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
03/31/99 333-6440
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.)
6337 Highland Drive
Salt Lake City, Utah 84121
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (801) 916.1371
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 praA Fcticable date.
As of March 31, 1999, the issuer had outstanding approximately
4,600,000 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, 1999 and the related audited balance sheet of the
Company as of December 31, 1998, the unaudited related statements of operations
and cash flows for the three month period ended March 31, 1999, 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, as a financial
consulting firm, 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. An officer and
director of the Company was issued 166,000 shares of common stock during the
forth quarter of 1998 for services rendered to the Company over the preceding
two years. In January of 1999, the Company issued 100,000 shares of common stock
to an officer and director of the Company in exchange for $5000, which the
Company has used as working capital during the first quarter of 1999.
In the third quarter of 1997, a Security Division was created when the
Company was presented with an opportunity to participate in the security
industry. The Security Division was the primary source of operating revenue for
the Company from inception. During the last quarter of 1997, and the first
quarter of 1998, the Company received and completed 12 security contacts awarded
to the Company by U.S. Satellite, a division of the American Stores Company. Due
to a change in management at U.S. Satellite precipitated by Albertson's purchase
of the American Stores Company, no further contracts were awarded to the
Company. The Security Division was subsequently closed early in the third
quarter of 1998. During that time the Company's Board decided to seek out other
opportunities as potential sources of revenue for the Company.
Negotiations were entered into during the third quarter of 1998 with
three different physicians concerning opening and operating cosmetic 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 an 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.
During the fourth quarter of 1998, the Board of Directors made a
decision that it would be in the best interest of the Company, and the Company's
shareholders, to attempt to seek out and acquire the business and assets of a
going concern. The Company began its search focusing primarily on profitable
companies doing business on the Internet. Many different companies were
contacted and evaluated. The Company entered into negotiations to acquire the
business and assets of Netbilling, Inc. of Valencia, CA in January of 1999. As
of the date of this writing, those negotiations are still under way. The Company
is currently waiting for needed financial information to be received so an audit
of Netbilling's financial records can be completed.
The Company entered into negotiations with a German concern in February
of 1999. As of the date of this writing, letters of intent have been signed by
the principles of the German concern and the Company to acquire certain
businesses, assets and sales and licensing rights of and from said German
concern.
2
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
During the three month period ended March 31, 1999 the Company had
operating revenues of $0.00 compared to operating revenues of $103,607 for the
three months ended March 31, 1997. Loss per share was approximately $0.00 for
the quarter ended March 31, 1999, compared to a profit of $0.01 per share for
the same period a year earlier. The notable difference in revenues in 1999
compared to the first quarter of 1998 was due to the 12 security contracts
awarded to the Company during the first quarter of 1998 vs. no contracts being
awarded in 1999. No operating revenues were generated during the first quarter
of 1999. Five thousand dollars ($5,000) was received by the Company from an
officer and a director of the Company in exchange for 100,000 shares of common
stock. Said is restricted under "Rule 144".
Costs of sales for the three-month period ended March 31, 1999 were
$000.00 compared to costs of sales of $44,417 for the same period during 1998.
For the three month period ended March 31, 1999, the Company had a net loss of
$(9,793), resulting in a net loss per share of approximately $0.00, compared to
a net profit of $40,161 during the first quarter of 1998, resulting in a net
profit per share of $0.01.
General and administrative expenses for the first quarter of 1999 were
$9,746 compared to general and administrative expenses of $19,168 for the same
period in 1998.
The Company's losses during the first quarter of 1999 were due to a
lack of revenues, and costs associated with general and administrative expenses
and the Company's search for a going concern.
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.
During the fourth quarter of 1998, the Board of Directors made a
decision that it would be in the best interest of the Company, and the Company's
shareholders, to attempt to seek out and acquire the business and assets of a
going concern. The Company began its search focusing primarily on profitable
companies doing business on the Internet. Several different companies were
contacted and evaluated. The Company entered into negotiations to acquire the
business and assets of Netbilling, Inc. of Valencia, CA in January of 1999. As
of the date of this writing, those negotiations are still under way, and the
Company is waiting for an audit of Netbilling's business to be completed. The
Company entered into negotiations with a German concern in February of 1999. As
of the date of this writing, letters of intent have been signed by the
principles of the German concern and the Company to acquire certain businesses,
assets and sales and licensing rights of and from said German concern.
The Company believes that either or both of these acquisitions can be
made, and that the Company and its shareholders will be benefited by doing so.
However, no assurance can be given that the Company will be successful in
completing either of the said acquisitions.
Balance Sheet Information.
Assets
As of March 31, 1999, the Company reported total assets of $4,834, down
$4,910 from the $9,744 reported as of December 31, 1998. Current assets as of
March 31, 1999 were $4,054, down $4,842 from the $8,896 reported as of December
31, 1998. The changes in total and current assets as of March 31, 1999 from
those reported as of December 31, 1998 reflect primarily an decrease in cash due
to general and administrative expenses incurred during the first quarter of the
year.
3
<PAGE>
Fixed assets were $780 as of March 31, 1999, down $68 from the fixed
assets of $848 reported as of December 31, 1998. This change was due to
accumulated depreciation.
Liabilities
The Company had liabilities of $0.00 as of March 31, 1999. Liabilities
of $117 were reported as of December 31, 1998.
Liquidity and Capital Resources as of March 31, 1999.
The Company received a small infusion of capital during the first
quarter of the year from stock that was purchased by one of the Company's
officers during the quarter. Said capital has allowed the Company to continue as
a "going concern" over the past three months. However, that capital has been
reduced significantly due to general and administrative expenses incurred over
the past three months. 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 attempts to complete the aforementioned acquisitions, and other
expenses related to the Company's business.
The Company is currently attempting to complete, one or both, of the
aforementioned acquisitions. No assurance can be given that such acquisitions
can be completed, or that the Company's resources will be adequate to take
advantage of any other 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)
4
<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: April 26, 1999 By /s/ Barry A. Ellsworth
--------------------------------
Barry A. Ellsworth
President
5
<PAGE>
April 26, 1999
The accompanying balance sheet was prepared by Downstream Incorporated - DSI (a
development stage company) as of March 31, 1999. The related statements of
operations, stockholders' equity and cash flows for the three months ended March
31, 1999 have not been audited. However, management believes they represent
fairly the financial operations and condition of the Company for said period.
The accompanying balance sheet as of December 31, 1998 was audited by Jones,
Jensen & Company who expressed an unqualified opinion on it in their report,
dated February 3, 1999.
/s/ Downstream Incorporated - DSI
6
<PAGE>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
F-1
<PAGE>
C O N T E N T S
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' Equity....................................... F-5
Statements of Cash Flows................................................. F-6
Notes to the Financial Statements........................................ F-7
F-2
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
Balance Sheets
ASSETS
March 31, December 31,
1999 1998
----------------- -----------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 4,054 $ 8,896
----------------- -----------------
Total Current Assets 4,054 8.896
----------------- -----------------
FIXED ASSETS (Note 6) 780 848
----------------- -----------------
TOTAL ASSETS $ 4,834 $ 9,744
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ - $ 117
----------------- -----------------
Total Current Liabilities - 117
----------------- -----------------
Total Liabilities - 117
----------------- -----------------
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, 4,500,000 shares issued
and outstanding 4,600 4,500
Additional paid-in capital 137,904 133,004
Deficit accumulated during the development stage (137,670) (127,877)
----------------- -----------------
Total Stockholders' Equity 4,834 9,627
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,834 $ 9,744
================= =================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
Statements of Operations
(Unaudited)
From
Inception on
For the Three Months Ended November 26,
March 31, March 31, 1996 Through
1999 1998 1999
------------------ ----------------- -----------------
<S> <C> <C> <C>
REVENUES $ - $ 103,607 $ 116,692
COST OF SALES - 44,417 45,473
------------------ ----------------- -----------------
GROSS PROFIT - 59,190 71,219
EXPENSES
General and administrative 9,746 19,168 208,916
Depreciation and amortization 68 84 898
------------------ ----------------- -----------------
Total Expenses 9,814 19,252 209,814
------------------ ----------------- -----------------
NET INCOME (LOSS) FROM
OPERATIONS (9,814) 39,938 (138,595)
OTHER INCOME 21 223 925
------------------ ----------------- -----------------
NET INCOME (LOSS) $ (9,793) $ 40,161 $ (137,670)
================== ================= =================
NET INCOME PER SHARE $ 0.00 $ (0.01)
================== =================
WEIGHTED AVERAGE NUMBERS
OF SHARES OUTSTANDING 4,583,333 4,334,000
================== =================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
Statements of Stockholders' Equity
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
-------------- -------------- -------------- --------------
<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)
Common stock issued for services
at $0.50 per share 166,000 166 82,834 -
Net loss for the year ended
December 31, 1998 - - - (91,440)
-------------- -------------- -------------- --------------
Balance, December 31, 1998 4,500,000 4,500 133,004 (127,877)
Common stock issued for cash
valued at $0.05 per share 100,000 100 4,900 -
Net loss for the three months ended
March 31, 1999 (unaudited) - - - (9,793)
-------------- -------------- -------------- --------------
Balance, March 31, 1999 (unaudited) 4,600,000 $ 4,600 $ 137,904 $ 137,670
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
Statements of Cash Flows
From
Inception on
For the Three Months Ended November 26,
March 31, March 31, 1996 Through
1999 1998 1999
--------------- ---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (9,793) $ 40,161 $ (137,670)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Stock issued for services - - 90,500
Depreciation and amortization 68 84 888
Increase (decrease) in accounts payable (117) - -
--------------- ---------------- ---------------
Net Cash (Used) by Operating Activities (9,842) 40,245 (46,282)
--------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - - (1,359)
Organization costs paid - - (309)
--------------- ---------------- ---------------
Net Cash (Used) by Investing Activities - - (1,668)
--------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issuance costs - - (13,696)
Common stock issued for cash 5,000 - 65,700
--------------- ---------------- ---------------
Net Cash Provided by Financing Activities 5,000 - 52,004
--------------- ---------------- ---------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS (4,842) 40,245 4,054
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,896 16,706 -
--------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 4,054 $ 56,951 $ 4,054
=============== ================ ===============
Cash Paid For:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-6
<PAGE>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
Notes to the Financial Statements
March 31, 1999 and December 31, 1998
NOTE 1 - ORGANIZATION AND HISTORY
a. Organization
The financial statements presented are those of Downstream
Incorporated - DSI (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 Loss Per Share
The computations of basic 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 March 31, 1999, the Company had net operating loss
carryforwards of approximately $63,000 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-7
<PAGE>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
Notes to the Financial Statements
March 31, 1999 and December 31, 1998
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.
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. In addition to its continued search for financial
consulting clients, the Company's Board of Directors decided it
would be in the best interest of the Company to attempt to locate
and acquire the assets and business of an already going concern.
Their search was began with companies that were in some way
related to the Internet. Locating additional consulting clients,
and/or locating and acquiring the business and assets of an
Internet related concern will be the Company's primary objectives
in the coming months.
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.
On October 2, 1998, the Company issued 166,000 shares of stock for
services rendered by a related party. The shares were valued at
$0.50 per share.
On January 16, 1999, the Company issued 100,000 shares of stock
for cash at $0.05 per share.
NOTE 4 - PUBLIC OFFERING
The Company 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-8
<PAGE>
DOWNSTREAM INCORPORATED - DSI
(A Development Stage Company)
Notes to the Financial Statements
March 31, 1999 and December 31, 1998
NOTE 5 - COMMITMENTS
Officer Compensation - The Company committed to pay 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 its other officers a commission of up to 20%
of revenues generated by their efforts. As of March 31, 1999, the
President is no longer being paid a salary by the Company.
NOTE 6 - FIXED ASSETS
Fixed assets at March 31, 1999 consisted of the following:
March 31,
1999
------------------
Fax machine $ 424
Televisions 935
------------------
Less accumulated depreciation (579)
------------------
Net fixed assets $ 780
==================
Depreciation expense for the three months ended March 31, 1999
and for the year ended December 31, 1998 was $68 and $272,
respectively.
F-9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,054
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,054
<PP&E> 780
<DEPRECIATION> 68
<TOTAL-ASSETS> 4,834
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 4,600
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,834
<SALES> 0
<TOTAL-REVENUES> 5,021
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
