SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal quarter ended Commission file number
09/30/98 333-6440
DOWNSTREAM INCORPORATED - DSI
(Name of Small Business Issuer in its Charter)
Utah 87-0567618
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
2046 E. Murray Holladay Road
Suite 202 84117
Salt Lake City, Utah (Zip Code)
(Address of Principal Executive Offices)
Issuer's telephone number: (801) 272-5174
Securities registered under Section 12(b) of the Exchange Act:
Common Stock - Par Value: $0.001 Per Share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 September 31, 1998, the issuer had outstanding approximately
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 September 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 nine month periods ended September 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.
History
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 $51,000 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, when
the Company approached that individual as a potential client. The Security
Division has been the primary source of revenue for the Company since inception.
During the last quarter of 1997, and the first quarter of 1998, the Company
received and completed 12 Contacts for U.S. Satellite. However, due to a change
in management at U.S. Satellite, no further contracts were awarded to the
Company. The Security Division was subsequently closed during the third quarter
of 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
During the three month period ended September 30, 1998 the Company had
operating revenues of $000.00 compared to operating revenues of $000.00 for the
three months ended September 30, 1997. The Company had operating revenues of
$104,017 for the nine month period ended September 30, 1998, compared to $000.00
revenues for the same nine month period in 1997. Loss per share was
approximately $0.00 for the quarter ended September 30, 1998, and approximately
$0.00 for the nine months ended September 30, 1998. The notable difference in
revenues from the first vs. the second and third quarters of 1998 was due to
security contracts the Company was awarded during the first quarter vs. no
contracts being awarded during the second and third quarters.
Costs of sales for the three month period ended September 30, 1998 were
$000.00 compared to $000.00 for the same period during 1997. For the nine month
period ended September 30, 1998, costs of sales were $45,473, compared to
$000.00 costs of sales for the same nine month period in 1997.
For the three month period ended September 30, 1998, the Company had a
net loss of $(18,710), resulting in a net loss per share of approximately $0.00,
compared to a net loss of $(11,315) during the third quarter of 1997, resulting
in a net loss per share of $0.00. For the nine month period ended September 30,
1998, the Company had a net profit of $1,453, resulting in a net profit per
share of $0.00, compared to a net loss of $(14,726) for the nine month period
ended September 30, 1997, resulting in a net loss of $0.00 per share.
<PAGE>
General and administrative expenses for the third quarter of 1998 were
$18,872, compared to general and administrative expenses of $11,473 for the same
period in 1997. General and administrative expenses for the nine months ended
September 30, 1998 were $57,917, compared to general and administrative expenses
of $14,734 for the same nine month period in 1997.
The Company's losses during the third quarter of 1998 were due to a
lack of revenue and costs associated with sales and general and administrative
expenses. The Company's profits for the nine month period ended September 30,
1998 were attributed to 10 security contracts completed in the first quarter,
less costs of sales and general and administrative expenses incurred in the
first three quarters of the year.
At the end of the second quarter of 1998 it became clear that the
Company was not going to receive any further security contracts from U.S.
Satellite. The Security Division of the Company was subsequently closed down
during the third quarter of 1998. At that time, the Company's Board of Directors
determined it would be in the best interest of the Company to seek other
opportunities to create revenues for the Company.
Negotiations were entered into during the third quarter of 1998 with
three different physicians concerning opening and operating hair removal centers
across the country using a machine known as the EpiLight Hair Removal System.
During said negotiations, Robert W. Later, M.D. was made an officer and a
director of the Company on a interim basis to act as a consultant for the
Company until such negotiations could be finalized. However, due to the high
cost of the machines themselves, and numerous difficulties encountered in
attempting to negotiate agreements with physicians that would be financially
beneficial to the Company, it was decided not to enter the cosmetic hair removal
business, and said negotiations were terminated. The Company's Board of
Directors is presently exploring other opportunities to generate revenues.
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.
Balance Sheet Information.
Assets
As of September 30, 1998, the Company reported total assets of $19,520,
up $1,453 from the $18,067 reported as of December 31, 1997. Current assets as
of September 30, 1998 were $18,604, up $1,898 from the $16,706 reported as of
December 31, 1997. The changes in total and current assets as of September 30,
1998 from those reported as of December 31, 1997 reflect primarily an increase
in cash due to revenues generated during the first quarter of 1998 from
completed security contracts, less costs of sales and general and administrative
expenses incurred during the first three quarters of the year.
Fixed assets were $916 as of September 30, 1998, down $204 from the
$1,120 of fixed assets reported as of December 31, 1997. This change was due to
accumulated depreciation.
<PAGE>
Other assets were $000.00 as of September 30, 1998, down $241 from the
$241 reported as of December 31, 1997.
Other assets represent organizational costs net of amortization. During
the nine months ended September 30, 1998 the organizational costs of the Company
were expensed.
Liabilities
The Company had liabilities of $000.00 as of September 30, 1998. The
same amount was reported as of December 31, 1997.
Liquidity and Capital Resources as of September 30, 1998.
The Company received an infusion of capital during the first quarter of
the year from contracts awarded to the Company by U.S. Satellite that were
completed during that quarter. Said capital has allowed the Company to continue
as a "going concern" over the past nine months. However, that capital has been
reduced significantly due to costs of sales and general and administrative
expenses incurred over the past nine months and no further contracts have been
received. To continue as a "going concern" the Company will need to find other
sources of revenue and/or debt or equity financing of some kind.
The Company's most significant cash needs in the foreseeable future
will include payment of general and administrative expenses, expenses related to
the Company's search for other revenue producing opportunities, and other
expenses related to the Company's business.
The Company is currently looking for other revenue producing
opportunities. No assurance can be given that such opportunities will ever
materialize, or that the Company's resources will be adequate to take advantage
of any such opportunities if they were to materialize.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) There are no exhibits included with this report.
(b) The Company filed no reports on Form 8-K during the quarter.
(This Space Intentionally Left Blank)
<PAGE>
[LETTERHEAD]
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 September 30, 1998 and the related statements of operations, stockholders'
equity and cash flows for the three months and nine months ended September 30,
1998 and 1997 and from inception on November 26, 1996 through September 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.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
October 15, 1998
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
September 30, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 18,604 $ 16,706
----------------- -----------------
Total Current Assets 18,604 16,706
----------------- -----------------
FIXED ASSETS, net (Note 7) 916 1,120
----------------- -----------------
OTHER ASSETS
Organizational cost, net (Note 4) - 241
----------------- -----------------
Total Other Assets - 241
----------------- -----------------
TOTAL ASSETS $ 19,520 $ 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 (34,984) (36,437)
----------------- -----------------
Total Stockholders' Equity 19,520 18,067
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,520 $ 18,067
================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
From
Inception on
For the Three For the Nine November 26,
Months Ended Months Ended 1996 Through
September 30, September 30, September 30,
1998 1997 1998 1997 1998
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ 104,017 $ - $ 116,282
COST OF SALES - - 45,473 - 45,473
--------------- ---------------- ---------------- ---------------- ----------------
Gross Profit - - 58,544 - 70,809
--------------- ---------------- ---------------- ---------------- ----------------
EXPENSES
General and administrative 18,872 11,473 57,667 14,734 106,062
Depreciation and
amortization 83 82 250 232 557
--------------- ---------------- ---------------- ---------------- ----------------
Total Expenses 18,955 11,555 57,917 14,966 106,619
--------------- ---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) FROM
OPERATIONS (18,955) (11,555) 627 (14,966) (35,810)
--------------- ---------------- ---------------- ---------------- ----------------
OTHER INCOME 245 240 826 240 826
--------------- ---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (18,710) $ (11,315) $ 1,453 $ (14,726) $ (34,984)
=============== ================ ================ ================ ================
BASIC NET EARNINGS
(LOSS) PER SHARE $ (0.00) $ (0.00) $ 0.00 $ (0.00)
=============== ================ ================ ================
BASIC WEIGHTED
AVERAGE NUMBER OF
SHARES OUTSTANDING 4,334,000 4,334,000 4,334,000 3,493,165
=============== ================ ================ ================
</TABLE>
<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 nine months ended
September 30, 1998 (unaudited) - - - 1,453
--------- -------------- ------------- --------------
Balance, September 30, 1998 (unaudited) 4,334,000 $ 4,334 $ 50,170 $ (34,984)
========= ============== ============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
From
Inception on
For the Three For the Nine November 26,
Months Ended Months Ended 1996 Through
September 30, September 30, September 30,
1998 1997 1998 1997 1998
---------- ------------ ----------- ------------ --------------
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net loss $ (18,710) $ (11,315) $ 1,453 $ (14,726) $ (34,984)
Adjustments to reconcile
Net income (loss) to net cash
used in operating activities:
Stock issued for services - - - - 7,500
Depreciation and amortization
expense 83 82 250 232 557
Organizational costs 195 - 195 - 195
Increase (decrease) in
accounts payable - 2,639 - 2,080 -
--------------- ---------------- ---------------- ---------------- ----------------
Net Cash (Used) Provided
by Operating Activities (18,432) (8,594) 1,898 (12,414) (26,732)
--------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Fixed assets purchased - (170) - (1,359) (1,359)
Organization costs paid - - - - (309)
--------------- ---------------- ---------------- ---------------- ----------------
Net Cash (Used) Provided
By Investing Activities - (170) - (1,359) (1,668)
--------------- ---------------- ---------------- ---------------- ----------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Stock offering costs - (6,106) - (16,487) (13,696)
Common stock issued for cash - - - 51,700 60,700
--------------- ---------------- ---------------- ---------------- ----------------
Net Cash Provided By
Financing Activities - (6,106) - 35,213 47,004
--------------- ---------------- ---------------- ---------------- ----------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS (18,432) (14,870) 1,898 21,440 18,604
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 37,036 42,075 16,706 5,765 -
--------------- ---------------- ---------------- ---------------- ----------------
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 18,604 $ 27,205 $ 18,604 $ 27,205 $ 18,604
=============== ================ ================ ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
For the Three For the Nine November 26,
Months Ended Months Ended 1996 Through
September 30, September 30, September 30,
1998 1997 1998 1997 1998
--------- ----------- ----------- ----------- ------------
Cash Paid For:
<S> <C> <C> <C> <C> <C>
Interest $ - $ - $ - $ - $ -
Income taxes $ - $ - $ - $ - $ -
</TABLE>
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 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. Basic Net Loss Per Share
The computations of basic 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 September 30, 1998, the Company had net operating loss
carryforwards of approximately $35,000 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.
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 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. During
the nine months ended September 30, 1998 the organizational costs
were expensed.
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.
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 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 September 30, 1998 and December 31, 1997
consisted of the following:
September 30, December 31,
1998 1997
------------- -------------
Fax Machine $ 424 $ 424
Televisions 935 935
--- ---
1,359 1,359
Less accumulated depreciation (443) (239)
---- ----
Net fixed assets $ 916 $ 1,120
= === = =====
Depreciation expense for the nine months ended September 30, 1998
and for the year ended December 31, 1997 was $204 and $239,
respectively.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DOWNSTREAM INCORPORATED - DSI
(Registrant)
Date: October 21, 1998 By /s/ Barry A. Ellsworth
----------------------------------
Barry A. Ellsworth
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,604
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,604
<PP&E> 916
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,520
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 4,334
<OTHER-SE> 15,186
<TOTAL-LIABILITY-AND-EQUITY> 19,520
<SALES> 0
<TOTAL-REVENUES> 245
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,710)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,710)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
