SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended Commission file number
6/30/98 333-6440
DOWNSTREAM INCORPORATED-DS1
(Exact name of small business issuer as specified in its charter)
Utah 87-0567618
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
2046 E Murray Holladay Rd.
Suite 202
Salt Lake City, Utah 84117
Address of principal executive (Zip Code)
offices)
Issuer's telephone number, including area code (801) 272-5174
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
-------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
As of June 30, 1998, the issuer had outstanding 4,334,000 shares of its
Common Stock, $0.001 par value.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited balance sheet of Downstream Incorporated-DSI (the
"Company") as of June 30, 1998 and the related audited balance sheet of the
Company as of December 31, 1997, the unaudited related statements of operations
and cash flows for the three and six month periods ended June 30, 1998, and the
notes to the financial statements are attached hereto as Appendix "A" and
incorporated herein by reference.
The accompanying financial statements reflect all adjustments which
are, in the opinion of management, necessary to present fairly the financial
position of the Company.
The Company was organized on November 26, 1996, and soon thereafter
issued 3,300,000 shares of its common stock to its founders and to other
shareholders. The Company commenced a public offering of its common stock on
April 28, 1997 pursuant to which it raised $51,700 in gross offering proceeds
and issued an additional 1,034,000 shares of its common stock at the public
offering price of $0.05 per share. During the third quarter of 1997 a Security
Division was created when the Company was presented with an opportunity from the
Security Project Manager of U.S. Satellite, a division of American Stores. The
Security Division has been the only source of income for the Company since its
inception. However, due to a change in managment at U.S. Satellite, that account
was lost.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations.
During the three months ended June 30, 1998, the Company had operating
revenues of $410, compared to operating revenues of $000.00 for the three month
period ended June 30, 1997. The Company had operating revenues of $104,017 for
the six months ended June 30, 1998, compared to operating revenues of $000.00
for the six month period ended June 30, 1997. Loss per share was approximately
$0.00 for the three months ended June 30, 1998, and approximately $0.00 for the
six months ended June 30, 1998. The notable difference in sales from the first
vs. the second quarters of 1998 is due to 10 security contracts the Company was
awarded during the first quarter, vs. no contracts during the second.
Costs of sales for the three month period ended June 30, 1998 were
$1,056, compared to $000.00 for the three month period ended June 30, 1997. For
the six month period ended June 30, 1998, costs of sales were $45,473, compared
to $000.00 costs of sales for the six month period ended June 30, 1997.
For the three month period ended June 30, 1998, the Company had a net
loss of $(19,998), resulting in a net loss per share of approximately, $0.00,
compared to a net loss of $(1,433) for the three month period ended June 30,
1997, resulting in a net loss per share of $0.00. For the six month period
ended June 30, 1998, the Company had a net profit of $20,163, resulting in a net
profit per share of $0.005, compared to a net loss of $(3,411) for the six month
period ended June 30, 1997, resulting in a net loss per share of $0.005.
General and administrative expenses for the three months ended June 30,
1998, were $19,628, compared to general and administrative expenses of $1,358
for the three month period ended June 30, 1997. General and administrative
<PAGE>
expenses for the six months ended June 30, 1998 were $38,795, compared to
general and administrative expenses of $3,261 for the six months ended June 30,
1997.
The Company's losses during the three month period ended June 30, 1998
were attributed to general and administrative expenses. The Company's profits
for the six month period ended June 30, 1998 were attributed to 10 contacts
awarded to the Security Division of the Company by U.S. Satellite during the
first quarter. Those contracts were completed. Subsequently, that account was
lost due to a change in management at U.S. Satellite.
General and administrative expenses should generally be viewed as
likely to recur in the normal course of business, although the amounts of such
expenditures will vary.
Professional fees represent one component of general and administrative
expenses. Professional fees reflect legal, accounting and other consulting costs
associated with the preparation and filing of reports to the U.S. Securities and
Exchange Commission, services rendered in connection with capital raising and
financing transactions, and other general legal and accounting work.
After the loss of the Company's only income producing account, the
Company's Board of Directors has determined it would be in the best interest of
the Company, and the Company's shareholders, to seek other opportunities to
create revenues for the Company.
Balance Sheet Information
Assets
As of June 30, 1998, the Company reported total assets of $38,230, up
$20,163, from the $18,067, reported as of December 31, 1997. Current assets as
of June 30, 1998 were $37,036, up $20,330, from the $16,706 reported as of
December 31, 1996. Fixed assets were $984 as of June 30, 1998, down $136, from
the $1,120 of fixed assets reported as of December 31, 1997. The change in
current assets during the three months ended June 30, 1998, reflects an increase
in cash of $20,330.
Other assets were $210 as of June 30, 1998, down $31 from the $241
reported as of December 31, 1997. The change in total assets reflects primarily
an infusion of cash from revenues received for performance on contracts with
U.S. Satellite, less general and administrative costs incurred during the
quarter.
Other assets represent organizational costs net of amortization.
Liabilities
The Company had liabilities of $000.00 as of June 30, 1998. The same
amount was reported as of December 31, 1997.
Liquidity and Capital Resources - June 30, 1998
The Company received an infusion of a significant amount of capital
from contracts the Company received from U.S. Satellite that were completed
during the first quarter of 1998. This has provided the Company with the ability
to continue as a going concern for approximately six to nine months. However, to
continue as a going concern the Company will need to find other sources of
revenue.
<PAGE>
The Company's most significant cash needs in the foreseable future will
include payment of general and administrative expenses, expenses related to the
Company's search for other revenue producing opportunities, and other expenses
relating to the Company's business.
The Company has decided to seek to expand its resources by taking
advantage of other opportunities as they may develop. No assurance can be given
that the Company's resources will be adequate to take advantage of any such
opportunity, or that such opportunities will ever materialize.
(This Space Intentionally Left Blank)
<PAGE>
PART II OTHER INFORMATION
Use of Proceeds from Sale of Securities
Effective September 2, 1997 the SEC rescinded the use of Form SR
stating that the forms were "no longer necessary or appropriate", but that the
use of proceeds was "to be reported in each periodic report thereafter until the
registrant has disclosed the use of all proceeds".
For the period ending July 28, 1997 a Form SR was filed by the Company
in which it reported that after deducting the expenses of its underwriting the
Company was left with net offering proceeds of $40,516. Other expenses of
approximately $5,450, were reported in that filing. Additional expenses of
$9,864, were reported in the Company's quarterly report for the three month
period ending September 30, 1997. Expenses of $11,876 were reported in the
Company's annual report for the three month period ending December 31, 1997.
Further expenses of $9,775 were reported for the three month period ended March
31, 1998. The above amounts totaled $36,965, leaving approximately $3,551 of net
offering proceeds. The remaining proceeds were spent during the three month
period ended June 30, 1998 as follows:
Rent: 600.00
Legal: 1401.00
Accounting: 650.00
Salaries: 707.00
Misc. G&A: 193.00
--------
Total: 3,551.00
This brings the total amount of net offering proceeds spent by the Company,
including sums from the first report of July 28, 1997, up to and including this
report for the period ended June 30, 1998, to approximately $40,516. All
proceeds from the offering have been spent, accounted for and reported. This
will be the last report made by the Company concerning said proceeds.
Item 6. Exhibits and Reports on Form 8-K.
(a) There are no exhibits included with this report.
(b) The Company has filed no reports on Form 8-K during the quarter
ended June 30, 1998.
(This Space Intentionally Left Blank)
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOWNSTREAM INCORPORATED-DSI
(Registrant)
Date: August 10, 1998 By: /s/ Barry A. Ellsworth
-------------------------
Barry A. Ellsworth
President
<PAGE>
APPENDIX "A"
DOWNSTREAM, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
June 30, 1998 and December 31, 1997
F-1
<PAGE>
C O N T E N T S
Independent Accountants' Report ....................................... F-3
Balance Sheets ........................................................ F-4
Statements of Operations .............................................. F-5
Statements of Stockholders' Equity .................................... F-6
Statements of Cash Flows .............................................. F-7
Notes to the Financial Statements ..................................... F-9
F-2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Downstream, Inc.
(A Development Stage Company)
Salt Lake City, Utah
The accompanying balance sheet of Downstream, Inc. (a development stage company)
as of June 30, 1998 and the related statements of operations, stockholders'
equity and cash flows for the three months and six months ended June 30, 1998
and 1997 and from inception on November 26, 1996 through June 30, 1998 were not
audited by us and, accordingly, we do not express an opinion on them. The
accompanying balance sheet as of December 31, 1997 was audited by us and we
expressed an unqualified opinion on it in our report dated February 25, 1998.
Jones, Jensen & Company
Salt Lake City, Utah
August 4, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
June 30, December 31,
1998 1997
----------------- -----------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 37,036 $ 16,706
----------------- -----------------
Total Current Assets 37,036 16,706
----------------- -----------------
FIXED ASSETS, net (Note 7) 984 1,120
----------------- -----------------
OTHER ASSETS
Organizational cost, net (Note 4) 210 241
----------------- -----------------
Total Other Assets 210 241
----------------- -----------------
TOTAL ASSETS $ 38,230 $ 18,067
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ - $ -
----------------- ----------------
Total Current Liabilities - -
----------------- ----------------
TOTAL LIABILITIES - -
----------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock: 50,000,000 shares
authorized of $0.001 par value, -0-
shares issued and outstanding - -
Common stock: 100,000,000 shares authorized of
$0.001 par value, 4,334,000 shares issued and
outstanding 4,334 4,334
Additional paid-in capital 50,170 50,170
Deficit accumulated during the development stage (16,274) (36,437)
----------------- -----------------
Total Stockholders' Equity 38,230 18,067
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,230 $ 18,067
================= =================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
From
Inception on
For the Three For the Six November 26,
Months Ended Months Ended 1996 Through
June 30, June 30, June 30,
1998 1997 1998 1997 1998
--------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 410 $ - $ 104,017 $ - $ 116,282
COST OF SALES 1,055 - 45,473 - 45,473
--------------- ---------------- ---------------- ---------------- ----------------
Gross Profit (645) - 58,544 - 70,809
--------------- ---------------- ---------------- ---------------- ----------------
EXPENSES
General and administrative 19,628 1,358 38,795 3,261 87,190
Depreciation and
amortization 83 75 167 150 474
--------------- ---------------- ---------------- ---------------- ----------------
Total Expenses 19,711 1,433 38,962 3,411 87,664
--------------- ---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) FROM
OPERATIONS (20,356) (1,433) 19,582 (3,411) (16,855)
--------------- ---------------- ---------------- ---------------- ----------------
OTHER INCOME 358 - 581 - 581
--------------- ---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (19,998) $ (1,433) $ 20,163 $ (3,411) $ (16,274)
=============== ================ ================ ================ ================
NET EARNINGS (LOSS)
PER SHARE $ (0.00) $ (0.00) $ 0.00 $ (0.00)
=============== ================ ================ ================
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 4,334,000 4,334,000 4,334,000 3,493,165
=============== ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, November 26, 1996 - $ - $ - $ -
Common stock issued for services
rendered valued at $0.005 per share 1,500,000 1,500 6,000 -
Common stock issued for cash
valued at $0.005 per share 1,800,000 1,800 7,200 -
Net loss from inception on
November 26, 1996 through
December 31, 1996 - - - (10,991)
-------------- -------------- -------------- --------------
Balance, December 31, 1996 3,300,000 3,300 13,200 (10,991)
Common stock issued for cash
valued at $ 0.05 per share 1,034,000 1,034 50,666 -
Stock offering costs - - (13,696) -
Net loss for the year ended
December 31, 1997 - - - (25,446)
-------------- -------------- -------------- --------------
Balance, December 31, 1997 4,334,000 4,334 50,170 (36,437)
Net income for the six months ended
June 30, 1998 (unaudited) - - - 20,163
-------------- -------------- -------------- --------------
Balance, June 30, 1998 (unaudited) 4,334,000 $ 4,334 $ 50,170 $ (16,274)
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
From
Inception on
For the Three For the Six November 26,
Months Ended Months Ended 1996 Through
June 30, June 30, June 30,
1998 1997 1998 1997 1998
--------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net loss $ (19,998) $ (1,433) $ 20,163 $ (3,411) $ (16,274)
Adjustments to Reconcile
Net Income
(Loss) to Net Cash Used in
Operating Activities:
Stock issued for services - - - - 7,500
Depreciation and amortization
expense 83 75 167 150 474
Increase (decrease) in
accounts payable - (356) - (559) -
--------------- ---------------- ---------------- ---------------- ----------------
Net Cash (Used) Provided
by Operating Activities (19,915) (1,714) 20,330 (3,820) (8,300)
--------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Fixed assets purchased - - - (1,189) (1,359)
Organization costs paid - - - - (309)
--------------- ---------------- ---------------- ---------------- ----------------
Net Cash (Used) Provided
By Investing Activities - - - (1,189) (1,668)
--------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Stock offering costs - (8,622) - (10,381) (13,696)
Common stock issued for cash - 51,700 - 51,700 60,700
--------------- ---------------- ---------------- ---------------- ----------------
Net Cash Provided By
Financing Activities - 43,078 - 41,319 47,004
--------------- ---------------- ---------------- ---------------- ----------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS (19,915) 41,364 20,330 36,310 37,036
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 56,951 711 16,706 5,765 -
--------------- ---------------- ---------------- ---------------- ----------------
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 37,036 $ 42,075 $ 37,036 $ 42,075 $ 37,036
============== ================ ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
For the Three For the Six November 26,
Months Ended Months Ended 1996 Through
June 30, June 30, June 30,
1998 1997 1998 1997 1998
--------------- ---------------- ---------------- ---------------- ----------------
Cash Paid For:
<S> <C> <C> <C> <C> <C>
Interest $ - $ - $ - $ - $ -
Income taxes $ - $ - $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-8
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1998 and December 31, 1997
NOTE 1 - ORGANIZATION AND HISTORY
a. Organization
The financial statements presented are those of Downstream, Inc.
(a development stage company). The Company was incorporated under
the laws of the State of Utah on November 26, 1996. The Company
was incorporated to engage in the business of financial
consulting. During 1997, the Company formed a dba named Security
Solutions, Inc. to engage in the business of installing security
systems.
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments
with maturities of three months or less at the time of
acquisition.
d. Net Loss Per Share
The computations of net loss per share of common stock are based
on the weighted average number of shares outstanding during the
period of the financial statements.
e. Provision for Taxes
At June 30, 1998, the Company had net operating loss carryforwards
of approximately $16,000 that may be offset against future taxable
income through 2013. No tax benefit has been reported in the
financial statements because the Company believes there is a 50%
or greater chance the net operating loss carryforwards will expire
unused. Accordingly, the potential tax benefits of the net
operating loss carryforwards are offset by a valuation allowance
of the same amount.
f. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1998 and December 31, 1997
NOTE 1 - ORGANIZATION AND HISTORY (Continued)
g. Property, Equipment and Depreciation
Property and equipment are carried at cost. Depreciation is
calculated using the straight-line method over their estimated
useful life of 5 years.
h. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for
a fair presentation. Such adjustments are of a normal, recurring
nature.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company
does not have significant cash or other material assets, nor does
it have an established source of revenues sufficient to cover its
operating costs and to allow it to continue as a going concern.
The accompanying financial statements do not include any
adjustments that might result from the outcome of this
uncertainty. The Company has begun its primary operations.
Management feels that sales will provide sufficient cash for the
operation of the Company.
NOTE 3 - STOCK TRANSACTIONS
On December 10, 1996, the Company issued 1,500,000 shares of
common stock for services rendered by a related party. The shares
were valued at $0.005 per share.
On December 10, 1996, the Company issued 1,800,000 shares of stock
for cash at $0.005 per share.
NOTE 4 - ORGANIZATION COSTS
The Company is amortizing the non-recurring costs of organizing
the Company over a five year period. Amortization expense for
December 31, 1997 and 1996 was $62 and $6, respectively.
NOTE 5 - PUBLIC OFFERING
The Company has completed an offering of 1,034,000 shares of its
previously unissued common stock to the public at $0.05 per share.
The Company incurred offering costs of $13,696 which were offset
against the proceeds of the offering.
F-10
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1998 and December 31, 1997
NOTE 6 - COMMITMENTS
Officer Compensation - The Company has committed to paying the
President $2,000 per month since more than $50,000 was raised in
the public offering. In addition to the salaries, the Company has
agreed to pay its President and the other officers a commission of
up to 20% of revenues generated by their efforts.
NOTE 7 - FIXED ASSETS
Fixed assets at June 30, 1998 and December 31, 1997 consisted of
the following:
June 30, December 31,
1998 1996
--------- ---------
Fax Machine $ 424 $ 424
Televisions 935 935
--------- ---------
1,359 1,359
Less accumulated depreciation (375) (239 )
--------- ---------
Net fixed assets $ 984 $ 1,120
========= =========
Depreciation expense for the six months ended June 30, 1998 and
for the year ended December 31, 1997 was $136 and $239,
respectively.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 37,036
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,036
<PP&E> 984
<DEPRECIATION> 210
<TOTAL-ASSETS> 38,230
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 4,334
<OTHER-SE> 33,896
<TOTAL-LIABILITY-AND-EQUITY> 38,230
<SALES> 410
<TOTAL-REVENUES> 768
<CGS> 0
<TOTAL-COSTS> 1,055
<OTHER-EXPENSES> 19,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,998)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,998)
<EPS-PRIMARY> (0.005)
<EPS-DILUTED> (0.005)
</TABLE>
