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 333-6440
3/31/98
DOWNSTREAM INCORPORATED-DSI
(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 84117
Salt Lake City, Utah (Zip Code)
Address of principal executive
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 March 31, 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 March 31, 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 month periods ended March 31, 1998
and March 31, 1997, the unaudited statement of stockholders equity for the
period from inception to March 31, 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 the
Company commenced operations. In September of 1997 a security division was
created to participate in the security industry. The security division has
been the major source of revenue for the Company to this point in time.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations.
During the three months ended March 31, 1998, the Company had
operating revenues of $103,607, compared to operating revenues of $000.00 for
the three month period ended March 31, 1997.
Costs of sales for the three month period ended March 31, 1998 were
$44,417, compared to $000.00 costs of sales for the three month period ended
March 31, 1997. The Company incurred general and administrative expenses of
$19,168, for the three month period ended March 31, 1998, compared to general
and administrative expenses of $1,903, for the period ended March 31, 1997.
For the period ended March 31, 1998, the Company had a net profit
of $40,161, resulting in a net profit per share of apporximately $0.01,
compared to a net loss of $1,978, resulting in a net loss per share of
approximately $0.00, for the period ended March 31, 1997.
The financial results for the period ended March 31, 1998 are not
comparable to the results for the quarter ended March 31, 1997 because,
although the Company had been organized, the Company had not yet commenced
operations in 1997. The majority of the Company's time was being spent during
the same period in 1997 preparing for a public offering of the Company's
common stock.
The Company's profits during the three month period ended March 31,
1998 were attributed to the security division of the Company which was
awarded 10 contracts by U.S. Satellite to install security systems in 10
different Osco Drug Stores across the country. These systems were installed
during the first quarter.
The Company had revenues of $223 from interest on money market
accounts during the three month period ended March 31, 1998.
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.
<PAGE>
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.
Balance Sheet Information
Assets
As of March 31, 1998, the Company reported total assets of $58,228,
up $40,161, from the $18,067, reported as of December 31, 1997.
Current assets as of March 31, 1998 were $56,951, up $40,245, from
the $16,706, reported as of December 31, 1997. Fixed assets were $1,051, as
of March 31, 1998, down $69, from the $1,120, of fixed assets reported as of
December 31, 1997.
Other assets were $226 as of March 31, 1998, down $15 from the $241,
reported as of December 31, 1997.
The change in total assets reflects primarily an increase of cash
received from net operating revenues.
The change in current assets during the three month period ended
March 31, 1998, reflects an increase in cash of $40,245.
Other assets represent organizational costs net of amortization.
Liabilities
The Company had no liabilities as of March 31, 1998. The same amount
was reported as of December 31, 1997.
Liquidity and Capital Resources - March 31, 1998
The Company had operating revenues of $103,607, during the three
months ended March 31, 1998, and net income of $40,161. This has provided the
Company with the ability to continue as a going concern for approximately 9
to 12 months.
The Company's most significant cash needs in 1998 will include
payment of general and administrative expenses, marketing expenses to expand
the Company's client base, and other expenses relating to the Company's
financial consulting business, and the Company's security business.
The Company may choose to seek in the future to expand its resources
to take 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 the 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 of the 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. Further expenses
of $11,876, were reported in the Company's annual report for the three month
period ending December 31, 1997. Since that time, and for the three month
period ending March 31, 1998, the Company has spent net proceeds from the
offering as follows:
Rent: 900.00
Legal: 74.00
Accounting: 000.00
Salaries: 6,000.00
Misc. G&A: 1,770.75
Travel expenses: 000.00
Expenses incurred in
search for new clients: 1,000.00
--------
Total: 9,774.75
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 ending March 31, 1998, to,
approximately: $36,934.75, leaving approximately $3,581.25 of net proceeds
from the offering.
The aforementioned uses of proceeds do not represent a material
change in the use of proceeds described in the prospectus.
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 March 31, 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: May 6, 1998 By:/s/ Barry A. Ellsworth
-----------------------
Barry A. Ellsworth
President
<PAGE>
APPENDIX "A"
DOWNSTREAM, INC.
FINANCIAL STATEMENTS
with accountants compilation report
March 31, 1998
F-1
<PAGE>
CONTENTS
Accountant Compilation Report........................................... F-3
Balance Sheet........................................................... 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-8
F-2
<PAGE>
[LETTERHEAD]
Robert M. Jensen, CPA
50 South Main, #1450
Salt Lake City, UT 84144
(801) 532-7800
ACCOUNTANT COMPILATION REPORT
The Board of Directors
Downstream, Inc.
Salt Lake City, Utah
I have compiled the accompanying balance sheet of Downstream, Inc. as of March
31, 1998, and the related statement of income and retained earnings and cash
flows for the three months then ended, in accordance with statements on
standards for accounting and review services issued by the American Institute of
Certified Public Accountants.
A compilation is limited to presenting, in the form of financial statement,
information that is the representation of management. I have not audited or
reviewed the accompanying financial statements and accordingly, do not express
an opinion or any other form of assurance on them.
Generally accepted accounting principles require that deferred income taxes be
recognized for the tax effects of differences between the financial and tax
bases of assets and liabilities and for operating losses and tax credits that
are available to offset future taxable income. The Company has not recorded
deferred taxes in the accompanying financial statements. The effects of this
departure from generally accepted accounting principles have not been
determined. (see note 2)
/s/ Robert M. Jensen
Robert M. Jensen, CPA
April 27, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Balance Sheet
March 31, 1998 and 1997
(Unaudited)
ASSETS
March 31, March 31,
1998 1997
CURRENT ASSETS
<S> <C> <C>
Cash $ 56,951 $ 711
-------------------- --------------------
Total Current Assets 56,951 711
FIXED ASSETS (Note 7) 1,051 1,129
OTHER ASSETS (Note 4) 226 288
-------------------- --------------------
TOTAL ASSETS $ 58,228 $ 2,128
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ - $ 326
-------------------- --------------------
Total Current Liabilities - 326
-------------------- --------------------
TOTAL LIABILITIES - 326
-------------------- --------------------
STOCKHOLDERS' EQUITY
Preferred stock: 50,000,000 shares
authorized of $0.001 par value, -0-
shares issued and outstanding -
Common stock: 100,000 shares authorized
of $0.001 par value, 4,334,000 shares
issued and outstanding 4,334 3,330
Additional paid-in capital 50,170 11,441
Retained Earnings 3,724 (12,969)
-------------------- --------------------
Total Stockholders' Equity 58,228 2,128
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 58,228 $ 18,067
==================== ====================
</TABLE>
The accompany notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Operations
For the Three Months Ending March 31, 1998 and 1997
(Unaudited)
From
Inception on
November 26,
For the Three Months Ending 1996 through
March 31, March 31,
1998 1997 1998
---------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 103,607 $ - $ 116,282
COST OF SALES 44,417 - 44,417
----------------- ------------ -------------
GROSS PROFIT 59,190 - 71,865
EXPENSES
General and administrative 19,168 1,903 67,973
Depreciation and amortization 84 75 391
----------------- ------------ -------------
Total Expenses 19,252 1,978 68,364
----------------- ------------ -------------
NET INCOME FROM OPERATIONS $ 39,938 $ (1,978) $ 3,501
================= ============ =============
OTHER INCOME
Interest Income 223 - 223
NET INCOME $ 40,161 $ (1,978) $ 3,724
================= ============ =============
NET INCOME PER SHARE $ .01 $ (.00)
================= ============
WEIGHTED AVERAGE NUMBERS
OF SHARES OUTSTANDING 4,334,000 3,493,165
================= ============
</TABLE>
The accompanying notes are an integral part of the inancial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
For the three months ending March 31, 1998 and 1997
(Unaudited)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
------ ------ ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1997 4,334,000 $ 4,334 $ 50,170 $ (36,437)
Net Income for the three months
March 31, 1998 40,161
--------------
Balance, March 31, 1998 4,334,000 $ 4,334 $ 50,170 $ 3,724
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Cash Flows
For the three months ending March 31,1998 and 1997
(Unaudited)
From
Inception on
November 26,
CASH FLOWS FROM For the Three Months Period Ending 1996 through
OPERATING ACTIVITIES March 31, 1998 March 31, 1997 March 31, 1998
------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 40,161 $ (1,978) $ 3,724
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used in Operating Activities:
Stock issued for services - - 7,500
Depreciation and amortization 84 75 391
------------------ ------------------ ------------------
Net Cash (Used) By Operating Activities 40,245 (2,106) 10,256
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed assets purchased - (1,189) -
Organization costs paid - - (309)
------------------ ------------------ ------------------
Net Cash (Used) By Investing Activities - - (309)
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issue cost - (1,759) (13,696)
Common Stock issued for cash - - 60,700
------------------ ------------------ ------------------
Net Cash Provided By Financing Activities - (1,759) 47,004
------------------ ------------------ ------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 40,245 (5,054) 56,951
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 16,706 5,765 -
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 56,951 $ 711 $ 56,951
================== ================== ==================
Cash Paid For:
Interest $ -
Income taxes $ -
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements March 31, 1998 and 1997
(Unaudited)
NOTE 1 - ORGANIZATION AND HISTORY
a. Organization
The financial statements presented are those of Downstream, Inc.
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 December 31, 1997, the Company had net operating loss
carryforwards of approximately $36,000 that may be offset against future taxable
income through 2012. In the past 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. No provision for current taxes has been
made for this compiled statement
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.
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. Depreciation expense for December 31, 1997 was $239.
F-8
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements March 31, 1998 and 1997
(Unaudited)
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. In the past, the audited financial statements of the Company did not
have significant cash or other material assets, nor did 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 statement does 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. This is the first
period that the company has started it primary operations, and the first time
the company has shown an operational income.
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 March 31, 1998 and
December 31, 1997 and 1996 are $15 and $68, 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 in 1997. The
Company incurred offering costs of $13,696 which were offset against the
proceeds of the offering in 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 December 31, 1997 and March 31, 1998 consisted of
the following:
1998 1997
----------------- -------------
Fax Machine $ 424 $ 424
Televisions 935 935
----------------- -------------
1,359 1,359
Less accumulated depreciation (307) (239)
----------------- -------------
Net fixed assets $ 1,052 $ 1,120
================= =============
Depreciation expense for the years ended December 31, 1997 and 1996
was $239 and $0, respectively.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Downstream, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying balance sheet of Downstream, Inc. (a
development stage company) as of December 31, 1997 and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1997 and 1996 and from inception on November 26, 1996 through December 31, 1997.
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 audit 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 audit provides 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 Downstream, Inc. (a development
stage company) as of December 31, 1997 and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996 and from inception on
November 26, 1996 through December 31, 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is a development stage company with no
significant operating results to date which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
February 25, 1998
F-10
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
December 31,
1997
----
CURRENT ASSETS
Cash $ 16,706
------------
Total Current Assets 16,706
FIXED ASSETS (Note 7) 1,120
OTHER ASSETS (Note 4) 241
------------
TOTAL ASSETS $ 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 shares authorized
of $0.001 par value, 4,334,000 shares
issued and outstanding 4,334
Additional paid-in capital 50,170
Deficit accumulated during the development stage (36,437)
------------
Total Stockholders' Equity 18,067
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,067
============
The accompanying notes are an integral part of these financial statements.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 56,951
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,951
<PP&E> 1,051
<DEPRECIATION> 226
<TOTAL-ASSETS> 58,228
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 4,334
<OTHER-SE> 53,894
<TOTAL-LIABILITY-AND-EQUITY> 58,228
<SALES> 103,607
<TOTAL-REVENUES> 103,830
<CGS> 0
<TOTAL-COSTS> 44,417
<OTHER-EXPENSES> 19,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 40,161
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,161
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
