SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended 12/31/98 Commission file number 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.)
808 E. 7440 S. Suite #30
Salt Lake City, Utah 84047
(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 _
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year: $104,017.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked prices
($0.25 per share) on December 31, 1998 was approximately $683,500.
As of December 31, 1998 the issuer had outstanding approximately
4,500,000 shares of its Common Stock, $0.001 par value.
The issuer has not incorporated by reference herein any of the
following documents: 1) any annual report to shareholders; 2) any proxy or
information statement; or 3) any prospectus filed pursuant to Rule 424 (b) or
(c) of the Securities Act of 1933.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORY
Downstream Incorporated - DSI will sometimes be referred to hereinafter
as the "Company".
The Company was organized under the laws of the State of Utah on
November 26, 1996 as Downstream Incorporated - DSI. The Company was formed for
the purpose of consulting with small to medium sized businesses, then to help
them grow their businesses and achieve their desired goals. Its corporate
charter authorizes it to assist its clients in assessing their current financial
condition and their future financial needs - and to transact any lawful activity
for which corporations may be organized. Soon after being organized, the Company
issued 3,300,000 shares of its common stock to its founders and other
shareholders. The Company conducted a public offering of its common stock which
was completed in July 1997. The Company raised approximately $51,700 in gross
offering proceeds and issued an additional 1,034,000 shares of its common stock
to the public. In 1998, the Company issued an additional 166,000 shares of its
common stock in a private transaction for services rendered.
On September 3, 1997, a new division of the Company was formed to
engage in the business of security consulting. The security division supplied
the Company with the majority of its revenues during 1998. However, due to a
change in management at U.S. Satellite, its primary client, the Company was not
awarded any further contracts after the first quarter of 1998. Subsequently, the
security division of the Company was closed during the third quarter of 1998.
During the third quarter of 1998, the Company's Board of Directors
considered entering the cosmetic hair removal business using a new technology
known as intense pulsed light. Robert W. Later, M.D., was made an officer and a
director of the Company on an interim basis to consult with the Company. After
further investigation, the Board decided against entering into said business.
The Board discovered that the technology did not perform nearly as well as the
Company had been led to believe by salesmen of the machines, and that several
doctors who had opened centers utilizing said technology had later closed the
centers due to a lack of revenues. When the decision not to enter the field was
made, Dr. Later's relationship with the Company, which was greatly appreciated
and extremely helpful, ended, and the positions he filled were vacated.
In the final quarter of 1998, the Company's Board of Directors decided
that, in addition to its continued search for financial consulting clients, it
would be in the best interest of the Company, and its shareholders, to attempt
to locate and acquire the assets and business of a company that is already a
going concern. The Company has begun its search with emphasis on businesses
related to the internet. Locating additional consulting clients, and/or locating
and acquiring the business and assets of a going concern will be the Company's
primary objectives in the coming year.
The address of the principal offices of the Company is 808 E. 7440 S.
Suite #30, Midvale, Utah 84047. Its telephone number is (801) 916-1371.
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BUSINESS - INDUSTRY SEGMENTS
1. The Company was formed on November 26, 1996 to engage primarily in
the business of financial consulting. Such consulting services have focused
mostly in the area of mergers and acquisitions. The Company has also worked with
businesses interested in going public. The Company has attempted to consult with
and act as an intermediary between businesses desiring to go public and
brokerage firms that might be interested in taking them public. In the coming
year, the Company will continue to seek out clients in its financial consulting
business. However, the Board of Directors has also decided to search for an
already going concern that is preferably internet related and attempt to acquire
the assets and business of such a concern.
The Company believes that it can locate financial consulting clients,
or that a suitable business can be located and acquired to create revenues for
the Company. However, there can be no assurance that consulting clients, or such
a business, will be obtained by the Company, or that future revenues of any kind
will be generated.
2. A security division of the Company was formed during the last
quarter of 1997. The division was awarded contracts by U.S. Satellite in the
final quarter of 1997 to have security systems installed in various Osco Drug
Stores across the country. The division subcontracted with installers of
security systems in the geographic areas where contracts were awarded to the
Company. The Company then oversaw the installation of said security systems. Due
to a change in management at U.S. Satellite, no further contracts were awarded
to the Company after the first quarter of 1998. Subsequently, the Board decided
to close the Security Division in the third quarter of 1998. The Company does
not anticipate re-entering the security business in the future.
GENERAL DESCRIPTION OF BUSINESS - FINANCIAL CONSULTING
The financial consulting division of the Company is engaged primarily
in locating clients that are interested in growing their businesses through
mergers and acquisitions, or are interested in going public. After locating a
client interested in making an acquisition, the Company searches for suitable
acquisitions for its clients. Once the Company has located a suitable business
to be acquired by its clients, the Company assists its clients in negotiating
agreements and in completing the acquisitions.
Businesses that are interested in taking their companies public are
helped by being informed about the steps necessary to go public. The Company
helps them prepare the documents necessary for an Initial Public Offering - i.e.
financial statements, business plans, etc. The Company then attempts to locate a
brokerage firm that will underwrite the client's business and conduct an IPO.
The Company has not yet earned revenues from its financial consulting
business. However, the Company believes that significant revenues can be
generated from financial consulting services, and the Company is still pursuing
financial consulting clients.
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GENERAL DESCRIPTION OF BUSINESS - SECURITY CONSULTING
Prior to closure, the Security Division of the Company received
contracts from U.S. Satellite to have security systems installed in various Osco
Drug Stores across the country. The Company then subcontracted with security
installation companies to have such systems installed. The types of security
systems the Company dealt with were Burglar Alarm Systems, Fire Detection
Systems and Closed Circuit TV Systems.
In October 1997, the Company entered into and completed its first 2
contracts with U. S. Satellite, a division of American Stores. These contracts
were for the installation of Burglar Alarm Systems in 2 Osco Drug Stores in
Helena, Montana. The Company received 10 more contracts from U. S. Satellite for
the installation of similar systems in 10 other Osco Drug Stores in various
parts of the country. These contracts were completed during the first quarter of
1998.
After the aforementioned change in management at U.S. Satellite, the
Company received no further contracts and the Security Division was subsequently
closed.
The Company does not manufacture or sell any products, other than its
services and expertise as financial consultants. To the present, its only
products have been of a service nature.
PRICING - FINANCIAL CONSULTING
The Company works on a fee basis with its financial consulting clients.
Fees are negotiated with each client on an individual basis. Concerning clients
interested in making an acquisition, the Company attempts to negotiate fees in
the form of retainers, and additional fees ranging from 2 to 10 percent of the
value of any acquisition completed.
In the case of a client that is interested in completing a public
offering, the Company attempts to negotiate a monthly consulting fee, as well as
a finder's fee to be paid upon completion of the offering for helping the client
prepare for an offering and for locating a brokerage firm willing to underwrite
the offering. Said finder's fees are based on the size of the offering. Fees may
be negotiated on an hourly or other fee basis. Such fees will be paid to the
Company once the Company has located a suitable business to be acquired and the
acquisition is successfully completed; when an IPO is completed; or when other
services are completed.
PRICING - SECURITY CONSULTING
The Company was awarded contracts after submitting bids to U.S.
Satellite. In submitting bids, the Company took into consideration the general
costs of doing business, the wholesale costs of the systems to be installed, the
amounts it would be charged by subcontractors for labor, and the margins it
wished to retain as profit. The Company tried to maintain gross margins of at
least 50%. However, to be awarded bids, lesser margins were sometimes
considered. The Company's bids were accepted or rejected. If accepted, the
Company then proceeded to complete said projects by purchasing the systems to be
installed and making agreements with subcontractors to have said systems
installed. The Company oversaw all such installations.
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SALES AND MARKETING; DEPENDENCE ON MAJOR CUSTOMER
The Company's President has done the majority of the Company's sales
and marketing work. He does this primarily by phone, fax, mail, attendance at
various conventions and conferences, and by utilizing the internet. He also
maintains numerous professional relationships with individuals that refer
potential clients to the Company.
Approximately 99% of the Company's gross revenues in 1998 were derived
from one account - U. S. Satellite, a division of the American Stores Company.
The loss of this account has had an adverse affect on the Company's business and
revenues.
The Company was generally paid for its services thirty days net
(payment will be due thirty days from receipt of the invoices for services
rendered). In other cases, 60 days net, and in others, 90 days net. These terms
varied from account to account depending on the agreement arrived at between the
Company and its clients.
BACKLOG
The Company does not produce or market products, other than its
services. Therefore, it does not experience problems with backlogs. The Company
does not consider backlog to be an indicator of future performance.
MERCHANDISING AND ADVERTISING
The Company's ability to promote and market its services is important
to the success of the Company. However, at present the only type of
merchandising and advertising the Company engages in is through the efforts of
the Company's President as he markets the Company's services. The Company
believes its ability to establish and maintain favorable relations with its
clients is essential to the success of the Company. It is hoped that as, and if,
the Company continues to grow, that monies can be allocated to more effectively
market and advertise the Company's services to potential clients.
SEASONALITY
The area of business in which the Company is engaged is not sensitive
to seasonality. The Company does not anticipate its business will be affected by
any seasonal factors or changes.
PRODUCT PROTECTION
The Company does not produce or manufacture any products, other than
its services as financial consultants. It does not own any intellectual
properties, trademarks, copyrights or patents of any kind. Therefore, product
protection is not something the Company believes will influence its future
success or failure.
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GOING CONCERN OPINION
The Company's independent accountant has issued a "going concern"
opinion in which the independent accountant stated "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 continue as a
going concern."
The Company presently has no financing arrangements with any persons or
institutions. Nor is the Company indebted to any person or institution for any
amount, other than accounts payable of $117 as of December 31, 1998. However,
the Company's financial resources are limited at this time. The Company's future
success will depend on continued sales, the Company's ability to secure
financing of some kind, or to produce sufficient revenues from other sources to
allow the Company to continue its operations.
FACILITIES; RELATED PARTY TRANSACTION
The Company presently owns no facilities. The Company's President
maintains an office of the Company at his residence. The Company is not
currently being charged rent.
EMPLOYEES
The Company presently has 1 full-time employee, the Company's
President. None of the Company's employees are represented by a union or a
collective bargaining agreement. Its employee relations are excellent.
COMPETITION
There are many large companies, as well as small companies and
individuals, engaged in the business of financial consulting. The Company faces
significant competition from such companies and individuals. Many of the
Company's competitors have much greater financial and human resources than the
Company. Competition is intense and there are many intangibles, including
pricing, locating clients and/or businesses, locating suitable acquisitions, and
bringing those acquisitions to fruition. It is difficult to predict whether the
Company will be successful at its business in the future.
Many of the Company's competitors also have much greater resources to
market and merchandise their services. There can be no assurance given that the
Company will be able to overcome the many obstacles it faces and to continue as
a "going concern". However, it is the belief of management that it will be able
to continue as a business and continue to grow the Company and its business.
RISK FACTORS
The Company considers the following matters to be risks which could
have a material adverse effect on the financial condition and operations of the
Company:
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Financing Source Needed; Current Financing Limited. The Company's
available resources are limited. To continue as a going concern it will be
essential for the Company to locate clients and generate additional revenues,
acquire an already going concern, or secure either debt or equity financing from
some source. The Company presently has no commitments from any lender to provide
credit financing to the Company. No assurance can be given that the Company will
be able to obtain any debt or equity financing to permit expansion or continued
operations.
Competition. The Company is engaged in a highly competitive business
and competes directly with many companies which have substantially greater
financial resources, experience and more substantial marketing organizations
than the Company. The Company's ability to compete will depend on its ability to
obtain clients in its area of business, or to locate and acquire the business
and assets of an already going concern. Concerning clients who are interested in
mergers and/or acquisitions, the Company must also locate suitable acquisitions
for its clients after obtaining clients. The competition to do this is intense.
Current Trends in the Economy. The Company's revenues are, to a limited
extent, dependent on the strength of the U.S. economy. To the extent that
weaknesses in the U. S. economy occur, revenues from the Company's services may
be adversely impacted. If weakness in the economy were to occur, the Company
cannot predict if, and, if so, to what extent or for what period such a trend
will adversely impact revenues from its services.
Earnings Fluctuations. Because the services provided by the Company
often take a significant amount of time to complete, due to the personal
relationships that must be developed to gain the trust of clients, especially in
the area of financial consulting, the Company expects that it will experience
frequent and perhaps large fluctuations in both revenues and operating results.
Dependence on Management and Key Personnel; No Key Man Insurance; No
Director's and Officer's Insurance. Although James G. Slater and Richard S.
Cutler, both officers and directors of the Company, participate in the
management decisions affecting the Company, the Company's day to day operations
are primarily dependent on the efforts of the Company's President. The Company's
success will be dependent on the ability of the Company's President to locate
clients for the Company. This will include locating clients that wish to go
public, and brokerage firms willing to underwrite public offerings for them;
locating suitable acquisitions for the Company's clients that wish to make
acquisitions, then to assist those clients in completing such acquisitions; or
in locating a suitable business that the Company may acquire. To accomplish the
goals of the Company, the officers and directors might need to secure either
debt or equity financing to finance the Company's operations and to market its
services. If this becomes necessary, it will be done with terms that are
favorable to the Company.
The Company has no written employment agreement with any of its
officers. The Company presently has no key man insurance or director's and
officer's liability insurance.
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Control by Current Management. Current directors of the Company
collectively own approximately 39.2% of the Company's outstanding Common Stock.
By virtue of their share holdings, as well as their positions as directors and
officers of the Company, they have a significant influence over the power to
elect the entire Board of Directors and to approve or disapprove of corporate
action submitted to a vote of the Company's stockholders.
Shares Eligible for Future Sale. Of the 4,500,000 shares of Common
Stock outstanding, approximately 59.1% are unrestricted, or are entitled on the
basis of Rule 144 (h) to have "restricted" legends removed, and can be sold at
any time, and approximately 40.9% are "restricted" shares within the meaning of
Rule 144 under the Securities Act of 1933 (the "Securities Act" or "Act"). Of
the restricted shares, approximately 1,766,000 are beneficially owned by
directors or executive officers or other affiliates of the Company. Generally,
under Rule 144, a person who has held restricted shares for one year may sell
such shares, subject to certain volume limitations and other restrictions,
without registering them under the Act. Rule 144 generally also permits sales of
shares, without any volume limitations, by a person who is not an "affiliate" of
the Company (and who has not been an affiliate of the Company during the prior
three months) and who has held restricted shares for at least two years.
Sales of shares of the Company's Common Stock may have an adverse
affect on the market price of the Common Stock. Sales of such securities could
also adversely affect the Company's ability to raise additional capital in the
equities market in the future.
OTHER OPPORTUNITIES
The Company continues to search for clients and conducts evaluations of
business opportunities in other areas of business. It continues to explore the
possibilities of obtaining funding for such opportunities. As the December 31,
1998, no agreements have been reached with any person for the commencement of
any such activities. No assurance can be given as to when or whether any such
opportunities may become available to the Company, or as to the nature of any
such opportunities.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own any facilities at this time. The Company has
purchased and owns a small amount of office equipment to run the day to day
operations of the Company. The Company's President maintains an office of the
Company at his private residence, for which the Company pays no rent.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings.
The Company's property is not subject to any material pending legal proceedings.
To the best of the Company's knowledge, no governmental authority or other party
has threatened or is contemplating the filing of any material legal proceedings
against the Company. To the best of the Company's knowledge, no director,
officer, affiliate of the Company or any owner of record or beneficially of more
than 5% of the Company's common stock is a party adverse to the Company or has a
material interest adverse to the Company in any material legal proceeding.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no meetings of the Company's shareholders held during the
year ended December 31, 1998. No matters were submitted to a vote of security
holders through the solicitation of proxies or otherwise during the year ended
December 31, 1998.
(This Space Intentionally Left Blank)
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's initial public offering was completed in July of 1997.
The Company's common stock did not trade in any recognized public market until
December 24, 1997. From December 24, 1997 through December 31, 1998 the
Company's Common Stock has traded on the OTC Bulletin Board, under the symbol
"DWNS". The following table sets forth, for the respective periods indicated,
the prices of the Company's Common Stock in the over-the-counter market, based
on inter-dealer bid prices, without retail markup, markdown, commissions, or
adjustments (which may not necessarily represent actual transactions). The
quotations have been provided by market makers of the Company's Common Stock
and/or the National Quotation Bureau.
Quarter Ended High Bid Low Bid
December 31, 1997 $.05 $.05
March 31, 1998 $.125 $.05
June 30, 1998 $.375 $.25
September 30, 1998 $.4375 $.25
December 31, 1998 $0.25 $0.125
NO. OF STOCKHOLDERS OF RECORD
As of December 31, 1998, there were approximately 41 holders of record
of the Company's Common Stock. The Company believes there are numerous other
owners of its Common Stock whose shares are held in street name.
DIVIDEND INFORMATION
The Company has not paid any dividends in the past. The Company
currently intends to retain any and all earnings to finance the development and
expansion of its operations and does not anticipate paying cash dividends or
making any other distributions on its shares of Common Stock in the foreseeable
future. The Company's future dividend policy will be determined by its Board of
Directors on the basis of various factors, including the Company's results of
operations, financial condition, business opportunities and capital
requirements.
Under Utah state corporate law, no dividends may be paid if, after giving
effect to the dividends: (a) the Company would not be able to pay its debts as
they become due in the usual course of business; or (b) except as otherwise
specifically allowed by the Company's Articles of Incorporation, the Company's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed, if the Company were to be dissolved at the time of
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
dividend.
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RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1998, one hundred sixty six thousand
(166,000) shares of unregistered, "restricted" shares of the Company's common
stock were issued to James G. Slater for services rendered to the Company over
the past two years. The shares were not registered under the Securities Act of
1933, and were issued in reliance on exemptions from registration. There were no
other securities sold or issued by the Company during the year ended December
31, 1998.
INITIAL PUBLIC OFFERING
On April 28, 1997, the Company's registration statement on Form SB-2
was declared effective (Registration No. 333-6440). The offering then promptly
commenced, and was terminated in July of 1997 after the sale of 1,034,000 shares
of the Company's common stock at an offering price of $.05 per share (before the
sale of all 4,000,000 shares of common stock offered) for which the Company
received $51,700 in gross offering proceeds. The offering was sold by the
Company's President and Secretary who received no commissions or other offering
compensation for their sales efforts. All shares sold in the offering were sold
by the Company. There were no selling shareholders involved.
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 the underwriting, the
Company was left with net offering proceeds of approximately $40,516.00. Other
expenses of approximately $5,450.00 were then reported in the filing. For the
three month period ending September 30, 1997, the Company reported other net
proceeds uses of approximately $9,864 that were reported in the Company's Form
10-QSB covering that period. A similar report for the quarter ended December 31,
1997 was made by the Company in its 1997 Annual Report to Shareholders as filed
with the SEC.
During 1998, subsequent reports were made in the Company's Quarterly
Reports, accounting for and describing the use of all offering proceeds. Once
all offering proceeds had been expended and accounted for, no further use of
proceeds reports were made, or were required to be made.
The aforementioned uses of proceeds did not represent a material change
in the use of proceeds described in the Company's prospectus.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company was formed on November 26, 1996 to engage primarily in the
business of financial consulting. Its corporate charter authorizes it to seek
out and assist clients in evaluating their current financial condition and
future financial needs. The Company attempts to assist such clients in
furthering their business plans and goals. In the final quarter of 1998, the
Company's Board decided that, in addition to its efforts as a financial
consulting business, it would be in the best interest of the Company and the
Company's shareholders, to seek out an already going concern and attempt to
acquire its assets and business for the Company. The Company has a limited
operating history. Much of the Company's time and efforts during the past year
were devoted to completing the security contracts awarded to the Company,
evaluating the possibilities of entering the cosmetic hair removal business, and
searching for consulting clients.
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PLAN OF OPERATION
The Company's plan of operations for the next twelve months is to focus
on the following:
1. To increase the Company's financial consulting clientele, and
provide financial consulting services to its clients.
2. To seek out an already going concern that is preferably engaged in
an internet related business, then attempt to acquire the business and assets of
such a concern.
The Company's assets are limited at the present time. The Company hopes
to generate revenues from financial consulting services, or to acquire the
business and assets of an already going concern. Otherwise, the Company will
need to seek capital through loans or through the issuance of debt or equity
securities to continue as a "going concern". The Company presently has no plans
to seek loans or raise capital through the sale of its securities. No assurance
can be given that the Company will be able to obtain any loans or raise capital
through the issuance of securities if it seeks to do so. Unless the Company
produces revenue from its consulting business or other sources, or the Company
acquires capital through loans or the issuance of debt or equity securities, or
through an acquisition, the Company will only be able to satisfy it estimated
cash requirements for approximately 6 months.
The Company does not expect: (a) to engage in any research and
development of any kind during 1999; (b) to purchase or sell any plant or
significant equipment during 1999; or (c) any significant changes in the number
of employees during 1999.
RESULTS OF OPERATIONS
For the year ended December 31, 1998, the Company experienced a net
loss of approximately $91,440 compared to a net loss of $25,446 in 1997.
Management attributes the 1998 loss, as well as the increased loss compared to
1997, to increased general and administrative costs which include the issuance
of 166,000 shares of common stock to James G. Slater, an officer and a director
of the Company, for services rendered over the past two years. The stock issued
to Mr. Slater was valued at $.50 per share at the time it was issued.
Revenues
The Company generated its first operating revenues during the months of
October and November of 1997. These revenues were the result of contracts
awarded to the Security Division of the Company by U. S. Satellite, a division
of the American Stores Company, to have burglar alarm systems installed in 2
Osco Drug Stores in Helena, Montana. These were the only revenues generated by
the Company during the year ended December 31, 1997, other than interest income
on funds invested in a money market account. The Security Division of the
Company was formed on September 3, 1997 at a meeting of the Board of Directors
after the Company's President had been presented with an opportunity to have
security systems installed for U. S. Satellite, a Division of the American
Stores Company.
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The Company was awarded 10 more contracts by U. S. Satellite in
December of 1997. These contracts required the Company to have burglar alarm
systems and CCTV systems installed in 10 new Osco Drug Stores in various states
throughout the U.S. These contracts were completed during the first quarter of
1998 and supplied the Company with the majority of its revenues for the year.
Cost of Sales
During the year ended December 31, 1998, the Company's cost of sales
were $45,473, as compared to $0.00 during the year ended December 31, 1997.
General and administrative costs were $150,375 in 1998, offset by
revenues of $104,017, in contrast with general and administrative costs of
$37,820, in 1997, offset by revenues of $12,675. General and administrative
costs consisted of costs associated with the day to day operation of the
Company: rent and general office expenses, expenses associated with locating new
clients (which included travel and entertainment expenses) sales bonuses and the
salary paid to the Company's President, and the compensation paid to Mr. Slater
by issuing shares of the Company's common stock to him. These were the major
portions of general and administrative expenses incurred during the year ended
December 31, 1998.
Expenses
General and administrative expenses of $150,375 in 1998, increased
$112,555 from the $37,820 of general and administrative expenses incurred during
the same period in 1997. This was due primarily to the 166,000 shares of
"restricted" common stock issued to James G. Slater for services rendered to the
Company over the past two years. The stock was valued at a "fair market value"
of $.50 per share ($83,000) which was determined by the average price of trades
occurring during the year in the thinly traded market of the common stock of the
Company on the OTC Bulletin Board - as required by the SEC reporting standards.
Other general and administrative costs consisted of costs associated with
salaries, rent, general office expenses, sales bonuses, expenses associated with
locating new clients (which included travel and entertainment expenses) and
certain costs (other than cost of sales) associated with completing the
contracts awarded to the Company's Security Division to have security systems
installed in 10 new Osco Drug Stores throughout the country.
Cash and Cash Equivalents
During 1998, the Company's cash position decreased as the Company's
cash amounts were reduced to $8,896 at December 31, 1998, as compared to cash of
$16,706 at year end in 1997.
GOING CONCERN OPINION
The Company's independent accountant has issued a "going concern"
opinion in which the independent accountant stated "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 to
continue as a going concern."
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During the year ended December 31, 1998, approximately 99% of the
Company's revenue was generated from its security division which has been
discontinued.
The Company presently has no financing arrangements with any persons or
institutions, nor is the Company indebted to any person or institution for any
amount, other than amounts incurred in the normal course of business. The
Company's financial resources are extremely limited at this time. The Company
has no foreseeable sources of revenue. The Company's future success will depend
on the acquisition of clients and revenues received from such clients, the
acquisition of the business and assets of an already going concern, the
Company's ability to secure financing of some kind, or to produce sufficient
revenues from other sources to allow the Company to continue its operations.
FORWARD LOOKING STATEMENTS
This document includes various forward-looking statements with respect
to future operations of the Company that are subject to risks and uncertainties.
Forward-looking statements include the information concerning expectations of
future results of operations and such statements preceded by, followed by or
that otherwise include the words "believes," "expects," "anticipates,"
"intends," "estimates" or similar expressions. For those statements, the Company
claims the protection of the safe harbor for forward-looking statements
contained in the Private Litigation Reform Act of 1995.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required by this Item No. 7 are attached to
this Report as Appendix "A."
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
(This Space Intentionally Left Blank)
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The table below sets forth the name, age, and position of each director
and executive officer of the Company, and all persons nominated or chosen to
become such:
- --------------------------------------------------------------------------------
Year First
Became
Name Age Position* Director
Barry A. Ellsworth 45 President, Treasurer, Director 1996
Richard S. Cutler 52 Vice President, Director 1998
James G. Slater 51 Secretary, Director 1996
* The term of office of each director is one year, or until his successor
is elected at the Company's annual shareholders' meeting and is
qualified. Each director is subject to removal by the shareholders. The
term of office for each officer is for one year, and, until a successor
is elected at the annual meeting of the Board of Directors and is
qualified. Each officer is subject to removal by the Board of
Directors.
BIOGRAPHICAL INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain biographical information regarding each of
the Company's officers and directors.
BARRY A. ELLSWORTH assumed his present positions with the Company in
November of 1996 when the Company was first organized. Mr. Ellsworth worked as a
stock broker for the firms of Dean Witter Reynolds, Wilson-Davis, and
Prudential-Bache Securities in the early 1980s. In 1984 he formed the financial
consulting firm of Ellsworth & Associates. The firm specialized in mergers and
acquisitions. In 1988, Mr. Ellsworth wrote a best-selling book and focused the
majority of his time and efforts on writing, speaking, and travel, from that
time until the fall of 1996. In the fall of 1996, he helped organize Downstream
Incorporated - DSI, the Company. He has acted as the Company's President,
Treasurer, and as a Director since its inception.
RICHARD S. CUTLER became a member of the Board of Directors on December
2, 1998. Mr. Cutler graduated from the University of Utah in 1968 with a
Bachelors degree in History. He worked in sales and as a sales trainer for the
Xerox Corporation from 1970 to 1973. Since that time, and to the present, Mr.
Cutler has been an independent investor, directing his own accounts.
15
<PAGE>
JAMES G. SLATER has acted as the Company's Secretary since August of
1998, and as a director since the Company's inception. In the mid to late 1980s,
Mr. Slater worked as a consultant for the financial consulting firm of Ellsworth
& Associates. From February 1990 to October 1995 he served as Vice President of
Theatrical and Ancillary Sales for Imperial Entertainment of Los Angeles, CA.
From October 1995 to August 1997 he worked at Full Moon Studios in Los Angeles,
CA. as Director of TV Sales. Since February 1, 1998 he has worked as a Sales
Representative at 24/7 Media, Inc. in Los Angeles, CA.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 does not presently
apply to the Company's officers and directors, or persons who own more than 10%
of the Company's Common Stock.
ITEM 10. EXECUTIVE COMPENSATION
The only officer or director of the Company that currently receives a
salary is the Company's President, Barry A. Ellsworth. The Company pays Mr.
Ellsworth a monthly salary of $2,000, plus, up to a 20% bonus on any and all
revenues generated by the Company as a result of Mr. Ellsworth's efforts. No
officers or directors of the Company have been paid sums of $100,000 or more
since the Company's inception.
The following table includes compensation information for the Company's
Chief Executive Officer, the Company's four most highly compensated executive
officers, other than the CEO, who were serving as executive officers at the end
of the last fiscal year, and up to two additional highly compensated individuals
who were not serving as executive officers as of the end of the last fiscal year
(collectively, the "Named Executive Officers"). However, the named executive
officers shall not include any person whose total annual salary and bonus did
not exceed $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
------------------------------------------- --------------------------------
Securities
Yr Salary Bonus Other Annual Restricted Underlying Other Com-
Compensation Stock Awards Options/SARs pensation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barry A. Ellsworth 98 $22,000 $19,300 - - - -
97 $12,000 $2,535 - - - -
96 $ 2,500 - - $7,500(1)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Ellsworth received 1,500,000 shares of the Company's common
stock in 1996 for his efforts in organizing and founding the Company, which at
that time was valued at $7,500.
16
<PAGE>
STOCK OPTIONS
The Company currently has no Stock Option Plans of any kind with any of
its officers or directors, or with anyone else. No options have been granted to
any officer, director or principal stockholder of the Company.
COMPENSATION OF DIRECTORS
Directors of the Company are not compensated for serving on the board
of directors or on committees. All persons currently serving as directors of the
Company also serve as officers and/or employees of the Company. Mr. Ellsworth
receives compensation as an employee, and Mr. Slater was issued 166,000 shares
of restricted stock (valued at $.50 per share) during the year for his services
as an officer for the past two years, but neither of them receives separate
compensation for the services they provide to the Company as directors, nor do
any of the other officers of the Company. They receive no additional
compensation for any committee participation or special assignments. The Company
presently has no committees.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There currently are no written employment contracts between the Company
and a Named Executive Officer. The employment of each Named Executive Officer is
on an "at will" basis. The Company has agreed to pay Mr. Ellsworth, the
Company's President, a salary of $2,000 per month for his services in running
the day to day operations of the Company. He, as well as any other officer
and/or director, is allowed to receive a bonus of up to 20% on any and all
revenues generated by the Company as a direct result of his or their efforts.
There currently are no compensatory plans or arrangements including
payments to be received from the Company, with respect to a Named Executive
Officer, which plan or arrangement results or will result from the resignation,
retirement or any other termination of such Named Executive Officer's employment
with the Company or from a change-in-control of the Company or a change in the
Named Executive Officer's responsibilities following a change in control.
RETIREMENT AND REIMBURSEMENT PLANS
The Company has no retirement, pension, profit sharing or medical
reimbursement plans covering its officers and directors. However, the Company
does provide medical insurance for the Company's President.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of December 31, 1998, there were 4,500,000 shares of the Company's
Common Stock issued and outstanding - $0.001 par value per share. The following
table sets forth the names, addresses and stock ownership of all persons known
to the Board of Directors of the Company who own, of record or beneficially,
five per cent (5%) or more the Company's outstanding Common Stock, together with
the stock ownership of the Company's directors individually, and all officers
and directors as a group, as of December 31, 1998.
17
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership(1) Class
<S> <C> <C> <C>
5% Beneficial Owners:
Barry A. Ellsworth 1,500,000 Shares 33.3%
6337 Highland Drive
Salt Lake City, Utah 84121
CMI, L.L.C. (2) 425,000 Shares 9.4%
406 W. South Jordan Pky.
Suite 500
South Jordan, Utah 84095
James G. Slater 266,000 Shares 5.9%
6331 Langdon Ave.
Van Nuys, CA 91411
Directors (3)
Barry A. Ellsworth 1,500,000 Shares 33.3%
6337 Highland Drive
Salt Lake City, Utah 84121
Richard S. Cutler - -
278 D Street #11
Salt Lake City, Utah 84103
James G. Slater 266,000 Shares 5.9%
6331 Langdon Ave.
Van Nuys, CA 91411
All Officers and Directors 1,766,000 Shares 39.2%
as a Group (3 persons)
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) Except as otherwise indicated, all shares represent Common Stock held
of record and beneficially.
(2) CMI, L.L.C. is a limited liability company that is engaged in the
commercial mortgage business. Its principal owner is Dan E.
Christensen. CMI, L.L.C. is not affiliated with the Company or its
management other than through CMI, L.L.C.'s stock ownership in the
Company. As of December 31, 1998, CMI, L.L.C. owned 200,00 shares of
record and an additional 225,000 shares beneficially.
(3) All common shares held by the Officers and Directors listed above are
"restricted or control securities" and as such are subject to
limitations on resale. The shares may be sold pursuant to Rule 144
under certain circumstances. The shares held by CMI/Dan E. Christensen
listed above, are not restricted shares and may be sold at the
shareholder's discretion. There are no contractual arrangements or
pledges of the Company's securities, known to the Company, which may at
a subsequent date result in a change of control of the Company.
18
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RENT
From September 1997 through August 1998, the Company paid $300 per
month to Intermountain Mortgage as rent for office space which consisted of a
private office and the shared use of a computer network, photocopy machine, fax
machine and reception services. The agreement concerning this rental arrangement
was verbal. Intermountain Mortgage is owned by Joe D. Thomas, who was an officer
and a director of the Company until August 17, 1998, and a major shareholder,
and Rob Karz, who was a major shareholder of the Company. The sum of $300
dollars a month was considered a favorable rate to the Company when compared to
the prices of similar office space in the surrounding area.
The Company currently maintains its offices at Mr. Ellsworth's home for
which no rent is presently being charged.
ISSUANCE OF STOCK
Mr. Ellsworth received 1,500,000 shares of the Company's common stock
in 1996 for his efforts in organizing and founding the Company. At that time the
shares were valued at a total of $7,500.
Mr. Slater received 166,000 shares of the Company's common stock in
1998 for his services to the Company over the previous two years. At the time,
the shares were valued by the Company's accountant for reporting purposes to the
SEC at $83,000 or $.50 per share. This value was based on the average trading
price of the Company's stock. However, the stock was "restricted stock" that can
not be sold in the open market until the requirements of Rule 144 have been met.
MANAGEMENT COMPENSATION
Mr. Ellsworth receives a salary of $2,000 per month, plus a bonus of up
to 20% of all revenues that he produces for the Company. In 1998, Mr.
Ellsworth's bonuses totaled $19,300. Other officers and directors are also
entitled to earn bonuses equal to 20% of the revenues that they produce for the
Company.
MANAGEMENT'S OPINION
Each of the above described transactions when entered into, were, in
the opinion of management, as favorable to the Company as could have been
obtained from independent third parties.
19
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(1) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1998.
(2) Exhibits
ANNUAL REPORT ON FORM 10-KSB
DOWNSTREAM INCORPORATED - DSI
SEC FILE NO.
EXHIBIT INDEX
Exhibit Exhibit
Number Description Location
3.1 Certificate of Incorporation of Registrant - Incorporated by
Incorporated by reference from Registrant's Reference
Registration Statement on Form SB-2 as filed
on April 28, 1997
3.2 Bylaws of Registrant - Incorporated by reference Incorporated by
from Registrant's Registration Statement on Form Reference
SB-2 as filed on April 28, 1997
3.3 Amendment of Articles of Incorporation of Incorporated by
Downstream Incorporated - DSI Incorporated by Reference
reference from Registrant's Registration
Statement on Form SB-2 as filed on April 28,
1997
3.4 Amendment of Bylaws of Downstream Incorporated - Incorporated by
DSI - Incorporated by reference from Reference
Registrant's Registration Statement on Form
SB-2 as filed on April 28, 1997
10.1 Material Contract with U. S. Satellite to have Incorporated by
burglar alarm systems and closed circuit TV Reference
systems installed in 4 Osco Drug Stores in
the Kansas City, KS area. Incorporated by
reference from Registrant's Form 10-KSB for
the period ended December 31, 1997, as filed
on March 31, 1998.
10.2 Material Contract with U. S. Satellite to have Incorporated by
burglar alarm systems and closed circuit TV Reference
systems installed in 2 Osco Drug Stores in
the South Boston, MA area. Incorporated by
reference from Registrant's Form 10-KSB for
the period ended December 31, 1997, as filed
on March 31, 1998.
20
<PAGE>
10.3 Material Contract with U. S. satellite to have Incorporated by
burglar alarm systems and closed circuit TV Reference
systems installed in 2 Osco Drug Stores - one
in Des Moines, IA, another in Davenport, IA.
Incorporated by reference from Registrant's
Form 10-KSB for the period ended December 31,
1997, as filed on March 31, 1998.
10.4 Material Contract with U. S. satellite to have Incorporated by
a burglar alarm system and a closed circuit Reference
TV system installed in an Osco Drug Store in
South Bend, IN. Incorporated by reference
from Registrant's Form 10-KSB for the period
ended December 31, 1997, as filed on March
31, 1998.
10.5 Material Contract with U. S. satellite to have Incorporated by
a burglar alarm system and a closed circuit Reference
TV system installed in an Osco Drug Store in
Waukesha, WI. Incorporated by reference from
Registrant's Form 10-KSB for the period ended
December 31, 1997, as filed on March 31,
1998.
27.1 Financial Data Schedule Page 33
(This Space Intentionally Left Blank)
21
<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
Date: March 1, 1999 By /s/ Barry A. Ellsworth
--------------------------------
Barry A. Ellsworth, Chief
Executive Officer, President,
Principal Financial and Accounting
Officer, Treasurer, Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date: March 1, 1998 By /s/ Barry A. Ellsworth
----------------------------------
Barry A. Ellsworth, Chief
Executive Officer, President,
Principal Financial and Accounting
Officer, Treasurer, Director
Date: March 1, 1998 /s/ Richard S. Cutler
----------------------------------
Richard S. Cutler
Vice President, Director
Date: March 1, 1998 /s/ James G. Slater
----------------------------------
James G. Slater
Secretary, Director
22
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1998 and 1997
<PAGE>
C O N T E N T S
Independent Auditors' 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>
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, 1998 and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1998 and 1997 and from inception on November 26, 1996 through December 31, 1998.
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 audits 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 audits provide 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, 1998 and the results of its operations and its
cash flows for the years ended December 31, 1998 and 1997 and from inception on
November 26, 1996 through December 31, 1998 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
Salt Lake City, Utah
February 3, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
December 31,
1998
--------------------
CURRENT ASSETS
<S> <C>
Cash $ 8,896
--------------------
Total Current Assets 8,896
FIXED ASSETS (Note 6) 848
--------------------
TOTAL ASSETS $ 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 4,500
Additional paid-in capital 133,004
Deficit accumulated during the development stage (127,877)
--------------------
Total Stockholders' Equity 9,627
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,744
====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Operations
From
Inception on
November 26,
For the Years Ended 1996 through
December 31, December 31,
1998 1997 1998
------------------ ----------------- -----------------
<S> <C> <C> <C>
REVENUES $ 104,017 $ 12,675 $ 116,692
COST OF SALES 45,473 - 45,473
------------------ ----------------- -----------------
GROSS PROFIT 58,544 12,675 71,219
------------------ ----------------- -----------------
EXPENSES
General and administrative 150,375 37,820 199,170
Depreciation and amortization 513 301 830
------------------ ----------------- -----------------
Total Expenses 150,888 38,121 200,000
------------------ ----------------- -----------------
NET LOSS FROM OPERATIONS (92,344) (25,446) (128,781)
OTHER INCOME 904 - 904
------------------ ----------------- -----------------
NET LOSS $ (91,440) $ (25,446) $ (127,877)
================== ================= =================
BASIC NET LOSS PER SHARE $ (0.02) $ (0.00)
================== =================
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,458,500 3,814,912
================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(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)
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM, INC.
(A Development Stage Company)
Statements of Cash Flows
From
Inception on
November 26,
For the Years Ended 1996 Through
December 31, December 31,
1998 1997 1998
----------------- ----------------- -------------------
CASH FLOWS FROM
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (91,440) $ (25,446) $ (127,877)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used in Operating Activities:
Stock issued for services 83,000 - 90,500
Depreciation and amortization 513 301 820
Increase (decrease) in accounts payable 117 (559) 117
----------------- ----------------- -------------------
Net Cash (Used) By Operating Activities (7,810) (25,704) (36,440)
----------------- ----------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - (1,359) (1,359)
Organization costs paid - - (309)
----------------- ----------------- -------------------
Net Cash (Used) By Investing Activities - (1,359) (1,668)
----------------- ----------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issuance costs - (13,696) (13,696)
Common stock issued for cash - 51,700 60,700
----------------- ----------------- -------------------
Net Cash Provided By Financing Activities - 38,004 47,004
----------------- ----------------- -------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS (7,810) 10,941 8,896
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 16,706 5,765 -
----------------- ----------------- -------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 8,896 $ 16,706 $ 8,896
================= ================= ===================
Cash Paid For:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998 and 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 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 December 31, 1998, the Company had net operating loss
carryforwards of approximately $53,000 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.
8
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998 and 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.
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
that was 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 year.
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.
NOTE 4 - 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.
9
<PAGE>
DOWNSTREAM, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998 and 1997
NOTE 5 - 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 its other officers a commission of
up to 20% of revenues generated by their efforts.
NOTE 6 - FIXED ASSETS
Fixed assets at December 31, 1998 consisted of the following:
December 31,
1998
Fax machine $ 424
Televisions 935
------------------
Less accumulated depreciation (511)
------------------
Net fixed assets $ 848
==================
Depreciation expense for the years ended December 31, 1998 and
1997 was $272 and $204, respectively.
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,896
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,896
<PP&E> 1,359
<DEPRECIATION> 511
<TOTAL-ASSETS> 9,744
<CURRENT-LIABILITIES> 117
<BONDS> 0
0
0
<COMMON> 4,500
<OTHER-SE> 5,244
<TOTAL-LIABILITY-AND-EQUITY> 9,744
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</TABLE>
