U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the Quarterly Period Ended October 31, 2002
Commission file number 000-49896
---------
DOWNSIDE UP, INC.
-----------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1493159
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7899 West Frost Drive, Littleton, Colorado 80128
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
303-979-3224
------------
(Issuer's telephone number)
Not applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
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
------- -------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
As of October 31, 2002, 1,230,000 shares of common stock, no par value, were
outstanding.
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheet, October 31, 2002 (Unaudited)................3
Condensed statements of operations (Unaudited) - Three months ended
October 31, 2002 and 2001; Six months ended October 31, 2002
and 2001; and for the period from April 9, 1998 (inception)
through October 31, 2002...........................................4
Condensed statements of cash flows (Unaudited) - Six months ended
October 31, 2002 and 2001, and for the period from April 9, 1998
(inception) through October 31, 2002...............................5
Notes to condensed financial statements (Unaudited)..................6
Item 2. Plan of operation...........................................7
Item 3. Controls and Procedures.....................................7
PART II--OTHER INFORMATION................................................7
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures...........................................................8
Certifications.......................................................9
2
DOWNSIDE UP, INC.
(A Development Stage Company)
Condensed Balance Sheet
October 31, 2002
(unaudited)
Assets
Current assets:
Cash..........................................................$ 185
==============
Liabilities and Shareholders' Deficit
Accounts payable and accrued liabilities......................$ 499
Due to related party (Note 2)................................. 997
--------------
Total liabilities................................... 1,497
--------------
Shareholders' deficit:
Common stock.................................................. 2,800
Additional paid-in capital.................................... 5,372
Retained earnings/accumulated deficit......................... (9,484)
--------------
Total shareholders' deficit......................... (1,312)
--------------
$ 185
==============
See accompanying notes to condensed financial statements
-3-
DOWNSIDE UP, INC.
(A Development Stage Company)
Condensed Statements of Operations
(unaudited)
April 9, 1998
Three Months Ended Six Months Ended (inception)
October 31, October 31, Through
________________________________ ______________________________ October 31,
2002 2001 2002 2001 2002
______________ ______________ ______________ ______________ ______________
Costs and expenses:
Stock-based compensation (Note 2):
Organization costs...................$ - $ - $ - $ - $ 500
Contributed rent (Note 2).............. 300 300 600 600 5,500
Other general and administrative costs. 653 - 1,588 - 7,239
-------------- -------------- -------------- -------------- --------------
953 300 2,188 600 13,239
-------------- -------------- -------------- -------------- --------------
Loss before income taxes and interest
income................................. (953) (300) (2,188) (600) (13,239)
Interest income........................ - - - - 116
-------------- -------------- -------------- -------------- --------------
Loss before
income taxes.......... (953) (300) (2,188) (600) (13,123)
Income tax provision (Note 3).......... - - - - -
-------------- -------------- -------------- -------------- --------------
Net loss................$ (953) $ (300) $ (2,188) $ (600) $ (13,123)
============== ============== ============== ============== ==============
Basic and diluted loss per share.........$ (0.00) $ (0.00) $ (0.00) $ (0.00)
============== ============== ============== ==============
Weighted average common shares
outstanding............................ 1,230,000 1,230,000 1,230,000 1,230,000
============== ============== ============== ==============
See accompanying notes to condensed financial statements
-4-
DOWNSIDE UP, INC.
(A Development Stage Company)
Condensed Statements of Cash flows
(unaudited)
April 9, 1998
Six Months Ended (inception)
October 31, Through
------------------------------ October 31,
2002 2001 2002
------------ ------------ --------------
Net cash used in operating
activities.....................$ (351) $ - $ (1,176)
------------ ------------ --------------
Cash flows from financing
activities:
Advances from affiliate, net
(Note 2)..................... 2,773 - (997)
Proceeds from sale of common... - - 2,300
Payments for offering costs.... - - (127)
------------ ------------ --------------
Net cash provided by
financing activities. 2,773 - 1,176
------------ ------------ --------------
Net change in cash and
cash equivalents..... - - -
Cash:
Beginning of period............ - - -
------------ ------------ --------------
End of period..................$ - $ - $ -
============ ============ ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes.................$ - $ - $ -
============ ============ ==============
Interest.....................$ - $ - $ -
============ ============ ==============
See accompanying notes to condensed financial statements
-5-
DOWNSIDE UP, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The financial statements presented herein have been prepared by the Company in
accordance with the accounting policies in its audited financial statements
for the year ended April 30, 2002 as filed in its Form 10-KSB and should be
read in conjunction with the notes thereto. The Company entered the
development stage in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 7 on April 9, 1998 and its purpose is to evaluate,
structure, and complete a merger with, or acquisition of, a privately owned
corporation.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
operating results for the interim periods presented have been made. The
results of operations for the period presented are not necessarily indicative
of the results to be expected for the year.
Interim financial data presented herein are unaudited.
Note 2: Related Party Transactions
Corporate Management Services ("CMS") organized the Company in exchange for
1,000,000 shares of the Company's common stock. The common stock was valued
at $500 by the Company's Board of Directors. CMS may, from time to time,
advance to the Company any additional funds that the Company needs for
operating capital and for costs in connection with searching for or completing
an acquisition or merger.
CMS provides office space at no charge to the Company, on an as needed basis,
for all periods presented in the accompanying financial statements. The
Company's Board of Directors has valued this service at approximately $100 per
month, based on prevailing local market rates. The accompanying financial
statements include a charge to rent expense and a credit to paid-in capital of
$600, $600, and $5,500, respectively, for the six months ended October 31,
2002 and 2001, and the period from April 8, 1998 (inception) through October
31, 2002.
CMS paid certain administrative costs on behalf of the Company, on an as
needed basis, for all periods presented in the accompanying financial
statements. The costs, consisting of legal, accounting and filing fees, are
necessary for the Company to maintain its reporting status in conformity with
the provisions Securities and Exchange Act of 1934, as amended. At April 30,
2002 the CMS owed the Company $1,660 for the remaining balance of net proceeds
from the Company's common stock offering and accrued interest. During the six
months ended October 31, 2002 CMS paid an additional $2,657 in legal,
accounting, and general and administrative costs on behalf of the Company,
which resulted in a payable to CMS at October 31, 2002 of $997. This
receivable is referred to as due from related party in the accompanying
condensed financial statements.
Note 3: Income Taxes
The Company records its income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The Company
incurred net operating losses during the periods shown on the condensed
financial statements resulting in a deferred tax asset, which was fully
allowed for, therefore the net benefit and expense result in $-0- income
taxes.
-6-
Part I--Item 2. Plan of Operation
The Company's plan of operation is to seek out, investigate, and pursue a
merger, acquisition, or other business combination with an entity desiring the
perceived benefits offered by the Company as a result of its having a class of
securities registered under the Exchange Act. There have been no revenues
from operations since formation, and none are anticipated prior to completing
a business combination. The Company has no full time employees,
incurs nominal rent and administrative expenses of $100 per month, and has no
other recurring operational expenses except professional fees incurred as
necessary. The Company's president continues to devote approximately ten (10)
hours per month, without compensation, to the affairs of the Company. The
Company does not anticipate raising any additional funds in the next twelve
(12) months, and has no present plans to acquire any assets or make any
investments prior to completing a business combination.
Item 3. Controls and Procedures
In accordance with the Sarbanes-Oxley Act, as part of the process of preparing
this Report for the period ended October 31, 2002, for filing with the
Securities and Exchange Commission, our President and Chief Accounting Officer
evaluated the procedures and controls developed by us to gather information,
including financial information, and other information material for an
understanding of our business and prospects. He concluded that, at present,
the procedures and controls are satisfactory to permit us to provide
information to the persons responsible for preparing this Report, to ensure
that this Report fairly presents in all material respects the financial
condition, results of operations and cash flows of the Company, and all other
information necessary to understand the condition of the Company and its
operations.
Part II--Other Information
Items 1 through 5
No response required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
7
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Downside Up, Inc.
Date: December 16, 2002 By: /s/ George G. Andrews
---------------------
George G. Andrews, President
8
CERTIFICATIONS
I, George G. Andrews, President and Chief Accounting Officer of Downside
Up, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Downside Up,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this Quarterly Report (the "Evaluation
Date"); and
c. presented in this Quarterly Report my conclusions about the
effectiveness of the disclosure controls and procedures based
on my evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
9
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this Quarterly Report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 16, 2002
/s/ George G. Andrews
---------------------
George G. Andrews
President and Chief Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Downside Up, Inc. (the
"Company"), hereby certifies to such officer's knowledge, that the Company's
Quarterly Report on Form 10-QSB for the period ending October 31, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934, and that the information
contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
Date: December 16, 2002
/s/ George G. Andrews
---------------------
George G. Andrews
President and Chief Accounting Officer
10