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: June 30, 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 March 8, 2002, was 42,242,965 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the six month period ended June 30,
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 unaudited
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 on 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 normally 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.
However, due to our impaired financial condition, two double issues,
December/January and February/March were published during the first quarter of
2001 and one double issue, April/May was published in the second quarter of
2001. We ceased publishing of our Magazine in November 2001, as a result of lack
of working capital. As of the date of this Amendment, we are attempting to
restructure our company. Such restructuring includes a debt
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reorganization with significant debt to equity conversion, a more focused
business plan, a new management team and an infusion of approximately $5 million
in equity capital. However, there can be no assurances that we will be
successful with this restructuring.
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 identify other factors affecting our results of
operations for the six month periods ended June 30, 2001 and 2000.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Six Month Periods Ended June
30, 2001 and 2000
During the six month period ended June 30, 2001, our revenues decreased
from the same period in 2000, as we generated revenues of $698,424, compared to
revenues of $2,039,823 for the similar period in 2000, a decrease of $1,341,399
(66%). This was attributable to only three double issues of our Magazine being
published during this period, compared to one double issue and five single
issues being published during the six month period ended June 30, 2000,
resulting in a decrease in advertising revenues, as well as newsstand and
subscription revenues. We published only three issues during this period and
advertising revenue per issue decreased because of our lack of working capital.
In the six month period ended June 30, 2001, costs of sales also decreased
55%, to $569,020, compared to $1,268,421 for the similar period in 2000, a
decrease of $699,401, which was also due to the publication of only three issues
of our Magazine during the applicable period, compared to six issues in 2000.
Selling, general and administrative expenses were $1,728,466 for the six
months ended June 30, 2001, compared to $2,754,374 for the similar period in
2000, a decrease of $1,025,908 (59%). This decrease was due primarily to a
significant decrease during the relevant period in the issuance of warrants
which we had previously issued for outside consulting services rendered.
Interest expense decreased from $665,896 in the six months ended June 30,
2000, to $536,131 for the six months ended June 30, 2001, a decrease of $129,765
(19%) as a result of a decrease in the beneficial conversion feature of certain
debt converted to equity. See "Liquidity and Capital Resources" below. As a
result, we generated a net loss of $(2,135,193) for the six month period ended
June 30, 2001, ($0.08 per share) compared to a net loss of $(2,596,559) for the
six month period ended June 30, 2000 ($.14 per share).
LIQUIDITY AND CAPITAL RESOURCES
At the end of the six month period ended June 30, 2001, we had $6,136 in
cash and cash equivalents. Accounts receivable decreased
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to $184,509 from $639,971 at June 30, 2000, a decrease of $455,462 (71%), which
management attributes to the fact that we published only three magazine issues
during the applicable period. There was less advertising billed per issue, there
were more uncollectible accounts, and we commenced a new factoring arrangement
with Receivable Financing Corp. during 2001.
During the six month period ended June 30, 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. With respect to the $1
million convertible debentures previously issued in June 2000, $50,000 of
principal and $5,202 in accrued interest was converted in June 2001, with the
resulting issuance of 490,703 shares of our common stock.
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.
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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. We issued 75,000
shares of our "restricted" common stock as full consideration for this loan.
At June 30, 2001, we had nine other notes payable in the aggregate
principal amount of $1,049,790, 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 June 30, 2001 totaled $553,407. Interest
expense for this note was $56,000 during the six month period ended June 30,
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 June 30, 2001, $2,616,981 of principal was
outstanding and classified as short-term. Accrued interest payable to the
majority stockholder at June 30, 2001 totaled $956,334. Interest expense on the
advances was $157,707 for the six month period ended June 30, 2001.
TRENDS
As of the date of this Amendment, we are seeking to raise $5 million in
equity capital for purposes of implementing a new business plan that includes a
debt reorganization with significant debt to equity conversion, a business plan
focused on strengthening Detour Magazine in North America and licensing multiple
international editions, exploiting the Detour brand in other media and
merchandise, a new management team and a re-launch of Detour Magazine, scheduled
for the 3rd quarter of 2002. Proceeds from interim debt and/or equity financing
will be utilized to pay a significantly reduced overhead. Prior plans for Detour
Music and European Joint Ventures have been abandoned and are not part of the
new restructured plan. In the event all current discussions with potential
investor resources terminate without additional capital,
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we will have to enter a joint publishing arrangement with other magazine
publishers or liquidate.
With a successful restructure, including infusion of $5 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 the
aforesaid capital.
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 six month period ended June 30, 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 paid-in capital would be similarly increased
and there would be no
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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 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 June 2001, 1,780,000 shares of our common stock were issued to four
separate consultants for services rendered and to be rendered to us. These
shares were valued at the market price at the date of issuance, which ranged
from $0.16 per share to $0.23 per share.
Also in June 2001, 490,703 shares of our common stock were issued as a
result of the conversion of $50,000 in principal and $5,202 in accrued interest
applicable to outstanding convertible debentures which we issued in June 2000.
We also issued 1 million common stock purchase warrants to one consultant for
services rendered and to be rendered. These warrants are exercisable at
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$0.25 per warrant at any time during the seven year period following the date of
issuance.
In February, 2001, 78,750 shares of our common stock were issued pursuant
to the exercise of outstanding warrants previously issued. 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.
Subsequent Event
Effective August 22, 2001, our President and CEO, Andrew Left, tendered his
resignation as an officer of our company and was replaced by Edward Stein on an
interim basis. Mr. Left will continue to consult with our management on an
informal basis.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - NONE
(b) Reports on Form 8-K - NONE.
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
CONDENSED BALANCE SHEET
(unaudited) (audited)
June 30, December 31,
ASSETS 2001 2000
------------ ------------
CURRENT ASSETS
Cash $ 6,136 $ 71,598
Accounts receivable 184,509 397,447
Prepaid expenses 80,290 11,598
------------ ------------
Total current assets 270,935 480,643
FURNITURE AND EQUIPMENT, net 32,243 42,753
DEPOSITS AND OTHER ASSETS 37,024 16,125
------------ ------------
$ 340,202 $ 539,521
============ ============
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,888,311 $ 1,957,614
Notes payable 1,512,921 1,559,921
Accrued interest payable 231,640 145,204
Due to stockholder 2,636,981 2,556,021
Note payable stockholders 932,313 932,313
Interest payable stockholders 1,509,741 1,296,034
Convertible debentures 1,410,000 1,160,000
------------ ------------
Total current liabilities 10,121,907 9,607,107
COMMITMENTS AND CONTINGENCIES - -
DEFICIT IN STOCKHOLDERS' EQUITY
Preferred sotck, $.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 30,883 22,916
Additional paid-in capital 10,298,272 8,885,165
Accumulated deficit (20,110,860) (17,975,667)
------------ ------------
Total deficit in stockholders' equity (9,781,705) (9,067,586)
------------ ------------
$ 340,202 $ 539,521
============ ============
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the three months For the six months
ended June 30, ended June 30,
------------------------- -------------------------
2001 2000 2001 2000
----------- ------------ ----------- -----------
Revenue
Advertising $ 288,542 $ 887,287 $ 670,289 $ 1,842,258
Newsstand and subscription, net of returns 10,649 73,994 28,135 197,565
----------- ------------ ----------- -----------
Total revenue 299,191 961,281 698,424 2,039,823
----------- ------------ ----------- -----------
Cost and expenses
Cost of sales and other direct expenses 312,639 491,083 569,020 1,268,421
Selling, general and administrative expenses 1,040,236 2,154,530 1,728,466 2,754,374
----------- ------------ ----------- -----------
1,352,875 2,645,613 2,297,486 4,022,795
----------- ------------ ----------- -----------
Loss from operations (1,053,684) (1,684,332) (1,599,062) (1,982,972)
----------- ------------ ----------- -----------
Other expenses
Interest expense, net 181,331 464,147 536,131 665,896
Asset impairment charge - - - -
Loss on disposal of assets - - - -
----------- ------------ ----------- -----------
Total other expenses 181,331 464,147 536,131 665,896
----------- ------------ ----------- -----------
Net loss before extraordinary item (1,235,015) (2,148,479) (2,135,193) (2,648,868)
Extraordinary gain on extinguishment of debt - 367 - 52,309
----------- ------------ ----------- -----------
$(1,235,015) $(2,148,112) $(2,135,193) $(2,596,559)
=========== =========== =========== ===========
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DETOUR MEDIA GROUP, INC.
f/k/a Detour Magazine, Inc.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
June 30, June 30,
2001 2000
----------- -----------
Cash flows from operating activities:
Net loss $(2,135,193) $(2,596,559)
Adjustments to reconcile net loss to net cash
used in operating activities:
Extraordinary gain on extinguishment of debt - 52,309
Amortization of debt issuance costs 10,300 -
Depreciation of furniture and equipment 10,510 10,777
Issuance of restricted common stock for
Services 333,873 (21,917)
Warrants issued for services 162,700 743,765
Expense of beneficial conversion feature of the
convertible debentures - 296,437
Decrease (increase) in accounts receivable 212,938 (272,189)
Increase in prepaid expenses (68,691) (141,706)
Decrease in employee advances - 86,029
Increase in other assets (20,899) -
Decrease in accounts payable and accrued
expenses (69,303) (248,715)
Decrease in unexpired subscriptions - (10,753)
Increase in interest payable, stockholder 86,436 217,475
Increase in accrued interest payable 218,906 (24,614)
----------- -----------
Net cash used in operating activities (1,258,423) (1,909,661)
----------- -----------
Cash flows from investing activities:
Purchases of furniture and equipment - (13,949)
----------- -----------
Cash flows from financing activities:
Proceeds from short term borrowings 421,070 (69,452)
Principal repayments of short term borrowings, net (387,110) -
Proceeds from long term borrowings,
net of issuance costs 270,000 601,722
Advances from stockholder - (107,479)
Cost of acquiring financing - 141,061
Proceeds from issuance of common stock, net 889,001 1,500,000
----------- -----------
Net cash provided by financing activities 1,192,961 2,065,852
----------- -----------
Net increase (decrease) in cash (65,462) 142,242
Cash (overdraft) at beginning of year 71,598 -
----------- -----------
Cash (overdraft) at end of year $ 6,136 $ 142,242
=========== ===========
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DETOUR MEDIA GROUP, INC.
f/k/a DETOUR MAGAZINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Month Period Ended June 30, 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 the form of
stock.
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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.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this amendment to its report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DETOUR MEDIA GROUP, INC.
(Registrant)
Dated: March 19, 2002
By: s/Edward T. Stein
--------------------------------
Edward T. Stein, President
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