name from
one of the magazine's most popular and appealing features, -- a "sneak peek"
into some favorite celebrities and media personalities private lives. Each
section includes photos of the celebrity in a place of special significance to
the celebrity, accompanied by a quote explaining why he or she chose that
particular location for the photo and why it means so much to them. Detour Space
will expand upon the theme of place to feature longer pictorials and excursions
involving personalities and their homes, their work spaces and other elements of
the culture of the celebrity, in an effort to achieve a casual intimacy with
those whom are typically seen only in highly mediated, artificial circumstances.
One of the reasons the Company intends to publish Detour Space is to
provide a revenue source for the two months when the Company does not publish
the magazine. The Company estimates that the cost of each issue of Detour Space
will not exceed $125,000, which is approximately $50,000 less than the cost of
publishing each issue of the magazine.
Advertising. Management believes that the Company has established a strong
national advertising base. During 1999, advertising customers included, among
others, Absolut Vodka, Bacardi, Bottega Veneta, Bombay Sapphire, Calvin Klein,
Candies, Kamel, Camel, Cartier, Charles David, Concord, Diesel Jeans, Donna
Karan, Evian, Gucci, Prada, Polo, Playboy, Emporio Armani, GAP, Guess Jeans,
Hugo Boss, Levi's, Louis-Boston, L'Oreal, Mossimo, Marlboro, Polygram Films, Sky
Vodka, Sony Music, Stussy, MGM/United Artists, Universal, Varda Versace, and
Winston.
Since inception, Detour Magazine has had well over 100 advertisers.
Advertising revenues accounted for approximately 86% of the Company's total
revenues during 1999. In 1999, the Company's two largest advertisers, Marlboro
and the Gap, accounted for approximately 14.6% ($201,659) and 12.5% ($156,211),
respectively, of the Company's total advertising revenues, and the top five
accounts represented approximately 47.4% of total advertising revenues.
Circulation/Distribution. During 1999, and until April 2000, Detour
Magazine was distributed by Rider Circulation Services, Inc. Commencing with the
May 2000 issue, the magazine will be distributed by Curtis Circulation Company
("Curtis"). Curtis is
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a leading international distributor, allowing for broader distribution of the
magazine.
Curtis has been performing major distribution assignments in attempts to
increase circulation and sales efficiency of the magazine. Management remains
optimistic that the assignments should result in matching its major competitors
in the number of copies and locations of Detour Magazine, as well as place more
copies of the magazine in higher potential retailers. Management is currently
focusing on Los Angeles and New York to ensure the highest degree of
sell-throughs.
Commencing in 1998, the Company implemented a program to expand the Detour
Magazine's newsstand sales. The Company's newsstand consultant coordinates this
plan between the publisher and the Company's distributor. Point of sales
programs in airports, bus and train terminals and metro newsstands should not
only increase newsstand sales, but should give the advertisers more visibility.
The Company hopes that this program will continue to bring new retail display
opportunities to Detour Magazine, but there can be no assurances that this will
occur.
During 1999, the Company discontinued its attempts to make subscriptions
sales profitable. It is currently reviewing several strategic alliances which
would be intended to result in an increase in the subscription base. However, as
of the date of this report, no such alliances have been formed and there can be
no assurances that any such alliance will be formed in the future, or if so
formed, that such alliance will result in any increase in the subscription base.
Readership Profile. Detour Magazine's reputation as a cutting-edge fashion
and entertainment magazine has translated into a readership profile comprised of
an attractive audience for advertisers. Detour's average reader is a 29 year old
professional, with an average income in excess of $75,000+ per year. Over 60% of
the readers are single, and 74% percent have obtained college degrees. The
average reader of Detour spends over $15,000 per year on clothing and dines out
2.6 times per week.
Editorials. The Company remains committed to its long-standing editorial
mission: to be the premier urban avant-garde publication devoted to
entertainment, fashion lifestyle and contemporary social issues. It's targeted
audience of affluent, educated and creative professionals thrives on new
information about the latest cultural trends. Long before assimilating into the
mainstream, styles and trends being on the margins, which is where Detour, as
its name implies, derives its sensibility - off the beaten path, miles from the
safe, familiar, well-paved roads of the pop-culture highway.
Over the past year, in a dual effort to reinforce its image as an essential
fashion resource and to attract coveted fashion
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advertisers, the Company has featured 30-60 pages of fashion pictorials in each
issue and it is expected that the Company will continue to do so in the future.
In addition, the Company has expanded its style coverage to include service
pages devoted to health and beauty, as well as profiles of new stores,
restaurants, products and accessories, all of which provide enhanced
opportunities for advertisers.
In 1999 the Company made a minor redesign of the front of Detour Magazine
to add a sex column and an Internet column and to reintroduce columns emanating
from New York and Los Angeles. The city columns were included to emphasize the
Company's bi-coastal focus and to provide appealing positions for advertisers.
It is hoped that this will serve as an incubator for talent. For example, the
Company's first Los Angeles column, "Misadventures in the (213)" was eventually
adapted into a successful novel and is currently in development as a potential
television series. Management believes this demonstrates the Magazine's
viability as a springboard for ancillary media properties. The Company is
committed to developing this area in the future.
To fine-tune the Magazine's visual appeal, the publisher recently hired two
design consultants who will assist with everything from image materials such as
media kits and business cards, to the magazine's layouts, typefaces, photography
and fashion editorials. The senior consultant, Mark Balet, is a designer with
more than 20 years experience, including lengthy tenure at Interview Magazine
under Andy Warhol, as well as creative supervision of numerous major books and
advertising campaigns for Ralph Lauren and other major fashion companies. The
other consultant, Tony Moxham, was art director of Interview Magazine, and
recently lent his expertise to ad campaigns for such clients as Versace and Gap.
During 1999, the Company also produced a successful Academy Awards-themed
supplement to the magazine, sponsored by the Internet company the Hollywood
Stock Exchange, which accompanied the April 1999 issue. The Company plans to
produce additional supplements in the future, including a comparison to its
November "Young Hollywood" issue.
New Business Strategy
In 1999, management developed a broad operational and financial strategic
plan to implement and develop "Detour Online," the Company's e-business
operations. The Plan calls for the Company to rapidly build its online brand and
customer base by (i) creating an affinity portal that broadly serves a unique
market and a highly attractive demographic for advertisers; (ii) leveraging its
existing print customer base via aggressive promotions and "advertorials" in the
Magazine; (iii) developing a strong Internet community base to ensure customer
retention and provide future
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revenue-generating potential; (iv) aggressively marketing to both on and offline
via special events and promotions; and (v) pursing content and e-commerce
partners to increase revenue and customer acquisition.
Additionally, this strategy includes the creation of iDetour.com, an online
community destination with portal functions that caters to the niche demographic
market of Detour Magazine. Further, the Company has launched a second Internet
domain, DetourTV.com, which delivers TV-quality video to PC users.
Detour Online will be the first step taken by the Company to achieve the
goal of establishing an Internet brand synonymous with the "hip" and
trendsetting population. The Company intends to derive revenues from Detour
Online through advertising, e-commerce and direct marketing. Management believes
that the Company's existing relationships with advertisers in Detour Magazine
provide the Company with an advantage over other start-up web companies in
attracting advertising. Pursuant to the Plan, Detour is adding three new
divisions:
- Detour Online, which includes DetourTV and iDetour.com
- Detour Custom Publishing
- Detour Events
In order to successfully implement its online strategy, the Company must
raise a minimum of $2 million in additional financing for web site development,
marketing and operating costs and for additional personnel. The Company is in
discussions with investment bankers and others to provide or assist in providing
that financing. However, as of the date of this Report, the Company does not
have any written commitments for this financing, and no assurance can be given
that Detour will obtain any additional financing.
At the present time, it is not anticipated that additional personnel will
be needed to implement the Company's new business strategy, other than those
persons recently added by the Company. The Magazine has recently added a new
creative director and art director, as well as a new chief executive officer.
The creative director and art director will assist in the development of the
custom publishing business.
Detour Online
Detour Online will utilize the Company's existing staff to provide the
creative, editorial and administrative infrastructure to launch a lifestyle
affinity portal for affluent and style- conscious men and women. The Company
intends to attract users to its web sites by offering entertaining and
informative content, community-building features and strong merchandise
presentation complemented by extensive product information. DetourTV.com is
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representative of Detour's commitment to being a major player in the world of
convergence with the unique and world wide marketability of its Hollywood
content.
As the Internet continues to grow, new ways are being found to make
people's lives more efficient. From the worlds of fashion and entertainment, to
sex and travel. Detour Online will attempt to be on the top of the latest trends
and information. Users will be able to get a stock quote, check e-mail, get
horoscopes, or check out the sex tip of the day. The Detour website is designed
to provide easy navigation. The Company plans to become the Internet authority
on what is hot around town from restaurants and nightclubs, to gyms and
shopping, in three cities; New York, Los Angeles and Miami. The site will offer
free Internet access through an arrangement with 1stUp.com to its Internet
member.
During December 1999 and February 2000, the Company launched
www.DetourTV.com and www.iDetour.com, respectively, two Internet web sites. The
Plan calls for the multi-channel distribution of the Detour brand on a worldwide
basis. The strategies call for leveraging Detour's brand in digital and
traditional channels utilizing the Company's operating platform to provide the
creative, editorial and administrative infrastructure to launch the first
lifestyle affinity portal for affluent and style-conscious men and women. The
Company intends to aggregate users within its web sites and attempt to increase
its advertising revenues by offering entertaining and informative content,
community-building features and strong merchandise presentation complemented by
extensive product information. The plan calls for the Company to build its
online brand and customer base by: (i) creating an affinity portal that broadly
serves a unique market and a highly attractive demographic for advertisers; (ii)
leveraging its existing print customer base via promotions and "advertorials" in
the magazine; (iii) developing a strong Internet community base to ensure
customer retention and provide future revenue-generating potential; (iv)
marketing both on and offline via special events and promotions; and (v)
pursuing content and e-commerce partners to increase revenue and customer base.
The plan for operating the two Internet domains includes outsourcing
support facilities. iDetour.com was built and will operate through an agreement
between the Company and OpenSpace.com, Inc., a leading web design and hosting
firm in Seattle, Washington. OpenSpace.com has agreed to provide Detour with
applications services, hosting services and related professional services,
including Custom Instant Portal Services encompassing the day-to- day operation
including content, registration, personalized weather, chat, discussions, web
e-mail and traffic analysis. Content services include basic wire content (news
and sports). Professional services are rendered in response to specific requests
by Detour for activities other than day-to-day operations. Management estimates
that its annual cost with OpenSpace.com will
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be approximately $90,000 during the next twelve months. The agreement with
OpenSpace is for one year beginning April 1, 2000. In addition to the cost for
OpenSpace.com, Detour anticipates spending approximately $100,000 during the
next twelve months for content development, business development and marketing.
Additional marketing and business development are expected to be made as a
result of "trade outs" and content syndication with the Magazine.
The Company has entered into an agreement with LoadTV.com, Inc. to provide
DetourTV.com software applications that delivers TV-quality video to PC users.
LoadTV.com is a privately held Los Angeles, CA based software and production
company which produces TV shows for the web. LoadTV software "wraps around"
Microsoft Windows Media Player and this company will be responsible for
providing the production, editing and hosting of the Detour content. It is
anticipated during the next year that DetourTV will produce two new video
segments per week for distribution presenting a series of short stories based on
highlights of Hollywood parties and movie premieres produced to view on the
Internet. The content developed will be syndicated to other web providers
through the use of real media, a widely accepted video streaming content
technology. The content produced under the agreement with LoadTV is owned by
Detour and will be used to develop traffic for Detour's web sites as well as
provide a platform to sell advertising and sponsorships. The estimated cost of
the LoadTV.com agreement is approximately $120,000 over the next twelve months.
In addition to the costs for LoadTV technology, Detour anticipates spending an
estimated $100,000 during the next twelve months for marketing, business
development and additional content.
Detour Custom Publishing
Detour Custom Publishing is being formed to capitalize on the Company's
core publishing competency and to leverage its existing editorial, creative and
technical publishing skills. Detour Custom Publishing will specialize in
providing turnkey custom publishing solutions to small-to-medium size online
companies. Detour Custom Publishing will help companies build their brand,
generate revenues and develop cross-media marketing solutions for successful
dot-com companies. The alliances are being structured to pay Detour all hard
costs attendant to the publication and to share revenue on a percentage basis.
During 2000, Detour will add an additional business unit to complement its
two Internet portals. The trend for online companies that began as pure Internet
plays is to develop magazines to extend their brand. Examples include eBay
Magazine, Garden Escape and Yahoo Internet Life. Small-to-medium size Internet
companies are putting their content into print for essentially three reasons:
(i) lower cost compared to TV and radio; (ii) higher
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effectiveness, as people interact with print longer and more actively than other
media; and (iii) print is portable.
By working with these companies to develop new print magazines, Detour may
generate additional revenue and develop cross-media marketing solutions. The
custom publishing unit will use the current editorial and production staff of
the Magazine, leveraging its core competency. A revenue model is being developed
to include both advertising and subscription sales, as well as production fees.
Internet and digital content providers need to reach viewers across
multiple channels. The business model being developed provides for the digital
company to produce its content. Detour will receive the content and provide art
direction, creative direction, print and circulation management. Acting as
advisors, Detour will create the print vehicle to leverage the content. In
addition to receiving a production fee for providing the services, Detour will
revenue share the advertising and circulation income. In addition, the Company
will offer to its own advertisers, as well as the advertisers for its digital
customer, a new platform to place their ads.
Detour Events
Detour events are a well known Hollywood community product. Detour's
demographic appeal, upwardly mobile, urban 18-35 year old "opinion makers" is an
ideal target for certain advertisers. The Company plans to create events in
collaboration with the Company's advertisers interested in creating visibility
with the Company's target audience. These events include movie premieres,
parties, fashion shows and other social promotional activities.
The Company anticipates producing these events on a cost plus markup, to be
billed directly to the relevant advertisers. In addition, the Company will
utilize its available trade-outs and barter arrangements for to offset out of
pocket costs relating to some of the anticipated services to be provided.
Other
In December 1999, the Company and its majority stockholder entered into an
agreement with two financial advisors to assist the Company in obtaining equity
and debt financing and to provide other consulting services, including
identifying potential acquisitions and strategic partners, analyzing potential
acquisitions and other business arrangements, assisting in strategic planning
and business development, market support and assisting in developing e-business
plans. In connection with this agreement, the Company issued to each advisor
warrants to purchase 800,000 shares of its common stock at an exercise price of
$.10 a share. The vesting of such warrants is subject to certain conditions
during a service period
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that extends through September 30, 2000, as follows: (i) 25,000 warrants vest
per month throughout the service period; (ii) in addition, at such time that the
Company receives at least $1,000,000 of financing arranged by the financial
advisors, additional warrants shall vest in a ratio equal to the aggregate funds
raised divided by $5,000,000; and (iii) in the event of a sale of the Company
during the service period, additional warrants vest in an amount equal to the
number of vested warrants immediately prior to the sale (effectively doubling
the number of vested warrants). In no event shall the number of vested warrants
exceed the initial number of warrants of 1,600,000.
The agreement also provides the financial advisors an option to purchase
3,000,000 shares of common stock of the Company owned by the majority
stockholder at an exercise price of $.10. The options shall be exercisable if
and only if the Company receives at least $5,000,000 in financing arranged by
the financial advisors. The stockholder may terminate the option at any time
following the service period by 10-day written notice to the financial advisors,
unless the Company has received $5,000,000 of financing, in which case the
option terminates twelve months from the date of financing.
The agreement also provides for cash financing fee of 10% of the funds
raised. In addition, the financial advisors may be entitled to cash consulting
fees up to $10,000 per month, depending on the amount of funds raised on behalf
of the Company.
Management believe the agreement does not contain a performance commitment
because the financial advisors had no disincentive for nonperformance other than
the loss of the cash, options and warrants attributable to the work performed.
Accordingly, if the financial advisors are successful in obtaining equity and
debt financing for the Company, the options and warrants will be measured at
their then-current fair value. At December 31, 1999, the Company has not
received any financing arranged by the financial advisors. Subsequent to
year-end (Note M), the Company received $1,500,000 of financing resulting in the
vesting of warrants to purchase 416,000 shares of the Company's common stock.
In 1999, the Company issued 440,000 shares of its common stock to employees
as compensation for services rendered. The stock was valued at the closing stock
price on the date of issuance and expensed in the 1999 statement of operations.
The Company also issued 200,000 shares of its common stock for cash proceeds
totaling $50,000.
Also, in 1998, the Company acquired assets, properties, rights and the
business of Milton Magazine, a magazine which had been published by the family
of Milton Berle. As of the date of this Report, it is not anticipated that the
Company will make any effort to publish this magazine in the future.
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Employees
At April 30, 2000, the Company had 18 full time employees, including six
persons in its Editorial department, four in sales, six in administration and
two in its production department. The Company engages additional persons on an
"as needed" basis, depending upon the number of projects in which the Company is
involved, on a part time employee or independent contractor basis. Management
believes that its relationship with its employees is satisfactory. No employee
is a member of any union.
Competition
The Company competes with publicly and privately held companies in the
publishing business. Specifically, management view Interview (circulation
150,000), Paper (circulation 75,000) and Surface Magazine (circulation 50,000)
as the principal competitors to the Company's magazine, each of whom are
believed to have greater resources, both financial and otherwise, than the
resources presently available to the Company.
While there are numerous competitors in the print magazines, such as
Wallpaper, Details & Paper, the online efforts of most competitors are minimal.
The Company believes that the major competition for the site will be from the
mass market portals Excite, Yahoo, et al., and to a lesser extent, from the
affinity portals that appeal to segments of the Detour audience, e.g. TimeOut
and iVillage.
Current competitors to Detour Magazine has not established a strong
Internet presence beyond providing an online version of their print content.
They include Details, Paper and Wallpaper. Other major fashion and entertainment
print titles with on-line offerings include Elle (ElleShop), Glamour, GQ, In
Style (Instylenetwork), Mademoiselle, People, Playboy, Rolling Stone and Spin.
However, unlike these competitors, Detour Online will be offering a
comprehensive community site which extends its existing print brand to leverage
its strength in both cutting edge fashion and entertainment.
Portal/community/city guide sites:
The major players include America Online/Digital City, Disney/Go Network,
Excite, Lycos, Microsoft/Sidewalk, Ticketmaster- City Search, TimeOut and Yahoo.
To date, each of these companies has been positioned to focus on capturing the
mass market on-line audience. Other more specialized sites within this segment
that are focused around gender or lifestyle include PlanetOut, iVillage, and
Women.com. In contrast to these competitors, Detour Online offers specialized
content appealing across genders to a "hipper" and less mass market oriented
demographic.
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Online and traditional entertainment/media companies:
Online media companies include CNet, EOnline, UltimateTV, and ZDNet.
Traditional media company competitors include NewsCorp (Fox), Sony (SonyOnline),
Time-Warner (Pathfinder and Warner Online), and Viacom (Nickelodeon, MTV, etc.).
The Company believes that building a strong Detour brand based on
proprietary content, combined with its ability to deliver targeted audiences to
advertisers and the overall cost- effectiveness of the advertising medium it
offers are principal competitive advantages. However, many of the Company's
competitors, current and potential, may have greater financial or technical
resources, and the Company could face additional competitive pressures that
would have a material and adverse effect on the Company's business, results of
operations and financial conditions.
Trademarks
The Company has been issued a federal registration of the trademark Detour
with the United States Patent and Trademark Office, Washington, D.C. and the
application has been assigned a filing date of September 2, 1997, Serial No.
75-350798.
Government Regulations
The Company is not subject to any extraordinary governmental regulations
relating to its business.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal place of business consists of approximately 4,180
square feet of advertising and executive office space at 7060 Hollywood Blvd.,
Suite 1150, Los Angeles, California, for which it pays rent of $6,270 per month,
which space is subject to a three year lease which commenced December 1, 1998.
This lease contains cost of living increases. In addition, the Company presently
leases approximately 2,200 square feet of executive office space at 34 West
22nd. St., 3rd Floor, New York, New York, at a rental fee of $2,993 per month
through January 31, 2000 and escalating to $3,140 per month from February 1,
2000 through January 31, 2001, the termination date of the lease. It is
anticipated that the Company's present premises will be adequate to meet the
Company's needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
By notice dated March 30, 2000, the staff of the Salt Lake City District
Office of the Securities and Exchange Commission ("SEC" or "the Commission") has
notified the Company and its Chairman, Edward T. Stein, that it is recommending
to the SEC that
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an enforcement action be filed against both the Company and Mr. Stein relating
to accuracy of certain of the Company's financial statements in 1997 and 1998.
Based on discussions between the staff and the Company's counsel, the Company
believes that the enforcement action would be based on: (i) the improper
presentation of certain quarterly financial information; and (ii) the failure to
record in accordance with generally accepted accounting principles the proper
compensation expense resulting from the issuance in 1997 of options to purchase
4,400,000 shares of Common Stock in 1997 to consultants. According to the notice
from the Commission, the SEC anticipates alleging that the Company violated
Section 17 A of the Securities Act of 1933 and Section 10B of the Securities
Exchange Act of 1934 and various rules promulgated thereunder.
The Company believes that the issue regarding improper presentation of
quarterly financial information relates to the Company's averaging of certain
costs and expenses in certain quarterly periods in 1997 and 1998 instead of
calculating these costs and expenses precisely. To comply with the staff's
requirement, the Company would be required to determine the actual costs and
expenses for the affected quarters. The Company is uncertain of what, if any,
actual adjustments would be made or the magnitude of such adjustments. No
allegation has been made as to the accuracy of these costs and expenses in the
related annual financial statements, and the Company does not believe that any
of these quarterly adjustments would result in any change in the Company's
reported net income for 1997 and 1998.
The second issue relates to whether the Company recorded the proper amount
of compensation expense in connection with the issuance of the options to the
consultants. The Company recorded an expense of $21,991, based on the exercise
price of the options of $.005 per share. The Company understands that the staff
believes that the expense should be the fair market value of the options at the
time the options were issued. Under generally accepted accounting principles,
any such additional compensation expense in connection with the options would
result in a corresponding increase in the paid-in capital of the Company. Thus,
while the expense would increase the Company's net loss for 1997, the paid-in
capital would be similarly increased and there would be no change to the
Company's total deficit in stockholders' equity as of the end of 1997.
The Company has advised the staff that it wishes to cooperate fully and
reach an agreement on an appropriate remedy to resolve this matter. The Company
has determined to restate its financial statements to address the concerns
raised by the staff. The Company has advised the staff of this intention and is
presently involved with the staff to resolve the matter.
Discussions between the Company and the Commission are ongoing and the
Company believes that it will be able to resolve these
15
<PAGE>
allegations without the initiation of litigation or the imposition of financial
penalties on the Company. This matter, if resolved in a manner different from
the expectations of management, could have a material adverse effect on the
Company's ability to raise capital and therefore on the operating results and
cash flows of future periods.
The Company has been named as a defendant in several other lawsuits in the
normal course of its business. In the opinion of management, after consulting
with legal counsel, the liabilities, if any, resulting from these matters will
not have a material effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were presented to the Company's shareholders during the last
three months ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
(a) Market Information. The Company's Common Stock is approved for
quotation on the National Association of Securities Dealers OTC Bulletin Board.
The table below sets forth the reported high and low bid prices for the periods
indicated. The bid prices shown reflect quotations between dealers, without
adjustment for markups, markdowns or commissions, and may not represent actual
transactions in the Company's securities.
Bid Price
Quarter Ended High Low
------------- ---- ---
March 31, 1998 $5.13 $2.50
June 30, 1998 $3.69 $1.13
September 30, 1998 $1.25 $0.31
December 31, 1998 $0.63 $0.19
March 31, 1999 $0.47 $0.18
June 30, 1999 $0.52 $0.30
September 30, 1999 $0.51 $0.18
December 31, 1999 $0.23 $0.14
(b) Holders. As of April 25, 2000, there were 69 holders of record of the
Company's Common Stock.
(c) Dividends. The Company did not pay any dividends on its Common Stock
during the two years ended December 31, 1999. Pursuant to the laws of the State
of Colorado, a corporation may not issue a distribution if, after giving its
effect, the corporation would not be able to pay its debts as they became due
16
<PAGE>
in the usual course of business, or such corporation's total assets would be
less than the sum of their total liabilities plus the amount that would be
needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution. As a
result, management does not foresee that the Company will have the ability to
pay a dividend on its Common Stock in the fiscal year ended December 31, 2000.
See "Part II, Item 7, Financial Statements."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited 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.
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 fiscal years ended
December 31, 1999 and 1998.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the fiscal years ended December 31,
1999 and 1998
Total revenues declined from $4,368,656 in 1998 (restated) to $3,335,912 in
1999, a decrease of $1,032,744 (23.6%). This decrease was attributable to lower
circulation and less advertising
17
<PAGE>
revenues resulting from a reduction in the number of copies of each issue of the
magazine, due primarily to the Company's lack of operating capital and cash flow
shortages. A lesser number of copies of the magazine results in a decrease in
the number of copies of the magazine sold.
Costs of sales were $2,467,872 in 1999, compared to $3,262,246 in 1998, a
decrease of $794,374 (32.2%). This was due primarily to a decrease in printing
and paper costs, which arose from management's desire to keep costs down due to
cash shortages. In addition, as a result of management's attempt to stem losses,
the magazine's print orders and book size were decreased by reducing the amount
of editorial content while attempting to maintain as much as possible of the
existing revenues derived by the Company from its current advertising. Further,
the Company recategorized certain editorial costs from general and
administrative costs to cost of sales, including salaries for the editorial
staff and direct editorial costs such as photographers, writers and expenses
related to photo shoots.
Selling, general and administrative expenses were $4,057,636 in 1998,
compared to $1,870,152 in 1999, a decrease of $2,187,484 (53.9%). In order to
cut costs and thereby reduce operating losses, the Company undertook several
steps during the fiscal years ended December 31, 1998 and 1999, including the
following.
- In November 1998, the Company accepted the resignation of John Evans as
President and a director of the Company. As a result, this eliminated annual
compensation and related costs, including a Los Angeles apartment and automobile
costs which aggregated over $300,000 per year;
- The Company dismissed several senior and middle managers who had been
recruited by Mr. Evans. These reductions included the elimination of the Detour
Magazine's editor, a New York sales manager, a fashion editor, a publisher, a
chief financial officer, a creative director and several assistants. The number
of Company employees had peaked at approximately 25 under Mr. Evans and as a
result of these dismissals, the number of employees was reduced to its current
level of 18. This downsizing of personnel and other operating costs led to a
significant reduction in ongoing operating and payroll costs of approximately
$2.6 million on an annual basis. Management believes that the Company has been
able to maintain the quality of its magazine despite the loss of these
employees.
- The Company implemented a number of other cost-cutting measures,
including among other things: (i) downsizing the New York office as described
above; (ii) implementing extensive cuts in travel and entertainment costs; (iii)
implementing extensive cuts in other overhead costs including printing,
pre-press and paper; and (iv) establishing more stringent budgetary controls
over editorial costs.
18
<PAGE>
The Company's interest expense increased from $563,728 during 1998, to
$683,616 during 1999, as a result of additional borrowings during 1999.
In February 1998, the Company entered into an agreement to purchase certain
intangible assets and assumed certain liabilities from Berle-Moll Enterprises,
Inc. ("Berle") for a purchase price of $295,842. The Company paid $85,706 in
cash (includes acquisition costs of $17,706), issued a note payable to Berle in
the amount of $107,164 and assumed certain liabilities in the amount of
$120,678. Under the agreement, the Company agreed that if it ceased to publish a
magazine under the tradename purchased, promptly upon demand by Berle, the
Company would transfer the acquired magazine trademarks to Berle. The acquired
intangible assets were being amortized on a straight-line method over five
years. Amortization expense for the years ended December 31, 1999 and 1998 was
$62,709 and $52,258.
As a result of the Company's inability to publish the acquired magazine,
the Company recorded an asset impairment charge of $198,581 in December 1999,
representing the unamortized carrying value of the acquired intangible assets.
In November 1999, The Company recorded an extraordinary gain of $595,399 in
connection with the settlement of two claims for an aggregate of $693,399 by
payment of a total of $98,000.
As a result primarily of reductions in selling, general and administrative
expenses, the Company reduced its net loss from $(3,533,343) in 1998 ($.24 per
share), to $(1,297,958) ($.12 per share) in 1999.
The Company's goal was and continues to be to achieve profitability as
quickly as possible. However, despite these changes, no assurances can be
provided that the Company will achieve profitable operations in the near future,
or at all.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had nominal cash. Accounts receivable
increased to $193,012 from $76,796 for the similar period in 1998, an increase
of $116,216 (151%), which management attributes to the fact that the Company
reduced the amount of accounts receivable factored with Riviera Financial, Inc.,
Los Angeles, California ("Riviera"), which provided for the factoring of monthly
domestic accounts receivable. This arrangement was terminated by the Company in
1999. The additional services performed by Riviera are now handled on an
in-house basis.
The Company has numerous outstanding notes payable, including the
following:
19
<PAGE>
In August 1998, the Company obtained a loan in the principal amount of
$550,000 from IBF Special Purpose Corporation II, to be used for general working
capital. This loan C currently bears interest at the default rate of 28% 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. The loan remains in default, and the Company is in
negotiations with the lender to work 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 original principal amount 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 arrangement will be made to satisfy
this obligation. This loan is secured by 1,000,000 shares of the Company's
common stock, which were provided by 7 shareholders, including Mr. Stein, who
tendered 190,000 shares as part of the security. Mr. Stein has also personally
guaranteed this obligation.
In December 1999, the Company obtained a $200,000 loan from Sigmapath
Corporation, which accrues interest at the rate of 6% per annum and became due
on March 8, 2000.
The Company has six other notes payable in the aggregate principal amount
of $816,541, bearing interest at rate ranging from 8% to 12% per annum, each of
which requires a monthly or quarterly payment. All six notes are due on demand.
One of the notes is currently in default, which note has an outstanding
principal balance of $75,000 as of the date of this Report. The Company is
engaged in discussions with the holder of this note to amortize the balance due
in three equal payments, to be paid in full on or before July 31, 2000.
In 1995, the majority stockholder of the Company loaned the Company
$932,313. In 1996, this note was converted to a demand note, bearing interest at
the rate of 12% per annum. 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 former factoring arrangement. As of December 31, 1999, the principal
outstanding balance owed on this obligation totalled $932,313. Accrued interest
payable to this stockholder at December 31, 1999 totaled $413,500. Interest
expense for this not was $112,000 for each of the years ended December 31, 1999
and 1998.
Advances from stockholder represent advances made by the majority
stockholder of the Company for working capital purposes. At December 31, 1999,
the advances bore interest at 12% per annum and were payable on demand. In March
2000, the majority stockholder agreed to reduce the annual interest rate to 8%
and modify the repayment terms. Under the new repayment terms, the
20
<PAGE>
advances are repayable in monthly principal installments of $42,000 commencing
January 1, 2001. However, the Company must use at least 25% of the net proceeds
of any financing received by the Company to repay the advances. Further, all of
the advances are due and payable in full at such time as the Company has
received equity financing of at least $10 million. At December 31, 1999,
$2,693,200 of principal was outstanding and classified as short- term. Accrued
interest payable to the majority stockholder at December 31, 1999 totaled
$472,334. Interest expense on the advances from stockholder was $280,0000 and
$157,000 for the year ended December 31, 1999 and 1998, respectively.
In January 2000, the Company issued 20 units for $5,000 per unit, or a
total of $100,000. Each unit consisted of a promissory note of the Company in a
principal amount of $5,000, bearing interest at 10% per year and due and payable
on April 25, 2000, and 5,000 warrants, each warrant entitling the holder to
purchase one share of common stock for $.10 per share at any time through
December 31, 2002. The notes were repaid in April 2000.
In February 2000, the Company issued two units for $100,000 per unit, or a
total of $200,000. Each unit consists of a promissory note of the Company in the
principal amount of $100,000, bearing interest at 10% per year, due and payable
on January 31, 2001, and 75,000 warrants, each warrant entitling the holder to
purchase one share of Common Stock for $.10 per share at any time through
December 31, 2004.
Also in February 2000, the Company issued 75,000 shares of its Common Stock
in favor of Guillermo Rego and Albert and Niliana Nasser in consideration for
these two parties each loaning the Company $55,000 in January 2000. In both
cases, the loans were non-interest bearing and were repaid in February 2000.
Each party represented to the Company that they were accredited investors.
In March 2000, the Company issued 3,000,000 shares of Common Stock for $.33
1/3 per share, or a total of $1,000,000. The purchasers received demand
registration rights exercisable after September 14, 2000. The Company was in
violation of certain representations and warranties made in the stock purchase
agreements and has not received waivers of these violations. These violations
could subject the Company to damages, including the potential rescission of the
shares if waivers cannot be obtained. In April 2000, the Company issued
1,000,000 shares of Common Stock for $.50 per share, for a total of $500,000.
The purchaser received demand registration rights exercisable after April 30,
2001.
Management recognizes that, in order to allow the Company to obtain
profitable operations and implement the new business strategy discussed above in
Part I, Item 1, it will be necessary for the Company to raise additional equity
capital of at least $2
21
<PAGE>
million in addition to the funds recently raised by the Company. The Company is
in discussions with investment bankers and others to provide or assist in
providing that financing. However, as of the date of this Report, the Company
does not have any written commitments for this financing, and no assurance can
be given that Detour will obtain any additional financing. Failure to obtain
additional equity capital into the Company will force management to reduce
editorial expense, which may affect the quality of the Magazine and abandon its
intent to develop its Strategic Plan described hereinabove. 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.
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 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 recent change in the century. If not corrected, many computer
applications were expected to fail or create erroneous results by or at the Year
2000. As a result, many companies were required to undertake major projects to
address the Year 2000 issue. The Company did not incur any negative impact as a
result of this problem and no problems in this regard are anticipated in the
future.
ITEM 7. FINANCIAL STATEMENTS
22
<PAGE>
Financial Statements and Report of
Independent Certified Public Accountants
DETOUR MAGAZINE, INC.
December 31, 1999 and 1998
23
<PAGE>
C O N T E N T S
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF DEFICIT IN STOCKHOLDERS' EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 9
24
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Detour Magazine, Inc.
We have audited the accompanying balance sheet of Detour Magazine, Inc. as of
December 31, 1999, and the related statements of operations, deficit in
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Detour Magazine, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note C to the financial
statements, the Company has sustained losses from operations in recent years,
its total liabilities exceed its total assets and it has a net working capital
deficiency; these factors, among others, raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note C. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Los Angeles, California
May 12, 2000
25
<PAGE>
<TABLE>
Detour Magazine, Inc.
BALANCE SHEET
December 31, 1999
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Accounts receivable, less allowance for
doubtful accounts of $99,300 $ 193,012
Employee advances 46,500
Prepaid publishing expenses 99,187
---------------
Total current assets 338,699
FURNITURE AND EQUIPMENT, net 49,145
DEPOSITS AND OTHER ASSETS 15,510
---------------
$ 403,354
===============
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 69,452
Accounts payable and accrued expenses 997,064
Unexpired subscriptions 83,515
Notes payable 1,539,041
Accrued interest payable 41,738
Advances from stockholder 2,693,200
Note payable to stockholder 932,313
Accrued interest payable to stockholders 885,834
---------------
Total current liabilities 7,242,157
COMMITMENTS AND CONTINGENCIES -
DEFICIT IN STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
10,000,000 shares authorized,
none issued and outstanding -
Common stock, $.001 par value,
25,000,000 shares authorized,
16,002,669 shares issued and outstanding 16,002
Additional paid-in capital 5,020,426
Accumulated deficit (11,875,231)
---------------
Total deficit in stockholders' equity (6,838,803)
---------------
$ 403,354
===============
The accompanying notes are an integral part of this statement.
</TABLE>
4
26
<PAGE>
<TABLE>
Detour Magazine, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
<CAPTION>
1999 1998
------------ ------------
(restated)
<S> <C> <C>
Revenue
Advertising $ 2,863,125 $ 3,759,774
Newsstand and subscription, net of returns 472,787 608,882
------------ ------------
Total revenue 3,335,912 4,368,656
------------ ------------
Costs and expenses
Costs of sales and other direct expenses 2,467,872 3,262,246
Selling, general and administrative expenses 1,870,152 4,057,636
------------ ------------
4,338,024 7,319,882
------------ ------------
Loss from operations (1,002,112) (2,951,226)
------------ ------------
Other expenses
Interest expense (683,616) (563,728)
Asset impairment charge (198,581) -
Loss on disposal of assets (9,048) (18,389)
------------ ------------
Total other expenses (891,245) (582,117)
------------ ------------
Net loss before extraordinary item (1,893,357) (3,533,343)
Extraordinary gain on extinguishment of debt 595,399 -
------------ ------------
Net loss $ (1,297,958) $ (3,533,343)
============ ============
Loss per share of common stock (basic and diluted)
Net loss before extraordinary item $ (.12) (.24)
Extraordinary gain on extinguishment of debt .04 -
------------ ------------
Net loss per share $ (.08) (.24)
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
5
27
<PAGE>
<TABLE>
Detour Magazine, Inc.
STATEMENT OF DEFICIT IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<CAPTION>
Common Stock Additional
----------------------- Paid-in Accumulated
Share Amount Capital Deficit Total
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998, as
previously reported 10,369,336 $ 10,369 $ 1,035,068 $ (3,706,919) $ (2,661,482)
Prior period adjustments
Stock options issued for services - - 3,278,000 (3,278,000) -
Overstated accounts receivable - - - (59,011) (59,011)
---------- ----------- ----------- ------------ ------------
Balance at January 1, 1998, as
restated 10,369,336 10,369 4,313,068 (7,043,930) (2,720,493)
Sale of restricted common stock 593,333 593 444,407 - 445,000
Exercise of stock options 4,400,000 4,400 17,591 - 21,991
Warrants issued for services 75,000 75,000
Net loss for the year (restated) - - - (3,533,343) (3,533,343)
---------- ----------- ----------- ------------ ------------
Balance at December 31, 1998, as
restated 15,362,669 15,362 4,850,066 (10,577,273) (5,711,845)
Sale of restricted common stock 200,000 200 49,800 - 50,000
Issuance of restricted common stock
to employees for compensation 440,000 440 120,560 - 121,000
Net loss for the year - - - (1,297,958) (1,297,958)
---------- ----------- ----------- ------------ ------------
Balance at December 31, 1999 16,002,669 $ 16,002 $ 5,020,426 $(11,875,231) $ (6,838,803)
========== =========== =========== ============ ============
The accompanying notes are an integral part of this statement.
</TABLE>
6
28
<PAGE>
<TABLE>
Detour Magazine, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31,
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,297,958) $ (3,533,343)
Adjustments to reconcile net loss to
net cash used in operating activities:
Extraordinary gain on extinguishment of debt (595,399) -
Asset impairment charge 198,581 -
Depreciation of furniture and equipment 39,547 49,109
Issuance of common stock for services 121,000 75,000
Amortization of intangibles 62,709 52,258
Bad debt expense 30,800 -
Loss on disposal of property and equipment 9,048 18,389
Changes in operating assets and liabilities
Increase (decrease) in accounts receivable (147,016) 205,093
Decrease (increase) in prepaid publishing expenses 48,197 (86,304)
Increase in employee advances (46,500) -
Increase in security deposits - (1,760)
Decrease (increase) in accounts payable and (203,698) 844,221
Decrease in unexpired subscriptions (55,317) (53,226)
Increase in interest payable 425,289 258,451
------------ ------------
Net cash used in operating activities (1,410,717) (2,172,112)
------------ ------------
Cash flows from investing activities:
Purchases of furniture and equipment (6,939) (25,708)
Purchase of intangible asset - (85,707)
------------ ------------
Net cash used in investing activities (6,939) (111,415)
------------ ------------
The accompanying notes are an integral part of these statements.
7
29
<PAGE>
Detour Magazine, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable $ 873,568 $ 650,000
Principal repayments of notes payable (96,978) (406,164)
Advances from stockholder 382,155 1,701,069
Proceeds from issuance of common stock 50,000 466,991
------------ ------------
Net cash provided by financing activities 1,208,745 2,411,896
------------ ------------
Net (decrease) increase in cash (208,911) 128,370
Cash at beginning of year 139,459 11,089
------------ ------------
Cash (overdraft) at end of year $ (69,452) $ 139,459
============ ============
Supplemental disclosures of cash flow information Cash paid during the years
for:
Interest $ 128,831 $ 82,879
============ ===========
Income taxes $ - $ 800
============ ===========
Non cash investing and financing activities:
In 1998, the Company acquired certain intangible assets by assuming
debt in the amount of $227,842.
In 1998, the Company converted accounts payable in the amount of
$139,951 to a promissory note.
The accompanying notes are an integral part of these statements.
</TABLE>
8
30
<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - DESCRIPTION OF BUSINESS
Detour Magazine, Inc., formerly known as Ichi-Bon Investment Corporation
(the "Company"), was incorporated under the laws of the State of Colorado on
May 18, 1990. The Company is in the business of publishing an international
fashion and entertainment magazine. The Company derives its revenue
primarily from advertising, with the balance from circulation. The magazine
is published ten times a year with two double issues per year.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
-------------------
Periodicals published and distributed are sold on a fully returnable basis.
Revenue and related costs are recognized at the on-sale date and an
allowance for returns is established based upon historical experience,
current events and assumptions about future events. Management reviews and
revises the estimate for returns periodically. Adjustments to income
resulting from such revisions are recorded in the year in which the
revisions are made.
Revenue from the sale of magazine subscriptions, net of certain costs
related to their procurement, are deferred and recognized as income over the
term of the subscriptions.
Advertising revenue is recorded net of agency commissions and is recognized
at the on-sale date of related issues.
Prepaid Publishing Expenses
---------------------------
Certain production expenses and other prepaid expenses related to future
periodicals are incurred prior to sale. These costs are recorded as prepaid
expenses and charged to cost of sales and other direct expenses at the time
the related revenues are recognized.
Furniture and Equipment
-----------------------
Furniture and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leased improvements are amortized over the shorter
of the lives of the respective leases or over the service lives of the
assets. The straight-line method of depreciation is followed for
substantially all assets for financial reporting and income tax purposes.
The estimated lives used in determining depreciation are five to seven
years.
9
31
<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes
------------
Income taxes are accounted for using the liability method, under which
deferred tax assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the currently enacted tax rate expected to apply to taxable income in
the periods in which the deferred tax asset or liability is expected to be
settled or realized.
At December 31, 1999, the Company has approximately $8,224,000 and
$4,152,000 of federal and state net operating loss carryforwards available
to offset future taxable income. The losses expire at various years through
2019 for federal purposes and 2012 for state purposes. The deferred tax
asset related to these net operating loss carryforwards is $3,271,000 at
December 31, 1999. There are no other significant deferred tax asset or
liability amounts at December 31, 1999. In the opinion of management, it is
more likely than not that these deferred tax assets will not be realized and
therefore a valuation allowance has been recorded for 100% of the deferred
tax asset.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory rate due to the
increase in the valuation allowance.
Concentration of Credit Risk
----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable. The
Company has no significant off-balance sheet concentrations of credit risk,
such as foreign exchange contracts, option contracts or hedging
arrangements. Accounts receivable are typically unsecured and are derived
from transactions with and from customers primarily located in the United
States. The Company performs ongoing credit evaluations of its customers and
maintains reserves for potential credit losses. The Company maintains an
allowance for doubtful accounts based on the expected collectibility of
accounts receivable.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist of cash, short-term trade
receivables and payables, short-term borrowings and amounts due to
stockholders. The carrying values of cash and short-term trade receivables
and payables approximate their fair values. Based on borrowing rates
currently charged to the Company for financing, the carrying values of the
short-term borrowings and amounts due to stockholders approximate their
estimated fair values.
10
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Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Using Estimates
---------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising Costs
-----------------
Advertising costs are expensed as incurred and included in selling, general
and administrative expenses. Advertising expenses amounted to $41,603 and
$111,433 for the year ended December 31, 1999 and 1998, respectively.
Segment Reporting
-----------------
The Company is centrally managed and operates in one business segment:
publishing.
Loss per Share
--------------
Basic income (loss) per share excludes dilution and is computed by dividing
net loss by the weighted average number of common shares outstanding for the
period. Diluted income per share reflects the potential dilution that could
occur if options to acquire common stock were exercised. All potential
common shares from the exercise of stock options and warrants have been
excluded from the denominator of the diluted per-share computation as a
result of the net loss incurred by the Company in 1999 and 1998.
Warrants to purchase 2,100,000 shares of common stock were not included in
the computation of diluted loss per share for the year ended December 31,
1999 and 1998 because to do so would have been antidilutive for the periods
presented.
11
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<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - GOING CONCERN MATTERS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. The Company has incurred net losses of
$1,297,958 and $3,533,343 during the years ended December 31, 1999 and 1998.
At December 31, 1999, the Company's total liabilities exceeded its total
assets by $6,838,803 and the Company had a net working capital deficiency of
$6,903,458. The Company is also in default of certain notes payable. These
factors, among others, indicate that the Company may be unable to continue
as a going concern.
In 1999, management of the Company developed a broad operational and
financial strategic plan to implement and develop "Detour Online," the
Company's e-business operations. The plan calls for the Company to rapidly
build its online brand and customer base by: (i) creating an affinity portal
that broadly serves a unique market and a highly attractive demographic for
advertisers; (ii) leveraging its existing print customer base via aggressive
promotions and "advertorials" in the magazine; (iii) developing a strong
Internet community base to ensure customer retention and provide future
revenue-generating potential; (iv) aggressively marketing to both on and
offline via special events and promotions; and (v) pursuing content and
e-commerce partners to increase revenue and customer acquisition. Additional
components of the Plan include: (i) launching two Internet domains,
www.DetourTV.com and www.iDetour.com; (ii) the restructuring of the
Company's magazine operations in order to eliminate historic operating
losses; and (iii) the commencement of the Company's e-marketing subscription
programs in conjunction with www.Enews.com, a major Internet magazine
retailer.
In order to cut costs and thereby reduce operating losses, the Company
undertook several steps during the years ended December 31, 1998 and 1999.
In November 1998, the Company accepted the resignation of its president and
a director of the Company. This action eliminated annual compensation and
related costs, including a Los Angeles apartment and automobile costs. The
Company dismissed several senior and middle managers. These reductions
included the elimination of the magazine's editor, a New York sales manager,
a fashion editor, a publisher, a chief financial officer, a creative
director and several assistants. The number of Company employees had peaked
at approximately 25 and as a result of these dismissals, the number of
employees was reduced to its current level of 18. This downsizing of
personnel and other operating costs led to a reduction in ongoing operating
and payroll costs. Management believes that the Company has been able to
maintain the quality of its magazine despite the loss of these employees.
12
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<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - GOING CONCERN MATTERS - Continued
The Company implemented additional cost-cutting measures, including:
downsizing the New York office, extensively reducing travel and
entertainment costs, reducing other overhead costs including printing,
pre-press and paper, and establishing more stringent budgetary controls over
editorial costs.
Going forward, significant amounts of additional cash will be needed to pay
the costs to implement the new business plan and to fund losses until the
Company is profitable. While there is no assurance that funding will be
available to execute the plan, the Company is continuing to seek financing
to support its business plan and is exploring a number of alternatives in
this regard. As discussed in Note M to the financial statements, the
Company has raised $1,500,000 through the issuance of its common stock
subsequent to December 31, 1999. However, as discussed in Note M, some
uncertainties exist related to $1,000,000 of these stock issuances. The
Company is continuing to seek additional financing and is exploring
alternatives that include strategic investors. As discussed in Note J-2,
the Company's ability to raise additional capital could be affected by the
resolution of a current proceeding by the Securities and Exchange
Commission.
To implement the proposed business plan and to fund associated restructuring
costs and operating losses, the Company also will be required to restructure
certain of its outstanding debt and other financing arrangements. Several
alternatives are being considered.
Management believes that, despite the financial hurdles and funding
uncertainties going forward, it has developed a business plan that, if
successfully funded and executed, can significantly improve operating
results. The support of the Company's vendors, customers, lenders,
stockholders and employees will continue to be key to the Company's future
success.
In view of the matters described above, recoverability of a major portion of
the recorded asset amounts shown in the accompanying balance sheet is
dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
13
35
<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE D - ACCOUNTS RECEIVABLE
During 1999 and 1998, the Company sold a majority of its advertising
accounts receivable to a finance company without recourse. The receivables
were sold at a discount ranging from 2.5% to 9% on a pre-approved basis
(average discount rate of 5% per month for 1999 and 1998), with a
"hold-back" of 11% on each invoice until payment of the receivables.
Therefore, the finance company was only factoring 89% of the Company's
eligible advertising receivables. The finance company provided certain
credit services for the Company, such as obtaining credit reports on
customers and collections. In December 1999, the Company discontinued
selling its accounts receivable and the remaining amount due from the
finance company at December 31, 1999 was not significant. Finance fees for
the years ended December 31, 1999 and 1998 totaled $117,524 and $222,397,
respectively, and are included in interest expense on the statement of
operations. Proceeds received from the sales of accounts receivable are
included in cash flows from operating activities in the statements of cash
flows.
NOTE E - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1999 consist of the following:
Office equipment $155,399
Furniture and fixtures 63,666
--------
219,065
Less accumulated depreciation (169,920)
--------
$ 49,145
========
14
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<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - NOTES PAYABLE
Notes payable at December 31, 1999 consist of the following:
Note due in December 1998. The note bore interest at 18%
through its maturity date and currently bears interest
at 28%. The Company is in default of this note, which is
personally guaranteed by the Company's majority stockholder. $ 522,500
Note payable, principal and unpaid interest due on March
8, 2000. The note bears interest at 6%. The note was not
repaid on the due date and the Company is currently in
default of this note. 200,000
Six notes payable, bearing interest at rates ranging from
8% to 12% and requiring monthly or quarterly interest payments.
All six notes are payable on demand. 816,541
-----------
$ 1,539,041
===========
Interest expense on these notes payable totaled $175,000 and $72,000 for the
year ended December 31, 1999 and 1998, respectively.
NOTE G - AMOUNTS DUE TO STOCKHOLDERS
Note payable to stockholder represents advances of $932,313 made to the
Company in 1995. The note bears interest at 12% per year, is payable on
demand, and is collateralized by substantially all the assets of the
Company. At December 31, 1999, the full amount of principal is outstanding.
Accrued interest payable to this stockholder at December 31, 1999 totaled
$413,500. Interest expense for this note was $112,000 for each of the years
ended December 31, 1999 and 1998.
Advances from stockholder represent advances made by the majority
stockholder of the Company for working capital purposes. At December 31,
1999, the advances bore interest at 12% per annum and were payable on
demand. In March 2000, the majority stockholder agreed to reduce the annual
interest rate to 8% and modified the repayment terms. Under the new
repayment terms, the advances are repayable in monthly principal
installments of $42,000 commencing January 1, 2001. However, the Company
must use at least 25% of the net proceeds of any financing received by the
Company to repay the advances. Further, all of the advances are due and
payable in full at such time as the Company has received equity financing of
at least $10,000,000. At December 31, 1999, $2,693,200 of principal is
outstanding and classified as short-term. Accrued interest payable to the
majority stockholder at December 31, 1999 totaled $472,334. Interest expense
on the advances from stockholder was $280,000 and $157,000 for the year
ended December 31, 1999 and 1998, respectively.
15
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<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE H - ASSET IMPAIRMENT CHARGE
In February 1998, the Company entered into an agreement to purchase certain
intangible assets from and assumed certain liabilities of Berle-Moll
Enterprises, Inc. ("Berle") for a total purchase price of $295,842. The
Company paid $85,706 in cash (including acquisition costs of $17,706),
issued a note payable to Berle in the amount of $107,164 and assumed certain
liabilities in the amount of $120,678. Under the agreement, the Company
agreed that if it ceased to publish the acquired magazine acquired under the
trademark purchased, promptly upon demand by Berle, the Company would
transfer the magazine trademarks to Berle. The acquired intangible assets
were being amortized on a straight-line method over five years. Amortization
expense for the years ended December 31, 1999 and 1998 was $62,709 and
$52,258.
As a result of the Company's inability to publish the magazine under the
acquired trademark, the Company recorded an asset impairment charge of
$198,581 in December 1999, representing the unamortized carrying value of
the acquired intangible assets.
NOTE I - EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
In 1999, the Company recorded an extraordinary gain of $595,399 in
connection with the settlement of two liabilities aggregating $693,399 by
payment of a total of $98,000.
NOTE J - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
----------------
The Company conducts its operations from two facilities that are leased
under separate three year non-cancelable operating leases expiring in
January 2001 and November 2001. The Company is required to pay its
proportionate share of utilities and real estate taxes at one of its
locations.
Rent expense for the years ended December 31, 1999 and 1998 was $119,862 and
$134,884, respectively.
Minimum future rental payments under non-cancelable operating leases as of
December 31, 1999 are as follows:
Year ending December 31, Amount
------------------------ -------------------
2000 $112,796
2001 72,112
--------
Total $184,908
========
16
38
<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
2. Investigation by the Securities and Exchange Commission
-------------------------------------------------------
By notice dated March 30, 2000, the staff of the Salt Lake City District
Office of the Securities and Exchange Commission ("SEC" or "the Commission")
has notified the Company and its Chairman that it is recommending to the SEC
that an enforcement action be filed against both the Company and its
Chairman relating to accuracy of certain of the Company's financial
statements in 1997 and 1998. Based on discussions between the Commission's
staff and the Company's counsel, the Company believes that the enforcement
action would be based on: (i) the improper presentation of certain quarterly
financial information; and (ii) the failure to record in accordance with
generally accepted accounting principles the proper compensation expense
resulting from the issuance to consultants in 1997 of options to purchase
4,400,000 shares of common stock. According to the notice from the
Commission, the SEC anticipates alleging that the Company has violated
Section 17(a) of the Securities Act of 1933, and Section 10(b) of the
Securities Exchange Act of 1934, rule 10b-5, Section 13(a) of the Exchange
Act and various rules promulgated thereunder.
The Company believes that the issue regarding improper presentation of
quarterly financial information relates to the Company's averaging of
certain costs and expenses in certain quarterly periods in 1997 and 1998
instead of calculating these costs and expenses precisely. To comply with
the staff's requirement, the Company would be required to determine the
actual costs and expenses for the affected quarters. The Company is
uncertain of what, if any, actual adjustments would be made or the magnitude
of such adjustments. No allegation has been made as to the accuracy of these
costs and expenses in the related annual financial statements, and the
Company does not believe that any of these quarterly adjustments would
result in any change in the Company's reported net income for 1997 and 1998.
The second issue relates to whether the Company recorded the proper amount
of compensation expense in connection with the issuance of the options to
the consultants. The Company recorded an expense of $21,991, based on the
exercise price of the options of $.005 per share. The Company understands
that the staff believes that the expense should be the fair market value of
the options at the time the options were issued. Under generally accepted
accounting principles, any such additional compensation expense in
connection with the options would result in a corresponding increase in the
paid-in capital of the Company. Thus, while the expense would increase the
Company's net loss for 1997, the paid-in capital would be similarly
increased and there would be no change to the Company's total deficit in
stockholders' equity as of the end of 1997.
17
39
<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
The Company has advised the staff that it wishes to cooperate fully and
reach an agreement on an appropriate remedy to resolve this matter. The
Company has determined to restate its financial statements to address the
concerns raised by the staff. The Company has advised the staff of this
intention and is presently involved with the staff to resolve the matter
(Note L).
Discussions between the Company and the staff are ongoing and the Company
believes that it will be able to resolve these allegations without the
initiation of litigation by the Commission or the imposition of financial
penalties on the Company. This matter, if resolved in a manner different
from the expectations of management, could have a material adverse effect on
the Company's ability to raise capital and therefore on the operating
results and cash flows of future periods.
3. Litigation
----------
The Company is a defendant in several other lawsuits in the normal course of
its business. In the opinion of management, after consulting with legal
counsel, the liabilities, if any, resulting from these matters will not have
a material effect on the Company's financial statements.
NOTE K - EQUITY
In June 1997, the Company adopted the Detour Magazine, Inc. 1997
Non-Qualified Stock Option Plan (the "Plan"), which reserved an aggregate of
4,400,000 shares of the Company's common stock for issuance thereunder. In
1997, the Company authorized the issuance of 4,400,000 options under the
Plan to five entities, granting each entity options at an exercise price of
$.005 (Note L). All of the issued options were exercised in 1998 and
resulted in net proceeds of $21,991. None of the options to purchase shares
of the Company's common stock under the Plan were issued in favor of any
member of management. At December 31, 1999, there are no further options
reserved for issuance under the Plan and there are no outstanding options.
In 1998, the Company issued 593,333 shares of common stock for cash.
Proceeds totaled $445,000. The Company also issued 500,000 warrants to
purchase the Company's common stock in exchange for services. The exercise
price of the warrants equaled the fair market value of the stock ($.41) at
the date of issuance and the warrants expire on December 17, 2003. The
estimated fair value of these warrants at the date issued was $.15 per share
(total value of $75,000) using a Black-Sholes option pricing model with the
following assumptions: volatility of 30%; risk free interest rate of 5%, and
an expected term of 5 years. The related expense has been recorded in
selling, general and administrative expenses in 1998.
In 1999, the Company issued 440,000 shares of its common stock to employees
as compensation or services rendered. The stock was valued at the closing
stock price on the day of issuance and expensed in the 1999 statement of
operations. The Company also issued 200,000 shares of its common stock for
cash proceeds totaling $50,000.
18
40
<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE K - EQUITY - Continued
In December 1999, the Company and its majority stockholder entered into an
agreement with two financial advisors to assist the Company in obtaining
equity and debt financing and to provide other consulting services,
including identifying potential acquisitions and strategic partners,
analyzing potential acquisitions and other business arrangements, assisting
in strategic planning and business development, market support and assisting
in developing e-business plans. In connection with this agreement, the
Company issued to each advisor warrants to purchase 800,000 shares of its
common stock at an exercise price of $.10 a share. The vesting of such
warrants is subject to certain conditions during a service period that
extends through September 30, 2000 as follows: (i) 25,000 warrants shall
vest per month throughout the service period; (ii) in addition, at such time
that the Company receives at least $1,000,000 of financing arranged by the
financial advisors, additional warrants shall vest in a ratio equal to the
aggregate funds raised divided by $5,000,000; and (iii) in the event of a
sale of the Company during the service period, additional warrants vest in
an amount equal to the number of vested warrants immediately prior to the
sale (effectively doubling the number of vested warrants). In no event shall
the number of vested warrants exceed the initial number of warrants of
1,600,000.
The agreement also provides the financial advisors an option to purchase
3,000,000 shares of common stock of the Company owned by the majority
stockholder at an exercise price of $.10. The options shall be exercisable
if and only if the Company receives at least $5,000,000 in financing
arranged by the financial advisors. The stockholder may terminate the option
at any time following the service period by 10-day written notice to the
financial advisors, unless the Company has received $5,000,000 of financing,
in which case the option terminates twelve months from the date of
financing.
The agreement also provides for cash financing fee of 10% of the funds
raised. In addition, the financial advisors may be entitled to cash
consulting fees up to $10,000 per month, depending on the amount of funds
raised on behalf of the Company.
Management believe the agreement does not contain a performance commitment
because the financial advisors had no disincentive for nonperformance other
than the loss of the cash, options and warrants attributable to the work
performed. Accordingly, if the financial advisors are successful in
obtaining equity and debt financing for the Company, the options and
warrants will be measured at their then-current fair value. At December 31,
1999, the Company has not received any financing arranged by the financial
advisors. Subsequent to year-end (Note M), the Company received $1,500,000
of financing resulting in the vesting of warrants to purchase 416,000 shares
of the Company's common stock.
19
41
<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE L - PRIOR PERIOD ADJUSTMENTS
In 1997, the Company issued to consultants options to purchase 4,400,000
shares of common stock with an exercise price of $.005 per share in exchange
for services rendered to the Company. The options were not assigned a value
and therefore no expense was recorded for such options in the 1997 financial
statements. In March 2000, the Company determined that the options were not
accounted for correctly. The correction of this error resulted in an
increase in the accumulated deficit as of January 1, 1998 of $3,278,000 and
an offsetting increase to additional paid-in capital. In addition, the
Company increased the accumulated deficit as of January 1, 1998 to correct
an overstatement of accounts receivable at January 1, 1998 of $59,011. The
aggregate effect of these corrections was to increase the net loss for the
year ended December 31, 1997 by $3,337,011.
The 1998 statement of operations has been restated to reflect the following:
Net loss for 1998, as previously reported $ (3,240,204)
Overstated consulting revenue (255,223)
Understated advertising and newsstand revenue 59,011
Understated selling, general and administrative expenses (96,927)
------------
Net loss for 1998, as restated $ (3,533,343)
============
NOTE M - SUBSEQUENT EVENTS
In January 2000, the Company issued 20 units for $5,000 per unit, or a total
of $100,000. Each unit consists of promissory note of the Company in a
principal amount of $5,000, bearing interest at 10% per year due and payable
on April 25, 2000, and 5,000 warrants, each warrant entitling the holder to
purchase one share of common stock for $.10 per share at any time through
December 31, 2002. The notes were repaid in April 2000.
In February 2000, the Company issued two units for $100,000 per unit, or a
total of $200,000. Each unit consists of promissory note of the Company in a
principal amount of $100,000, bearing interest at 10% per year due and
payable on January 31, 2001, and 75,000 warrants, each warrant entitling the
holder to purchase one share of common stock for $.10 per share, at any time
through December 31, 2004.
20
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<PAGE>
Detour Magazine, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE M - SUBSEQUENT EVENTS - Continued
In March 2000, the Company issued 3,000,000 shares of common stock for $.33
1/3 per share, or a total of $1,000,000. The purchasers received demand
registration rights exercisable after September 14, 2000. The Company was
in violation of certain representations and warranties made in the stock
purchase agreements and has not received waivers of these violations. These
violations could subject the Company to damages, including the potential
rescission of t he shares if waivers cannot be obtained. In the opinion of
management, after consulting with legal counsel, the damages, if any,
resulting from the violations would not be material to the Company's
financial position or results of operations.
In April 2000, the Company issued 1,000,000 shares of common stock for $.50
per share, for a total of $500,000. The purchaser received demand
registration rights exercisable after April 30, 2001.
43
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
In April 2000, the Company filed a report on Form 8-K, advising of the
resignation of Marcum & Kleigman LLP as the Company's independent accountant and
the retention of Grant Thornton LLP as the Company's independent accountants,
who have audited the Company's financial statements for the fiscal years ended
December 31, 1999 and 1998 included herein.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and officers of the Company as of the date of this Report are
as follows:
Name Age Position
- ---------------- --- -------------------------
Edward T. Stein 48 Chairman of Board
Andrew Left 29 President, Chief
Executive Officer &
Director
Kevin Nesis 30 Secretary & Director
Directors are elected for one-year terms or until the next annual meeting
of shareholders and until their successors are duly elected and qualified.
Officers of the Company are appointed by the Board of Directors and serve at the
pleasure of the Board, subject to any rights under employment agreements.
There are no family relationships among the officers and directors. There
is no arrangement or understanding between the Company (or any of its directors
or officers) and any other person pursuant to which such person was or is to be
selected as a director or officer.
During 1999, the Company promoted Barbara Zawlocki to the position of
publisher and promoted the assistant to the editor, Mr. Juan Morales, to the
position of editor-in-charge. The Company also decided that the magazine, from a
strategic perspective, needed to have an Internet presence to capture a growing
share of the advertising and related communications business. In 1999, the
Company recruited and hired a new Chief Executive Officer, Mr. Andrew Left, to
organize and head up the Company's Internet business, Detour Online. During
1999, Mr. Left also assumed the position of President of the Company.
44
<PAGE>
Edward T. Stein has been Chairman of the Board and a Director of Detour and
its predecessor since January 1995. From November 1998 to April 1999, Mr. Stein
served as President of the Company. Since 1986, he has also been President of
Edward T. Stein Associates, Ltd., a privately held financial services firm
engaged in money management, insurance and financial planning located in
Melville, New York, and Prima Capital Management Corp., an affiliated company.
Mr. Stein obtained a Bachelor of Science degree from Rider University, where he
majored in finance. He devoted approximately 80 hours per month to the business
of Detour during the fiscal year ended December 31, 1999. It is expected that
Mr. Stein will devote substantially all of his business time to the Company
during the fiscal year 2000.
Andrew Left assumed the position of President and Chief Executive Officer
in April 1999, and director in November 1999. Mr. Left received a Bachelor of
Arts degree in political science from Northeastern University in 1993. Since his
graduation from Northeastern University, Mr. Left managed his family portfolio,
specifically in the stock market. During this time he developed an expertise in
Internet companies and the Internet. Mr. Left devotes substantially all of his
business time to the Company.
Kevin Nesis has been Secretary and a director of the Company since November
1999. In addition to his positions with the Company, since January 2000, Mr.
Nesis has been employed by Time Capital Securities Corp., a privately held NY
corporation, where his duties included financial services, estate and tax
planning. From April 1997 through January 2000, Mr. Nesis was employed by Edward
T. Stein Associates, Ltd., where his duties included financial services, estate
and tax planning. From June 1996 through March 1997, Mr. Nesis was unemployed.
Mr. Nesis received a Bachelor of Arts degree from Boston University in 1993 and
a Juris Doctor degree from New York Law School in 1996. He also holds a Series 7
and 63 license with the National Association of Securities Dealers, Inc. He
devotes approximately 30% of his business time to the business of the Company.
Barbara Zawlocki was appointed as Publisher of Detour Magazine in December
1998. From 1993 to that date, Ms. Zawlocki was employed by the Company,
including positions of Group Advertising Director, Associate Publisher and
Advertising Director. Prior to joining the Company, Ms. Zawlocki had
approximately 13 years experience in the magazine publishing industry. Ms.
Zawlocki received a Bachelor of Arts degree in marketing from New York
University in 1980. She devotes substantially all of her business time to the
Company.
Juan Morales was appointed Editor-in Chief of Detour Magazine in July 1999.
Mr. Morales began his employment with Detour in 1993 in the positions of staff
writer, assistant editor and his current position. Mr. Morales received a
Master's Degree in Film Studies
45
<PAGE>
in 1986 and a Bachelor of Arts degree in English in 1984 from UCLA. He devotes
substantially all of his business time to the Company.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and person who own more than 10% of the Company's Common
Stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. All of the aforesaid persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. During the fiscal year ended December 31, 1999, the Company experienced
changes in management. From a review of its available information, it appears
that Messrs. Left and Nesis did not file applicable Form 3's with the SEC when
they assumed their respective positions with the Company.
ITEM 10. EXECUTIVE COMPENSATION.
Remuneration
The following table reflects all forms of compensation for services to the
Company for the years ended December 31, 1999 and 1998 of the then chief
executive officer of the Company, as well as those persons who received in
excess of $100,000 in annual compensation from the Company during the aforesaid
time.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------
Annual Compensation Awards Payouts
------------------------ ------------------ -------
Securities
Other Under- All
Name Annual Restricted lying Other
and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ---------- ---- -------- ----- -------- ------- ------- ------- ------
Edward T.
Stein,(1) 1997 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
President & 1998 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Director 1999 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Andrew Left,(1)
President 1999 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Barbara
Zawlocki,
Publisher 1999 $ 60,000 $ 0 $247,166(2)$ 0 0 $ 0 $ 0
(1) Mr. Stein resigned his position as President of the Company in April 1999
and was replaced by Mr. Left at that time.
46
<PAGE>
(2) This compensation was in the form of commissions, which were paid to BZI
Media Services, Inc., Ms. Zawlocki's company.
It is anticipated that Messrs. Stein and Left will execute employment
agreements with the Company during the fiscal year ending December 31, 2000.
Pursuant to the anticipated terms of these agreements, Messrs. Stein and Left
are expected to each receive a salary of $150,000 per annum. The balance of the
terms of these agreements have not been determined as of the date of this
report. Ms. Zawlocki receives a salary of $60,000, plus commissions which are
expected to exceed $100,000.
The Company reimburses officers and directors for out of pocket expenses
incurred by each of them in the performance of their relevant duties. The
Company reimbursed Mr. Stein, Chairman of the Company, in the amounts of
$113,884 and $84,074, for such expenses during the fiscal year ended December
31, 1998 and 1999, respectively and Ms. Zawlocki in the amount of $37,944 during
the fiscal year ended December 31, 1999.
The Company has no stock plan for employees, but may adopt one in the
future.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The table below lists the beneficial ownership of the Company's voting
securities by each person known by the Company to be the beneficial owner of
more than 5% of such securities, as well as by all directors and officers of the
issuer, as of May 17, 2000. Unless otherwise indicated, the shareholders listed
possess sole voting and investment power with respect to the shares shown.
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner Ownership Class
----- ----- --------- -----
Common Edward T. Stein(1) 7,316,829 37.8%
201 N. Service Rd.
Suite 100
Melville, NY 11747
Common Das Werk AG 1,000,000 5.2%
SchmidtstraBe 12
60326 Frankfurt am Maine
Federal Republic of Germany
47
<PAGE>
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner Ownership Class
----- ----- --------- -----
Common Andrew Left(1) 400,000 2.1%
2241 Coldwater Canyon
Beverly Hills, CA 90210
Common Kevin Nesis(1) 11,500 *
201 N. Service Rd.
Suite 100
Melville, NY 11747
Common All Officers and 7,728,329 39.9%
Directors as a Group
- ------------------------
* Less than 1%
(1) Officer and/or director of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company owes Edward T. Stein, principal shareholder and Chairman of the
Board of the Company, the principal amount of $2,693,200, which Mr. Stein
advanced to the Company for working capital purposes. This obligation originally
accrued interest at the rate of 12% per annum and is due upon demand. In March,
2000, the interest rate on this obligation was lowered to 8%. Accrued interest
payable at December 31, 1999 totaled $472,334. Interest expense on the advances
was $280,000 and $157,000 for the year ended December 31, 1999 and 1998,
respectively. Mr. Stein has agreed to defer this obligation. Trilogy-Lexington
has advised both Mr. Stein and Detour that it does not believe it will be
possible to generate financing for Detour unless the maturity of these advances
is deferred. Accordingly, Mr. Stein has agreed that at such time as any arranged
financing is received, his loans will become repayable generally as follows:
Detour shall pay at least one-quarter of the net proceeds of any financing
received by Detour to repay these obligation and the loans shall be due and
payable in full at such time as Detour has received equity financing of at least
$10,000,000. Mr. Stein and Detour, following consultation with
Trilogy-Lexington, have agreed to appropriately modify the existing note
evidencing the loans in conformity with the foregoing.
48
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1* Certificate and Articles of Incorporation
3.2* Bylaws
3.3** Articles of Merger
3.4 Certificate of Correction dated March 6, 2000
EX-27 Financial Data Schedule
* Filed with the Securities and Exchange Commission in the Exhibits to Form
10-SB, filed in January 1995 and are incorporated by reference herein.
** Filed with the Securities and Exchange Commission in the Exhibits to Form
10-KSB filed in April 1998 and is incorporated by reference herein.
(b) Reports on Form 8-K
In the last fiscal quarter of the fiscal year ended December 31, 1999, the
Company did not file any reports on Form 8-K.
49
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 22, 2000.
DETOUR MAGAZINE, INC.
(Registrant)
By:s/ Andrew Left
--------------------------------
Andrew Left, President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on May 22, 2000.
s/ Edward T. Stein
----------------------------------
Edward T. Stein, Director
s/ Andrew Left
----------------------------------
Andrew Left, Director
s/ Kevin Nesis
----------------------------------
Kevin Nesis, Director
50
<PAGE>
DETOUR MAGAZINE, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBITS Page No.
3.4 Certificate of Correction dated March 6, 2000 . . . . . . . . . . . 52
EX-27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . 58
51
<PAGE>
ARTICLES OF CORRECTION TO THE
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
DETOUR MAGAZINE, INC.
By the unanimous resolution of the Board of Directors of Detour Magazine,
Inc., a Colorado corporation (the "Company"), the undersigned hereby executes
these Articles of Correction pursuant to Colorado Revised Statutes,
ss.7-101-205, and corrects the August 16, 1994 Articles of Amendment to the
Articles of Incorporation of the Company as follows:
FIRST: The name of the corporation is Detour Magazine, Inc. (formerly
Ichi- Bon Investment Corporation), a Colorado corporation.
SECOND: These Articles of Correction correct the Articles of Amendment
to the Articles of Incorporation of the Company (the "Articles
of Amendment"), a copy of which is attached hereto.
THIRD: The Articles of Amendment hereby corrected were filed on
August 16, 1994.
FOURTH: On August 8, 1994 the shareholders of the Company unanimously
resolved and intended to eliminate all shareholders'
preemptive rights. The Articles of Amendment inadvertently
omitted a statement of revocation of shareholders' preemptive
rights. The Company has never in practice recognized, and its
shareholders have never asserted or exercised, shareholders'
preemptive rights.
FIFTH: The Articles of Amendment are hereby corrected, effective as
of August 16, 1994, by inclusion of the following statement:
The shareholders shall not have any preemptive rights.
These Articles of Correction to the Articles of Amendment to the Articles
of Incorporation of the Company are executed this 6th day of March, 2000, and
are effective as of August 16, 1994.
SECRETARY OF STATE
03-09-2000 08:40:06
DETOUR MAGAZINE, INC.
s/Edward T. Stein
-------------------------------
By: Edward T. Stein
Its: President
52
<PAGE>
Mail to: Secretary of State For office use only
Corporations Section
1560 Broadway, Suite 200
Denver, CO 80202
(303) 894-2251
MUST BE TYPED Fax (303) 894-2242 941091220
FILING FEE: $25.00 SOS 8-16-94 11:56
MUST SUBMIT TWO COPIES
---------------------
ARTICLES OF AMENDMENT
Please include a typed TO THE
self-addressed envelope ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Ichi-Bon Investment Corporation
-------------------------------
SECOND: The following amendment to the Articles of Incorporation was adopted on
August 8 19 94 , as prescribed by the Colorado Business Corporation
- --------------- ----------
Act, in the manner marked with an X below:
No shares have been issued or Directors Elected - Action by Incorporators
- -----
No shares have been issued but Directors Elected - Action by Directors
- -----
Such amendment was adopted by the board of directors where shares have
- ----- been issued.
x Such amendment was adopted by a vote of the shareholders. The number of
- ----- shares voted for the amendment was sufficient for approval.
See Attached
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows:
not applicable
If these amendments are to have a delayed effective date, please list that date:
- ----------------------
(Not to exceed ninety (90) days from the date of filing)
Ichi-Bon Investment Corporation
-------------------------------
By s/Cheryl L. Okizaki
-----------------------------
Its President
----------------------
Title
53
<PAGE>
AMENDMENTS TO THE ARTICLES OF INCORPORATION
ICHI-BON INVESTMENT CORPORATION
RESOLVED, that Article Fourth of the Articles of Incorpration of the
Company is hereby amended to state as follows:
"The total number of shares of all classes which the Corporation shall have
authority to issue is 35,000,000 of which 10,000,000 shares shall be Preferred
Shares, par value $.01 per share, and 25,000,000 shall be Common Shares, par
value $.001, and the designations, preferences, limitations and relative rights
of the shares of each class are as follows:
1. Preferred Shares
The Corporation may divide and issue the Preferred Shares in series.
Preferred Shares of each series when issued shall be designated to distinguish
it from the shares of all other series. The Board of Directors is hereby
expressly vested with authority to divide the class of Preferred Shares into
series and to fix and determine the relative rights and preferences of the
shares of any such series so established to the full extent permitted by these
Articles of Incorporation and the laws of the State of Colorado in respect to
the following:
(a) The number of shares to constitute such series, and the distinctive
designations thereof;
(b) The rate and preference of dividends, if any, the time of payment of
dividends, whether dividends are cumulative and the date from which any dividend
shall accrue;
(c) Whether the shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption;
(d) The amount payable upon shares in event of involuntary liquidation;
(e) The amount payable upon shares in event of voluntary liquidation;
(f) Sinking fund or other provisions, if any, for the redemption or
purchase of shares;
(g) The terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion;
(h) Voting powers, if any; and
(i) Any other relative right and preferences of shares
54
<PAGE>
of such series, including, without limitation, any restriction on an increase in
the number of shares of any series theretofore authorized and any limitation or
restriction of rights or powers to which shares of any further series shall be
subject.
2. Common Shares
(a) The rights of holders of Common Shares to receive dividends or share in
the distribution of assets in the event of liquidation, dissolution or winding
up of the affairs of the Corporation shall be subject to the preferences,
limitations and relative rights of the Preferred Shares fixed in the resolution
or resolutions which may be adopted from time to time by the Board of Directors
of the Corporation providing for the issuance of one or more series of the
Preferred Shares.
(b) The holders of the Common Shares shall be entitled to one vote for each
share of Common Shares held by them of record at the time for determining the
holders thereof entitled to vote.
FURTHER RESOLVED, that Article Eleventh is hereby added as an amendment to
the Company's Articles of Incorporation, to read as follows:
The corporation may:
(a) Indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a director, officer, employee, fiduciary or agent of the corporation or is or
was a director, officer, employee, fiduciary or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee, fiduciary or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses,(including attorney fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in the best interest
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in the best interests of the corporation and, with
respect to any criminal action or proceeding, had reasonable cause to believe
his conduct was unlawful.
55
<PAGE>
(b) The corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary or agent of another corporation,
partnership joint venture, trust or other enterprise against expenses (including
attorney fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in the best interests of the corporation;
but no indemnification shall be made in respect of any claim, issue, or matter
as to which such person has been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which such court deems proper.
(c) To the extent that a director, officer, employee, fiduciary or agent of
a corporation has been successful on the merits in defense of any action, suit,
or proceeding referred to in (a) or (b) of this Article VI or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorney fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under (a) or (b) of this Article VI (unless ordered
by a court) and as distinguished form (c) of this Article shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the directors, officer, employee, fiduciary or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in (a) or (b) above. Such determination shall be made by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit, or proceeding, or, if directors so
directs, by independent legal counsel in a written opinion, or by the
shareholders.
(e) Expenses (including attorney fees) incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit, or proceeding as authorized in
(c) or (d) of this Article VI upon receipt of an undertaking by or on behalf of
the director, officer, employee, fiduciary or agent to repay such amount unless
it is ultimately determined that he is entitled to be indemnified by the
corporation as authorized in this Article VI.
56
<PAGE>
(f) The indemnification provided by this Article VI shall not be deemed
exclusive or any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise, and any procedure provided for by any of the foregoing, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, fiduciary or agent and shall inure to the benefit
of heirs, executors, and administrators of such a person.
(g) The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, fiduciary or agent of the
corporation or who is or was serving at the request of the corporation as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under provisions of this Article VI.
FURTHER RESOLVED, that Article Twelfth is hereby added to the Company's Articles
of Incorporation, to read as follows:
"The Board of Directors may at any meeting, by a majority vote of the whole
Board, sell, lease, exchange and/or convey all of its property and assets,
including its good will and/or its corporate franchises, upon such terms and
conditions and for such consideration or considerations as the Board of
Directors in their sole discretion deem expedient and for the best interest of
the Corporation and said consideration or considerations may consist in whole or
in part of shares of stock and/or securities of any other corporation or
corporations; provided, however, in all such cases the affirmative vote of the
holders of one-half (1/2) plus one share of the common stock of said Corporation
then issued and outstanding shall be voted in ratification of the Board of
Directors, said vote to be taken at a special stockholders' meeting of our said
Corporation duly called for that purpose; but nothing herein shall be construed
to limit the power of the Board of Directors of our Corporation and said Board
shall have power in its sole discretion to sell, lease, exchange and/or convey
such parts or parcels of land or personal property or assets as the Board of
Directors determine are no longer necessary or expedient to be held by the
Corporation. It is, however, specifically understood that the Board of Directors
may at their discretion and they have the power to create a lien or mortgage on
any or all of the assets of the Corporation in order to borrow money should the
Board of Directors feel that it is necessary for the conduct of the business."
57
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 193,012
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 338,699
<PP&E> 49,145
<DEPRECIATION> 0
<TOTAL-ASSETS> 403,354
<CURRENT-LIABILITIES> 7,242,157
<BONDS> 0
0
0
<COMMON> 16,002
<OTHER-SE> (6,854,805)
<TOTAL-LIABILITY-AND-EQUITY> 403,354
<SALES> 3,335,912
<TOTAL-REVENUES> 3,335,912
<CGS> 2,467,872
<TOTAL-COSTS> 2,467,872
<OTHER-EXPENSES> 1,870,152
<LOSS-PROVISION> (1,002,112)
<INTEREST-EXPENSE> (683,616)
<INCOME-PRETAX> (1,893,357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,893,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 595,399
<CHANGES> 0
<NET-INCOME> (1,297,958)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.08)
</TABLE>
