U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A1 Quarterly Report Under the Securities Exchange Act of 1934 For Quarter Ended: March 31, 2001 Commission File Number: 0-25388 DETOUR MEDIA GROUP, INC. (Exact name of small business issuer as specified in its charter) Colorado (State or other jurisdiction of incorporation or organization) 84-1156459 (IRS Employer Identification No.) 7060 Hollywood Blvd., Suite 1150 Los Angeles, California (Address of principal executive offices) 90028 (Zip Code) (323) 469-9444 (Issuer's Telephone Number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes __X__ No ____. The number of shares of the registrant's only class of common stock issued and outstanding, as of May 21, 2001, was 28,611,633 shares. PART I ITEM 1. FINANCIAL STATEMENTS. The unaudited financial statements for the three month period ended March 31, 2001, are attached hereto. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, 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 our 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 our behalf. We disclaim any obligation to update forward looking statements. OVERVIEW We are engaged in publishing of a monthly magazine entitled Detour, which includes advertisements and articles relating to fashion, contemporary music and entertainment and social issues. Management describes the magazine as an "urban, avant-garde" publication. We derive approximately 80% of our revenues from advertising, with the balance from circulation. We maintain offices in both Los Angeles and New York City. The Magazine is been published monthly, with the exception of the issues for December/January and June/July, for which one issue is published. The Magazine has been, in general, approximately 150 pages in length, comprised of about 50 to 60 pages of advertising, with the balance in editorial pages. The following information is intended to highlight developments in our operations to present our results of operations, to identify key trends affecting our business and to 2 identify other factors affecting our results of operations for the three month periods ended March 31, 2001 and 2000. RESULTS OF OPERATIONS Comparison of Results of Operations for the Three Month Periods Ended March 31, 2001 and 2000 During the three month period ended March 31, 2001, our revenues decreased from the same period in 2000, as we generated revenues of $399,233, compared to revenues of $1,078,542 for the similar period in 2000, a decrease of $679,309 (63%). This was attributable to only one double issue of our Magazine being published during this period, compared to three single issues being published during the three month period ended March 31, 2000, resulting in a decrease in advertising revenues. We published only one issue during this period because of our lack of working capital. Our March 2001 issue was published and released in April 2001, subsequent to the end of the three month period. As a result, we anticipate that our revenues and costs of sales will increase in the three month period to end June 30, 2001, which should include four issues of our Magazine. In the three month period ended March 31, 2001, costs of sales were $256,381, compared to $777,338 for the similar period in 2000, a decrease of $520,957 (67%), which was also due to the publication of only one issue of our Magazine during the applicable period, compared to three issues in 2000. Selling, general and administrative expenses were $688,230 for the three months ended March 31, 2001, compared to $599,844 for the similar period in 2000, an increase of $88,386 (15%). This increase was due to our continuing to incur significant fees and expenses in connection with our funding efforts and new business plan activities. Interest expense increased from $201,749 in the three months ended March 31, 2000, to $354,800 for the three months ended March 31, 2001, an increase of $153,051 (76%) as a result of continued borrowing necessitated by cash shortages resulting from operating losses. See "Liquidity and Capital Resources" below. As a result, we generated a net loss of $(900,178) for the three month period ended March 31, 2001, ($0.04 per share) compared to a net loss of $(444,447) for the three month period ended March 31, 2000 ($.03 per share). LIQUIDITY AND CAPITAL RESOURCES At the end of the three month period ended March 31, 2001, we had a cash overdraft in the amount of $7,916. Accounts receivable decreased to $302,120 from $397,447 for the similar period in 2000, 3 a decrease of $95,327 (24%), which management attributes to the fact that we published only one magazine issue during the applicable period, as well as the fact that we commenced a new factoring arrangement with Receivable Financing Corp. during 2001. During the three month period ended March 31, 2001, we received $300,000 from Union Atlantic as a subsequent contribution to the 10% Convertible Debentures previously issued in June 2000. These Debentures are for a 5 year term and also contain warrants to purchase 75,000 shares of our common stock at exercise prices of $.515 per warrant for 37,500 of the warrants and $.5859 per warrant for the remaining 37,500 warrants. The Debentures may be converted at any time during a three year term at a conversion price equal to the lesser of $.90 per share, or 80% of the average three lowest closing bid prices of our common stock during the 22 day trading period prior to conversion. We have numerous outstanding notes payable, including the following: In August 1998, we 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 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. The loan provides for an exit fee equal to 3% of the original principal amount of the loan ($16,500) and is secured by 1,000,000 shares of our 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 1998, we repaid $27,500 of the principal balance. We also paid all interest which had accrued through June 30, 2000. In April 2001, we tendered a payment of $170,000 on this obligation and entered into a Forbearance Agreement which provides, among other things, for us to pay this lender $25,000 per month until the entire balance is paid in full. Upon payment in full, the lender will return all of the stock provided as security. Interest continues to accrue at the default rate. In December 1999, we 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. We paid $100,000 on this obligation. In March 2001, an action was filed against us by an officer of Sigmapath to collect the balance of $100,000 remaining due. However, this action was dismissed by the court because the plaintiff who brought the action was not the proper party in interest. Since its dismissal, we have not heard anything from this lender, nor otherwise been advised of any further action being brought. In February 2001, we received a loan from an individual in the principal amount of $80,000, which we repaid in full in March 2001. 4 We issued 75,000 shares of our "restricted" common stock as full consideration for this loan. At March 31, 2001, we had nine other notes payable in the aggregate principal amount of $936,791, bearing interest at rates ranging from 8% to 12% per annum, all of which require a monthly or quarterly payment of principal and/or interest. These notes are due on demand or past due. In 1995, our majority stockholder loaned us $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, who, upon information and belief, has assigned portions of this note to other unaffiliated parties. This note is secured by substantially all of our assets, except for accounts receivable. Accrued interest payable to this stockholder at March 31, 2001 totaled $553,000. Interest expense for this note was $28,000 during the three month period ended March 31, 2001. Advances from stockholder represent advances made by our majority stockholder for working capital purposes. At September 30, 2000, the advances bore interest at 8% per annum and were payable on demand. In March 2000, our majority stockholder agreed to reduce the annual interest rate to 8% from 12%, effective January 1, 2000 and modify the repayment terms. Under the new repayment terms, the advances are repayable in monthly principal installments of $42,000 commencing January 1, 2001. However, we must use at least 25% of the net proceeds of any financing received by us to repay the advances. Further, all of the advances are due and payable in full at such time as we have received equity financing of at least $10 million. At March 31, 2001, $2,585,721 of principal was outstanding and classified as short-term. Accrued interest payable to the majority stockholder at March 31, 2001 totaled $845,537. Interest expense on the advances was $75,000 for the three month period ended March 31, 2001. TRENDS In order to implement our new business strategy described in our Form 10-KSB for the fiscal year ended December 31, 2000, we need to raise a minimum of $2 million of additional capital, over and above what we have recently raised. The capital which we received recently was utilized to pay outstanding obligations which had accrued and we were unable to utilize these funds for implementation of our new business plan. Without the additional capital, it will be necessary to abandon our plans for Detour Music and Detour Europe. In addition, we will be required to continue to substantially reduce costs for the magazine and not able to sustain our existing advertising revenue or grow the circulation base. In the event all current discussions terminate without additional 5 capital, we will have to enter a joint publishing arrangement with other magazine publishers or liquidate. With an additional two million of capital, we will begin to implement our business strategy and, while no assurances can be provided, we should be profitable within 18 months after receipt of applicable funding. INFLATION Although our operations are influenced by general economic conditions, we do not believe that inflation had a material affect on our results of operations during the three month period ended March 31, 2001. PART II. OTHER INFORMATION ITEM 1. 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") notified us and our Chairman that it was recommending to the SEC that an enforcement action be filed against both us and our Chairman relating to accuracy of certain of our financial statements in 1997 and 1998. The recommended enforcement action was 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 we had 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. We believed that the issue regarding improper presentation of quarterly financial information relates to our 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, we would be required to determine the actual costs and expenses for the affected quarters. The second issue related to whether we recorded the proper amount of compensation expense in connection with the issuance of the options to the consultants. We recorded an expense of $21,991, based on the exercise price of the options of $.005 per share. We understand 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 our paid-in capital. Thus, while the expense would increase our net loss for 1997, the 6 paid-in capital would be similarly increased and there would be no change to our total deficit in stockholders' equity as of the end of 1997. In 2000, we advised the staff that we wished to cooperate fully and reach an agreement on an appropriate remedy to resolve this matter. We had determined to restate our financial statements to address the concerns raised by the staff. On November 22, 2000, the matter was resolved by the Commission issuing a cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934. The Commission ordered us to amend our filings with the Commission to properly reflect our financial condition and operating results, and as required by Section 13(b)(2) of the Exchange Act, make and keep books, record and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets. The Commission further ordered us to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit the preparation of financial statements in conformity with generally accepted accounting principles. We have advised the Commission of our intention to amend our filing with the Commission. No civil penalties were assessed against us relevant to the settlement of this matter. We have been named as a defendant in several other lawsuits in the normal course of our business. With the exception of one prospective matter, 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 our financial statements. ITEM 2. CHANGES IN SECURITIES In January 2001, 260,000 shares of our common stock were issued relating to Union Atlantic as compensation for financing fees relating to the $300,000 investment made in January 2001. In February 2001, we issued 75,000 shares of our common stock to one person as a financing fee for an $80,000 loan made to us in February 2001 and repaid in March 2001. Beginning in January through March 2001, we issued 3,028,523 shares of our common stock to 13 persons at a price of $0.26 per share. From this offering we received $739,000 in net proceeds. Each of the investors was an "accredited investor" as that term is defined under the Securities Act of 1933, as amended. Also, in March 2001, we issued 1,000,000 shares of our common stock as compensation and financing fees to cure a default relevant 7 to the June 2000 financing previously undertaken. In June, 2000, we issued a 5 year, 10% Convertible Debenture to five investors for aggregate proceeds of $1,000,000. These Debentures also contained warrants to purchase 250,000 shares of our common stock at exercise prices of $.515 per warrant for 125,000 of the warrants and $.5859 per warrant for the remaining 125,000 warrants. The Debentures may be converted at any time during a three year term at a conversion price equal to the lesser of $.90 per share, or 80% of the average three lowest closing bid prices of our common stock during the 22 day trading period prior to conversion. In addition, we did undertake to file a registration statement registering all of the shares of common stock underlying the warrants with the Securities and Exchange Commission within 120 days following the issuance date. Alternatively, we had the right to repurchase all or any portion of these Debentures at a purchase price of 135% of the issuance price. We were unable to repurchase these Debentures and also failed to file the applicable registration statement. Subsequent Event In April 2001, 1,333,333 shares of our common stock were issued pursuant to the exercise of outstanding warrants previously issued in favor of Trilogy Capital and Lexington Capital, which warrants were issued in connection with a prior financing to our company in 2000. The exercise price of these warrants were $.01 per share. In each instance cited above, we relied upon the exemption from registration provided by Regulation D and/or Section 4(2), promulgated under the Securities Act of 1933, as amended, to issue the relevant shares. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 5. OTHER INFORMATION - None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - (a) Exhibits - NONE (b) Reports on Form 8-K - NONE. 8 DETOUR MEDIA GROUP (formerly known as Detour Magazine, Inc.) CONSOLIDATED BALANCE SHEET Unaudited Audited ASSETS March 31, 2001 December 31, 2000 -------------- ----------------- CURRENT ASSETS Cash $ - $ 71,598 Accounts receivable, net 302,120 397,447 Stock subscription receivable 500,000 - Prepaid expenses 60,783 11,599 -------------- ----------------- Total current assets 862,903 480,644 FURNITURE AND EQUIPMENT, net 36,153 42,753 DEPOSITS AND OTHER ASSETS 35,525 16,125 -------------- ------------------ $ 934,581 $ 539,522 ============== ================= LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank Overdrafts $ 7,916 $ - Accounts payable and accrued expenses 1,989,282 1,957,614 Current maturities of notes payable 2,895,287 2,559,921 Accrued interest payable 237,204 145,204 Advances from stockholder 2,382,509 2,556,021 Note payable to stockholder 932,313 932,313 Accrued interest payable to stockholders 1,398,534 1,296,037 -------------- ----------------- Total current liabilities 9,843,045 9,447,110 NOTES PAYABLE, less current maturities 160,000 160,000 COMMITMENTS AND CONTINGENCIES - - DEFICIT IN STOCKHOLDERS' EQUITY Preferred stock, $.01 par value 10,000,000 shares authorized, none issued and outstanding - - Common stock, $0.001 par value, 100,000,000 shares authorized, 22,914,769 shares issued and outstanding at December 31, 2000; 27,278,292 shares issued and outstanding at March 31, 2001 27,281 22,915 Additional paid-in capital 9,893,508 9,008,872 Unamortized debt issuance costs (113,408) (123,708) Accumulated deficit (18,875,845) (17,975,667) -------------- ----------------- Total deficit in stockholders' equity (9,068,464) (9,067,588) -------------- ----------------- $ 934,581 $ 539,522 ============== ================= 9 DETOUR MEDIA GROUP, INC. (formerly known as Detour Magazine, Inc.) UNAUDITED CONDENSED STATEMENT OF OPERATIONS For the three months Ended March 31, 2001 2000 ----------- ---------- Revenue Advertising $ 381,747 $ 954,971 Newsstand and subscription, net of returns 17,486 123,571 ----------- ---------- Total revenue 399,233 1,078,542 ----------- ---------- Cost and expenses Cost of sales and other direct expenses 256,381 777,338 Selling, general and administrative expenses 688,230 599,844 ----------- ---------- 944,611 1,377,182 ----------- ---------- Loss from operations (545,378) (298,640) ----------- ---------- Other expenses Interest expense, net 354,800 201,749 Asset impairment charge - - Loss on disposal of assets - - ----------- ---------- Total other expenses 354,800 201,749 ----------- ---------- Net loss before extraordinary item (900,178) (500,389) Extraordinary gain on extinguishments of debt - 51,942 ---------- ----------- Net loss $ (900,178) $ (448,447) ========== =========== Net loss per share (basic and diluted) $ (.04) $ (.03) ========== =========== Weighted average number of shares outstanding 25,021,000 17,580,000 ========== =========== 10 DETOUR MEDIA GROUP, INC (formerly known as Detour Magazine, Inc.) STATEMENT OF DEFICIT IN STOCKHOLDER'S EQUITY For the quarter ended March 31, 2001 Unamortized Common Stock Common Debt Accumulated Shares Amount APIC Issuance Costs Deficit Total ---------- ------ --------- -------------- ----------- ---------- Balance, December 31, 2000 22,914,769 22,915 9,008,872 (123,708) (17,975,667) (9,067,588) Misc difference between client closing Sale of restricted common stock, net of issuance cost 3,028,523 3,029 735,971 - - 739,000 Issuance of restricted common stock in connection with borrowing 260,000 260 (260) - - - Issuance of restricted common stock in connection with borrowing 75,000 75 (75) - - - Issuance of restricted common stock to cure violation of warranties under stock purchase agreement 1,000,000 1,000 149,000 - - 150,000 Amortization of debt discount - - - 10,300 - - 1st quarter net loss - - - - (900,178) (900,178) ---------- ------ --------- -------------- ----------- ---------- Balance, March 31 2001 27,278,292 27,279 9,893,508 (113,408) (18,875,845) (9,068,466) ========== ====== ========= ============== =========== ========== 11 DETOUR MEDIA GROUP, INC. (formerly known as Detour Magazine, Inc.) UNAUDITED CONDENSED STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (900,178) Adjustments Depreciation and amortization 6,600 Amortization of debt issuance cost 10,300 Common stock issued to pay for interest - Common stock issued for debt conversion - Common stock issued for debt issuance cost - Settlement of litigation using common stock - Common stock issued to pay for service - Stock warrants issued for service - Interest expense on beneficial conversion feature - of the convertible debenture - Decrease (increase) in accounts receivable 95,327 Decrease (increase) in stock subscription receivable (500,000) Decrease (increase) in employee advances 816 Decrease (increase) in prepaids and other current assets (50,000) Decrease (increase) in other noncurrent assets (19,400) Decrease (increase) in deferred revenue - Increase (decrease) in interest payable 194,497 Increase (decrease) in accounts payable and accrueds 31,668 ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,130,370) ---------- CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of property and equipment - Proceeds from sale of property and equipment - ---------- NET CASH (USED BY) INVESTING ACTIVITIES - ---------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease (increase) in due from affiliates - Issuance of common stock 889,002 Principal borrowings on long-term notes 255,366 Principal borrowings on short-term borrowings 80,000 Principal (payments) on short-term borrowings (173,512) Principal payments on long-term debt - Capital contributions - Increase in preferred and common stock - --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,050,856 --------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH - --------- (INCR.) DECR. IN CASH EQUIV (79,514) Cash and Cash Equivalent at Beg. of Year 71,598 Cash and Cash Equivalent at End of Year (7,916) --------- TOTALS - ========= 12 DETOUR MEDIA GROUP, I f/k/a DETOUR MAGAZINE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three Month Period Ended March 31, 2001 1. Unaudited Interim Financial Statements The accompanying unaudited financial statements have been prepared in accordance with the instructions for Form 10-QSB and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. 2. Basis of Presentation Business combination On June 6, 1997, pursuant to the terms of an Agreement and Plan of Reorganization, Ichi-Bon Investment Corporation ("IBI") acquired all of the outstanding common stock of Detour, Inc. ("Old Detour") in exchange for 4,500,000 unregistered shares of IBI's common stock. As a result of the transaction, the former shareholders of Old Detour received shares representing an aggregate of 90% of IBI's outstanding common stock, resulting in a change in control of IBI. As a result of the merger, IBI was the surviving entity and Old Detour ceased to exist. Simultaneously therewith, IBI amended its articles of incorporation to reflect a change in IBI's name to "Detour Magazine, Inc." References to the "Company" or "Detour" refer to Detour Magazine, Inc. together with the predecessor company, Old Detour. The acquisition of Old Detour has been accounted for as a reverse acquisition. Under the accounting rules for a reverse acquisition, Old Detour is considered the acquiring entity. As a result, historical financial information for periods prior to the date of the transaction are those of Old Detour. Under purchase method accounting, balances and results of operations of Old Detour will be included in the accompanying financial statements from the date of the transaction, June 6, 1998. The Company recorded the assets and liabilities (excluding intangibles) at their historical cost basis which was deemed to be approximate fair market value. The reverse acquisition is treated as a non-cash transaction except to the extent of cash acquired, since all consideration given was in 13 the form of stock. Earnings per share Earnings per share have been computed based on the weighted average number of common shares outstanding. For the three month period prior to the reverse acquisition discussed in the business combination section of Note 2 above, the number of common shares outstanding used in computing earnings per share is the number of common shares outstanding as a result of such reverse acquisition (5,000,000 shares). 3. History and Business Activity Detour was originally incorporated as Ichi-Bon Investment Corporation on May 18, 1990, under the laws of the State of Colorado. The name was changed to Detour Magazine, Inc. concurrent with the business combination described in Note 2. Prior to such business combination, Detour had not engaged in any operations or generated any revenue. Old Detour was a publisher of a nationally distributed magazine entitled "Detour" which is published monthly and contains articles and pictorial displays on fashion, music and social commentary. In March, 2001, our shareholders approved amendments to our Articles of Incorporation, which amendments included changing our name to "Detour Media Group, Inc." and increasing the number of authorized common shares to 100,000,000 shares. 14 SIGNATURES Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this amendment to its report to be signed on its behalf by the undersigned, thereunto duly authorized. DETOUR MEDIA GROUP, INC. (Registrant) Dated: June 21, 2001 By: s/ Kevin Nesis --------------------------- Kevin Nesis, Secretary 15