SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB2
AMENDMENT NO. 5
Registration Statement
Under
The Securities Act of 1933
DATASCENSION, INC.
(Name of small business issuer in its charter)
NEVADA 5735 87-0374623
- ------------------------------- ---------------------------- -------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number ) Identification No.)
145 State College Blvd, Suite 350 Brea, CA 92821
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(Address of principal executive offices) (Zip code)
Registrant's Address and Telephone number, including area code: 714-482-
9750
Scott Kincer
Chief Executive Officer
145 S. State College Blvd, Suite 350
Brea, CA 92821
714-482-9750
(Name, address and telephone number of Agent for Service)
Copies of communications to:
Owen Naccarato, Esq.
Naccarato & Associates
18301 Von Karman, Suite 430
Irvine, California 92612
(949) 851-9261
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the registration statement
becomes effective.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule
434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be Amount to Proposed maximum Proposed maximum Exercise Proceeds Amount of
registered be offering price per aggregate offering price per to DSEN registration
registered share (2) price (2) share (2) fee
(1)
Common Shares, par value $.001 underlying
secured convertible debenture 9,875,000 $.30 $2,962,500 $375.35
(3)
Common Shares, par value $.001 underlying
secured convertible debenture 280,000 $.50 $ 140,000 $17.74
(4)
Shares underlying warrants
3,125,000 $.30 $937,500 $118.78
(5)
Shares underlying warrants
300,000 $.50 $150,000 $19.01
(5)
Total Registration Fee $530.87 (6)
(1) Includes shares of our common stock, par value $0.001 per
share, which may be offered pursuant to this registration
statement, which shares are issuable upon conversion of a
convertible debentures the exercise of warrants held by the
selling stockholder. In addition to the shares set forth in the
table, the amount to be registered includes an indeterminate
number of shares issuable upon conversion of the debentures and the
exercise of the warrants as such number may be adjusted as a result
of stock splits, stock dividends and similar transactions in
accordance with Rule 416. The number of shares of common stock
registered hereunder represents a good faith estimate by us of
the number of shares of common stock issuable upon conversion of the
debentures and upon exercise of the warrants. For purposes of
estimating the number of shares of common stock to be included in
this registration statement, we calculated a good faith estimate of
the number of shares of our common stock that we believe will be
issuable upon conversion of the debentures to account for market
fluctuations and the number of shares of common stock that we
believe will be issuable upon exercise of the warrants to account
for antidilution and price protection adjustments. Should the
conversion ratio of the secured convertible debentures result in
our having insufficient shares, we will not rely upon Rule 416,
but will file a new registration statement to cover the resale
of such additional shares should that become necessary. In
addition, should a decrease in the exercise price as a result of an
issuance or sale of shares below the then current market price,
result in our having insufficient shares, we will not rely upon
Rule 416, but will file a new registration statement to cover the
resale of such additional shares should that become necessary.
(2)Estimated solely for the purpose of determining the registration
fee.
(3)Common stock issuable upon conversion of an aggregate of
$1,875,000 in convertible debentures issued in connection with a
November 2004 financing including a 50% reserve and one year
interest at a fixed conversion price of $.30 per share.
(4)Common stock issuable upon conversion of a $125,000 in
convertible debenture issued March 31, 2005 including one year
interest at a fixed conversion price of $.50 per share.
(5)Common stock issuable upon the exercise of warrants issued.
(6)$530.87 has been previously paid.
---------------------
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effectiveness date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, as amended, or until the registration
statement
shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said section 8(a), may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED January 30, 2006
13,580,000 Shares of Common Stock
This prospectus relates to the resale by the selling
stockholders of up to 13,580,000 shares of Datascension Inc.'s
("DSEN") common stock, including up to 9,875,000 shares of common
stock underlying convertible notes in a principal amount of
$1,875,000 and up to 3,125,000 shares of common stock issuable
upon the exercise of common stock purchase warrants at $.30
a share. The convertible notes are basically convertible into
common stock at a conversion price driven by the market price of the
stock. If the market price of the stock is 1) at or below
15% above the fixed Conversion Price or 2) below the fixed $.30
fixed conversion price at the time of payment, then DSEN may elect
to pay the principal amortization in stock at a price equal to
85% of the average of the five (5) lowest closing bid prices
of the stock over the previous twenty (20) trading days. The
selling stockholders may sell common stock from time to time in
the principal market on which the stock is traded at the prevailing
market price or in negotiated transactions. In addition this
prospectus includes 280,000 shares underlying a $125,000
convertible note and up to 300,000 shares of common stock issuable
upon the exercise of a common stock purchase warrant at $.50 a
share. The convertible note is convertible into common stock at
a fixed rate of $.50 per share. We will pay the expenses of
registering these shares.
Our Common Stock is registered under Section 12(g) of the
Securities Exchange Act of 1934 and is quoted on the Over-The-
Counter Bulletin Board under the symbol "DSEN". The last reported
sales price per share of our common stock as reported by the Over-
The-Counter Bulletin Board on January 24, 2006, was
$0.25.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities, or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is January 30, 2006
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
Section Title Page No.
Summary of Information in the Prospectus 1
Risk Factors 3
Dividend Policy 16
Use of Proceeds 11
Market for Common Equity and Related Stockholder Matters 12
Management's Discussion and Analysis or Plan of Operations 14
Our Business 20
Management 25
Executive Compensation 28
Security Ownership of Certain Beneficial Owners and Management 31
Certain Relationships and Related Transactions 31
Description of Securities 32
Selling Shareholders 34
Plan of Distribution 37
Legal Proceedings 39
Experts 40
Legal Matters 40
Other Available Information 40
Financial Statements F-1
PROSPECTUS SUMMARY
This summary contains all material terms of the offering. To
understand this offering fully, you should read the entire
document carefully. Please pay particular attention to the
section entitled "RISK FACTORS" and the section entitled
"FINANCIAL STATEMENTS".
Unless otherwise indicated, this Prospectus assumes that any
of DSEN's outstanding options or warrants have not been exercised
into shares of DSEN's Common Stock.
DATASCENSION, INC.
Datascension, Inc. ("DSEN"), was incorporated under the laws of
the State of Nevada, on August 23, 1991, under the name Swiss
Technique, Inc. On March 3, 1995 Datascension, Inc. changed its
name from Swiss Technique, Inc., to Nutek, Inc. and on January
5th, 2004, its name was changed to its present name,
Datascension, Inc.
Datascension International Inc., the only current operating
subsidiary and focus of DSEN, was acquired on July 2, 2001
whereby DSEN acquired 100% of the issued and outstanding stock of
Datascension International.
Datascension International is a data gathering and
research company specializing in the collection, storage, and
processing of data by conducting telephone market research and
also provides data entry services for third parties.
Datascension International services a variety of industries and
customers (including the hospitality, entertainment, and
automotive sectors) with emphasis and commitment to customer
service, quality assurance and on time project management.
For the three months ended June 30, 2005, we generated revenues
in the
amount of $2,577,701 and a net loss of $18,049. In addition, for
the twelve months ended December 31, 2004, we generated
revenues in the amount of $8,672,103 and net loss before
discontinued operations of $(3,552,550) and a net loss after
discontinued operations of $(5,283,551). Our accumulated
deficit for the year ended December 31, 2004 was ($11,208,120).
Staff Legal Bulletin No. 4 (September 16, 1977) regarding spin-offs
requires
that a non-reporting subsidiary registers the spun-off securities
under the exchange Act. This registration should be filed before
or concurrent with the spin-off. In the case of Nutek Oil,
though the spun-off shares were registered, this did not
occur until over a year subsequent to the spin-off. In the case of
Century Innovations, a registration of the spun-off shares has not
been filed to date. As a result these two spin-offs may not have
complied with Section 5 of the Securities Act. Since there was
no consideration paid for the spun-off shares, Datascension
management feels there is no liability to the company for any
possible violation of Section 5 of the Securities Act.
DSEN's mailing address is: 145 S. State College Blvd, Suite 350,
Brea CA 92821. The company phone number is 714-482-9750 and 714-
482-9751 (fax). DSEN's website can be found at:
www.datascension.com.
1
THE OFFERING
Securities Offered by Selling Shareholders
Up to 13,580,000 including i) up to 10,155,000 shares of common stock
underlying convertible debentures in the amount of $2,000,000, and
ii) up to 3,125,000 shares of common stock issuable upon the exercise
of purchase warrants at an exercise price of $.30 per share and
300,000 shares of common stock issuable upon the exercise a purchase
warrant at an exercise price of $.50 per share
Common Stock Outstanding after offering
Up to 30,812,290 Shares
Offering Price
The selling shareholders can sell the shares at any price.
Use of Proceeds
This prospectus relates to shares of DSEN's common stock that may
beoffered and sold from time to time by the selling stockholders.
We will not receive any proceeds from the sale of shares by the
selling shareholders. However, we will receive proceeds upon the
exercise of any warrants that may be exercised by the selling
shareholders. These funds will be used for ongoing operations.
Market for our Common Stock
Our Common Stock is quoted on the Over-the Counter Bulletin
Board, also called OTCBB, under the trading symbol "DSEN". The
market for our Common Stock is highly volatile. We can provide
no assurance that there will be a market in the future for our
Common Stock.
The above information regarding common stock to be outstanding
after the offering is based on 17,232,290 shares of common stock
outstanding as of January 22, 2006 and assumes the subsequent
conversion of the aggregate sum of $2,000,000 in issued
convertible debentures and the exercise of warrants by our selling
stockholders.
On November 17, 2004, DSEN entered into a subscription
agreement for $1,875,000, whereby we issued Convertible
Debentures to the following: 1)$350,000 to Alpha Capital
Aktiengesellschaft, 2) $525,000 to the Longview Equity Fund LP, 3)
$775,000 to the Longview Fund LP., and 4) $225,000 to the
Longview International Equity Fund, LP. Interest on these notes
shall accrue at a rate per annum equal to the "prime rate"
published in The Wall Street Journal from time to time, plus three
percent (3%). The prime rate shall be increased or decreased as
the case may be for each increase or decrease in the prime rate
in an amount equal to such increase or decrease in the prime rate;
each change to be effective as of the day of the change in such
rate. The interest rate shall not be less than eight percent
(8%). Interest shall be calculated on the basis of a 360 day year
DSEN shall reduce the principal amount of the note by 1/32nd per
month starting 120 days after the closing, payable in cash or
registered stock as described below. If such amortization is in
cash, the payment will be at 104% of the monthly principal
amortization amount. The note holders and DSEN must convert the
principal amortization and interest payments through common stock
if the market price for the stock at the time of payment is
15% above the fixed conversion price of $.30 per share.
If the market price of the stock is 1) at or below 15% above
the fixed Conversion Price or 2) below the fixed $.30 fixed
conversion price at the time of payment, then DSEN may elect to pay
the principal amortization in stock at a price equal to 85% of the
average of the five (5) lowest closing bid prices of the stock over
the previous twenty (20) trading days.
On March 31, 2005 DSEN entered into a subscription agreement
for $125,000, whereby we issued an additional two-year Convertible
Debenture to the Longview Fund LP at an interest ate of 12% per
annum. This note has a fixed conversion rate of $.50 per share.
2
Each convertible note holder shall not be entitled to convert
that amount of their note that would result in a number of shares
of common stock held which would be in excess of the sum of the
number of shares of common stock beneficially owned by the note
holder and its affiliates on that date of more than 4.99% of the
outstanding shares of common stock of DSEN on that date. For the
purposes of this provision, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3. The
note holder may void this conversion share limitation upon 61
days prior notice to DSEN. Therefore, the note holder can never own
more than 4.99%, however, the note holder may decide whether to
convert a note or exercise a warrant to achieve the 4.99%
ownership position. Aggregate conversions over time shall not be
limited to 4.99%. This limitation shall be calculated as of each
conversion, thus the note holder would be able to convert the
debt and quickly sell the shares or convert and cover short sales
to maintain the 4.99% threshold.
As part of this funding, the investors have been given a security
interest in all now owned and subsequently acquired right,
title and interest of Datascension Inc. in all accounts (unpaid
vendor; contract rights; investment property; intangible assets,
instruments; letters of credit, bankers' acceptances or
guaranties; cash moneys, deposits; securities, bank accounts,
deposit accounts, credits and other property, goods (inventory,
equipment, furniture and fixtures), real or personal property,
all present and future books and records relating to the above
items and all products and proceeds of the above items.
DSEN has the option of prepaying the outstanding principal amount,
in whole or in part, by paying to the note holder a sum of money
equal to one hundred twenty percent (120%) of the principal
amount to be redeemed, together with any accrued interest on that
amount.
Further, on November 17, 2004, DSEN issued common stock purchase
warrants to purchase 3,125,000 shares of DSEN common stock to the
above note holders, at an exercise price of $.30 per share and on
March 31, 2005 a common stock purchase warrants to purchase 300,000
shares of DSEN common stock to the above note holders, at an
exercise price of $.50 per share
3
RISK FACTORS
An investment in shares of DSEN's Common Stock involves a high
degree of risk. You should carefully consider the following
information, which summarizes all material risks, together with
the other information contained in this prospectus, before
you decide to buy DSEN's common stock. If any of the following
risks actually occur, DSEN's business would likely suffer. In
these circumstances, the market price of DSEN's common stock could
decline, and you may lose all or part of your investment.
RISKS RELATING TO OUR BUSINESS:
EFFORTS TO EXPAND OPERATIONS THROUGH DEVELOPING NEW SERVICES,
FEATURES AND FUNCTIONS MAY DRAIN CAPITAL RESOURCES IF NOT SUCCESSFUL
There can be no assurance that DSEN will be able to expand its
operations in a cost-effective or timely manner or that any such
efforts would maintain or increase overall market value and
acceptance. Furthermore, any new business launched by DSEN that is
not favorably received by consumers could drain DSEN of needed
capital, damage DSEN's reputation and diminish the value of its
brand name.
Expansion of DSEN's operations would require significant
expenditure for development, operation setup, and training of
DSEN's management, financial and operational resources. Any lack
of market acceptance of DSEN's products or services would result
in the inability to generate satisfactory revenues and to offset its
costs of the expansion, which could have a material adverse effect
on DSEN's results of operations and financial condition.
EFFORTS TO ESTABLISH BRAND IDENTITY IS COSTLY AND FAILURE TO
SUCCEED COULD ADVERSELY AFFECT DSEN'S ABILITY TO GROW.
DSEN believes that establishing and maintaining brand
identity is a critical aspect of its efforts to attract new
customers. In order to attract new customers, advertisers and
commerce vendors, and in response to competitive pressures, DSEN
intends to make a commitment to the creation and maintenance of
brand loyalty among these groups. DSEN plans to accomplish
this, although not exclusively, through advertising its
products and services through its Web site, through the various
search engines, through other Web sites and marketing its site to
businesses and customers through e-mail, online media, trade
publications, trade shows and other marketing and promotional
efforts.
There can be no assurance that brand promotion activities
will yield increased revenues or that any such revenues would
offset the expenses incurred by DSEN in building its brands.
If DSEN fails to promote and maintain its brand or incurs
substantial expenses in an attempt to promote and maintain its
brand or DSEN's existing or future strategic relationships fail to
promote DSEN's brand or increase brand awareness, DSEN's business,
results of operations and financial condition would be materially
adversely affected.
OUR CLIENTS MAY ADOPT TECHNOLOGIES THAT DECREASE THE DEMAND FOR
OUR SERVICES, WHICH COULD REDUCE OUR REVENUES AND SERIOUSLY HARM OUR
BUSINESS.
We target clients with a high need for our market research
services and we depend on their continued need of our services,
especially our major clients who generate the substantial majority
of our revenues. However, over time, our clients may adopt new
technologies that decrease the need for live customer
interaction, such as interactive voice response, web-based research
and other technologies used to automate interactions with
interviewers. The adoption of such technologies could reduce the
demand for our services, pressure our pricing, cause a reduction
in our revenues and harm our business.
WE SERVE MARKETS THAT ARE HIGHLY COMPETITIVE AND WE MAY BE UNABLE
TO COMPETE WITH BUSINESSES THAT HAVE GREATER RESOURCES THAN WE DO.
We currently face significant competition for outsourced
market research services and expect that competition will
increase. We believe that, in addition to prices, the
principal competitive factors in our markets are service quality
and interviewing skills, the ability to develop customized
designs and technological and industry expertise. While numerous
companies provide market research services, we believe our
principal competitors include our clients' own in-house market
research groups, including, in some cases, in- house groups
operating offshore, offshore outsourcing companies and U.S.-based
outsourcing companies. The trend toward offshore
4
outsourcing, international expansion by foreign and domestic
competitors and continuing technological changes will result in
new and different competitors entering our markets. These
competitors may include entrants from the communications
industries or entrants in geographic locations with lower costs
than those in which we operate.
Additionally, the market for customer contact services
and market research is highly fragmented and very competitive. In
certain segments of the industry, however, the customer contact
services and market research industries have begun to experience
a degree of consolidation, and the development of major customer
contact center companies has resulted in an additional level of
competition from service providers that have greater name
recognition, larger installed customer bases, and significantly
greater financial, technical, and marketing resources than we
have. Large established enterprise software companies may
leverage their existing relationships and capabilities to offer
customer service applications. In other instances, many large
companies provide their own in-house customer care support and
customer training. Also, a number of existing companies have
experienced rapid internal growth, and several of these companies
have been active in acquiring smaller regional customer
contact services and call center companies and are becoming
major competitors with a measurable share of this rapidly
expanding market. If our competitors provide more efficient or less
expensive services, we may lose market share and revenues.
Lastly, many of our existing competitors and possibly
potential new competitors, have or may have greater financial,
personnel and other resources, longer operating histories, more
technological expertise, more recognizable brand names and more
established relationships in industries that we currently serve or
may serve in the future. Increased competition, our inability
to compete successfully against current or future competitors,
pricing pressures or loss of market share could result in
increased costs and reduced operating margins, which could harm our
business, operating results, financial condition and future
prospects.
MANY OF OUR CONTRACTS CAN BE TERMINATED BY OUR CLIENTS ON SHORT
NOTICE AND IN MANY CASES WITHOUT PENALTY. WE ALSO GENERALLY
DO NOT HAVE EXCLUSIVE ARRANGEMENTS WITH OUR CLIENTS OR A
MINIMUM REVENUE COMMITMENT FROM OUR CLIENTS, WHICH CREATES
UNCERTAINTY ABOUT THE VOLUME OF SERVICES WE WILL PROVIDE AND THE
AMOUNT OF REVENUES WE WILL GENERATE FROM ANY OF OUR CLIENTS.
We typically enter into written agreements with each
client for our services. We seek to sign multi-year contracts with
our clients, but many of our contracts permit our clients to
terminate the contracts upon short notice. The volume and type of
services we perform for specific clients may vary from year to year,
particularly since in many cases we are not the exclusive
provider of outsourcing services to our clients. A client in one
year may not provide the same level of revenues in a subsequent
year. Many of our clients may terminate their contracts with us
before their expiration with no penalties or limited penalties.
Many of our clients could terminate their relationship with
us or reduce their demand for our services due to a variety of
factors, including factors that are unpredictable and outside of our
control. The services we provide to a client could be reduced if the
client were to change its outsourcing strategy. Clients may move
more market research functions in-house, to an affiliated
outsourcing provider or to one of our competitors. Clients may
reduce spending on outsourcing services due to changing
economic conditions or financial challenges, or political or
public relations pressures to reduce or eliminate offshore
outsourcing of business processes. If our clients are not
successful or if they experience any significant decrease in their
businesses, the amount of business they outsource and the prices
that they are willing to pay for such services may be diminished and
likely would result in reduced revenues for us. Any reduction in
revenues would harm our business, negatively affect operating
results and may lead to a decline in the price of our common stock.
WE HAVE A LIMITED OPERATING HISTORY AND OUR BUSINESS AND FUTURE
PROSPECTS ARE DIFFICULT TO EVALUATE.
Due to our limited operating history, especially in Costa
Rica where we consolidated our market research operations in
2002, our business and future prospects are difficult to evaluate.
We are exploring opportunities to provide other outsourced
services that we have not provided to date. You should
consider the challenges, risks and uncertainties frequently
encountered by early-stage companies using new and unproven
business models in rapidly evolving markets. These challenges
include our ability to:
- attract and retain clients;
- attract and retain key personnel and customer
management professionals;
- generate sufficient revenues and manage costs
to maintain profitability;
- manage growth in our operations; and
- access additional capital when required and on
reasonable terms.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND COULD CAUSE
THE MARKET PRICE OF OUR COMMON STOCK TO FALL RAPIDLY AND WITHOUT
NOTICE.
Our revenues and operating results are difficult to
predict and may fluctuate significantly from quarter to quarter
due to a number of factors, including:
- the addition or loss of a major client and the volume
of services provided to our major clients;
- the extent to which our services achieve or
maintain market acceptance, which may be affected by political
and public relations reactions to offshore outsourcing;
- our ability to introduce new or enhanced services to
our existing and prospective clients and to attract and retain new
clients;
- long sales cycles and fluctuations in sales cycles;
- the extent to which we incur expenses in a given
period in anticipation of increased demand in future periods, and
the extent to which that demand materializes;
- changes in our pricing policies or those of our
competitors, as well as increased price competition in general;
- variation in demand for our services and the services
or products of our major clients, particularly clients in the
travel and hospitality industry; and
- the introduction of new or enhanced services by other
outsourced service providers.
Results of operations in any quarterly period should not be
considered indicative of the results to be expected for any future
period. In addition, our future quarterly operating results may
fluctuate and may not meet the expectations of securities analysts
or investors. If this occurs, the trading price of our common
stock could fall substantially, either suddenly or over time.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT
SUCCEED.
We have expanded significantly since our formation and intend
to maintain our growth focus. However, our growth will place
demands on our resources and we cannot be sure that we will be able
to manage our growth effectively. In order to manage our growth
successfully, we must:
- maintain the hiring, training and management necessary
to ensure the quality and responsiveness of our services;
- expand and enhance our administrative and technical
infrastructure, facilities and capacities to accommodate
increased call volume and other customer management demands; and
- continue to improve our management, financial and
information systems and controls.
Continued growth could place a strain on our management,
operations and financial resources. Our infrastructure,
facilities and personnel may not be adequate to support our future
operations or to adapt effectively to future growth. As a
result, we may be unable to manage our growth effectively, in
which case our operating costs may increase at a faster rate than
the growth in our revenues, our margins may decline and we may incur
losses.
6
WE MAY EXPERIENCE SIGNIFICANT EMPLOYEE OR CONTRACT LABOR TURNOVER
RATES IN THE FUTURE AND WE MAY BE UNABLE TO HIRE AND RETAIN
ENOUGH SUFFICIENTLY TRAINED CONTRACT LABOR TO SUPPORT OUR
OPERATIONS, WHICH COULD HARM OUR BUSINESS.
The market research outsourcing industry is very labor
intensive and our success depends on our ability to attract, hire
and retain qualified employees and contract labor. We compete for
qualified personnel with companies in our industry and in other
industries and this competition is increasing in Costa Rica as
the outsourcing industry expands. Our growth requires that
we continually hire and train new contract labor. The
outsourcing industry, including the customer management
services industry, has traditionally experienced high employee
turnover. In our case, a significant increase in the turnover rate
among our contract labor would increase our recruiting and
training costs and decrease operating efficiency and productivity,
and could lead to a decline in demand for our services. If this
were to occur, we would be unable to service our clients
effectively and this would reduce our ability to continue our
growth and operate profitably. We may be unable to continue to
recruit, hire, train and retain a sufficient labor force of
qualified employees to execute our growth strategy or meet the needs
of our business.
OUR SENIOR MANAGEMENT TEAM IS IMPORTANT TO OUR CONTINUED SUCCESS
AND THE LOSS OF MEMBERS OF SENIOR MANAGEMENT COULD NEGATIVELY AFFECT
OUR OPERATIONS.
The loss of the services of Scott Kincer, our Chief Executive
Officer and Principal Accounting Officer or Joseph Harmon, our
Vice President of Sales and Marketing, could seriously impair our
ability to continue to manage and expand our business. Our success
depends on the continued service and performance of our executive
officers, and we cannot guarantee that we will be able to retain
these individuals.
OUR FACILITIES ARE AT RISK OF DAMAGE BY EARTHQUAKES AND
OTHER NATURAL DISASTERS.
We currently rely on the availability and condition of our
leased Costa Rican and Dominican Republic facilities to provide
service and support to our clients. These facilities are
located in regions that are susceptible to earthquakes and
other natural disasters, which may increase the risk of
disruption of information systems and telephone service for
sustained periods. Damage or destruction that interrupts our
provision of outsourcing services could damage our
relationship with our clients and may cause us to incur
substantial additional expense to repair or replace damaged
equipment or facilities. While we currently have commercial
liability insurance, our insurance coverage may not be sufficient.
Furthermore, we may be unable to secure such insurance coverage
or to secure such insurance coverage at premiums acceptable to us
in the future. Prolonged disruption of our services as a result
of natural disasters may entitle our clients to terminate
their contracts with us.
OUR OPERATIONS COULD SUFFER FROM TELECOMMUNICATIONS OR
TECHNOLOGY DOWNTIME, DISRUPTIONS OR INCREASED COSTS.
We are highly dependent on our computer and telecommunications
equipment and software systems. In the normal course of our
business, we must record and process significant amounts of data
quickly and accurately to access, maintain and expand the
databases we use for our services. We are also dependent on
continuous availability of voice and electronic communication with
customers. If we experience interruptions of our
telecommunications network with our clients, we may experience
data loss or a reduction in revenues. These disruptions could
be the result of errors by our vendors, clients or third
parties, electronic or physical attacks by persons seeking to
disrupt our operations, or the operations of our vendors, clients
or others. A significant interruption of service could have a
negative impact on our reputation and could lead our present
and potential clients not to use our services. The temporary or
permanent loss of equipment or systems through casualty or
operating malfunction could reduce our revenues and harm our
business.
OUR CUSTOMER BASE IS CONCENTRATED AND THE LOSS OF ONE OR MORE
OF OUR KEY CUSTOMERS WOULD HARM OUR BUSINESS.
Historically, a majority of our sales have been to relatively few
customers. We expect that sales to relatively few customers will
continue to account for a significant percentage of our net
sales for the foreseeable future. The loss of, or any reduction in
interview hours from, a significant customer would harm our
business.
We derived approximately 38.6% of our total net
revenues from two clients in fiscal 2003. For the year ended
December 31, 2004 we derived approximately 45% of our total net
revenues from our top three clients. If we
7
were to lose, or if there were a material reduction in business
from these clients or our other significant clients, our net
revenues might decline substantially.
Our ten largest clients accounted for $5.45 million, or
approximately 77%, of our total net revenues for 2003. Our ten
largest clients accounted for $6.1 million, or approximately
72%, of our total net revenues for the year ended December 31,
2004. If we lose business from any of our top ten clients, our net
revenues may decline substantially.
WE COULD CAUSE DISRUPTIONS TO OUR CLIENTS' BUSINESS FROM
INADEQUATE SERVICE, AND OUR INSURANCE COVERAGE MAY BE INADEQUATE TO
COVER THIS RISK.
Most of our contracts with our clients contain service
level and performance requirements, including requirements
relating to the timing and quality of responses to market
research. The quality of services that we provide is measured
by quality assurance ratings, which are based in part on the
results of customer satisfaction and direct monitoring of
interactions between our professionals and customers. Failures to
meet service requirements of a client could disrupt the client's
business and result in a reduction in revenues or a claim for
damages against us. For example, some of our agreements have
standards for service that, if not met by us, result in lower
payments to us. In addition, because many of our projects are
business-critical projects for our clients, a failure or inability
to meet a client's expectations could seriously damage our
reputation and affect our ability to attract new business. Under our
contracts with our major clients and many of our contracts with
other clients, our liability for breaching our obligations is
generally limited to actual damages up to a portion of the fees
paid to us. To the extent that our contracts contain limitations on
liability, such contracts may be unenforceable or otherwise may not
protect us from liability for damages. While we maintain general
liability insurance coverage, this coverage may be inadequate to
cover one or more large claims, and our insurer may deny coverage.
UNAUTHORIZED DISCLOSURE OF SENSITIVE OR CONFIDENTIAL CLIENT AND
CUSTOMER DATA, WHETHER THROUGH BREACH OF OUR COMPUTER SYSTEMS OR
OTHERWISE, COULD EXPOSE US TO PROTRACTED AND COSTLY LITIGATION AND
CAUSE US TO LOSE CLIENTS.
We are typically required to collect and store
sensitive data in connection with our services, including names,
addresses and other personal information. If any person,
including any of our employees, penetrates our network security or
otherwise misappropriates sensitive data, we could be subject
to liability for breaching contractual confidentiality provisions
or privacy laws. Penetration of the network security of our data
bases could have a negative impact on our reputation and could
lead our present and potential clients to choose other service
providers.
WE MAY CHOOSE TO EXPAND OPERATIONS OUTSIDE OF COSTA RICA OR THE
DOMINICAN REPUBLIC AND MAY NOT BE SUCCESSFUL.
We may consider expanding to countries other than Costa
Rica and the Dominican Republic. We cannot predict the extent
of government support, availability of qualified workers, or
monetary and economic conditions in other countries. Although some
of these factors may influence our decision to establish
operations in another country, there are inherent risks beyond
our control, including exposure to currency fluctuations, political
uncertainties, foreign exchange restrictions and foreign regulatory
restrictions. One or more of these factors or other factors
relating to international operations could result in increased
operating expenses and make it more difficult for us to manage
our costs and operations, which could harm our business and
negatively impact our operating results.
WE ARE SUBJECT TO EXTENSIVE LAWS AND REGULATION THAT COULD LIMIT
OR RESTRICT OUR ACTIVITIES AND IMPOSE FINANCIAL REQUIREMENTS OR
LIMITATIONS ON THE CONDUCT OF OUR BUSINESS.
The market research and call center industry has become
subject to an increasing amount of federal and state regulation in
the past five years. Despite our focus on outbound market
research and a lesser extent inbound call handling, we are subject
to regulations governing communications with consumers due to the
activities we undertake on behalf of our clients to encourage
customers to provide sensitive personal information about
themselves. For example, limits on the transport of personal
information across international borders such as those now in
place in the European Union (and proposed elsewhere) may limit
our ability to obtain customer data.
Additional federal, state, local or international legislation,
or changes in regulatory implementation, could further limit our
activities or those of our clients in the future or significantly
increase the cost of regulatory compliance.
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE, IF AND WHEN NEEDED, MAY
BE LIMITED, AND COULD PREVENT US FROM EXECUTING OUR BUSINESS
STRATEGY. THE SALE OF ADDITIONAL EQUITY SECURITIES WOULD
RESULT IN FURTHER DILUTION TO OUR STOCKHOLDERS.
We believe that our existing cash and cash equivalents will be
sufficient to support our anticipated cash needs through 2005.
However, the timing and amount of our working capital and capital
expenditure requirements may vary significantly depending on
numerous factors, including:
- market acceptance of and demand for our offshore
outsourced services which may be affected by political and public
relations reactions to offshore outsourcing;
- access to and availability of sufficient management,
technical, marketing and financial personnel;
- the need to enhance our operating infrastructure;
- the continued development of new or enhanced services
and hosted designs;
- the need to adapt to changing technologies and
technical requirements;
- the existence of opportunities to acquire
businesses or technologies, or opportunities for expansion; and
- increased competition and competitive pressures.
If our capital resources are insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity
or debt securities or obtain other debt financing. The sale of
additional equity securities or convertible debt securities
would result in additional dilution to our stockholders.
Additional debt would result in increased expenses and could
result in covenants that restrict our operations. We may be
unable to secure financing in sufficient amounts or on terms
acceptable to us, if at all, in which case we may not have the
funds necessary to finance our ongoing capital requirements or
execute our business strategy.
RISKS RELATED TO DOING BUSINESS OFFSHORE
We may face wage inflation and additional competition
offshore for our professionals, which could increase the cost
of qualified workers and the amount of worker turnover.
Fees for our contract workers offshore could increase at a
faster rate than for U.S. employees, which could result in
increased costs to employ our outsourcing center professionals.
We also are faced with competition in Costa Rica for outsourcing
center professionals, and we expect this competition to increase
as additional outsourcing companies enter the market and expand
their operations. In particular, there may be limited
availability of qualified interviewers and both middle and upper
management candidates. We have benefited from an excess of supply
over demand for college graduates in Costa Rica. If this
favorable imbalance changes due to increased competition, it could
affect the availability or cost of qualified professionals, who are
critical to our performance. This could increase our costs and
turnover rates.
RISKS RELATING TO OUR INDUSTRY:
THE MARKETING RESEARCH INDUSTRY IS VULNERABLE TO GENERAL ECONOMIC
CONDITIONS, WHICH MAY AFFECT OUR REVENUES.
Many of the companies served by our clients treat all or a
portion of their marketing research expenditures as discretionary.
As general economic conditions worsen and these companies seek to
control variable costs, research projects for which we have been
engaged to collect data may be delayed or cancelled, and new
project bookings may slow. As a result, our growth rate and
revenues may decline.
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR
CONVERTIBLE NOTES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER
NUMBER OF SHARES, WHICH WILL CAUSE DILUTION TO OUR EXISTING
STOCKHOLDERS.
There are a large number of shares underlying the
convertible note and warrants in this offering that may be
available for future sale and the sale of these shares may depress
the market price of DSEN's common stock and may cause substantial
dilution to DSEN's existing stockholders.
The number of shares of common stock issuable upon
conversion of the convertible note in this offering may increase
if the market price of DSEN's stock declines. All of the shares,
including all of the shares issuable upon conversion of the
notes and debentures and upon exercise of DSEN's warrants, may be
sold without restriction. The sale of these shares may adversely
affect the market price of DSEN's common stock. The issuance of
shares upon conversion of the convertible notes and debentures and
exercise of outstanding warrants will also cause immediate and
substantial dilution to DSEN's existing stockholders and may
make it difficult to obtain additional capital.
In addition, our obligation to issue shares upon
conversion of our convertible notes is essentially limitless. The
following gives examples of the number of shares that would be
issued if the $2,000,000 of convertible notes in this offering were
converted at one time at prices representing 25%, 50%, and 75%
below the current market price (assuming a conversion price to the
note holders of $0.30. As of January 22, 2006, we had 17,232,290
(post-split) shares of common stock outstanding.
Price Number % of
% Below Per With Discount of Shares Outstanding
Market Share at 15% Issuable Stock
25% $0.225 $0.191 10,471,204 61%
50% $0.15 $0.1275 15.686.274 91%
75% $0.075 $0.06375 31,372,549 182%
SEE THE "SECURITY OWNERSHIP TABLE", DESCRIPTION OF SECURITIES
AND THE "SELLING SECURITY HOLDER TABLE" BEGINNING ON PAGE 31,
34 AND PAGE 35, RESPECTIVELY, OF THIS PROSPECTUS.
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE IS RESTRICTED BY
OUR CURRENT FINANCING ARRANGEMENT.
For a period of time, DSEN will not be able to issue
any equity, convertible debt or other securities convertible into
common stock or equity of DSEN without the prior written consent
of the current note holders, which consent may be withheld for
any reason. The time frame is the sooner of (i) the registration
statement shall have been current and available for use in
connection with the public resale of DSEN's common shares and
warrant shares being registered in this document, for 365 days,
(ii) until all of DSEN's shares being registered in this document
have been resold or transferred by the note holders pursuant to
this registration statement or Rule 144, without regard to volume
limitations, or (iii) the date the current notes have been fully
paid.
INVESTORS WHO PURCHASE SHARES OFFERED FOR RESALE BY THIS PROSPECTUS
WILL PAY A PER SHARE PRICE THAT SUBSTANTIALLY EXCEEDS THE VALUE OF
DATASCENSION'S ASSETS AFTER SUBTRACTING ITS LIABILITIES PER SHARE
AND THEREFORE WILL INCUR IMMEDIATE DILUTION TO THE VALUE OF THEIR
OWNERSHIP.
The investors would be converting at $.30 and a portion at
$.50 per share At June 30, 2005, the value of Datascension's
assets after subtracting its liabilities per share is a $.05
per share. Since the investors are paying a price significantly
larger than the value of Datascension's assets after
subtracting its liabilities per share (net tangible book value per
share), the investor would experience immediate dilution of
their investment. Since the warrants are also exercisable at $.30
and $.50 per share, the investors would also experience immediate
dilution of their investment upon exercising the warrants.
FURTHER DILUTION COULD OCCUR IN THE FUTURE DUE TO ANY CONTRACTS WE
MAY ENTER INTO WITH THIRD PARTY ENTITIES FOR CONSULTING OR OTHER
SERVICES SHOULD ANY ADDITIONAL COMMON STOCK SHARES BE ISSUED FOR
THOSE CONSULTING OR OTHER SERVICES. THE FOLLOWING ARE SHARES
ISSUED PURSUANT TO SERVICE CONTRACTS OVER THE LAST EIGHTEEN MONTHS.
500,000 pre split shares of restricted stock were issued to Stock
Enterprises for services valued at $25,000 based on a fair market
value of the stock of $0.05 per share. Shares issued on April
20, 2004.
350,000 pre split shares of common stock were issued to the Law
Offices of Michael Morrison (250,000) and the Law Offices of
Neil Beller (100,000) for legal services valued at $31,500 based on
a fair market value of the stock of $0.09 per share. Shares
issued on May 21, 2004.
OUR ABILITY TO BE A GOING CONCERN WOULD BE COMPROMISED IN THE EVENT
THAT WE ARE REQUIRED TO REPAY THE BALANCE OF THE OUTSTANDING
CONVERTIBLE DEBT ON DEMAND.
We have issued $2,000,000 in convertible notes in this funding. In
the event that we are required to repay the balance of these notes
in cash on demand, we would be forced to seek additional funding
which would probably be at a large discount. If we were unable to
obtain the additional funding, we may be forced to close down
operations.
The events that may trigger the above are as follows:
1. Failure to pay any installment of principal,
interest or other sum due under the note when due and such failure
continues for a period of ten days after the due date.
2. Breaches any material covenant or other term or
condition ofthe subscription agreement or this note and such breach,
if subject to cure, continues for a period of ten business days
after written notice to DSEN from the note holder.
3. Any false or misleading material
representation by DSEN concerning our warranties made in the
subscription agreement or in any agreement with the note holder
as of the date made and the Closing Date.
4. If DSEN makes an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or
business.
5. If any money judgment, writ or similar final
process is entered or filed against DSEN or any of its property or
other assets for more than $50,000, and the judgment remains
unvacated,unbonded or unstayed for a period of forty-five (45) days.
6. If DSEN files for bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any
notice in relation to such event, for the relief of debtors shall
be instituted by or against the Borrower and if instituted against
Borrower are not dismissed within 45 days of initiation.
7. If DSEN's Common Stock is delisted from the OTC
Bulletin Board.
8. A default by DSEN under any one or more
obligations in an aggregate monetary amount in excess of
$75,000 for more than twenty days after the due date, unless the
Borroweris contesting the validity of such obligation in good faith.
9. If DSEN is subject to an SEC or judicial stop
trade order or Principal Market trading suspension that lasts
for five or more consecutive trading days.
10. If DSEN fails to timely deliver common stock to
the note holder pursuant to a conversion request.
11. If DSEN fails to register the underlying shares
of this funding.
12. If DSEN fails to have reserved for issuance upon
conversion of the note the amount of common stock that is set forth
in this note and the subscription agreement.
13. If DSEN defaults on a material term, covenant,
warranty or undertaking of any other agreement to which DSEN
and the note holder are parties, or the occurrence of a material
event of default under any such other agreement which is not cured
after any required notice and/or cure period.
RISKS RELATING TO OUR STOCK:
THE OVERHANG AFFECT FROM THE RESALE OF THE SELLING SHAREHOLDERS
SECURITIES ON THE MARKET COULD RESULT IN LOWER STOCK PRICES WHEN
CONVERTED
Overhang can translate into a potential decrease in DSEN's
market price per share. The common stock underlying unconverted
debentures represents overhang. These debentures are converted
into common stock at a discount to the market price providing the
debenture holder the ability to sell his or her stock at or below
market and still make a profit, which is incentive for the holder
to sell the shares as quickly as possible to ensure as much profit
as possible in case the stock price falls. If the share volume
cannot absorb the discounted shares, DSEN's market price per share
will likely decrease. As the market price decreases, each
subsequent conversion will require a larger quantity of shares.
SHORT SELLING COMMON STOCK BY WARRANT AND CONVERTIBLE NOTE HOLDERS
MAY DRIVE
DOWN THE MARKET PRICE OF DSEN'S STOCK.
The warrant and convertible note holders may sell shares of
DSEN's common stock on the market before exercising the warrant or
converting the notes. The stock is usually offered at or below
market since the warrant and debenture holders receive stock at a
discount to market. Once the sale is completed the holders
exercise or convert a like dollar amount of shares. If the stock
sale lowered the market price, upon exercise or conversion, the
holders would receive a greater number of shares then they would
have absent the short sale. This pattern may result in the spiraling
down of DSEN's stock's market price.
DSEN'S COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE
SEC AND THE TRADING MARKET IN DSEN'S SECURITIES IS LIMITED, WHICH
MAKES TRANSACTIONS IN DSEN'S STOCK CUMBERSOME AND MAY REDUCE
THE VALUE OF AN INVESTMENT IN DSEN'S STOCK.
DSEN's shares of Common Stock are "penny stocks" as
defined in the Exchange Act, which are quoted in the over-the-
counter market on the OTC Bulletin Board. As a result, an
investor may find it more difficult to dispose of or obtain
accurate quotations as to the price of the shares of the Common
Stock being registered hereby. In addition, the "penny stock"
rules adopted by the Commission under the Exchange Act subject
the sale of the shares of the Common Stock to certain regulations
which impose sales practice requirements on broker-dealers. For
example, broker-dealers selling such securities must, prior to
effecting the transaction, provide their customers with a document
that discloses the risks of investing in such securities.
Included in this document are the following:
-The bid and offer price quotes for the penny stock, and the
number of shares to which the quoted prices apply.
-The brokerage firm's compensation for the trade.
-The compensation received by the brokerages firm's salesperson
for the trade.
In addition, the brokerage firm must send the investor:
-Monthly account statement that gives an estimate of the
value of each penny stock in your account.
-A written statement of your financial situation and
investment goals.
Legal remedies, which may be available to you, are as follows:
-If penny stocks are sold to you in violation of your rights
listed above, or other federal or state securities laws, you
may be able to cancel your purchase and get your money back.
-If the stocks are sold in a fraudulent manner, you may be
able to sue the persons and firms that caused the fraud for
damages.
-If you have signed an arbitration agreement, however, you may
have to pursue your claim through arbitration.
If the person purchasing the securities is someone
other than an accredited investor or an established customer
of the broker-dealer, the broker-dealer must also approve the
potential customer's account by obtaining information concerning
the customer's financial situation, investment experience and
investment objectives. The broker-dealer must also make a
determination whether the transaction is suitable for the customer
and whether the customer has sufficient knowledge and experience in
financial matters to be reasonably expected to be capable of
evaluating the risk of transactions in such securities.
Accordingly, the Commission's rules may limit the number of
potential purchasers of the shares of the Common Stock.
RESALE RESTRICTIONS ON TRANSFERRING "PENNY STOCKS" ARE SOMETIMES
IMPOSED BY SOME STATES, WHICH MAY MAKE TRANSACTIONS IN OUR STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
Various state securities laws impose restrictions on
transferring "penny stocks" and as a result, investors in the
Common Stock may have their ability to sell their shares of the
Common Stock impaired. For example, the Utah Securities
Commission prohibits brokers from soliciting buyers for "penny
stocks", which makes selling them more difficult.
DSEN'S ABSENCE OF DIVIDENDS OR THE ABILITY TO PAY THEM PLACES A
LIMITATION ON
ANY INVESTORS RETURN.
DSEN anticipates that for the foreseeable future,
earnings will be retained for the development of its business.
Accordingly, DSEN does not anticipate paying dividends on the
common stock in the foreseeable future. The payment of future
dividends will be at the sole discretion of DSEN's Board of
Directors and will depend on DSEN's general business condition.
THE MARKET PRICE FOR OUR COMMON STOCK MAY BE VOLATILE, MAKING AN
INVESTMENT IN DSEN RISKY.
The market price for our common stock has been and is likely
to continue to be highly volatile and subject to wide fluctuations
in response to factors including the following:
- - actual or anticipated fluctuations in our quarterly operating
results,
- - announcements of new services by us or our competitors,
- - changes in the economic performance or market valuations of
other companies involved in call center services or market
research services,
- - announcements by our competitors of significant acquisitions,
new strategic alliances, joint ventures or capital commitments,
- - additions or departures of key personnel,
- - potential litigation, or
- - economic conditions in the outsourced call center market.
Over the last three years the price range of our stock has been as
high as $1.30 and as low as $0.24. (For a more detailed breakdown,
please see the "Market for Common Equity and Related Stockholder
Matters" section below).
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking
statements, which involve substantial risks and uncertainties.
These forward-looking statements can generally be identified because
the context of the statement includes words such as "may,"
"will," "except," "anticipate," "intend," "estimate,"
"continue," "believe," or other similar words. Similarly, this
prospectus also contains forward-looking statements about our
future. Forward-looking statements include statements about our:
Plans, Objectives, Goals, Strategies, Expectations for the
future, Future performance and events, Underlying assumptions for
all of the above and other statements, which are not statements of
historical facts.
These forward-looking statements involve risks and
uncertainties discussed in the risk factor section (see page 7),
which could cause our actual results to materially differ from our
forward-looking statements. We make these forward-looking
statements based on our analysis of internal and external
historical trends, but there can be no assurance that we will
achieve the results set forth in these forward-looking
statements. Our forward-looking statements are expressed in good
faith and we believe that there is a reasonable basis for us
to make them. We have no obligation to update or revise these
forward-looking statements to reflect future events.
USE OF PROCEEDS
DSEN will not receive any of the proceeds from the sale of
the shares of common stock offered by the selling shareholders
under this prospectus. There is a warrant being issued with the
current funding. If the warrant was exercised, the maximum DSEN
would receive are proceeds of approximately $937,500.
If the resale of the warrant shares fails to be registered
pursuant to an effective registration statement under the
Securities Act, this warrant may affect a cashless exercise,
including a calculation of the number of shares of Common Stock
to be issued upon such exercise. In the event of a Cashless
Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of
Common Stock determined by multiplying the number of Warrant
Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then
current market price per share of the common stock and the
exercise price, and the denominator of which shall be the then
current market price per share of common stock. For example,
if the holder is exercising 100,000 warrants with a per
warrant exercise price of $0.75 per share through a cashless
exercise when the Common Stock's current Market Price per share
is $2.00 per share, the holder will receive 62,500 shares of Common
Stock.
The proceeds, if any, that DSEN receives from the exercise
of warrants will be used for working capital in support of the
growing business.
14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Over-the Counter Bulletin
Board, also called the OTCBB, under the trading symbol "DSEN".
The following table set forth the quarterly high and low bid
prices per share for our common stock. The bid prices reflect
inter-dealer prices, without retail markup, markdown, or commission
and may not represent actual transactions.
Fiscal YearQuarter Ended High *Low *
2001 March 31,2001 $3.00 $1.80
June 30, 2001 $3.40 $1.40
September 30, 2001 $2.20 $0.70
December 31, 2001 $2.20 $0.70
2002 March 31, 2002 $1.30 $0.50
June 30, 2002 $1.35 $0.60
September 30, 2002 $1.20 $0.40
December 31, 2002 $1.00 $0.35
2003 March 31, 2003 $0.80 $0.40
June 30, 2003 $1.10 $0.40
September 30, 2003 $1.00 $0.70
December 31, 2003 $0.90 $0.60
2004 March 31, 2004 $2.50 $0.60
June 30, 2004 $1.20 $0.50
September 30, 2004 $0.60 $0.40
December 31, 2004 $0.90 $0.35
2005 March 31, 2005 $.090 $0.21
June 30, 2005 $0.50 $0.39
September 30, 2005 $0.48 $0.27
December 31, 2005 $0.35 $0.22
* Adjusted for the 10 to one reverse split.
DSEN has not declared or paid any cash dividends on the
common stock and does not anticipate that any cash dividends will
be paid in the foreseeable future.
As of December 31, 2005 there were approximately
719 registered shareholders of the DSENs Common Stock and
17,232,290 shares issued and outstanding.
Transfer Agent and Registrar
DSEN's transfer agent is Transfer Online, Inc., 317 SW Alder
Street, 2nd Floor, Portland, OR 97204.
Summary Financial Information
The summary historical financial data should be read in
conjunction with the financial statements (and notes thereto) of
DSEN and the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
Year ended December 31, Nine Months Ended September 30,
2004 2003 2005 2004
(Audited) (Unaudited)
----------- ----------- ------------- ------------
Revenue $ 8,471,440 $ 7,057,087 $ 6,864,011 $ 6,380,488
Cost of Revenue 7,071,784 4,039,344 5,718,341 5,091,217
----------- ----------- ------------- ------------
Gross Margin 1,399,656 3,017,743 1,145,670 1,289,271
Selling General and Administrative 2,430,666 2,633,934 1,409,080 1,014,082
Depreciation & Amortization 270,893 340,231 131,885 256,133
Costs associated with asset impairment 328,492 - - -
Contingent accrual - 292,500
Lawsuit Liability - 45,000
----------- ----------- ------------- ------------
Total Expenses 3,030,051 3,311,665 1,540,965 1,270,215
Operating Income (1,630,395) (293,922) (395,295) 19,056
Total Other Income (Expense) (2,690,970) 47,389 2,127,631 (6,126)
----------- ----------- ------------- ------------
Net Income (Loss) (4,321,365) $ (246,533) 2,127,631 12,930
Discontinued Operations (1,731,001) - - -
Net Income (Loss) after
Discontinued operations $ (6,052,366) $ (246,533) $ 1,732,336 12,930
Basic Weighted average Common Shares
outstanding 15,671,867 9,617,251* 17,099,415 15,510,066*
Net income (loss) per share (basic) $ (0.28) $ (0.03)* $ 0.10 $ (0.00)
Discontinued Operations $ (0.11) $ (0.00)
Basic Net Income per share
After discontinued operations $ (0.39) $ (0.03)
Diluted Weighted average Common Shares
outstanding 16,594,223 9,617,251* 28,390,550 15,510,066*
Net income (loss) per share (diluted) $ (0.26) $ (0.03)* $ 0.06 $ (0.00)
Discontinued Operations $ (0.10) $ (0.00)
----------- ----------- ------------- ------------
Diluted Net Income per share
After Discontinued Operations $ (0.36) $ (0.03)
Total Assets $ 5,804,398 $ 7,538,220 $ 4,581,861 $ 7,678,870
Total Liabilities $ 6,363,114 $ 1,695,648 $ 4,293,009 $ 1,339,505
Shareholders' equity $ (558,716) $ 5,531,435 $ 288,852 $ 6,339,365
* Adjusted for ten to one reverse split
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
PLAN OF
OPERATION
Introduction
The following discussion and analysis should be read in
conjunction with our accompanying financial statements and the notes
to those financial statements included elsewhere in this prospectus.
The following discussion includes forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could
differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below
and elsewhere in this prospectus.
Overview
Datascension Inc, through its sole subsidiary Datascension
International, Inc, is engaged in data gathering and conducting
outsourced market research. Its expertise is in the collection,
storage, and processing of data. Datascension International's
management team has over 30 years of experience in working with
clients to gather the information they need to make changes or
advancements to their operations. Datascension International
services a variety of industries and customers (including the
hospitality, entertainment, and automotive sectors) with emphasis
and commitment to customer service, quality assurance and on-time
project management.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. These estimates
and assumptions provide a basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, and these
differences may be material.
We believe the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of
its consolidated financial statements.
Foreign Currency
DSEN maintains its accounting records in U.S. dollars and all
payments are made in US dollars. Any resulting foreign exchange
fluctuations do not affect the payment of employees, contract labor
or off shore operations.
Datascension interacts with Costa Rica and the Dominican Republic
in two ways; 1) leasing of property, and 2) leasing of workers.
Datascension pays companies incorporated in their respective
counties for their services. Datascension directs the workers on how
to perform their job; the worker leasing company takes care of all
government reporting that may be required. Therefore there are no
government regulations that affect our operations and we are not
aware of any government regulations, if any, that would be
applicable to those entities that we do business with that would
affect us.
Revenue Recognition.
We recognize revenues when survey data is delivered to the client
in accordance with the terms of our agreements.Research products are
delivered within a short period,generally ranging from a few days to
approximately eight weeks. An appropriate deferral is made for
direct costs related to contracts in process, and no revenue is
recognized until delivery of the data has taken place. Billings
rendered in advance of services being performed, as well as customer
deposits received in advance, are recorded as a current liability
included in deferred revenue. We are required to estimate contract
losses, if any, and provide for such losses in the period they are
determined and estimable. We do not believe that there are realistic
alternatives to our revenue recognition policy given the short
period of service delivery and the requirement to deliver completed
surveys to our customers.We do not believe there is significant risk
of recognizing revenue prematurely since our contracts are
standardized, the earnings process is short and no single project
accounts for a significant portion of our revenue.
Intangible Assets
The Company has adopted SFAS No. 142, "Goodwill and Other Intangible
Assets", which requires that goodwill and other indefinite lived
intangible assets are no longer amortized, but reviewed annually,
or sooner if deemed necessary, for impairment. Under guidance
from SFAS No. 142, management has determined that the assets in
the company determined to be discontinued operations should be
impaired. The respective assets have been written down. See Note 13
Discontinued Operations.
Convertible Debt Financing and Derivative Liabilities
In accordance with Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended ("SFAS 133"), the company has reviewed the terms of its
existing convertible debt financing and the holder's conversion
right provision (collectively, the features) contained in the terms
governing the Notes are not clearly and closely related to the
characteristics of the Notes. Accordingly, the features qualified
as embedded derivative instruments at issuance and, because they do
not qualify for any scope exception within SFAS 133, they were
required by SFAS 133 to be accounted for separately from the debt
instrument and recorded as derivative financial instruments.
Because the terms of the 2004 convertible note require such
classification, the accounting rules required additional convertible
notes and non-employee warrants to also be classified as
liabilities, regardless of the terms of the new notes and / or
warrants. Were the 2004 convertible notes to not have contained
those terms or even if the 2004 transaction were not entered into,
it could have altered the treatment of the March 31, 2005 notes and
the conversion features of the latter agreement may have resulted in
a different accounting treatment from the liability classification.
The March 31, 2005 note, as well as any subsequent convertible notes
or warrants, will be treated as derivative liabilities until all
such provisions are settled. (See Convertible Debt Notes to
Financial Statements for more information)
During the year ended December 31, 2004, we recorded an aggregate
other expense item of $2,489,116, of which, $1,639,953 (expense) and
$849,163 (expense) related to the debt features and warrants,
respectively, to reflect the change in fair value of the derivative
liability. During the year ended December 31, 2003, there was no
income or expense items related to convertible debt as there was
none outstanding.
During the nine months ended September 30, 2005, we recorded an
aggregate other income item of $2,863,902, of which, $1,529,217
(income) and $1,334,685 (income) related to the debt features and
warrants, respectively, to reflect the change in fair value of the
derivative liability. During the nine months ended September 30,
2004, there was no income or expense items related to convertible
debt as there was none outstanding.
For the nine months ended September 30, 2005, we recorded an
aggregate other income item of $2,863,902, of which $1,540,022 of
other income related to the decrease in value of the debt features
on the $1.875 million convertible note, $1,311,352 of other income
related to the decrease in warrant liability related to the warrants
granted in November 2004 to the holder's of the $1.875 million
convertible note, $23,333 of other income item related to the
decrease in warrant liability on the warrants granted to the holders
of the March 2005 $125,000 convertible note, and finally $10,805 of
other expense related to an increase in value of the derivative
liability related to the debt features of the March 2005 $125,000
convertible note. A tabular reconciliation of this adjustment
follows:
For the nine months ended September 30, 2005:
$1,540,022 income, decrease in value of 2004 derivative liability
1,311,352 income, decrease in value of 2004 warrant liability
(10,805)expense, increase in 2005 derivative liability
23,333 income, decrease in value of 2005 warrant liability
----------
$2,863,902 Total of other income related to convertible debt
For the nine months ended September 30, 2005, the company recorded
$483,100 of interest expense related to the accretion of debt
related to the convertible financing.
For the nine months ended September 30, 2005:
$457,360 of interest expense related to accretion of 2004
convertible debt
25,740 of interest expense related to accretion of 2005
convertible debt
- --------
$483,100 Total interest expense related to convertible debt
The recorded value of the debt features related to the Notes can
fluctuate significantly based on fluctuations in the fair value of
the Company's common stock, as well as in the volatility of the
stock price during the term used for observation and the term
remaining for the warrants. Additional details of the convertible
notes are included in our notes to the financial statements.
Asset valuation.
On December 31, 2004 the company reviewed any need for impairment of
assets per SFAS 144. A loan is considered impaired if it is probable
that the creditor will be unable to collect all amounts due under
the contractual terms of the loan agreement. In evaluating the
impairment of the assets of the company at year end, the company
considered, among other items, (1) materiality of the asset, (2)
previous loss experience, and (3) assets that are not readily
marketable or susceptible to decline in value
After discussions with the Board and with the management of both
Datascension, and Nutek Oil, it was determined to be in the best
interest of the Company and shareholders for the note to be
converted to stock and distributed to the shareholders.
Pursuant to the previous dividends on August 1, 2001 and January 8,
2004, the company determined it was in the best interest of it's
shareholders to convert the balance of the note into the common
stock of Nutek Oil and distribute the pro rata shares to our
shareholders. This coincides with managements plan to write off any
assets which are attributable to the history of the company which
are non-operational in nature, etc.
As of the December 31, 2004, the value of the loan to be converted
was $1,015,014 and was classified on the balance sheet of the
Company as an Asset Held For Sale.
The stock of Nutek Oil traded over $1.00 during the week of the
conversion to settle the debt owed to Datascension. Management
feels strongly that the shareholders and company were never at risk
of losing the value of the receivable. When Datascension made the
agreement to convert the receivable into the stock of Nutek Oil, it
was agreed to be converted at the $1,015,014 value of stock. The
number of shares was only later determined based on the then average
price of $1.06.
Pursuant to the company's review of APB 29, par. 25, "the
determination of value of non-monetary transactions should be
determined by referring to estimated realizable values in cash
transactions of the same or similar assets, quoted market prices,
independent appraisals, estimated fair values of assets or services
received in exchange, and other available evidence." Management
feels the valuation is correct due to the quoted market prices at
the time of the transaction and estimated fair value of assets
received. The note was derived upon the sale of assets to Nutek Oil
and then the note was settled by common stock worth that same
amount.
A total of $1,015,014 worth of securities is to be issued to settle
the debt. Full credit for the value of $1,015,014 is to be received
as it is to be settled with an equity equivalent to the full value
of the note, so management does not feel there is any risk to
shareholders or the company, nor was it deemed necessary for there
to be a need to impair the receivable. The 5 day average was used
to determine the price for the settlement of the note receivable,
this average was $1.06. Since the note was settled with stock and
the trading price of the stock was over $1.06, the company chose
$1.06 as the conversion amount to use, and thus the 957,349 shares
to be issued was based on that amount.
Plan of Operation
Short-Term Objectives:
- Continued expansion of outbound production hours
- The building of additional infrastructure in terms of
equipment and staff
- Expansion of non call center activities: computer programming
- Continued installation of predictive dialers to reduce
overhead. Predictive dialers automate the dialing process for our
interviewers which in turn increase the productivity per employee
resulting in lower costs. A predictive dialer is a telephone
system that has the ability to automatically call out using
algorithms to speed up or slow down the dialing process. Once the
system has detected a live person, the system transfers the call to
an available agent.
Long-Term Objectives:
- Secure additional business opportunities for Datascension
International.
- Expansion of non call center activities: inbound customer
service
- Expand Spanish speaking interviewing
- Grow the Datascension International operations
extensively through acquisitions of smaller call center
operations which stand to benefit from the work being shifted
overseas.
Management has determined it was in the best interests of
shareholders to write off all impaired assets and operations which
were not material and conflicted with the core operation of DSEN,
the market research industry. This write down of discontinued
operations includes the assets and activities of SRC
International and Kristi & Company. The assets and ownership of
Nutek Oil and Century Innovations have been distributed as well in
the form of dividends to shareholders of DSEN.
DSEN had four subsidiaries which were disposed of as
follows: the non operating entities, Kristi & Co, Inc. and SRC
International were discontinued and written down as of December
31, 2004. Century Innovations, Inc and Nutek Oil, Inc have been
spun off as separate operating entities which are managed and
operated by independent management.
Nutek Oil was disposed of by issuing a dividend of the shares
held by the parent company to the shareholders of the parent
company. The stock dividend was distributed to owners of
DSEN's common stock as of the record date in a ratio of one share of
dividend stock in the subsidiary for every 500 shares of common
stock owned in Datascension, Inc. The removal of Nutek Oil from
the financials had little or no impact on DSEN's financial results.
Century Innovations was disposed of by issuing a dividend of
the shares held by the parent company to the shareholders of
the parent company. The stock dividend was distributed to owners
of DSEN's common stock as of the record date in a ratio of one
share of dividend stock in the subsidiary for every 300 shares of
common stock owned in Datascension, Inc. DSEN has
distributed all but 10% of its ownership in Century to Century
as Treasury Stock on the books of Century. It will remain as
Treasury Stock on the books of Century until the effectiveness of a
Form 10 registration to be filed by Century. Within sixty (60)
days of the Form 10's effectiveness, Century will work with DSEN
to distribute the shares to the then current Datascension
shareholders.
As a result of receiving the current funding, the plans to
spin off Datascension International have been placed on hold
indefinitely.
In addition, the decision to remove Century Innovations and
write down the impaired assets in the non operating subsidiaries
was made so the single focus of DSEN is the call center operation.
The recently announced
18
change in management is furthering the goal of having
Datascension International be the main focus of DSEN.
DSEN has expensed all asset values and costs associated
with these entities as a line item called Discontinued Operations
on the income statement. DSEN does not see any material impact to
operations moving forward as a result of the disposal of these
assets, nor does DSEN intend to establish any trends related to
the spin off of subsidiaries.
The two primary goals DSEN continues to focus on and which
management believes will allow DSEN to continue its growth are as
follows:
First, focusing on the year-over-year growth in net revenue
of DSEN; and secondly, to continue to make steady progress on our
initiatives to diversify our sources of revenue. To this end, DSEN
recently began the implementation of an expanded in-house
programming department to be able to offer clients the programming
services for online market research. DSEN is also continuing to
explore further outsourced research opportunities that could
leverage the capacity of our current operations.
DSEN has begun to offer the services of the in-house
programming department in July and recently secured a relationship
with Harris Interactive, a large research and consulting firm,
to provide programming. This relationship is anticipated
to be worth approximately $1.5 million annual revenue to DSEN.
The revenue from the in-house programming is anticipated
to reach approximately 15% of total current revenue but DSEN
intends to raise that percentage in the future as we attract
more clients. It will impact DSEN in that by offering this service
we diversifying our product line which we hope when we receive
programming only projects we can leverage those clients into
utilizing our call center.
More importantly however, the divesture and write downs on
the non-operational and impaired assets will allow management the
benefit of focusing on a single core operation and allow the
investment community to better understand the core operations of
DSEN and its single focus moving forward.
RESULTS OF OPERATIONS
Analysis of the quarter ended September 30, 2005 compared to
the quarter ended September 30, 2004.
For the three-months, ended September 30, 2005, DSEN has generated
$2,365,454 in revenues compared to $2,101,033 in revenues for
the three-months ended September 30, 2004, for an increase of
$264,421. The increase in revenue is a result of an increase in
new clients, and an increase in our hourly billing rates.
Cost of goods sold for the three-months ended September 30, 2005 was
$2,127,257 compared to $1,663,996 for the three-months ended
September 30, 2004 or an increase of $463,261. This increase is a
result in an increased cost of payroll, along with an increase
in work with clients.
Total general and administrative expenses increased to $560,697 for
the three- months ended September 30, 2005 from $371,393 for
the three months ended September 30, 2004, a net increase of
$189,304. This increase is related to the increased insurance
costs, travel expenses and administrative overhead costs.
Depreciation expense for the three-months ended September 30, 2005
was $44,888 compared to $85,646 for the three-months ended September
30, 2004, a decrease of $40,758. The decrease resulted from the
disposal and write down of assets in the fourth quarter of 2004.
Interest expense for the three-months ended September 30, 2005
was $81,362 compared to $20,697 for the three-months ended
September 30, 2004 an increase of $60,665. This increase is due to
the amortization of the financing costs and additional interest
cost related to the purchase of predictive dialers.
Datascension generated a net loss of $377,925 for the three
months ended September 30, 2005, versus net income of $16,651 for
the same period in 2004. The increase in losses of $394,576 is a
result of the increased payroll costs, as well as the increased
expenses related to the value of the derivative liabilities
associated with the convertible financing the company received in
November 2004, and March 2005. For the nine months ended September
30, 2005, DSEN has increased its working capital position by a
net amount of $1,728,165 from negative $3,874,229 as of December
31, 2004 to ($2,146,064) as of September 30, 2005. This is due to a
decrease in cash of $352,869, as well as a decrease in accounts
receivable of $14,443 and a decrease in prepaid expenses of
$149,258, a decrease in accounts payable of $54,322, increase in
convertible debt of $626,650, increase in short term notes payable
of $143,359, a decrease in the derivative and warrant liabilities of
$2,797,569, and a decrease in other current liabilities of $162,853.
Significant Subsequent Events occurring after September 30, 2005:
None.
Capital Resources and Liquidity
Liquidity
Management believes that its current client contracts and
receivables will meet its minimum general and administrative cost
requirements and provide the basic liquidity Datascension needs to
operate at current levels over the next twelve months. However,
additional funding will be needed to cover the expenses over the
next several months related to the expansion of our facilities and
hiring and training of new employees.
For the nine months ended September 30, 2005, DSEN has increased
its working capital position by a net amount of $1,728,165 from
negative $3,874,229 as of December 31, 2004 to ($2,146,064) as of
September 30, 2005. This is due to a decrease in cash of $352,869,
as well as a decrease in accounts receivable of $14,443 and a
decrease in prepaid expenses of $149,258, a decrease in accounts
payable of $54,322, increase in convertible debt of $626,650,
increase in short term notes payable of $143,359, a decrease in the
derivative and warrant liabilities of $2,797,569, and a decrease in
other current liabilities of $162,853.
Capital Resources
The Registrant's capital resources are comprised primarily of
private investors, including members of management, who are either
existing contacts of Datascension's management or who come to the
attention of the Registrant through brokers, financial
institutions and other intermediaries. Datascension's access to
capital is always dependent upon general financial market
conditions, especially those which pertain to venture capital
situations such as oil and gas exploration companies.
On September 30, 2005 DSEN had total assets of $4,581,861
compared to $7,678,870 on September 30, 2004, a decrease of
$3,097,009. The reason for the decrease in assets is a result of the
decrease in prepaid expenses of $200,128, an increase in accounts
receivable of $233,055, an increase in cash of $69,423, as well as a
decrease in deposits of $8,151, and a decrease in website assets of
$25,070, along with the write down of assets at year end 2004. DSEN
had a total stockholders' equity of $288,852 on September 30, 2005
compared to $6,262,797 on September 30, 2004, a decrease in equity
of $5,973,945, which is due in part to the $1,015,014 conversion and
distribution of the DSEN's loan to Nutek Oil, Inc., the write down
of discontinued operations of $1,731,001, as well as the
distribution of the Company's ownership in Century Innovations of
$976,221.
All assets are booked at historical purchase price and there is
no variance between book value and the purchase price.
On September 30, 2005 DSEN had Property and Equipment of $995,543
compared to $1,769,148 on September 30, 2004, or a decrease of
$773,605 which is a result of the write off of property and
equipment at the end of 2004, along with a offsetting purchase of
predictive dialers during the 9 months ended September 30, 2005.
As discussed above DSEN intends to meet its financial needs for
operations through the collection of accounts receivable and
servicing of current contracts.
DSEN's capital resources are comprised primarily of private
investors, who are either existing contacts of the Registrant's
management or who come to the attention of the Registrant through
brokers, financial institutions and other intermediaries. The
Registrant's access to capital is always dependent upon general
financial market conditions. The Registrant's capital resources are
not anticipated to change materially in 2005.
DSEN has financed operations through the collections of accounts
receivable, servicing of existing contracts and the sale of common
stock and through financing from financial institutions. In order to
sustain operations in the near term, it is anticipated that DSEN has
sufficient working capital due to the fact that on November 17, 2004
we issued $1,875,000 in convertible notes, receiving net proceeds of
$1,657,500.
20
DSEN's future capital requirements will depend on numerous
factors, including the profitability of our research projects and
our ability to control costs. We believe that our current assets
will be sufficient to meet our operating expenses and capital
expenditures. However, we cannot predict when and if any additional
capital contributions may be needed and we may need to seek one or
more substantial new investors. New investors could cause
substantial dilution to existing stockholders.
There can be no assurances that DSEN will be successful in
raising additional capital via debt or equity funding, or that any
such transactions, if consummated, will be on terms favorable to
DSEN. In the event that additional capital is not obtained from
other sources, it may become necessary to alter development plans or
otherwise abandon certain ventures.
If DSEN needs to raise additional funds in order to fund
expansion, develop new or enhanced services or products, respond to
competitive pressures or acquire complementary products, businesses
or technologies, any additional funds raised through the issuance of
equity or convertible debt securities, the percentage ownership of
the stockholders of DSEN will be reduced, stockholders may
experience additional dilution and such securities may have rights,
preferences or privileges senior to those of DSEN's Common Stock.
DSEN does not currently have any contractual restrictions on its
ability to incur debt and, accordingly, DSEN could incur significant
amounts of indebtedness to finance its operations. Any such
indebtedness could contain covenants, which would restrict DSEN's
operations.
Off-Balance Sheet Arrangements.
DSEN currently does not have any off-balance sheet
arrangements.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31,
2003
Analysis of the calendar year ended December 31, 2004
compared to the calendar year ended December 31, 2003. The company
has restated its year ended December 31, 2004 and 2003 financial
statements.
For the calendar year, ended December 31, 2004, DSEN has
generated $8,471,440 in revenues compared to $7,057,087 in revenues
for the period ended December 31, 2003, for an increase of
$1,414,353. The increase in revenue is a result of an increase in
new clients, along with an increase in our hourly billing rates.
Cost of goods sold for the year ended December 31, 2004 was
$7,071,784 compared to $4,039,344 for the period ended December 31,
2003 or an increase of $3,032,440. This increase consists of the
following: approximately $2,878,000 increase related to direct
payroll costs due to an increase in the cost per hour of
employees and increase in revenue / hourly billings, there was
a corresponding increase in the cost of goods sold, with an
additional increase in direct licensing fees of $128,795 and
increases in discounts to clients of $25,526.
Total operating expenses decreased to $3,030,051 for the calendar
year ended December 31, 2004 from $3,311,665 for the calendar
year ended December 31, 2003, a net decrease of $281,614. The
decrease in expenses was a result of the productivity increases in
personnel as well as reduction in overhead for the company.
Depreciation and amortization expense for the calendar
year ended December 31, 2004 was $270,893 compared to $340,231 for
the calendar year ended December 31, 2003, a decrease of $69,338.
The decrease resulted from the disposal and write down of assets
in the fourth quarter of 2004.
Interest expense for the calendar year ended December
31, 2004 was $216,507 compared to $97,728 for the calendar year
ended December 31, 2003 an increase of $118,779 which was a
result of additional interest cost related to the purchase of
predictive dialers and the interest associated with the
convertible debt.
Forgiveness of debt for the year ended December 31, 2004 was
$55,000 compared to $99,274 for the same period prior year or
a decrease of $44,274. The decrease was a result of most of the
debts with negotiated settlements occurred in 2003 with the
remaining amount management feels was available for settlement at
less than the face amount in 2004.
Other expenses related to the convertible debt was $2,489,116,
as well as the interest expenses related to the convertible debt for
the year ended December 31, 2004 was $52,300.
The loss from discontinued operations for the year ended
December 31, 2004 was $1,731,001. This loss is made up of the
following: the disposal and write down of Kristi and Co, Inc. of
$295,735; SRC International, Inc, of $322,010; the write off of
prepaid items of $129,980; asset impairment of $206,432; write-offs
of plant and equipment of $192,792 and inventory of $64,070 not
assumed by Century Innovations in the spin-off; the reduction in
subscribed stock of $374,941 and additional administrative costs of
$145,041 related to the discontinued operations.
The Company generated a net loss after discontinued operations of
$6,052,366 for the same period. This compares to $7,057,087 in
revenues and a net loss of $246,533 for the calendar year ended
December 31, 2003. The increase in losses of $5,805,833 is a result
of the discontinued operations of $1,731,001; increased payroll
costs of approximately $1,390,000; the other expenses related to the
convertible debt of $2,489,116; the interest expenses related to the
convertible debt in the amount of $52,300; increased interest
expense in the amount of $118,779 from the prior year and increase
in miscellaneous costs of $24,637.
Liquidity and Capital Resources
For the calendar year ended December 31, 2004, DSEN has
decreased its working capital position by a net amount of $3,840,801
from negative $33,428 as of December 31, 2003 to negative
$3,874,229 as of December 31, 2004 as a result of the increase in
liabilities related to the convertible debt. This decrease is due
to a $433,702 increase in cash, a $446,275 increase in accounts
receivable, offset by an increase in accrued liabilities of
$1,208,503, an increase in the derivative liability of $2,408,178,
an increase in the warrant liability of $1,785,877, offset in part
by a decrease in accrued contingent liabilities of $338,461, a
decrease in the line of credit of $449,650, and a decrease in the
notes payable to related parties of $268,502, as well as a net
decrease of $140,295 of other assets and a net increase of $234,538
of other liabilities.
Management believes that its revenues from operations and
collections on accounts receivable will meet its minimum general
and administrative cost requirements and provide the basic
liquidity DSEN needs to operate at current levels over the next
twelve months. Currently, DSEN has a monthly cost requirement
of approximately $202,369 for operations (see schedule on page 24)
and is expecting monthly cash flow in 2005 of $213,303. The short
term source of liquidity is from operations. Any long term needs
that are above and beyond what is derived from operations would come
from outside sources. The long term needs and possible sources of
funds are not identified at this time. If required, DSEN
could stop growing and hold operations at the current level
without any need for additional funding. However, additional
funding will be required to execute its business plan of expanding
the Costa Rica operations in order to expand the inbound call center
initiative. The balance of the funding required to execute DSEN's
planning will need to be obtained from other sources such as debt or
the sale of additional equity.
The expected monthly cash flow is based on existing
business and collections. The expected $213,303 is based on
average collections for the company of approximately $956,127 per
month, minus the $202,369 of monthly cost requirement, and the
$513,186 of variable costs related our contract labor which is
paid every month. The latter estimates are based on a review of
the average collections over 90 and 120 day periods. The company
reviewed the trailing three, four, and five month collection
and cash receipts cycles between January 2004 through May 2005.
Additionally, the same formulas and time periods were reviewed
in calculating the variable costs required for the company's
contract labor every month.
The call center initiative is as follows: we currently
utilize the majority of our interviewing stations for no more than
six hours per day. The majority of those six hour shifts are
during the early afternoon/evening. We are pursuing customer
service related business activities that would enable us to utilize
our stations during the daytime hours when the majority of stations
currently sit idle.
On December 31, 2004 DSEN had total assets of $5,804,398
compared to $7,538,220 on December 31, 2003, a decrease of
$1,733,822. The reason for the decrease in assets is a result
of the increase in cash related to the convertible funding
at the end of the year of $433,702, along with a
corresponding a decrease in the asset values of the discontinued
operations and investment in Century Innovations of $2,378,673 and
a net increase of $147,511 related to account receivable increase,
inventory decrease and payments on notes receivable as well as the
reduction in asset value due to depreciation. DSEN had a total
stockholders' equity of $(558,716) on December 31, 2004 compared to
$5,531,435 on December 31, 2003, a decrease in equity of $6,090,151.
All assets are booked at historical purchase price and there
is no variance between book value and the purchase price.
On December 31, 2004 DSEN had Property and Equipment of
$681,346 compared to $3,374,421 on December 31, 2003, or a
decrease of $2,693,075 which is a result of the spin off of Nutek
Oil, Century Innovations and the write down of assets for non-
operational entities, SRC International and Kristi and Co, Inc.,
along with an impairment of assets in Dominican Republic.
The fixed and ongoing expenses of Datascension are as follows:
Accounts Payable and Accrued Liabilities
DSEN has $135,533 in accounts payable and approximately $1,390,880
in accrued payroll costs for the operations of the California,
Nevada, Costa Rica, and Dominican Republic location as of December
31, 2004.
Long-term notes payable consists of the following at December 31,
2004:
Note payable to a vendor, no specific repayments terms
and no stated interest rate. Secured by assets. $ 40,000
Note payable to a vendor, monthly payments of $ 348
inclusive of 7% annual interest through September 2006,
secured by equipment. 6,245
Note payable to a vendor, monthly payments
of $7,375 inclusive of 10.83% annual interest through
December 2006, secured by equipment. 158,510
Note payable to a vendor, monthly payments of $906,
inclusive of 12% annual interest through February 2006,
secured by equipment
15,000
219,755
Less current portion (116,207)
----------
Total $ 103,548
Principal maturities are as follows:
Twelve months ended December 31,
2005 $ 4,125
2006 33,893
2007 65,530
-------------
$ 103,548
Additionally, DSEN has the following short term notes payable as of
December
31, 2004.
Dell Financial Services $ 3,467
Public Relations Contract 60,000
Wells Fargo Credit Card 48,577
Advanta Credit Card 9,698
---------
Total 121,742
At December 31, 2004, aggregate future minimum payments under these
leases, are as follows:
Twelve months ended December 31,
2005 $ 152,141
2006 133,259
2007 105,773
2008 105,773
Thereafter -
-------------
Total minimum lease payments $ 496,946
23
Convertible debentures consist of the following at December
31, 2004, and December 31, 2003:
2004 2003
8% convertible subordinated debentures,
due in November 2007, convertible
into shares of common stock at 1,875,000 -
any time prior to maturity.
Interest is payable quarterly,
and principal is due at maturity.
--------- ----
1,875,000 -
Less: Discount being accreted (1,652,639) (-)
Plus: Accrued interest 18,750 (-)
--------- ----
Total debt 241,111 -
Less: current portion (0) (-)
--------- ----
Convertible debentures, less current portion $ 241,111 $ -
--------- ----
Included in the above values is $18,750 of accrued interest
related to the
convertible notes as of December 31, 2004.
Fixed recurring Selling, General and Administrative expenses
would be as
follows:
Estimated monthly average
2005
Salaries and Benefits $121,912
Rent $ 38,814
Equipment Lease/Rental $ 17,227
Telephone and Communications $ 5,931
Licensing Fees $ 15,882
Other $ 2,603
--------
Total Monthly Fixed SG&A costs $202,369
Estimated future cash requirements
As discussed above DSEN intends to meet its financial
needs for operations through the collection of accounts
receivable and servicing of current contracts.
The Registrant's capital resources are comprised primarily
of private investors, who are either existing contacts of the
Registrant's management or who come to the attention of the
Registrant through brokers, financial institutions and other
intermediaries. The Registrant's access to capital is always
dependent upon general financial market conditions. The
Registrant's capital resources are not anticipated to change
materially in 2005.
DSEN has financed operations through the collections of
accounts receivable, servicing of existing contracts and the sale
of common stock and through financing from financial institutions.
In order to sustain operations in the near term, it is anticipated
that DSEN has sufficient working capital due to the fact that on
November 17, 2004, we issued $1,875,000 in convertible notes,
receiving net proceeds of $1,657,500.
DSEN's future capital requirements will depend on
numerous factors, including the profitability of our research
projects and our ability to control costs. We believe that our
current assets will be sufficient to meet our operating expenses
and capital expenditures. However, we cannot predict when and if
any additional capital contributions may be needed and we may
need to seek one or more substantial new investors. New
investors could cause substantial dilution to existing
stockholders.
There can be no assurances that DSEN will be successful
in raising additional capital via debt or equity funding, or that
any such transactions, if consummated, will be on terms
favorable to DSEN. In the event that additional capital is not
obtained from other sources, it may become necessary to alter
development plans or otherwise abandon certain ventures.
If DSEN needs to raise additional funds in order to fund
expansion, develop new or enhanced services or products, respond to
competitive pressures or acquire complementary products,
businesses or technologies, any additional funds raised through the
issuance of equity or convertible debt securities, the percentage
ownership of the stockholders of DSEN will be reduced, stockholders
may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of DSEN's
Common Stock.
DSEN has a contractual restriction on its ability to
incur debt. Pursuant to subscription agreement for this funding,
DSEN cannot file any registration statements or amend any
already filed registration statement, including but not limited
to Form S-8, with the Commission or with state regulatory
authorities without the consent of the note holders until the sooner
of (i) this registration statement shall have been current and
available for use in connection with the public resale of the
underlying shares and warrant shares for 365 days, (ii) until all
the shares being registered have been resold or transferred by
the note holders pursuant to this registration statement or
Rule 144, without regard to volume limitations (i.e. Rule 144k),
or (iii) the date the note has been fully paid.
A result of this restriction is that any additional funds
needed with most likely have to be provided by the current note
holders.
In the event that we are required to repay the balance of these
notes in cash on demand, we would be forced to seek additional
funding which would probably be at a large discount. If we were
unable to obtain the additional funding, we may be forced to
close down operations (see risk factors for addition
discussion).
Expected Significant Changes in the Number of Contract Workers
DSEN does not expect any significant change in the number
of Contract workers over the next 12 months of operations. As
noted previously, DSEN currently coordinates most operations
using part time employees, consultants and contract labor.
Consulting Contracts over the last twelve months
500,000 pre split shares of restricted stock were issued to Stock
Enterprises for services valued at $25,000 based on a fair market
value of the stock of $0.05 per share. Shares issued on April
20, 2004.
350,000 pre split shares of common stock were issued to the Law
Offices of Michael Morrison (250,000) and the Law Offices of
Neil Beller (100,000) for legal services valued at $31,500 based on
a fair market value of the stock of $0.09 per share. Shares
issued on May 21, 2004.
Material Commitments for Capital Expenditures.
DSEN has made no material commitments for future expansion. When
potential expansion or the need for expansion arises, management
reviews the potential of each property as its leases come up for
renewal and makes a decision whether or not to renew each lease or
expand the current facilities, in light of DSEN's business planning
at that time.
The Registrant has no agreements with management, investors,
shareholders or anyone else respecting additional financing at
this time. Because of the nature of the Registrant's business,
there are no trends in the nature of its capital resources which
could be considered predictable.
Inflation
DSEN's results of operations have not been affected by
inflation and management does not expect inflation to have a
material impact on its operations in the future.
Off-Balance Sheet Arrangements.
DSEN currently does not have any off-balance sheet
arrangements.
Other Events,
The proposed spin off of Datascension International has been
postponed indefinitely as a result of the current funding.
Nutek Oil issued an initial dividend to shareholders of the parent
in 2001 with the remaining dividend issued in December 2003
completing the spin-off. Nutek Oil currently trades on the
pinksheets. Nutek Oil filed a Form 10SB registration
statement with the Securities and Exchange Commission on April 30,
2004.
Century was spun off on 12/31/04. They will be filing a
registration statement in the near future.
SRC International Inc. has not been sold and the assets were
written off on 12/31/2004.
OUR BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
DSEN was incorporated under the laws of the State of Nevada, on
August 23,1991, under the name Swiss Technique, Inc. The
original articles of DSEN authorized the issuance of fifty
million (50,000,000) shares of common stock with a par value of
$0.001. On August 23, 1991, pursuant to Section 78.486, Nevada
Revised Statutes as amended, DSEN filed with the Nevada
Secretary of State articles of merger, whereby DSEN merged with
Sun Investments, Inc., a Utah corporation. On April 10, 1992,
DSEN, filed an amendment to the articles of incorporation
authorizing five million (5,000,000) shares of Preferred
Stock, par value of $0.001, with such rights, preferences and
designations, to be issued in such series as determined by the
board of directors of DSEN. DSEN on March 3, 1995, changed its
name from Swiss Technique, Inc., to Nutek, Inc. On September 20,
1997, DSEN filed with the Nevada Secretary of State a plan of
reorganization and agreement between itself and International
Licensing Group, Inc., a Delaware Corporation.
On December 31, 2000, there were 45,188,132 outstanding shares of
Common Stock issued and outstanding and 793,500 shares of
Preferred Stock issued or outstanding. The approval of the
Articles of Amendment requires the written consent of the holders of
a majority of the outstanding shares of the Common Stock, and
each share of the Common Stock was entitled to one vote with respect
of the approval of the Certificate of Amendment of the
Articles of Incorporation. By written consent in lieu of a
meeting, stockholders of 22,842,754 shares of the Common Stock
approved the corporate actions.
The Certificate of Amendment of the Articles of Incorporation was
approved by written consent on January 9, 2001, at a special
Company board of directors meeting, and the Certificate of
Amendment of the Articles of Incorporation was filed and accepted by
the Nevada Secretary of State not to become effective until
February 19, 2001.
On February 19, 2001, deleting the existing ARTICLE IV and replacing
it in its entirety with the following amendments amended the
Articles of Incorporation:
"ARTICLE 4: Authorized Shares: The
aggregate number of shares which the
corporation shall have authority to issue
shall consist of two hundred million
(200,000,000) shares of Common Stock having a
$.001 par value, and twenty million
(20,000,000) shares of Preferred Stock
having a $.001 par value. The Common and/or
Preferred Stock of the Company may be issued
from time to time without prior approval by
the stockholders. The Common and/or Preferred
Stock may be issued for such consideration as
may be fixed from time to time by the board of
directors. The Board of Directors may issue
such share of Common and/or Preferred Stock in
one or more series, with such voting powers,
designations, preferences and rights or
qualifications, limitations or restrictions
thereof as shall be stated in the resolution
or resolutions."
This amendment to the Articles of incorporation has been duly
adopted, filed and accepted by the Nevada Secretary of State
in accordance with General Corporation Law of the State of Nevada.
On December 24, 2003, DSEN changed its name from Nutek Inc. to
Datascension Inc. ("DSEN").
DSEN currently has a single operational subsidiary, Datascension
International, Inc. DSEN had four subsidiaries which were
disposed of as follows: the non operating entities, Kristi & Co,
Inc. and SRC International were discontinued and written down as of
December 31, 2004. Century Innovations, Inc and Nutek Oil, Inc
have been spun off as separate operating entities which are
managed and operated by independent management.
Nutek Oil was disposed of by issuing a dividend of the shares
held by the parent company to the shareholders of the parent
company. The stock dividend was distributed to owners of DSEN's
common stock as of the record date in a
27
ratio of one share of dividend stock in the subsidiary for every
500 shares of common stock owned in Datascension, Inc.
Century Innovations was disposed of by issuing a dividend of the
shares held by the parent company to the shareholders of the
parent company. The stock dividend was distributed to owners of
DSEN's common stock as of the record date in a ratio of one share of
dividend stock in the subsidiary for every 300 shares of
common stock owned in Datascension, Inc. DSEN has distributed all
but 10% of its ownership in Century to Century as Treasury Stock
on the books of Century. It will remain as Treasury Stock on the
books of Century until the effectiveness of a Form 10 registration
to be filed by Century. Within sixty (60) days of the Form 10's
effectiveness, Century will work with DSEN to distribute the
shares to the then current Datascension shareholders.
DSEN's mailing address is: 145 S. State College Blvd, Suite 350,
Brea CA 92821. The company phone number is 714-482-9750 and 714-482-
9751 (fax). DSEN's website can be found at www.datascension.com.
Present Business
Datascension International Inc., the remaining operating
subsidiary and focus of DSEN, conducts telephone market research
and provides data entry services for third parties.
On July 2, 2001, the DSEN acquired 100% of the issued and
outstanding stock of Datascension International.
Datascension International is a data gathering and
research company specializing in the collection, storage, and
processing of data. Datascension International services a variety
of industries and customers (including the hospitality,
entertainment, and automotive sectors) with emphasis and
commitment to customer service, quality assurance and on-
time project management.
Principal Products, Services and Principal Markets.
Services
Telephone Interviewing (CATI or Paper):
Currently, DSEN's CATI telephone facility with locations in Brea,
California; Costa Rica and the Dominican Republic, contracts
approximately 551 part- and full-time telephone interviewers,
many of whom are bilingual in Spanish and English. Datascension
uses integrated CATI and automatic dialing systems which results
in quick turnaround and increased field capacity for phone
research projects.
Internet Data Collection:
Datascension contracts part- and full-time programming staff
located in Costa Rica, experienced in designing all types of web
surveys, web panels, and data collection sites.
Database Software:
Datascension database software allows the end-user to connect to
DSEN's system via the Internet to run reports and pull data.
Data Storage:
Datascension provides large disk storage hardware for short and
long-term document and file archive and retrieval.
Document Processing:
Datascension has developed an expertise in data value ensuring
the greatest care in document processing services including
clerical handling of documents, coding, data entry, scanning and
storage.
Data Reporting and Mining:
Datascension staff can program banners using the latest version
of Quantum (SPSS) tabulation software. Datascension staff has
experience handling most types of data including ASCII, flat file,
CSV, XML and many other formats.
In-bound Customer Service:
Datascension handles customer service calls which cover a wide
spectrum of industries. Activities include on-line order booking to
technical support for client products and services.
As of September 30, 2005, inbound customer service
revenue contributed approximately 1% of of total revenue.
Bilingual Interviewing:
Datascension contracts a number of bilingual interviewers who are
trained in conducting research in both Spanish and English, which
allows us to interview our growing Hispanic and Latino audiences.
Major Clients
DSEN has three major clients, The National Research Group and
Roper ASW each account for about 10% of sales each year and
Sandelman & Associates, which accounts for about 25% of sales
each year.
All of DSEN`s revenue generated is from our Datascension
International subsidiary, with about 85% of the revenue
generated from our telephone interviewing business line in the
calendar year of 2003. In 2004 about 92% of the revenue is from the
telephone interviewing business with approximately 6% coming from
the data services and programming division.
Customers are located through referrals from existing customers and
from leads generated by our sales staff.
Not "telemarketing"
Our business does not involve "telemarketing". Telemarketing, in
the call center industry, refers to the marketing of goods and
services by telephone. We do not market goods or services for
clients, but instead conduct interviews and gather
information from
interviewees. As a result the government regulation of the "do not
call list" that has been implemented to stop unsolicited
telemarketing does not affect our industry and we are not bound to
comply by the Amended Telemarketing Sale Rule
(TSR).
Who Must Comply with the Amended Telemarketing Sale Rule (TSR)?
The amended TSR regulates "telemarketing"- defined in the Rule
as "a plan, program, or campaign . . . to induce the purchase of
goods or services or a charitable contribution" involving more
than one interstate telephone call. (The FCC regulates both
intrastate and interstate calling. More information is available
from www.fcc.gov.) With some important exceptions, any businesses
or individuals that take part in "telemarketing" must comply with
the Rule. This is true whether, as "telemarketers," they initiate
or receive telephone calls to or from consumers, or as
"sellers," they provide, offer to provide, or arrange to provide
goods or services to consumers in exchange for payment. It makes
no difference whether a company makes or receives calls using
low-tech equipment or the newest technology-such as voice
response units (VRUs) and other automated systems. Similarly, it
makes no difference whether the calls
are made from outside the United States; so long as they are made
to consumers in the United States, those making the calls,
unless otherwise exempt, must comply with the TSR's provisions. If
the calls are made to induce the purchase of goods, services, or a
charitable contribution, the company is engaging in
"telemarketing."
Certain sections of the Rule apply to individuals or companies
other than "sellers" or "telemarketers" if these individuals
or companies provide substantial assistance or support to
sellers or telemarketers. The Rule also applies to individuals
or companies that provide telemarketers with unauthorized
access to the credit card system.
Competition
The major competitors are as follows:
Datascension International's two largest competitors are
both private companies. The first is "Western Wats" and the second
is "OAC" (Opinion Access Research).
Western Wats:
Western Wats was founded in 1987. Western Wats states that their
goal is to keep their facility small in order to maintain
their desired quality and flexibility. Western Wats has 850 Web-
enabled CATI stations in 11 interviewing facilities throughout the
Intermountain West. Western Wats is the largest privately owned
data collection outfit in the United States. The company's
website is `www.westernwats.com'.
OAC (Opinion Access Research):
Opinion Access Research is located in Long Island City, New York.
The company provides telephone interviewing, tabulating, coding,
data entry and printing services to companies performing market
research activities. OAC states their strongest asset is their
use of Computer Assisted Telephone Interviewing (CATI),
predictive dialing, and their ability for remote monitoring. On
an annual basis OAC completes over 500,000 telephone interviews.
The company's website is `http://www.opinionaccess.com'.
Patents and Trademarks
DSEN has developed DataScan, a suite of proprietary reports for
market research survey project accountability. DataScan consists of
more than a dozen different reports that provide the ability to
monitor in real time the effective incidence, job completes,
production and other data by call center supervisor group and
employee.
Datascension has implemented several of the preliminary versions
of DataScan reports with its customers and has received tremendous
feedback. Datascension provides clients with numerous reports,
while additional proprietary DataScan reports are only used by
Datascension management to enable proactive adjustments as
needed.
Datascension's technology enables real-time monitoring of employees
conducting the interviews by Datascension management or
clients via an Internet connection. Datascension's DataScan
reports capture the data from this real- time monitoring and
distill it into multiple reporting formats to enable clients to
analyze specific aspects of the project.
DataScan reports allow management to monitor an employee in real
time no matter from which location they are operating from. With
such detailed and immediate reporting capabilities, DSEN is better
able to ensure the accuracy of results on clients' research
programs.
Need for any government approval of principal products or services.
Datascension International does not require governmental approval to
operate in any of its locations.
Effect of existing or probable governmental regulations on the
business
There are no existing or probable government regulations that have
or may have an affect on our business.
Research and Development Plan
None
Employees/Contract workers
DSEN currently has both employees and contracted help. The
employees are located domestically and the contract workers are
located internationally. In total we have five hundred and fifty
one (551) individuals working for DSEN, of which as of December 31,
2004 four (4) were Officers and 60 are full-time. As DSEN
continues to grow and offer additional services and retain
additional clients, it will need to add both full-time and part-
time employees/contract workers.
Description of Property:
The address of the principal office is: 145 S. State College
Blvd, Suite 350 Brea California 92821.
DSEN leases 5,102 square feet of office space at 145 S.
State College Blvd, Suite 350 Brea California 92821 with
aggregate monthly rent of approximately $8,724. Combined rent
recorded during 2004 and 2003 respectfully was $165,894 and
$165,894.
The address of the Costa Rica facility is: Datascension, SA
Mall San Pedro Ofimall, San Jose, Costa Rica. This office is
approximately 30,000 square with an aggregate monthly rental of
$30,000. The facility is leased on a month to month basis.
The address of the Dominican Republic facility is:
Datascension, SA Zona Franca de San Isidro Carretera Base Aerea
San Isidro km 17 apartado 916 Santo Domingo Este, Dominican
Republic. This office is approximately 5,000 square feet with
an aggregate monthly rental of $5,000. The facility is leased on a
month to month basis.
We feel the current locations we use are suitable, adequate,
and in good condition for our current as well as for our future
operations and business.
DSEN's headquarters and Datascension International's
main facility located in Brea, California, is the centralized
location for the majority of its services. This location is the
prior offices of Merrill Lynch and iin great condition. The Brea
facility covers over 8,000 square feet and is the centralized
location for the majority of its services.
The Costa Rica and Dominican Republic telephone facilities
accommodate over 600 interviewing stations and have the ability
to expand if needed. In the Costa Rica facility, there are other
businesses, banks, a shopping mall and a hotel in the facility, both
the security and upkeep are top notch. Across the street from
the Costa Rica facility is the local university as well.
Management
Directors and Executive Officers
The following table sets forth information regarding our
executive officers, certain other officers and directors as of March
31, 2005:
Name Age Position/Office Served Since
Robert Sandelman 47 Director May 2005
David Scott Kincer 39 COO/Director September 2001
Joseph Harmon 28 VP/Director September 2001
The following is a brief description of the business
background of the directors and executive officers of DSEN:
David Scott Kincer - CEO/Director
Mr. Kincer joined Datascension as COO and Director in
September 2001, Mr. Kincer has over twenty years experience in
collecting, storing an analyzing consumer data. He also has
fifteen years of experience managing data collection centers,
including seven years of experience in Costa Rica. He co- founded
Datascension International in 1999 and became COO of Datascension
with the successful acquisition of Datascension International in
2001. Mr. Kincer is also the President and Chairman of
Datascension International and oversees the operations of
Datascension International from its main facility in Brea,
California. On April 1, 2005 Mr. Kincer began CEO and Chairman of
the Board.
Joseph Harmon - VP/Director
After attending California State University, Mr. Harmon
started his career in 1992 at The Verity Group, a full service
market research company in Fullerton, CA. At the Verity Group, Mr.
Harmon worked his way up to Director of Operations and managed a
300-employee operation. He helped grow the company to a 12 million
dollar business and was a key player in the acquisition to The
Polk Company in 1997. He then went to Diagnostic Research where
he managed Telephone Research. In 1998 The Polk Company brought
Mr. Harmon back in as a Sales Manager to help increase sales in
the Market Research division. After Polk, Mr. Harmon helped start
Datascension and became Vice President. Mr. Harman is also Vice
President and a Director of Datascension International.
Robert Sandelman - Director (Datascension International, Inc)
Mr. Sandelman is president of Sandelman and associates
for the past five years and has more than 30 years of marketing and
advertising management experience in a variety of consumer product
and service industries. Mr. Sandelman earned both his Bachelor's
degree and his Master's degree in Business Administration from the
University of Michigan. He is a member of the National Restaurant
Association, and the International Foodservice Manufacturers
Association.
Mr. Conradie resigned as President/CSO and Chairman of
the Board on April 1, 2005 in order to concentrate on Nutek Oil.
Concurrently, Mr. Conradie transferred control of Datascension to
Scott Kincer.
Mr. Griffith resigned as CFO and Director of Datascension
on April 1, 2005 in order to focus on his accounting practice
and his duties as CFO for Nutek Oil.
Significant Employees
DSEN has not identified any employee who is not an
executive who is expected to make a significant contribution to the
business.
Family Relationships
There are no family relationships among the directors,
executive officers or persons nominated or chosen by DSEN to
become directors or executive officers
Legal Proceedings
None of DSEN's directors, executive officers or nominees for
such office have been involved in any legal proceedings related to
bankruptcy of an entity where they held such positions; nor
charged or convicted in any criminal proceedings; nor subject
to any order, judgment, or decree permanently or temporarily
enjoining, barring, suspending or other wise limiting their
involvement in any type of business, securities or banking
activities; nor found in any manner whatsoever to have violated a
federal or state securities or commodities law.
None of DSEN's officers or directors, nor to the knowledge of
DSEN, any of DSEN's control persons, has:
- had any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either
at the time of the bankruptcy or within two years prior to that
time;
- been convicted in a criminal proceeding or is subject
to a pending criminal proceeding (excluding traffic violations and
other minor
offenses);
- been subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any
type of business, securities or banking activities; or
- been found by a court of competent jurisdiction
(in a civil action), the Securities and Exchange Commission or
the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, where the
judgment has not been reversed, suspended or vacated.
Committees
DSEN does not have any audit, compensation, and executive
committees of its board of directors. The entire board of
directors is serving as DSEN's audit committee.
Conflicts of Interest
The officers and directors of DSEN are now and may in the
future become shareholders, officers or directors of other
companies which may be engaged in business activities similar to
those conducted by DSEN. Accordingly, additional direct conflicts
of interest may arise in the future with respect to such
individuals acting on behalf of DSEN or other entities. Moreover,
additional conflicts of interest may arise with respect to
opportunities which come to the attention of such individuals in
the performance of their duties or otherwise.
DSEN does not currently
32
have a right of first refusal pertaining to opportunities
that come to management's attention insofar as such
opportunities may relate to DSEN's proposed business operations.
The officers and directors are, so long as they are officers
or directors of DSEN, subject to the restriction that all
opportunities contemplated by DSEN's plan of operation which
come to their attention, either in the performance of their
duties or in any other manner, will be considered
opportunities of, and be made available to DSEN and the companies
that they are affiliated with on an equal basis. A breach of
this requirement will be a breach of the fiduciary duties of the
officer or director. If DSEN or the companies in which the
officers and directors are affiliated with both desire to take
advantage of an opportunity, then said officers and directors
would abstain from negotiating and voting upon the
opportunity. However, all
directors may still individually take advantage of opportunities if
DSEN should decline to do so. Except as set forth above, DSEN
has not adopted any other conflict of interest policy with respect
to such transactions.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934
requires our directors and executive officers, and persons who
beneficially own more than ten percent of a registered class of
our equity securities (referred to as "reporting persons"), to file
with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of common
stock. Reporting persons are required by Commission regulations to
furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 furnished to
us, we are not aware of any person who at any time during the fiscal
year ended December 31, 2004, was a director, officer, or
beneficial owner of more than ten percent of our common stock, who
failed to file, on a timely basis, reports required by Section 16(a)
of the Securities Exchange Act of 1934 during such fiscal year.
Code of Ethics
We have adopted a code of ethics that applies to our executive
officers, including our Chief Executive Officer and Chief Financial
Officer.
Compensation of Directors
There were no arrangements pursuant to which any director
of DSEN was compensated through December 31, 2003 for any service
provided as a director. In addition, no such arrangement is
contemplated for the foreseeable future, as DSEN's only directors
are its current executive officers. Should independent directors
be added to DSEN's board of directors, it may be necessary
to purchase Director's and Officer's liability insurance, along
with compensate the director accordingly.
Each director holds office for a 3 year term or until his
successor has been elected and qualified at the annual meeting of
DSEN's shareholders. The members of the Board of Directors serve
without remuneration for service on the board. Corporate officers
are appointed by the Board of Directors and serve at the
discretion of the Board.
During the period from January 1, 2003 to December 31,
2003, DSEN held approximately 12 Board meetings. From January 1,
2004 through December 31, 2004 there have been approximately 16
Board meetings.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information
regarding compensation paid by DSEN for services rendered during
the fiscal years ended December 31, 2004, 2003 and 2002,
respectively, to DSEN's officers.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND PRINCIPAL POSITIONYEAR SALARY BONUS Restricted Stock SECURITIES UNDERLYING ALL OTHER
Award(s) OPTIONS(#) COMPENSATION
Murray Conradie 2004 $150.000 0 100,000 (1) 540,000 (2) 0
President, CEO 2003 $150,000 0 0 0 0
2002 $75,000 0 0 0 0
David Scott Kincer 2004 $150,000 0 100,000 (1) 540,000 (2) 968(5)
COO 2003 $150,000 0 0 0 0
2002 $75,000 0 0 0 0
Jason F. Griffith 2004 $75,000 0 50,000 (1) 270,000 (2) 0
CFO 2003 $61,250 0 0 0 0
2002 $35,000 0 12,292 (3) 50,000 (4) 0
Joseph Harman * 2004 76,500 6,048 50,000 135,000 178,708 (5)
V.P. 2003 76,500 0 0 0 180,104 (5)
2002 68,750 2,500 0 0 141,360 (5)
* Mr. Harmon was paid by Datascension International
(1)DSEN granted an initial signing award to the Executive
as of the Effective Date of his renewed Employment Agreement of
restricted shares of the Company's common stock under and subject
to the terms and conditions of the Stock Compensation Plan (the
"Stock Plan"). The Executive shall vest in 50% of such shares
on the 90th day following the Effective Date and 50% on the
six month anniversary of the Effective Date.
(2)DSEN granted an option award to the Executive under the Stock
Plan within 90 days of the Effective Date of his renewed
Employment Agreement of a nonqualified option to purchase shares of
DSEN's common stock at a per share price equal to the fair market
value of the common stock on the
grant date (which will be the Effective Date) and an exercise
periodequal to five (5) years (the "Initial Option").
(3)Executive received 12,292 shares for unpaid salary which was
converted to common stock restricted stock.
(4)Executive granted an option award of 50,000 shares per
paragraph 3.b of Employment Agreement date June 2002.
(5)Commissions for client contracts.
Common Stock
On December 31, 2004, 300,000 post split shares of common stock
valued at $.20 per share were issued to four officers in
consideration of terms under their employment agreements, which
granted stock awards of common shares to certain employees. The
issuance of these securities was effected through a private
transaction not involving a public offering and was exempt
from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
Employment Agreements
34
Effective January 1, 2004, we entered into separate employment
agreements with our Chief Executive Officer and President of
Datascension International, Inc (subsidiary) David Scott Kincer
and our Vice President of both DSEN and Datascension
International, Inc (subsidiary) Joseph Harmon. The employment
agreements are substantially similar and provides for the following:
- employment as one of our executives;
- an annual base salary of $150,000 with eligibility to
receive annual increases as determined in the sole discretion
of the Board of Directors for Mr. Kincer;
- an annual base salary of $76,500 with eligibility to
receive annual increases as determined in the sole discretion
of the Board of Directors for Mr. Harmon;
- an annual cash bonus, which will be awarded upon the
achievement of specified pre-tax operating income;
- participation in all welfare, benefit and incentive plans
(including equity based compensation plans) offered to senior
management;
- a term of employment which commenced on January 1, 2004
and continues through the fifth anniversary thereof. The
agreement provides that, in the event of termination by us
"without cause" or by the executive for "good reason" (which
includes a "Change of Control"), the executive will be entitled to
receive from us:
(i) The Executive shall be entitled to a lump sum payment,
within 60 days following termination of his employment, of (A) two
times his then current Base Salary, plus (B) two times the average
annual Incentive Bonus paid to or earned by the Executive
(whichever is larger) during the three previous fiscal years during
the Agreement Term or, if there have not been three previous
fiscal years during the Agreement Term, such fewer number of
fiscal years as shall have occurred during the Agreement Term;
Employed 5 years or more, then 100% of (i)
Employed 4 years or more, but less than 5 years; then 75% of (i)
Employed 3 years or more, but less than 4 years; then 50% of (i)
Employed 2 years or more, but less than 3 years; then 25% of (i)
Employed 1 year or more, but less than 2 years; then 10% of (i)
Employed less than 1 year, only what is currently due
The terms of Sections (ii), (iii) and (iv) will not be affected by
length of employment of Executive. Employment with DSEN will be
defined as the period Executive has been employed by DSEN or its
subsidiaries.
(ii) The Executive and his eligible dependents shall be entitled
to continued participation, at no cost to the Executive or his
eligible dependents, in all medical, dental, vision and
hospitalization insurance coverage, until the earlier of 18 months
following termination of employment or the date on which he
receives equivalent coverage and benefits from a subsequent
employer. The time period described in this Section shall run
concurrently with the COBRA rights of the Executive and his
eligible dependents.
(iii) All outstanding unvested stock options granted to the
Executive prior to his termination of employment shall vest,
become immediately exercisable and shall expire, if not exercised,
at the earlier of the third anniversary of such termination of
employment or the "expiration date" set forth in the applicable
stock option agreement.
(iv) All outstanding unvested restricted shares of the DSEN's stock
awarded to the Executive prior to his termination of employment
shall vest immediately upon the Executive's termination of
employment.
The Executives have also been granted the following initial
restricted stock and initial option awards as part of their
Employment Agreements.
(a) Initial Restricted Stock Award. DSEN shall make an initial
signing award to the Executive as of the effective date of
restricted shares of DSEN's common stock under and subject to the
terms and conditions of the Stock Compensation Plan (the
"Stock Plan"). The Executive shall vest in 50% of such shares on
the 90th day following
35
the effective date and 50% on the six month anniversary of the
effective date.
The amounts granted under this initial restricted award are as
follows:
Murray N. Conradie *100,000 shares
David S. Kincer 100,000 shares
Joseph Harmon 50,000 shares
Jason F. Griffith* 50,000 shares
* Resigned April 1, 2005
(b) Initial Option Award. DSEN shall make an award to the
Executive under the Stock Plan within 90 days of the Effective Date
of a nonqualified option to purchase shares of DSEN's common stock
at a per share price equal to the fair market value of the common
stock on the grant date (which will be the Effective Date) and an
exercise period equal to five (5) years (the "Initial Option").
The amounts granted under this initial option award are as follows:
Murray N. Conradie*540,000 shares
David S. Kincer 540,000 shares
Jason F. Griffith* 270,000 shares
Joseph Harmon 135,000 shares
* Resigned April 1, 2005
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
Values
The following table sets forth the options granted in 2004 to
each of the directors and executive officers:
Option/SAR Grants in Last Fiscal Year (Individual Grants):
Number of Percent of total
Securities Options/SARs
Underlying granted to Exercise or
Options/SARS employees in base price Expiration
Name Granted fiscal year ($/Share) date
- ------------- ------------ ---------------- ---------- ---------
Scott Kincer 540,000 36.4 $0.30 1/1/10
Joseph Harmon 135,000 9.1 $0.30 1/1/10
There were no other options granted or exercised by the directors
and executive officers during the year ended December 31, 2004.
Compensation cost for options granted has not been
recognized in the accompanying financial statements. These
options do not vest until January 2005 and at such time, DSEN will
recognize a compensation expense for the fair market value of those
options, which is anticipated to be the fair market value of the
common stock minus the exercise price of the respective options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth information as of the
date of this Registration Statement certain information with
respect to the beneficial ownership of the Common Stock of DSEN
concerning stock ownership by (i) each director, (ii) each
executive officer, (iii) the directors and officers of DSEN as a
group, (iv) and each person known by DSEN to own beneficially more
than five (5%) of the Common Stock. Unless otherwise indicated,
the owners have sole voting and investment power with respect to
their respective shares. The mailing address for each of the
persons indicated is our corporate headquarters.
Beneficial ownership is determined under the rules of the
Securities and Exchange Commission. In general,
36
these rules attribute beneficial ownership of securities to persons
who possess sole or shared voting power and/or investment power
with respect to those securities and includes, among other things,
securities that an individual has the right to acquire within
60 days. Unless otherwise indicated, the stockholders
identified in the following table have sole voting and investment
power with respect to all shares shown as beneficially owned by
them.
Class Name and Address of Beneficial Owner (1)Number of Shares
Percent Owned (2)
Common David Scott Kincer 2,242,167* (1) 13.0%
Common Joseph Harmon 250,556* (2) 1.45%
----------
Common Directors as a group 2,492,723* 14.46%
Common Murray N. Conradie 3,084,833* (3) 17.90%
Common Edward Dale Tschiggfrie 1,004,962* 5.83%
* Post 10 for 1 split
(1) Includes 540,000 shares underlying options.
(2) Includes 135,000 shares underlying options.
(3) Includes 540,000 shares underlying options.
The percentage ownership calculations listed above are
based upon 17,232,290 shares of common stock being outstanding,
and no options granted being exercised as of June 30, 2005.
Persons Sharing Ownership of Control of Shares
Management has no knowledge of the existence of any
arrangements or pledges of DSEN's securities which may result in a
change in control of DSEN.
No person, other than those individuals or persons listed
above, owns or shares the power to vote ten percent (10%) or more
of DSEN's securities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 2004, DSEN has an outstanding note
payable to Murray Conradie, DSEN's former CEO (resigned April 1,
2005), in the amount of $30,688. This payable accrues interest at
1% monthly due on the first day of each month.
As of December 31, 2004, DSEN has an outstanding note payable to
Scott Kincer, DSEN's CEO, in the amount of $29,000. This payable
accrues interest at 1% monthly due on the first day of each
month.
As of December 31, 2004, DSEN has an outstanding note
payable to Jason Griffith, DSEN's former CFO (resigned April 1,
2005), in the amount of $350. This payable accrues interest at 1%
monthly due on the first day of each month.
Other Material Transactions.
With the exception of the above mentioned transactions,
there have been no material transactions, series of similar
transactions or currently proposed transactions to which DSEN or any
officer, director, their immediate families or other beneficial
owner is a party or has a material interest in which the amount
exceeds $50,000.
DESCRIPTION OF SECURITIES
A. Common Stock
Shareholders of Record and Outstanding Shares
37
The authorized capital stock of DSEN consists of
200,000,000 shares of common stock with a par value of $.001 and
20,000,000 shares of preferred stock at a par value of $.001.
As of August 30, 2005, DSEN had seventeen million two hundred
thirty two thousand two hundred ninety (17,232,290) shares of its
$.001 par value common voting stock issued and outstanding which
are held by seven hundred and nineteen (719) shareholders of
record. There are 506,400 preferred shares issued and
outstanding as of December 31, 2004.
Dividends
DSEN has not paid any dividends to date. In addition, it
does not anticipate paying dividends in the immediate foreseeable
future. The Board of Directors of DSEN will review its dividend
policy from time to time to determine the desirability and
feasibility of paying dividends after giving consideration to
DSEN's earnings, financial condition, capital requirements and such
other factors as the board may deem relevant.
Reverse Split
On November 4, 2004, Datascension Inc., announced its board
of directors has authorized a reverse split of DSEN's common stock
at a ratio of one-for-ten.
The reverse split, which was approved by written consent and
affirmed by DSEN's stockholders at the last shareholder meeting,
took effect on November 5, 2004. Each ten shares of DSEN's
issued and outstanding common stock were automatically converted
into one share of common stock. No fractional shares were
issued. Holders of fractional shares received shares rounded to
the nearest whole share.
The Reverse Stock Split affected all of stockholders
uniformly and did not affect any stockholder's percentage
ownership interests in DSEN or proportionate voting power,
except to the extent that the Reverse Stock Split resulted in any
of the stockholders becoming entitled to a fractional share.
(1) Description of Rights and Liabilities of Common Stockholders
i. Dividend Rights - The holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally
available therefore at such times and in such amounts as the
board of directors of DSEN may from time to time determine.
ii. Voting Rights - Each holder of DSEN's common stock are entitled
to one vote for each share held of record on all matters
submitted to the vote of stockholders, including the
election of directors. All voting is non-cumulative, which
means that the holder of fifty percent (50%) of the shares voting
for the election of the directors can elect all the directors.
The board of directors may issue shares for consideration of
previously authorized but un-issued common stock without future
stockholder action.
iii. Liquidation Rights - Upon liquidation, the holders of the
common stock are entitled to receive pro rata all of the assets of
available for distribution to such holders.
iv. Preemptive Rights - Holders of common stock are not entitled to
preemptive rights.
v. Conversion Rights - No shares of common stock are currently
subject to outstanding options, warrants, or other convertible
securities.
vi. Redemption rights - no redemption rights exist for shares of
common stock.
vii. Sinking Fund Provisions - No sinking fund provisions exist.
viii. Further Liability For Calls - No shares of common stock are
subject to further call or assessment by the issuer. DSEN has not
issued stock options as of the date of this Registration Statement.
(2) Potential Liabilities of Common Stockholders to State and Local
Authorities
38
No material potential liabilities are anticipated to be imposed on
stockholders under state statues. Certain Nevada regulations,
however, require regulation of beneficial owners of more than 5%
of the voting securities. Stockholders that fall into this category,
therefore, may be subject to fines in circumstances where non-
compliance with these regulations are established.
B. Preferred Stock Series B
The Series B preferred shares pursuant to the certificate of
designation were to be converted two years after issuance. Since
this time period has lapsed, the Datascension Board of
Directions decided to convert the preferred shares into the
appropriate number of common shares including unpaid dividends.
The number of common shares to be issued is approximately
1,307,353 shares which is inclusive of the payment of the unpaid
and unaccrued dividends of $381,000. The issuance was
anticipated to occur in the second quarter of 2005 but has been
delayed until we either receive or account for all the preferred
series B certificates held by our shareholders.
(1) Description of Rights and Liabilities of Preferred Stockholders
i. Dividend Rights - The holders of outstanding shares of
Preferred stock are entitled to receive dividends out of assets
legally available therefore at such times and in such amounts as
the board of directors of DSEN may from time to time determine.
Series B shares have annual dividends of $.15 a share payable
quarterly. All of the shares outstanding were to be redeemed at
$1.00 a share(pre reverse) plus all accrued dividends prior to
December 31, 1993. This has been extended by mutual agreement.
Series B shares have annual dividends of $.15 a share payable
quarterly. They are convertible to common shares on a one for one
basis at the holders' option.
ii. Voting Rights - The holders of record of said shares of Series
B Preferred Stock shall be entitled to one vote per share at all
meetings of, shareholders of the Corporation. The holders of
record shares of the Series B Preferred Stock shall vote such
shares together with the holders of the Corporation's Common
Stock, and not as a separate class. The board of directors may
issue shares for consideration of previously authorized but un-
issued preferred stock without future stockholder action.
iii. Liquidation Rights - In case of the dissolution, liquidation or
winding-up of the Corporation, whether voluntary or involuntary
or in any instance, the holders of record of shares of the Series B
Preferred Stock then outstanding shall be entitled to
participate in the distributions, either in cash or in kind, of
the assets of the corporation on a priority basis but only to,
the extent of outstanding shares of Preferred Stock multiplied by
its par value per share. Series B shares have priority over the
common shares in the event of a DSEN liquidation.
iv. Preemptive Rights - The holders of the shares of Series B
Preferred Stock will have no preemptive, redemption or other
rights other that as established by applicable corporate law.
v. Conversion Rights - The Preferred shares can be converted
after a holding period of one year at the rate of 10 shares of
Common Stock for each share of Preferred Stock converted. They are
convertible to common shares on a one for one basis at the
holders' option.
vi. Sinking Fund Provisions - No sinking fund provisions exist.
vii. Further Liability For Calls - No shares of Preferred stock are
subject to further call or assessment by the issuer. DSEN has not
issued stock options as of the date of this Registration
Statement with the exception of those disclosed on page 31 of
this document.
Treasury stock
There are 958,333 post split shares of treasury stock at December
31, 2004.
WARRANTS AND OPTIONS:
None at December 31, 2004 other than those listed below and those
disclosed in the Employment Agreement section.
Warrants issued November 17, 2004: Five year warrants with an
exercise price of $.30.
39
1. Longview Equity Fund, LP - 875,000 shares
2. Longview Fund LP - 1,250,000 shares
3. Longview International Equity Fund, LP - 375,000 shares
4. Alpha Capital Aktiengesellschaft - 625,000 shares
Warrants issued March 31, 2005: Five year warrant with an
exercise price of $.50.
Longview Fund LP - 300,000 shares
PENNY STOCK DISCLOSURE REQUIREMENTS:
See discussion in risk factor section, page 16, with the heading
"DSEN's common stock is subject to the "Penny Stock" rules of the
SEC and the trading market in DSEN's securities is limited, which
makes transactions in DSEN's stock cumbersome and may reduce the
value of an investment in DSEN's stock."
SELLING SHAREHOLDERS
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this offering, DSEN has issued 17,232,290 shares
of Common Stock. Sales of a substantial number of shares of DSEN's
Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. DSEN is
registering with this document 13,580,000 shares of Common Stock for
resale, all of which will be freely tradable without
restriction or further registration under the Securities Act.
10,155,000 of the underlying common shares that are being
registered through this document pertain to a $350,000
Convertible Debenture issued to Alpha Capital
Aktiengesellschaft, a $775,000 Convertible Debenture and a $125,000
debenture issued to the Longview Fund LP, a $525,000 Convertible
Debenture issued to the Longview Equity Fund, LP, and a $225,000
Convertible Debenture issued to the Longview International Equity
Fund LP.
This statement also includes the registration of 3,125,000
warrants with an exercise price of $0.30 per share and 300,000
warrants with an exercise price of $0.50 per share. These shares
are related to the convertible debentures issued above.
The Shares being offered for resale by our Selling Stockholders are
issuable in accordance with {section} 4(2) and Rule 506 under the
Securities Act of 1933, as amended (the "Securities Act"),
RECENT FINANCING
On November 17, 2004, DSEN entered into a subscription
agreement for $1,875,000, whereby we issued Convertible
Debentures to the following:
1)$350,000 to Alpha Capital Aktiengesellschaft, 2) $525,000 to
the Longview Equity Fund LP, 3) $775,000 to the Longview Fund LP.,
and 4) $225,000 to the Longview International Equity Fund, LP.
Interest on these notes shall accrue at a rate per annum equal to
the "prime rate" published in The Wall Street Journal from time
to time, plus three percent (3%). The prime rate shall be
increased or decreased as the case may be for each increase or
decrease in the prime rate in an amount equal to such increase or
decrease in the prime rate; each change to be effective as of
the day of the change in such rate. The
interest rate shall not be less than eight percent (8%). Interest
shall be
calculated on the basis of a 360 day year
DSEN shall reduce the principal amount of the note by 1/32nd per
month starting 120 days after the closing, payable in cash or
registered stock as described below. If such amortization is in
cash, the payment will be at 104% of the monthly principal
amortization amount. The note holders and DSEN must convert the
principal amortization and interest payments through common stock
if the market price for the stock at the time of payment is
15% above the fixed conversion price of $.30 per share.
If the market price of the stock is 1) at or below 15% above
the fixed Conversion Price or 2) below the fixed $.30 fixed
conversion price at the time of payment, then DSEN may elect to pay
the principal amortization in stock at a price equal to 85% of the
average of the five (5) lowest closing bid prices of the stock over
the previous twenty (20) trading days.
On March 31, 2005 DSEN entered into a subscription agreement
for $125,000, whereby we issued an additional
40
two-year Convertible Debenture to the Longview Fund LP at an
interest ate of 12% per annum. This note has a fixed conversion
rate of $.50 per share.
Each convertible note holder shall not be entitled to convert that
amount of their note that would result in a number of shares of
common stock held which would be in excess of the sum of the
number of shares of common stock beneficially owned by the note
holder and its affiliates on that date of more than 4.99% of the
outstanding shares of common stock of DSEN on that date. For the
purposes of this provision, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3. This
limitation shall be calculated as of each conversion. Aggregate
conversions over time shall not be limited to 4.99%. The note
holder may void this conversion share limitation upon 61 days
prior notice to DSEN. The note holder may allocate which of the
equity of DSEN is deemed beneficially owned (see page 31
footnote one for more detailed explanation) by the note holder
that shall be included in the 4.99% amount described above and
which shall be allocated to the excess above 4.99%. For example,
if the investor beneficially owns equity in the issuer of 6% in
convertible debt and 6% in warrants, and submits a request to
convert a portion of the debt into common shares, the issuer may
refuse the conversion saying the investor has already surpassed the
4.99% threshold on the warrants. The above wording will allow the
investor to allocate the beneficial ownership to the convertible
debt, thus allowing the conversion.
DSEN has the option of prepaying the outstanding principal amount,
in whole or in part, by paying to the note holder a sum of
money equal to one hundred twenty percent (120%) of the principal
amount to be redeemed, together with any accrued interest on that
amount
The financing provides the note holders with the following
registration rights. The common stock underlying the
convertible notes and the common stock underlying the warrants
will be registered for resale via an SB-2 or other appropriate
registration statement. DSEN use its best efforts to file the
registration within thirty (30) days from the date DSEN was
funded and the convertible notes were issued. DSEN will use
its best efforts to cause the registration statement to become
effective within ninety (90) days from the date the original
registration statement was filed. If the registration statement
has not been filed within the above thirty day period and/or the
registration statement has not been declared effective within
ninety (90) days from the date the original registration statement
was filed, DSEN will be liable for liquidated damages
enforceable by the note holders. The liquidated damages will be in
the amount of two percent (2%) of the purchase price of the
securities if paid in cash or an amount equal to two hundred
percent of such cash liquidated damages if paid in stock. Such
common stock shall be valued at a per share value equal to 85% of
the average of the five (5) lowest closing
bid prices of the DSEN common stock as reported by Bloomberg
L.P. for the twenty (20) trading days preceding the first day
of each thirty (30) day or shorter period for which Liquidated
Damages are payable DSEN has three business days to deliver shares
to the note holders upon notice
received that the note holders sold common shares. For failure
to deliver common shares within two days past the three day period,
DSEN would be liable for liquidated damages. These damages
would amount to $100 per business day after the three day period for
each $10,000 of the note converted into the common shares
subject to delivery. In any given year, if the days that DSEN
fails to deliver amount in the aggregate to 30 days, the note
holders can require DSEN to redeem the common shares subject to
default at a 120% of the value of the amount of the note converted
into these common shares.
In addition, if as a result of DSEN's failure to deliver shares,
the note holder has to purchase common shares in the open market
in satisfaction of the sale (i.e. a buy-in), the note holder is
entitled to receive cash from DSEN in the amount of the difference
between the buy-in amount plus 15% interest per annum on such
amount and the amount of the note converted into common shares
that were delivered.
DSEN agrees not to file any registration statements except on
behalf on the convertible note holders, until the sooner of (i)
this registration statement has been effective and available for
use for 365 days, in connection to the public resale of the
underlying shares and any warrant shares exercised, (ii) until
all the commons shares being registered have been resold by the
note holders pursuant to this registration statement or Rule 144,
without regard to volume limitations (i.e. 144k), or (iii) the date
that the convertible note has been fully paid.
DSEN also agreed that until the first to occur of (i) the
convertible notes have been fully paid, or (ii) until all the
underlying common shares and exercisable shares underlying the
warrants have been resold pursuant to a registration statement
or Rule 144, the Company will not enter into any
acquisition, merger, exchange or sale or other transaction that
could have the effect of delaying the effectiveness of any pending
registration statement or
41
causing an already effective registration statement to no longer be
effective or current for a period of fifteen (15) or more days (i.e.
a blackout period).
In the case that DSEN is proposing a sale of its common
stock or other securities or debt obligations, except in
connection for consideration in a strategic merger, consolidation
or purchase of substantially all the securities or assets of a
corporation or other entity, the convertible note holders shall be
given written notice of such sale not less than seven business days
prior to the proposed sale. Upon receipt of notice, the
convertible note holders have
seven business days to purchase such offered common stock or other
securities or debt obligations in accordance with the terns and
conditions of the sale in the proportion that each note holder has
in the purchase of the convertible notes in this funding (i.e.
right of first refusal).
SELLING SHAREHOLDER TABLE
The table below sets forth information concerning the resale
of shares of Common Stock by the Selling Stockholder. We will not
receive any proceeds from the resale of the Common Stock by the
Selling Stockholders.
Assuming the Selling Stockholder sells all the shares registered
below, the Selling Stockholder will no longer continue to own
any shares of our Common Stock.
The following table also sets forth the name of the person who
is offering shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by such person, the
number of shares of common stock that may be sold in this
offering and the number of shares of common stock such person
will own after the offering, assuming he sells all of the
shares offered.
Selling Stockholder Shares Beneficially Owned Shares Offered Shares Beneficially Owned After Offering If All
Prior to the Offering For Sale (6) Offered Shares Are Sold (7)
Number of Percentage Number of Shares Percentage
Shares (5)
Alpha Capital 2,426,666 12.3% 2,426,666 0 0%
Aktiengesellschaft (1)
Longview Fund LP (2) 5,953,334 25.7% 5,953,334 0 0%
Longview Equity Fund, LP (3) 3,640,000 17.4% 3,640,000 0 0%
Longview International Equity 1,560,000 8.3% 1,560,000 0 0%
Fund, LP (4)
* The number and percentage of shares beneficially owned is
determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the
selling stockholder has sole or shared voting power or investment
power and also any shares, which the selling stockholder has the
right to acquire within 60 days. The actual number of shares of
common stock issuable upon the conversion of the debentures and
exercise of the debenture warrants is subject to adjustment
depending on, among other factors, the future market price of the
common stock, and could be materially less or more than the number
estimated in the table.
The above investors do not hold any position or office, nor
has had any material relationship with us or any of our
affiliates within the past three years. The selling shareholders are
not a broker-dealers or affiliates of a broker-dealer.
Notes to Selling Shareholder Table.
(1) Alpha Capital Aktiengesellschaft: In accordance with Rule
13d-3 under the Securities Exchange Act of 1934, Konard Ackerman
may be deemed the control person of the shares owned by such entity.
ALPHA Capital AG is a private investment fund that is owned by
all its investors and managed by Mr. Ackerman. Mr. Ackerman
disclaims beneficial ownership of the shares of common stock being
registered hereto.
42
(2) Longview Fund, L.P. is a private investment fund that is in
the business of investing publicly-traded securities for their own
accounts and is structured as a limited liability company whose
members are the investors in the fund. The General Partner of the
fund is Viking Asset Management, LLC, a California limited
liability company which manages the operations of the fund. Peter
T. Benz is the managing member of Viking Asset Management, LLC.
As the control person of the shares owned by Longview Fund, LP,
Peter T. Benz may be viewed as the beneficial owner of such shares
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934.
(3) Longview Equity Fund, L.P. is a private investment fund
that is in the business of investing publicly-traded securities
for their own accounts and is structured as a limited liability
company whose members are the investors in the fund. The
General Partner of the fund is Viking Asset Management, LLC, a
California limited liability company which manages the operations of
the fund. Peter T. Benz is the managing member of Viking Asset
Management, LLC. As the control person of the shares owned
by Longview Equity Fund, LP, Peter T. Benz may be viewed as
the beneficial owner of such shares pursuant to Rule 13d-3
under the Securities Exchange Act of 1934.
(4) Longview International Equity Fund, L.P. is a private
investment fund that is in the business of investing publicly-traded
securities for their own accounts and is structured as a limited
liability company whose members are the investors in the fund.
The General Partner of the fund is Viking Asset Management, LLC, a
California limited liability company which manages the operations
of the fund. Peter T. Benz is the managing member of Viking Asset
Management, LLC. As the control person of the shares owned by
Longview International Equity Fund, LP, Peter T. Benz may be viewed
as the beneficial owner of such shares pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934.
(5) Percentages are based on 17,232,290 shares of our common
stock issued as of April 13, 2005.
(6) This column represents the total number of shares of common
stock that selling security holder intends to sell based on the
current market
price at the time the registration statement was first filed
plus the common share that would be issued upon exercise of the
related warrants.
(7) Each convertible note holder shall not be entitled to convert
that amount of their note that would result in a number of
shares of common stock held which would be in excess of the sum
of the number of shares of common stock beneficially owned by the
note holder and its affiliates on that date of more than 4.99%
of the outstanding shares of common stock of DSEN on that date.
(see discussion in the recent financing section above).
PLAN OF DISTRIBUTION
Each selling stockholders will most likely sell their shares
on the open market. Our stock is quoted on the OTCBB under the
symbol DSEN.
Therefore, the selling stockholders may, from time to time, sell
any or all of their shares of common stock on any stock exchange,
market, or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated
prices. This registration statement does not cover sales by any
of the selling shareholders respective pledges, donees,
transferees and other successors-in-interest. The selling
stockholders may use any one or more of the following methods when
selling shares:
-Ordinary brokerage transactions and transactions in which
the broker-dealer solicits purchasers;
-Block trades in which the broker-dealer will attempt to
sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
-Purchases by a broker-dealer as principal and resale by
the broker-dealer for its own account;
-An exchange distribution following the rules of the
applicable exchange;
-Privately negotiated transactions;
-Short sales that are not violations of the laws
and regulations of any state of the United States;
43
-Broker-dealers may agree with the selling stockholders to
sell a specified number of such shares at a stipulated price
per share;
-A combination of any such methods of sale any other
lawful method.
The selling stockholders may also sell shares under Rule 144 under
the Securities Act, if available, rather than under his prospectus.
The selling stockholders shall have the sole and absolute
discretion not to accept any purchase offer or make any sale of
shares if they deem the purchase price to be unsatisfactory at any
particular time.
The selling stockholders may also engage in
-Short selling against the box, which is making a short
sale when the seller already owns the shares.
-Other transactions in our securities or in derivatives of
our securities and the subsequent sale or delivery of shares by the
stockholder.
-Pledging shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder
defaults on a margin loan, the broker may, from time to time, offer
to sell the pledged shares.
Broker-dealers engaged by the selling stockholders may
arrange for other brokers-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from selling
stockholders in amounts to be negotiated. If any broker-dealer acts
as agent for the purchaser of shares, the broker- dealer may
receive commission from the purchaser in amounts to be negotiated.
The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions
involved.
The selling stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a
selling stockholders defaults on a margin loan, the broker may,
from time to time, offer and sell the pledged shares. The
selling stockholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable
provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations under such act, including, without
limitation, Regulation M. These provisions may restrict certain
activities of, and limit the timing of purchases and sales of any of
the shares by, the selling stockholders or any other such person.
In the event that the selling stockholders are deemed affiliated
purchasers or distribution participants within the meaning of
Regulation M, then the selling stockholders will not be permitted
to engage in short sales of common stock. Furthermore, under
Regulation M, persons engaged in a distribution of
securities are prohibited from simultaneously engaging in market
making and certain other activities with respect to such securities
for a specified period of time prior to the commencement of such
distributions, subject to specified exceptions or exemptions. In
regards to short sells, the selling stockholder can only cover its
short position with the securities they receive from us upon
conversion. In addition, if such short sale is deemed to be a
stabilizing activity, then the selling stockholder will not be
permitted to engage in a short sale of our common stock. All
of these limitations may affect the marketability of the shares.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be considered to be
"underwriters" within the meaning of the Securities Act for such
sales. An underwriter is a person who has purchased shares from
an issuer with a view towards distributing the shares to the
public. In such event, any commissions received by such broker-
dealers or agents and any profit on the resale of the shares
purchased by them may be considered to be underwriting commissions
or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares in this offering. However, we will
not pay any commissions or any other fees in connection with the
resale of the common stock in this offering.
We have agreed to indemnify the selling shareholders and their
officers, directors, employees and agents, and each person who
controls any selling shareholder, in certain circumstances against
certain liabilities, including liabilities arising under the
Securities Act. Each selling shareholder has agreed to indemnify
DSEN and its directors and officers in certain
circumstances against certain liabilities, including liabilities
arising under the Securities Act.
If the selling stockholder notifies us that they have a material
arrangement with a broker-dealer for the resale of the
44
common stock, then we would be required to amend the registration
statement of which this prospectus is a part, and file a
prospectus supplement to describe the agreements between the selling
stockholder and the broker-dealer.
STANDSTILL AGREEMENT
The directors and officers will be permitted to sell shares of DSEN
common
stock during the period referenced below based on the following
schedule:
After the investors have converted or received the percentage of
note principal issued. Each director and officer may sell the
corresponding percent of the amount of shares indicated below
Investors Conversion Director/Officer *
20% 0.5%
30% 0.5%
40% 1%
50% 1%
60% 1%
70% 2%
80% 2%
90% 2%
The period in which the directors and officers may sell DSEN common
stock is as follows: (i) this registration statement has been
effective and available for use for 365 days, in connection to the
public resale of the underlying shares and any warrant shares
exercised, (ii) until all the commons shares being registered have
been resold by the note holders pursuant to this registration
statement or Rule 144, without regard to volume limitations
(i.e. 144k), or (iii) the date that the convertible note has been
fully paid. The applicable number of shares is as follows: 1)
Murray Conradie, 2,543,500 shares, 2) David S. Kincer 2,242,167, 3)
Jason Griffith, 112,292 shares and 4) Joseph Harmon, 250,556
shares.
* Represents the maximum number shares that each director/officers
may sell is that applicable Percentage of the number of shares
converted by the investors (see the investors conversion column) .
LEGAL PROCEEDINGS
DSEN is from time to time involved in litigation incident to
the conduct of its business. Certain litigation with third parties
and present and former employees of DSEN is routine and incidental,
such litigation can result in large monetary awards for
compensatory or punitive damages.
Prior Landlord Lawsuit - 2003: The previous facility leased by
Registrant in Henderson Nevada was leased for the purpose of
consolidating all the operations into one location. A prior tenant
of the premises had vacated the premises leaving fixtures that
occupied approximately 50% of the floor space in the warehouse.
The landlord had agreed to have this equipment removed within 90
days. This did not occur and after 14 months, when the equipment
had not been removed from the premises; a decision was made to find
alternate premises and terminate the lease for cause. This court
case went to trial during January of 2004 and the courts found in
favor of the prior landlord for the amount owed to them through
the time necessary to re-let the premises to a new tenant. The
Registrant had recorded this as a contingency and expensed this
in 2003. This judgment has subsequently been settled and released
November 2004.
DSEN is not a party to any pending material legal
proceeding. To the knowledge of management, no federal, state
or local governmental agency is presently contemplating any
proceeding against DSEN. To the knowledge of management, no
director, executive officer or affiliate of DSEN, any owner of
record or beneficially of more than 5% of DSEN's common stock
is a party adverse to DSEN or has a material interest adverse to
DSEN in any proceeding.
All litigation DSEN was involved with in 2004 has either
been settled, withdrawn or dismissed.
45
EXPERTS
The financial statements of DSEN at December 31, 2003,
appearing in this Prospectus and Registration Statement have
been audited by Gary V. Campbell, CPA, Ltd., Certified Public
Accountants, our independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of DSEN at December 31, 2004,
appearing in this Prospectus and Registration Statement have been
audited by Larry O'Donnell, CPA, P.C., our independent auditors,
as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Legal matters concerning the issuance of shares of common stock
offered in this registration statement will be passed upon by
Naccarato & Associates, Owen Naccarato, Esq.
OTHER AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities
and Exchange Commission (the "Commission"). We file periodic
reports, proxy statements and other information with the
Commission under the Securities Exchange Act of 1934. We will
provide without charge to each person who receives a copy of
this prospectus, upon written or oral request, a copy of any
information that is incorporated by reference in this Prospectus
(not including exhibits to the information that is incorporated
by reference unless the exhibits are themselves specifically
incorporated by reference). Requests should be directed to: David
Scott Kincer, Chairmen and Chief Executive Officer
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933 Act with the Commission in connection with
the securities offered by this Prospectus. This Prospectus does not
contain all of the information that is the registration statement;
you may inspect without charge, and copy our filings, at the
public reference room maintained by the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549. Copies of this material may
also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, at
prescribe rates.
Information about the public reference room is available from the
commission by calling 1-800-SEC-0330.
The commission maintains a web site on the Internet that
contains reports, proxy and information statements and other
information regarding issuers that file electronically with
the commission. The address of the site is www.sec.gov.
Visitors to the site may access such information by searching the
EDGAR archives on this web site.
We have not authorized anyone to provide you with any
information that is different.
The selling security holders are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions
where such offers and sales are permitted.
The information contained in this Prospectus is accurate as of the
date of this prospectus. We will keep this prospectus up to date
and accurate.
FINANCIAL STATEMENTS
OUR FINANCIAL STATEMENTS BEGIN ON PAGE F-1
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 11, 2002, Nutek, Inc. (the Company) determined to
change the Company's independent accountants, and, accordingly,
ended the engagement of Chavez & Koch, CPA's, in that role and
retained Gary V. Campbell, CPA, Ltd. As its independent accountants
for the fiscal year ending December 31, 2002. The Audit Committee
of the Board of Directors (the "Audit Committee") and the Board of
Directors of the Company approved the decision to change
independent accountants based on the fact that the Company's
current Chief Financial Officer previously
46
served as a manager at Chavez & Koch, CPA's. Per the
requirements under the recently announced Sarbanes-Oxley Act (the
text of which appears below) the Company is required to switch
auditors.
H.R.3763, Sarbanes-Oxley Act of 2002 SEC. 206. CONFLICTS OF
INTEREST.
Section 10A of the Securities Exchange Act of 1934 (15
U.S.C.78j-1), as amended by this Act, is amended by adding at the
end the following:
(l) CONFLICTS OF INTEREST- It shall be unlawful for a
registered public accounting firm to perform for an issuer any
audit service required by this title, if a chief executive officer,
controller, chief financial officer, chief accounting officer, or
any person serving in an equivalent position for the issuer,
was employed by that registered independent public accounting firm
and participated in any capacity in the audit of that issuer
during the 1-year period preceding the date of the initiation of the
audit.
During the period of December 27, 2001, through December 11, 2002,
there were no disagreements with Chavez & Koch, CPA's on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to Chavez & Koch, CPA's
satisfaction, would have caused them to refer to the subject
matter of the disagreement(s) in connection with their report;
and there were no "reportable events" as defined in Item 304
(a)(1)(v) of the Securities and Exchange Commission's
Regulation S-B. Neither of the reports of Chavez & Koch, CPA's
for the period ending December 31, 2001, and the subsequent
interim periods through December 11, 2002, contain an adverse
opinion or disclaimer of opinion, nor was either qualified or
modified as to uncertainty, audit scope, or accounting
principles.
(b) Information required by Item 304(a)(2) of Regulation S-B
Effective December 12, 2002, the Company has engaged Gary V.
Campbell, CPA, Ltd. as its independent accountants for the
fiscal year ended December 31, 2002. During the most recent two
fiscal years and during the portion of 2002 preceding the Board's
decision, neither the Company nor anyone engaged on its behalf has
consulted with Gary V. Campbell, CPA, Ltd. regarding: (i) either the
application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial
statements; or (ii) any matter that was either the subject of a
disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-B)
or a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-B).
On June 15, 2004, Gary V. Campbell, CPA, Ltd. notified the
Company that they were declining to stand for re-election as the
Company's independent auditor of record. The Board of Directors
accepted this decision on June 15, 2004. The Registrant
appointed Larry O'Donnell, CPA,, P.C., as the Registrant's
independent accountants for the year ending December 31, 2004. The
selection of accountants was approved by the Registrant's
Board of Directors. Larry O'Donnell, CPA, P.C. was engaged by the
Registrant on June 18, 2004. During the most recent two fiscal years
and during the portion of 2004 preceding the Board's decision,
neither the Company nor anyone engaged on its behalf has
consulted with Larry O'Donnell, CPA, P.C. regarding: (i) either the
application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that
might be rendered on the Company's
financial statements; or (ii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-B) or a reportable event (as described in Item
304(a)(1)(v) of Regulation S-B).
The audit reports issued by Gary V. Campbell, CPA, Ltd. with
respect to the Registrant's financial statements for December
31, 2003 and 2002 did not contain an adverse opinion or disclaimer
of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. From
December 12, 2002 through June 15, 2004, there were no
disagreements between the Registrant and Gary V. Campbell, CPA,
Ltd. on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Gary V.
Campbell, CPA, Ltd., would have caused it to make a reference to
the subject matter of the disagreement in connection with its audit
report.
(c) Information required by Item 310(b) of Regulation S-B
In the opinion of management, all adjustments considered necessary
for a fair presentation have been included.
47
ASSETS Restated Restated
Unaudited Audited
9/30/05 12/31/04
----------- -----------
CURRENT ASSETS:
Cash $ 203,724 $ 556,593
Accounts receivable 1,519,526 1,533,969
Prepaid expenses 37,048 186,306
Investment in Century Innovations 108,469 108,469
----------- -----------
TOTAL CURRENT ASSETS $ 1,868,767 $ 2,385,337
Property and Equipment, net of accumulated
depreciation 995,543 681,346
OTHER ASSETS:
Asset held for sale (see notes) - 1,015,014
Website assets, net of amortization 4,520 4,520
Deposits 20,249 25,399
Goodwill 1,692,782 1,692,782
----------- -----------
TOTAL OTHER ASSETS 1,717,551 2,737,715
TOTAL ASSETS $ 4,581,861 $ 5,804,398
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
9/30/05 12/31/04
CURRENT LIABILITIES:
Accounts payable $ 81,211 $ 135,533
Accrued expenses 1,383,272 1,390,880
Notes payable, related party 21,000 60,038
Short term notes payable 265,101 121,742
Convertible debt, net of current portion 867,761 241,111
Derivative liability 888,509 2,408,178
Warrant liability 507,977 1,785,877
Current portion of long-term notes payable - 116,207
----------- -----------
TOTAL CURRENT LIABILITIES $ 4,014,831 $ 6,259,566
LONG-TERM DEBT
Long-term notes payable, net of current portion 278,178 103,548
----------- -----------
TOTAL LONG-TERM DEBT 278,178 103,548
TOTAL LIABILITIES 4,293,009 6,363,114
STOCKHOLDERS' EQUITY:
Common stock:
Common stock, $0.001 par value, 200,000,000
shares authorized; 17,232,290 and 16,257,290
shares issued, 17,111,457 and 16,161,457
outstanding at September 30, 005 and December
31, 2004, respectively 160,825 159,875
Additional paid-in capital-common stock 11,503,345 11,029,295
Preferred stock Series B:
Preferred stock, $0.001 par value, 10,000,000
shares authorized; 508,500 Series B shares
issued and outstanding at December 31, 2004 506 506
Additional paid-in capital-preferred Series B 481,994 481,994
Subscriptions receivable (475,000) (119,063)
Treasury stock, at cost; 95,833 at December 31, 2004 (134,388) (134,388)
Accumulated deficit (11,248,431) (11,976,936)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 288,852 (558,716)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,581,861 $ 5,804,398
=========== ===========
The accompanying notes to the financial statements
should be read in conjunction with the above financial statements.
F-1
Unaudited Unaudited Unaudited Unaudited
FOR THE FOR THE FOR THE FOR THE
3 MONTHS ENDED 3 MONTHS ENDED 9 MONTHS ENDED 9 MONTHS ENDED
9/30/05 9/30/04 9/30/04 9/30/05
Restated Restated
-------------- -------------- -------------- --------------
REVENUE $ 2,365,454 $ 2,101,033 $ 6,380,488 $ 6,864,011
COST OF GOODS SOLD 2,127,257 1,663,996 5,091,217 5,718,341
-------------- -------------- -------------- --------------
GROSS PROFIT 238,197 437,037 1,289,271 1,145,670
EXPENSES:
Selling, general and administrative $ 560,697 $ 371,393 $ 1,014,082 $ 1,409,080
Depreciation 44,888 85,646 256,133 131,885
-------------- -------------- -------------- --------------
TOTAL EXPENSES 605,585 457,039 1,270,215 1,540,965
OPERATING INCOME (367,388) (20,002) 19,056 (395,295)
OTHER INCOME (EXPENSE):
Interest income 281 61 466 610
Forgiveness of debt - 54,039 54,039 2,962
Other income 3,000 3,250 5,435 6,382
Interest expense (81,362) (20,697) (68,765) (263,125)
Other Income(Expense) from convertible 228,269 - - 2,863,902
Interest (expense) from convertible (160,725) - - (483,100)
Other income - - 2,699 -
-------------- -------------- -------------- --------------
TOTAL OTHER INCOME (10,537) 36,653 (6,126) 2,127,631
NET INCOME (LOSS) $ (377,925) $ 16,651 $ 12,930 $ 1,732,336
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 17,207,290 15,944,790 15,510,066 17,099,415
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 28,617,290 15,944,790 15,510,066 28,390,550
BASIC NET INCOME PER SHARE $ (0.02) $ 0.001 $ 0.001 $ 0.10
DILUTED NET INCOME PER SHARE $ (0.01) $ 0.001 $ 0.001 $ 0.06
The accompanying notes to the financial statements
should be read in conjunction with the above financial statements.
F-2
Unaudited
For the 9 months ended
9/30/05 9/30/04
Restated
----------------- ----------
Restated
Cash Flows From Operating Activities:
Net income $ 1,732,336 $ 12,930
Adjustments to reconcile net income to net
cash provided by operating activities:
Issued for services - 44,000
Depreciation and amortization 131,885 256,132
(Decrease) in asset held for sale 1,015,014 -
Distribution of asset held for sale (1,003,831) -
(Increase) Decrease in accounts receivable 14,443 (212,093)
Increase in inventory - 1,946
Increase in prepaid expenses 188,295 (46,326)
Increase in deposits 5,150 23,492
Decrease in accounts payable (54,322) (49,595)
Decrease in accrued expenses (7,608) 60,629
----------------- ----------
Net cash used by operating activities $ 2,021,362 $ 91,115
Cash Flows From Investing Activities:
(Increase) Decrease in notes receivable - 167,294
Purchase of property and equipment (485,119) (12,897)
----------------- ----------
Net cash used by investing activities (485,119) 154,397
Cash Flows From Financing Activities:
Increase in notes payable 201,782 (341,121)
Increase (Decrease) in related party payable (39,038) -
Increase (Decrease) in convertible debt 626,650 -
Increase (Decrease) in stock subscriptions 119,063 -
Cash in distributed subsidiary - 10,661
Issuance of common stock - 100,306
Change in warrant liability (1,277,900) -
Change in derivative liability (1,519,669) -
(Decrease) Increase in line of credit - (3,948)
----------------- ----------
Net cash provided by financing activities (1,889,112) (234,102)
----------------- -----------
Net Increase in Cash (352,869) 11,410
Balance, Beginning 556,593 122,891
----------------- ----------
Balance, Ending $ 203,724 $ 134,301
================= ==========
Interest Paid $ 263,125 $ 68,765
Taxes Paid $ - $ -
The accompanying notes to the financial statements
should be read in conjunction with the above financial statements.
F-3
DATASCENSION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - HISTORY AND ORGANIZATION OF THE COMPANY
Datascension, Inc. (formerly known as Nutek, Inc.) was incorporated
in August 1991 under the laws of the State of Nevada as Nutek, Inc.
(the "Company") and is engaged in the market research industry.
Datascension International, Inc. and related assets were purchased
on September 27, 2001 for $2,200,000 using company shares at fair
market value. Datascension International, Inc. is a data solutions
company representing a unique expertise in the collecting, storage,
processing, and interpretation of data. During 2002, Datascension
International, Inc. expanded operations into Costa Rica.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's policy is to prepare the financial statements on the
accrual basis of accounting. The fiscal year end is December 31.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
maturities of three months or less when purchased.
Net Income Per Share
Basic net income per share is computed using the weighted average
number of shares of common stock outstanding for the period end. The
net income (loss) for the period end is divided by the weighted
average number of shares outstanding for that period to arrive at
net income per share.
Diluted net income per share reflects the potential dilution that
could occur if the securities or other contracts to issue common
stock were exercised or converted into common stock.
In the opinion of management, all adjustments necessary in order to
make the financial position, results of operations and changes in
financial position at September 30, 2005, and for all periods
resented not misleading have been made. The results of operations
for the period ended September 30, 2005 are not necessarily an
indication of operating results to be expected for the full year
ending December 31, 2005.
Convertible Debt Financing and Derivative Liabilities
In accordance with Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended ("SFAS 133"), the holder's conversion right provision,
interest rate adjustment provision, liquidated damages clause, cash
premium option, and the redemption option (collectively, the debt
features) contained in the terms governing the Notes are not clearly
and closely related to the characteristics of the Notes.
Accordingly, the features qualified as embedded derivative
instruments at issuance and, because they do not qualify for any
scope exception within SFAS 133, they were required by SFAS 133 to
be accounted for separately from the debt instrument and recorded as
derivative financial instruments.
During the year ended December 31, 2004, we recorded an other
expense item of $2,489,116, of which, $1,639,953 (expense) and
$849,163 (expense) related to the debt features and warrants,
respectively, to reflect the change in fair value of the derivative
liability. During the year ended December 31, 2003, there was no
income or expense items related to convertible debt as there was
none outstanding.
During the nine months ended September 30, 2005, we recorded an
other income item of $2,863,902, of which, $1,529,217 (income) and
$1,334,685 (income) related to the debt features and warrants,
respectively, to reflect the change in fair value of the derivative
liability. During the nine months ended September 30, 2004, there
was no income or expense items related to convertible debt as there
was none outstanding.
At each balance sheet date, we adjust the derivative financial
instruments to their estimated fair value and analyze the
instruments to determine their classification as a liability or
equity. As of December 31, 2004, the estimated fair value of our
derivative liability was $2.41 million, as well as a warrant
liability of $1.79 million. As of December 31, 2003, there was no
asset or liability related to convertible debt. The estimated fair
value of the debt features was determined using the probability
weighted averaged expected cash flows / Lattice Model. The model
uses several assumptions including: historical stock price
volatility (utilizing a rolling 120 day period), risk-free interest
rate (3.50%), remaining maturity, and the closing price of the
Company's common stock to determine estimated fair value of the
derivative asset. In valuing the debt features at December 31, 2004,
the company used the closing price of $0.65 and the exercise price
of $0.30. For the year ended December 31, 2004, due in part to an
increase in the market value of the Company's common stock to $0.65
from $0.40 at issuance, the Company recorded an "other expense" item
on the consolidated statement of operations for the change in fair
value of $1,639,953. At December 31, 2004, the estimated fair value
of the debt features was approximately $2,408,178. For the nine
months ended September 30, 2005, the estimated value of the
company's debt features decreased to $888,509, thus the company
recorded an "other income" item on the consolidated statement of
operations for the change in fair value of the debt features of
$1,529,217 for the nine months ended September 30, 2005.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are made up of the following as of September
30, 2005:
Equipment and machinery $ 472,500
Office equipment 1,068,138
Leasehold improvements 9,959
Accumulated depreciation (555,053)
----------
$ 995,543
The company purchased predictive dialers for a total cost of
$125,000 during the three months ended June 30, 2005.
NOTE 4 - NOTES PAYABLE
NOTES PAYABLE - $1,875,000, NOVEMBER 2004
In November 2004, the Company issued $1,875,000 in principal amount
of Notes to third parties. As part of the financing transaction, the
Company issued warrants to purchase 3,125,000 shares of common stock
at a per share purchase price of $0.30 per share.
The Notes accrue interest at a rate of prime + 3% per annum. The
Notes are due and payable in November 2007. After a thorough review
of the terms of the note and respective covenants, the company has
determined the more conservative method of including the entire debt
as a current liability on the balance sheet. The convertible note
and warrant documents were filed in an 8-K by the Company on
November 23, 2004. The Note was entered into pursuant to the terms
of a subscription agreement between the Company and the Holder,
which was also included in the 8-K filed on November 23, 2004.
Interest payable on this Note shall accrue at the "prime rate"
published in The Wall Street Journal from time to time, plus three
percent (3%). The Interest Rate shall not be less than eight
percent (8%). Interest shall be calculated on a 360 day year.
Interest on the Principal Amount shall be payable monthly,
commencing 120 days from the closing and on the first day of each
consecutive calendar month thereafter (each, a "Repayment Date") and
on the Maturity Date.
Amortizing payments of the outstanding Principal Amount of this Note
shall commence on the first (1st) Repayment Date and shall recur on
each succeeding Repayment Date thereafter until the Principal Amount
has been repaid in full. On each Repayment Date, the Company should
make payments to the Holder in the amount of one- thirty-second
(1/32nd) of the initial Principal Amount (the "Monthly Principal
Amount"), together with any accrued and unpaid interest plus any and
all other amounts which are then owing under this Note that have not
been paid (the Monthly Principal Amount, together with such accrued
and unpaid interest and such other amounts, collectively, the
"Monthly Amount"). Any Principal Amount that remains outstanding on
the Maturity Date shall be due and payable upon maturity.
Following the occurrence and during the continuance of an Event of
Default (as discussed in the Note), the annual interest rate on the
Note shall automatically be increased by two percent (2%) per month
until such Event of Default is cured.
The Holder shall convert into shares of Common Stock all at the
Fixed Conversion Price or the maximum portion of the Monthly Amount
due on each Repayment Date provided that the average closing price
of the Common Stock for the twenty (20) consecutive trading days
immediately preceding such Repayment Date shall be greater than or
equal to 15% above the Fixed Conversion Price ("Conversion
Criterion"). The Monthly Amount due on a Repayment Date that is not
converted shall be paid by the Company (i) in cash at the rate of
104% of such Monthly Amount otherwise due, or (ii) in registered,
unlegended, free- trading Common Stock at an applied conversion rate
equal to eighty-five percent (85%) of the average of the five (5)
lowest closing bid prices for the preceding twenty (20) trading
days.
The Notes also provide for liquidated damages on the occurrence of
several events.
As compensation to the Subscriber, the Company agrees to pay (as
liquidated damages and not as a penalty) $100 per business day after
the Delivery Date for each $10,000 of Note principal amount being
converted of the corresponding Shares which are not timely
delivered.
An additional liquidating damages provision states that if the
Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if seven (7) business
days after the Delivery Date the Subscriber purchases shares of
Common Stock to deliver in satisfaction of a sale by such Subscriber
of the Common Stock which the Subscriber was entitled to receive
upon such conversion (a "BUY-IN"), then the Company shall pay in
cash to the Subscriber (in addition to any remedies available to or
elected by the Subscriber) the amount by which (A) the Subscriber's
total purchase price for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the
Note for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which
amount shall be paid as liquidated damages and not as a penalty).
For example, if the Subscriber purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 of note principal
and/or interest, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in
respect of the Buy-In.
Additionally, if the Company is unable to deliver to the holder of
Registrable Securities, then as Liquidated Damages, an amount equal
to two percent (2%) for each thirty (30) days or part thereof,
thereafter of the Purchase Price of the Notes remaining unconverted
and purchase price of Shares issued upon conversion of the Notes.
The Company must pay the Liquidated Damages in cash or an amount
equal to two hundred percent of such cash Liquidated Damages if paid
in additional shares of registered unlegended free-trading shares of
Common Stock. Such Common Stock shall be valued at a per share value
equal to 85% of the average of the five (5) lowest closing bid
prices of the Common Stock for the twenty (20) trading days
preceding the first day of each thirty (30) day or shorter period
for which Liquidated Damages are payable. As of September 30, 2005,
no liquidating damages have been incurred by the company.
Redemption Option - The Company will have the option of prepaying
the outstanding Principal Amount ("Optional Redemption"), in whole
or in part, by paying to the Holder a sum of money equal to one
hundred twenty percent (120%) of the Principal Amount to be
redeemed, together with accrued but unpaid interest thereon
Debt features. The Holder shall have the right, but not the
obligation, to convert all or any portion of the then aggregate
outstanding Principal Amount of this Note, together with interest
and fees due hereon, into shares of Common Stock.
The $1,875,000 in proceeds from the financing transaction were
allocated to the debt features and to the warrants based upon their
fair values. After the latter allocations, there was $170,061 of
remaining value to be allocated to the Note on the financial
statements.
The debt discount is being accreted using the effective interest
method over the term of the note.
The value of the discount on the converted notes on the books is
being accreted over the term of the note (three years). For the
years ended December 31, 2004 and 2003, the Company accreted $52,300
and $0, respectively, of debt discount related to the Notes. For the
nine months ended September 30, 2005, the Company accreted $457,360
of the debt discount related to these Notes.
WARRANTS ISSUED
The estimated fair value of the 3,125,000 warrants at issuance
(11/11/2004) was $936,714 and has been classified as a derivative
instrument and recorded as a liability on the Company's balance
sheet in accordance with current authoritative guidance. The
estimated fair value of the warrants was determined using the Black-
Scholes option-pricing model with a closing price of $0.40, an
exercise price of $0.30, a 5.0 year term, and a volatility factor of
89%. The model uses several assumptions including: historical stock
price volatility (utilizing a rolling 120 day period), risk-free
interest rate (3.50%), remaining maturity, and the closing price of
the Company's common stock to determine estimated fair value of the
derivative liability. In valuing the warrants at December 31, 2004,
the company used the closing price of $0.65, the exercise price of
$0.30, a 4.88 year remaining term, and a volatility of 116% In
accordance with the provisions of SFAS No. 133, Accounting for
Derivative Instruments, the Company is required to adjust the
carrying value of the instrument to its fair value at each balance
sheet date and recognize any change since the prior balance sheet
date as a component of Other Income (Expense). The warrant
derivative liability at December 31, 2004, had increased to a fair
value of $1,785,877, due in part to an increase in the market value
of the Company's common stock to $0.65 from $0.40 at issuance, which
resulted in an "other expense" item of $849,163 on the Company's
books. For the nine months ended September 30, 2005, the warrant
derivative liability had decreased to a value of $474,525, due in
part to a decrease in the market value of the Company's common stock
to $0.40 from $0.65 at December 31, 2004, which resulted in an
"other income" item of $1,311,352 for the nine months ended
September 30, 2005. The company used a closing price of $0.32, an
exercise price of $0.30, a 4.13 years remaining term, and a 54%
volatility factor.
The recorded value of such warrants can fluctuate significantly
based on fluctuations in the market value of the underlying
securities of the issuer of the warrants, as well as in the
volatility of the stock price during the term used for observation
and the term remaining for the warrants.
In accordance with Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended ("SFAS 133"), the debt features provision (collectively,
the features) contained in the terms governing the Notes are not
clearly and closely related to the characteristics of the Notes.
Accordingly, the features qualified as embedded derivative
instruments at issuance and, because they do not qualify for any
scope exception within SFAS 133, they were required by SFAS 133 to
be accounted for separately from the debt instrument and recorded as
derivative financial instruments.
DEBT FEATURES
Pursuant to the terms of the Notes, these notes are convertible at
the option of the holder, at anytime on or prior to maturity. There
is an additional interest rate adjustment feature, a liquidated
damages clause, a cash premium option, as well as the redemption
option. The debt features represents an embedded derivative that is
required to be accounted for apart from the underlying Notes. At
issuance of the Notes (11/11/2004), the debt features had an
estimated initial fair value of $768,225, which was recorded as a
discount to the Notes and a derivative liability on the consolidated
balance sheet. In subsequent periods, if the price of the security
changes, the embedded derivative financial instrument related to the
debt features will be adjusted to the fair value with the
corresponding charge or credit to other expense or income. The
estimated fair value of the debt features was determined using the
probability weighted averaged expected cash flows / Lattice Model
with a closing price of $0.40, an exercise price of $0.30, a 3.0
year term, and a volatility factor of 89%. The model uses several
assumptions including: historical stock price volatility (utilizing
a rolling 120 day period), risk-free interest rate (3.50%),
remaining maturity, and the closing price of the Company's common
stock to determine estimated fair value of the derivative liability.
In valuing the debt features at December 31, 2004, the company used
the closing price of $0.65 and the exercise price of $0.30, 2.88
year remaining term, and a volatility of 116%. For the year ended
December 31, 2004, due in part to an increase in the market value of
the Company's common stock to $0.65 from $0.40 at issuance, the
Company recorded an "other expense" on the consolidated statement of
operations for the change in fair value of the debt features of
approximately $1,639,953. At December 31, 2004, the estimated fair
value of the debt features was approximately $2,408,178. For the
nine months ended September 30, 2005, the estimated value of the
debt features decreased to $868,156, thus the company recorded an
"other income" item on the consolidated statement of operations for
the change in fair value of the debt features related to these notes
of $1,540,022 for the nine months ended September 30, 2005. The
company used a closing price of $0.32, an exercise price of $0.272,
a 2.13 years remaining term, and a 54% volatility factor.
The recorded value of the debt features related to the Notes can
fluctuate significantly based on fluctuations in the fair value of
the Company's common stock, as well as in the volatility of the
stock price during the term used for observation and the term
remaining for the warrants.
Pursuant to the terms of the Notes, the Company has the option of
prepaying the outstanding Principal Amount in whole or in part, by
paying to the Holder a sum of money equal to one hundred twenty
percent (120%) of the Principal Amount to be redeemed, together with
accrued but unpaid interest thereon and any and all other sums due.
Because the terms of the 2004 convertible note require such
classification, the accounting rules required additional convertible
notes and non-employee warrants to also be classified as
liabilities, regardless of the terms of the new notes and / or
warrants. This presumption has been made due to the company no
longer having the control to physical or net share settle subsequent
convertible instruments because it is tainted by the terms of the
2004 convertible notes. Were the 2004 convertible notes to not have
contained those terms or even if the 2004 transaction were not
entered into, it could have altered the treatment of the March 31,
2005 notes and the conversion features of the latter agreement may
have resulted in a different accounting treatment from the liability
classification. The March 31, 2005 note, as well as any subsequent
convertible notes or warrants, will be treated as derivative
liabilities until all such provisions are settled.
NOTES PAYABLE - $125,000, MARCH 2005
In March 2005, the Company issued $125,000 in principal amount of
Notes to third parties. As part of the financing transaction, the
Company issued warrants to purchase 300,000 shares of common stock
at a per share purchase price of $0.50 per share. The Warrants shall
be exercisable until five (5) years after the Issue Date of the
Warrants.
The Notes accrue interest at a rate 12% per annum. The Notes are due
and payable in March 2007. After a thorough review of the terms of
the note and respective covenants, the company has determined the
more conservative method of including the entire debt as a current
liability on the balance sheet.
Interest shall be calculated on the basis of a 360 day year.
Interest on the Principal Amount shall be payable monthly, in
arrears, commencing the first day of the month after 120 days from
the closing and on the first day of each consecutive calendar month
thereafter (each, a "Repayment Date") and on the Maturity Date,
whether by acceleration or otherwise.
Redemption Option - The Company will have the option of prepaying
the outstanding Principal Amount ("Optional Redemption"), in whole
or in part, by paying to the Holder a sum of money equal to one
hundred twenty percent (120%) of the Principal Amount to be
redeemed, together with accrued but unpaid interest thereon
Holder's Conversion Rights. The Holder shall have the right, but not
the obligation, to convert all or any portion of the then aggregate
outstanding Principal Amount of this Note, together with interest
and fees due hereon, into shares of Common Stock.
The $125,000 in proceeds from the financing transaction were
allocated to the conversion option, call option and to the warrants
based upon their fair values. After the latter allocations, the
company allocated $58,667 to the carrying value of the debt. That
debt discount is being accreted using the effective interest method
over the term of the note.
The value of the discount on the converted notes on the books is
being accreted over the term of the note (three years). For the nine
months ended September 30, 2005, the Company accreted $25,740 of the
debt discount related to these Notes.
WARRANTS ISSUED
The estimated fair value of the 300,000 warrants at issuance
(3/31/2005) was $56,785 and has been classified as a derivative
instrument and recorded as a liability on the Company's balance
sheet in accordance with current authoritative guidance. The
estimated fair value of the warrants was determined using the Black-
Scholes option-pricing model. The model uses several assumptions
including: historical stock price volatility (utilizing a rolling
120 day period), risk-free interest rate (3.50%), remaining
maturity, and the closing price of the Company's common stock to
determine estimated fair value of the derivative liability. In
valuing the warrants at March 31, 2005, the company used the closing
price of $0.50, the exercise price of $0.50, a 5 year term, and a
37% volatility factor. In accordance with the provisions of SFAS No.
133, Accounting for Derivative Instruments, the Company is required
to adjust the carrying value of the instrument to its fair value at
each balance sheet date and recognize any change since the prior
balance sheet date as a component of Other Income (Expense). For the
nine months ended September 30, 2005, the warrant liability had
decreased to a value of $33,452, due in part to a decrease in the
market value of the Company's common stock to $0.32 from $0.50 at
March 31, 2005, which resulted in an "other income" item of $23,333.
The company used a closing price of $0.32, an exercise price of
$0.50, a 4.50 year remaining term, and a 54% volatility factor.
The recorded value of such warrants can fluctuate significantly
based on fluctuations in the market value of the underlying
securities of the issuer of the warrants, as well as in the
volatility of the stock price during the term used for observation
and the term remaining for the warrants.
In accordance with Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended ("SFAS 133"), the holder's conversion right provision,
interest rate adjustment provision, liquidated damages clause, cash
premium option, and the redemption option (collectively, the debt
features) contained in the terms governing the Notes are not clearly
and closely related to the characteristics of the Notes.
Accordingly, the debt features qualified as embedded derivative
instruments at issuance and, because they do not qualify for any
scope exception within SFAS 133, they were required by SFAS 133 to
be accounted for separately from the debt instrument and recorded as
derivative financial instruments.
DEBT FEATURES
Pursuant to the terms of the Notes, these notes are convertible at
the option of the holder, at anytime on or prior to maturity. There
is an additional interest rate adjustment feature, a liquidated
damages clause, a cash premium option, and the redemption option.
The debt features represents an embedded derivative that is required
to be accounted for apart from the underlying Notes. At issuance of
the Notes (3/31/05), the debt features had an estimated initial fair
value of $9,548, which was recorded as a discount to the Notes and a
derivative liability on the consolidated balance sheet. In
subsequent periods, if the price of the security changes, the
embedded derivative financial instrument related to the debt
features will be adjusted to fair value with the corresponding
charge or credit to other expense or income. The estimated fair
value of the debt features was determined using the probability
weighted averaged expected cash flows / Lattice Model. The model
uses several assumptions including: historical stock price
volatility (utilizing a rolling 120 day period), risk-free interest
rate (3.50%), remaining maturity, and the closing price of the
Company's common stock to determine estimated fair value of the
derivative liability. In valuing the debt features at March 31,
2005, the company used the closing price of $0.50, the exercise
price of $0.50, a 2.0 year term, and a 37% volatility factor. For
the nine months ended September 30, 2005, the estimated value of the
debt features increased to $20,353, thus the company recorded an
"other expense" item on the consolidated statement of operations for
the change in fair value of the debt features of $10,805. The
company used a closing price of $0.32, an exercise price of $0.50, a
1.50 year remaining term, and a 54% volatility factor.
The recorded value of the debt features related to the Notes can
fluctuate significantly based on fluctuations in the fair value of
the Company's common stock, as well as in the volatility of the
stock price during the term used for observation and the term
remaining for the warrants.
The significant fluctuations can create significant income and
expense items on the financial statements of the company.
For the nine months ended September 30, 2005, we recorded an other
income item of $2,863,902, of which $1,540,022 of other income
related to the decrease in value of the debt features on the $1.875
million convertible note, $1,311,352 of other income related to the
decrease in warrant liability related to the warrants granted in
November 2004 to the holder's of the $1.875 million convertible
note, $23,333 of other income item related to the decrease in
warrant liability on the warrants granted to the holders of the
March 2005 $125,000 convertible note, and finally $10,805 of other
expense related to an increase in value of the derivative liability
related to the debt features of the March 2005 $125,000 convertible
note. A tabular reconciliation of this adjustment follows:
For the nine months ended September 30, 2005:
$1,540,022 income, decrease in value of 2004 derivative liability
1,311,352 income, decrease in value of 2004 warrant liability
(10,805) expense, increase in 2005 derivative liability
23,333 income, decrease in value of 2005 warrant liability
----------
$2,863,902 other income related to convertible debt
For the nine months ended September 30, 2005, the company recorded
$483,100 of interest expense related to the accretion of debt
related to the convertible financing.
For the nine months ended September 30, 2005:
$457,360 of interest expense related to accretion of 2004
convertible debt
25,740 of interest expense related to accretion of 2005
convertible debt
--------
$483,100 of interest expense related to convertible debt
NOTES PAYABLE - $200,000, MAY 2005
On May 18, 2005, the company received $200,000 in the form of a
promissory note at 12% per year. The note does not specify a term
for when it is due.
The balance of the carrying value of the convertible debt as of
September 30, 2005 is:
$ 241,111 December 31, 2004 value
457,360 accretion of 2004 convertible debt
58,667 original carrying value on 2005 convertible debt
25,740 accretion of 2005 convertible debt
84,883 interest accrual on loan minus payments of interest
--------
$ 867,761 September 30, 2005 carrying value of debt
The balance of the carrying value of the derivative liability as of
September 30, 2005 is:
$2,408,178 December 31, 2004 value of derivative liability
(1,540,022) income, decrease in value of 2004 derivative liability
9,548 original carrying value on 2005 derivative liability
10,805 expense, increase in 2005 derivative liability
- -----------
$ 888,509 September 30, 2005 value of derivative liability
The balance of the carrying value of the warrant liability as of
September 30, 2005 is:
$ 1,785,877 December 31, 2004 value of warrant liability
(1,311,352) income, decrease in value of 2004 warrant liability
56,785 original carrying value on 2005 warrant liability
23,333 income, decrease in 2005 warrant liability
- -----------
$ 507,977 September 30, 2005 value of warrant liability
NOTE 5 - RECEIVABLE FROM NUTEK OIL - ASSET HELD FOR SALE
On April 14, 2005, DSEN filed a Current Report on Form 8-K, relating
to the conversion of the South Texas Oil Company asset held for sale
into shares in South Texas Oil Company (formerly known as Nutek Oil)
and will be distributing its ownership interest in South Texas Oil
Company to shareholders of DSEN.
The dividend will take the form of a dividend certificate
representing restricted common stock, which will be distributed to
DSEN's beneficial stockholders of record as of the record date of
April 27, 2005.
The stock dividend will be distributed to owners of DSEN's common
stock as of the record date in a ratio of one share of South Texas
Oil Company, for approximately every 18 shares of common stock held
in DSEN.
On December 31, 2004 the company reviewed any need for impairment of
assets per SFAS 144. A loan is considered impaired if it is probable
that the creditor will be unable to collect all amounts due under
the contractual terms of the loan agreement. In evaluating the
impairment of the assets of the company at year end, the company
considered, among other items, (1) materiality of the asset, (2)
previous loss experience, and (3) assets that are not readily
marketable or susceptible to decline in value.
After discussions with the Board and with the management of both
Datascension, and Nutek Oil, it was determined to be in the best
interest of the Company and shareholders for the note to be
converted to stock and distributed to the shareholders.
Pursuant to the previous dividends on August 1, 2001 and January 8,
2004, the company determined it was in the best interest of it's
shareholders to convert the balance of the note into the common
stock of Nutek Oil and distribute the pro rata shares to our
shareholders. This coincides with managements plan to write off any
assets which are attributable to the history of the company which
are non-operational in nature, etc.
As of the December 31, 2004, the value of the loan to be converted
is $1,015,014 and is classified on the balance sheet of the Company
as an Asset Held For Sale.
The stock of Nutek Oil traded over $1.00 during the week of the
conversion to settle the debt owed to Datascension. The stock has
since traded as high as $1.25. Management felt strongly that the
shareholders and company were never at risk of losing the value of
the receivable. When Datascension made the agreement to convert the
receivable into the stock of Nutek Oil, it was agreed to be
converted at the $1,015,014 value of stock. The number of shares
(957,349) was only later determined based on the then average price
of $1.06. Management did not feel there was a risk of shareholders
receiving less than full credit for the value of the note.
NOTE 6 - STOCKHOLDERS' EQUITY
During the nine months ended September 30, 2005, DSEN issued
securities using the exceptions available under the Securities Act
of 1933 including unregistered sales made pursuant to Section 4(2)
of the Securities Act of 1933 as follows:
On March 31, 2005, 500,000 shares of restricted common stock valued
at $.50 per share were issued pursuant to a consulting agreement in
connection with which we are to receive certain investor relations
services. The shares have been issued for a two year contract which
can be cancelled after the first year and 50% of the shares
returned. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933
as a sale of securities not involving a public offering. We made a
determination that the consultant was a sophisticated investors with
enough knowledge and experience in business to evaluate the risks
and merits of the investment.
On March 31, 2005, 300,000 shares of restricted common stock valued
at $.50 per share were issued pursuant to a consulting agreement in
connection with which we are to receive certain investor relations
services. The shares have been issued for a two year contract which
can be cancelled after the first year and 50% of the shares
returned. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933
as a sale of securities not involving a public offering. We made a
determination that the consultant was a sophisticated investors with
enough knowledge and experience in business to evaluate the risks
and merits of the investment.
On March 31, 2005, DSEN issued a $125,000 Convertible Debenture,
pursuant to a Securities Purchase Agreement (the "Agreement") to the
Longview Fund LP. In addition, DSEN issued a common stock purchase
warrant to purchase 300,000 post reverse shares of DSEN common stock
at an exercise price of $.50 per share. The issuance of these
securities was in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933 as a sale of securities not
involving a public offering. We made a determination that the
investors were sophisticated investors with enough knowledge and
experience in business to evaluate the risks and merits of the
investment as well as accredited investors. (See Note 4)
On March 31, 2005, 50,000 shares of restricted common stock valued
at $.50 per share were issued pursuant to a consulting agreement in
connection with which we are to receive certain investor relations
services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933
as a sale of securities not involving a public offering. We made a
determination that the consultant was a sophisticated investors with
enough knowledge and experience in business to evaluate the risks
and merits of the investment.
On March 31, 2005, 100,000 shares of restricted common stock valued
at $.50 per share were issued pursuant to an employee in connection
with his employment agreement which offered the executive a 100,000
share signing bonus. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the consultant was a sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
All of these transactions were exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of
the exemptions provided under section 4(2) was available because:
- The transfer or issuance did not involve underwriters,
underwriting discounts or commissions;
- The shares were purchased for investment purposes without a view
to distribution;
- A restriction on transfer legend was placed on all certificates
issued;
- The distributions did not involve general solicitation or
advertising; and,
- The distributions were made only to insiders, accredited
investors or investors who were sophisticated enough to evaluate the
risks of the investment. Each shareholder was given access to all
information about our business and the opportunity to ask questions
and receive answers about our business from our management prior to
making any investment decision.
NOTE 7 - RELATED PARTY TRANSACTIONS
As of September 30, 2005, the Company has an outstanding note
payable to Scott Kincer, the Company's COO, in the amount of $9,000.
This payable accrues interest at 1% monthly due on the first day of
each month.
NOTE 8 - FOREIGN OPERATIONS
The company currently operates out of the United States, Costa Rica
and the Dominican Republic. The future plans of the company involve
the slowing growth at the Dominican Republic facility while focusing
on the potential and available growth in Costa Rica. Management does
not feel there is a currency risk or need to assess a foreign
currency translation adjustment or other comprehensive income item
as income and expense items are negotiated in the US dollar. The
Company maintains their accountings records in U.S. dollars and all
payments are made in US dollars. All debts and assets on the books
of the company are valued based on US dollars and are not translated
from a foreign currency amount. The Company currently coordinates
all foreign operations, and supervision activities using part time
employees, consultants and contract labor. Approximately 85% of the
company's workforce is outside of the United States. Currently 100%
of the company's clients are US based companies. Any resulting
foreign exchange fluctuations do not affect the payment of
employees, contract labor or off shore operations.
NOTE 9 - RESTATEMENT OF FINANCIAL STATEMENTS
2003:
The net loss for 2003 was previously reported as $(182,895), while
the 2003 restated loss is $246,533, an increase of $63,638, which is
attributable to the increase in amortization expense of $63,638. The
effect of the restatement to the 2003 balance sheet was a decrease
in the asset value of the intangible assets which had previously not
been amortized correctly. The value of the other assets decreased
$63,638.
2004:
The loss after discontinued operations for 2004 was originally
$4,791,105, while the 2004 restated loss after discontinued
operations is reported as $6,052,366, an increase of $1,261,261.
This is due to an increase in other expenses related to the
convertible debt of $2,489,116, as well as an increase in the
interest expense related to the convertible debt of $52,300, coupled
with a decrease in the beneficial conversion feature debt discount
expense of $1,203,646, a decrease in the loss from discontinued
operations of $63,638, and a decrease in interest expense of
$12,871.
On the 2004 balance sheet, the restatement resulted in the removal
of $2,077,604 of debt discount from the other asset section, an
increase in prepaid expenses of $5,879. The convertible debt in the
liability section of the company's financial statements decreased
from $1,893,750 to $241,111, while there was an increase in the
derivative liability from $0 to $2,408,178, as well as an increase
in the warrant liability from $0 to $1,785,877 and a decrease in
additional paid in capital of $3,300,000.
The basic loss per share increased from the previously reported
$0.19 per share to $0.28 per share for the year ended December 31,
2004, while the diluted loss per share increased from the previously
reported $0.18 per share to $0.26 per share.
2005:
The net income for the nine months September 30, 2005, was
originally $1,095,730, while the nine months September 30, 2005
restated income is reported as $1,732,336, an increase of $636,606.
This is due to an increase in other income related to the
convertible debt of $564,944, as well as a decrease in the interest
expense related to the convertible debt of $47,545, and a decrease
in interest expense of $24,117.
On the September 30, 2005 balance sheet, the restatement resulted
from an increase in prepaid expenses of $18,238. The convertible
debt in the liability section of the company's financial statements
increased from $931,970 to $1,067,761, and while there was an
increase in the derivative liability from $735,921 to $888,509.
The basic income per share increased from the previously reported
$0.06 per share to $0.10 per share for the nine months ended
September 30, 2005, while the diluted income per share increased
from the previously reported $0.04 per share to $0.06 per share.
It is anticipated that the company will restate the December 31,
2004 10KSB, the March 31, 2005 10QSB, the June 30, 2005 10QSB, and
the September 30, 2005 10QSB to reflect the above adjustments.
ITEM 7. FINANCIAL STATEMENTS.
DATASCENSION INC.
FINANCIAL STATEMENTS
--------------------
December 31, 2004
December 31, 2003
F-1
TABLE OF CONTENTS
-----------------
PAGE
- ----
INDEPENDENT AUDITORS' REPORT:
Independent Auditors Report - 2004 F-3
Independent Auditors Report - 2003 F-4
FINANCIAL STATEMENTS:
Balance Sheets F-5
Statements of Operations F-6
Statement of Changes in Stockholders' Equity F-7
Statements of Cash Flows F-8
NOTES TO FINANCIAL STATEMENTS: F-9
F-2
Larry O'Donnell, CPA, P.C.
Telephone (303)745-4545
2228 South Fraser Street
Unit 1
Aurora, Colorado 80014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Datascension, Inc. formerly Nutek, Inc.
Las Vegas, Nevada
I have audited the accompanying balance sheet of Datascension,
Inc. formerly Nutek, Inc., a Nevada corporation, as of December 31,
2004, and the related statements of loss, changes in
stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audit in accordance with standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that I 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. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Datascension, Inc. formerly Nutek, Inc., as of December 31,
2004, and the results of its operations and cash flows for the year
then ended in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 17 to the financial statements, the Company has
restated its financial statements for the year ended December 31,
2004 for a correction of error related to the treatment of the
convertible debt.
Larry O'Donnell, CPA, P.C.
March 24, 2005 (except for Note 2, 4, 6, 7, and 17, November 28,
2005)
F-3
Gary V. Campbell, CPA, Ltd.
Certified Public Accountants
7440 West Sahara
Las Vegas, Nevada, 89117
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Nutek, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of
Nutek, Inc., (a Nevada corporation), as of December 31, 2003, and
the related consolidated statement of income, changes in
stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audits in accordance with the Public Company
Accounting Oversight Board (United States). 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
Nutek, Inc., as of December 31, 2003, and the results of its
operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States
of America.
As discussed in Note 17 to the financial statements, the Company has
restated its financial statements for the year ended December 31,
2003 for a correction of error related to the amortization of
intangibles.
Gary V. Campbell, CPA, Ltd.
Las Vegas, Nevada
March 30, 2004 (except for Note 2 and 17, November 28, 2005)
F-4
DATASCENSION, INC.
BALANCE SHEETS
AS OF
December 31, 2004 and December 31, 2003
ASSETS
Restated Restated
Audited Audited
12/31/04 12/31/03
CURRENT ASSETS:
Cash $ 556,593 $ 122,891
Accounts receivable 1,533,969 1,087,694
Inventory - 227,997
Accrued income - 11,200
Prepaid expenses 186,306 194,623
Note receivable, related party - 1,250
Investment in Century Innovations 108,469 -
---------- ----------
TOTAL CURRENT ASSETS $2,385,337 $1,645,655
Property and Equipment, net of accumulated
depreciation 681,346 3,374,421
OTHER ASSETS:
Asset held for sale (see notes) 1,015,014 -
Notes receivable, net of current portion - 5,800
Patent rights acquired, net of amortization - 518,761
Long-term investment - 8,000
Website assets, net of amortization 4,520 26,184
Customer lists, net of amortization - 40,278
Patterns/designs, net of amortization - 42,083
Packaging design/artwork, net of amortization - 74,898
Deposits 25,399 51,892
Goodwill 1,692,782 1,692,782
Trademarks - 7,466
Licensing fees - 50,000
---------- ----------
TOTAL OTHER ASSETS 2,737,715 2,518,144
---------- ----------
TOTAL ASSETS $5,804,398 $7,538,220
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 135,533 $ 278,022
Accrued expenses 1,390,880 182,377
Line of credit - 449,650
Accrued contingent liabilities - 338,461
Notes payable, related party 60,038 328,540
Short term notes payable 121,742 -
Convertible debt, net of current portion 241,111 -
Derivative liability 2,408,178 -
Warrant liability 1,785,877 -
Current portion of long-term notes payable 116,207 102,033
---------- ----------
TOTAL CURRENT LIABILITIES $6,259,566 $1,679,083
LONG-TERM DEBT
Long-term notes payable, net of current
portion 103,548 16,565
---------- ----------
TOTAL LONG-TERM DEBT 103,548 16,565
TOTAL LIABILITIES 6,363,114 1,695,648
Noncontrolling interest in
subsidiary of Nutek Oil, Inc. - 311,137
STOCKHOLDERS' EQUITY:
Common stock:
Common stock, $0.001 par value, 200,000,000
shares authorized; 16,257,290 shares issued,
15,298,957 outstanding at December 31, 2004 159,875 150,554
Additional paid-in capital-common stock 11,029,295 10,802,058
Preferred stock Series B:
Preferred stock, $0.001 par value, 10,000,000
shares authorized; 506,400 Series B shares
issued and outstanding at December 31, 2004 506 509
Additional paid-in capital-preferred Series B 481,994 507,992
Subscriptions receivable (119,063) (604,804)
Treasury Stock (134,388) (134,388)
Accumulated deficit (11,976,936) (5,190,486)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (558,716) 5,531,435
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,804,398 $7,538,220
========== ==========
See accompanying notes to financial statements
F-5
DATASCENSION, INC.
STATEMENT OF OPERATIONS
FOR YEARS ENDED
December 31, 2004 and December 31, 2003
Restated Restated
Audited Audited
For the For the
Year ended Year ended
12/31/2004 12/31/ 2003
------------ ------------
REVENUE $ 8,471,440 $ 7,057,087
COST OF GOODS SOLD 7,071,784 4,039,344
------------ ------------
GROSS PROFIT 1,399,656 3,017,743
EXPENSES:
Selling, general and administrative $ 2,430,666 $ 2,633,934
Depreciation and amortization 270,893 340,231
Asset impairment 328,492 -
Contingency accrual - 292,500
Lawsuit liability - 45,000
------------ ------------
TOTAL EXPENSES 3,030,051 3,311,665
OPERATING INCOME (1,630,395) (293,922)
OTHER INCOME (EXPENSE):
Interest income 743 1,898
Forgiveness of debt 55,000 99,274
Other income 11,210 17,352
Interest expense (216,507) (97,728)
Other (Expense), from convertible (2,489,116) -
Interest (expense), from convertible (52,300) -
Minority interest, Nutek Oil, Inc. - 26,593
------------ ------------
TOTAL OTHER INCOME (2,690,970) 47,389
Net Income (loss) $ (4,321,365) $ (246,533)
Discontinued Operations $ (1,731,001) $ -
------------ ------------
Net Income (loss) after
discontinued operations $ (6,052,366) $ (246,533)
------------ ------------
Basic weighted average number
of common shares outstanding 15,671,867 9,617,251*
Diluted weighted average number
of common shares outstanding 16,594,223 9,617,251*
BASIC NET INCOME PER SHARE $ (0.28) $ (0.03)
DISCONTINUED OPERATIONS $ (0.11) $ (0.00)
BASIC NET INCOME PER SHARE ------------ ------------
AFTER DISCONTINUED OPERATIONS $ (0.39) $ (0.03)
DILUTED NET INCOME PER SHARE $ (0.26) $ (0.03)
DISCONTINUED OPERATIONS $ (0.10) $ (0.00)
DILUTED NET INCOME PER SHARE ------------ ------------
AFTER DISCONTINUED OPERATIONS $ (0.36) $ (0.03)
See accompanying notes to financial statements
* = split adjusted
F-6
DATASCENSION Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED
December 31, 2004 and December 31, 2003
Audited
Restated
Common Common Additional Preferred Preferred Preferred - Preferred
A
Stock Stock Paid-in Stock Stock Add. Paid Stock
Shares Shares
Shares Amount Capital Series A Series A In Capital Series B
Balances at
12/31/02 8,897,391 88,974 7,555,559 559,508 560 3,021,132 508,500
Sale of Stock 363,889 3,639 113,408 - - - -
Issuance for Settlement of Bonds 168,374 1,684 106,507 - - - -
Issuance for Services 550,473 5,505 192,055 - - - -
Accrual of Preferred Dividends - - - - - - -
Preferred purchases / posted - - - (52,000) (52) (136,358) -
Preferred converted 5,075,080 50,751 2,834,530 (507,508) (508) (2,884,774) -
Change in ownership of Nutek Oil - - - - - - -
Allocation of Minority Interest
In Subsidiary Earnings - - - - - - -
Net Profit for Quarter
Ended December 31, 2003 - - - - - - -
Balance at December 31, 2003 15,055,207 150,552 10,802,059 - - (0) 508,500
Prior period adjustment
Sale of Stock 187,500 1,875 73,125 - - - -
Issuance for Services 12,500 125 6,125 - - - -
Settlement of Series B 50,000 500 25,500 - - - (2,600)
Distribution / Sale of Nutek Oil - - - - - - -
Ownership
Issuances for Services 47,500 475 37,275 - - - -
Issuances for Services 12,500 125 6,125 - - - -
Adjustment for Preferred Converted 395,000 3,950 (3,950) - - - -
Additional shares issued related
to prior contract 110,000 1,100 9,400 - - - -
Additional cost for dialers 52,083 521 7,812 - - - -
Prior quarter investment adjustment 22,500 225 - - - - -
Issuances for Services 12,500 125 6,125
Issuances for Services 300,000 300 59,700
Distribution of Century Innovations
Century no longer consolidated
Write down of assets
Net Loss for Year - - - - - - -
---------- -------- --------- ---------- ---------- ----------- ----------
Balance at December 31, 2004 16,257,290 159,873 11,029,295 - - (0) 505,900
---------- -------- --------- ---------- ---------- ----------- ----------
Preferred Preferred - Non-Controlling
B
Stock Add. Paid Treasury Subscribed Interest Income Total
Series B In Capital Stock Stock In Subsidiary Deficit Equity
Balances at
12/31/02 509 507,992 (134,388) (153,750) 355,782 (4,943,953) 6,298,416
Sale of Stock - - - - - - 117,046
Issuance for Settlement of Bonds - - - - - - 108,190
Issuance for Services - - - - - - 197,560
Accrual of Preferred Dividends - - - - - - -
Preferred purchases / posted - - - - - - (136,410)
Preferred converted - - - - - - (1)
Change in ownership of Nutek Oil - - - - (18,052) - (18,052)
Allocation of Minority Interest
In Subsidiary Earnings - - - - (26,593) - (26,593)
Net Profit for Quarter
Ended December 31, 2003 - - - - - (246,533) (246,533)
----- -------- --------- ---------- ---------- ----------- ----------
Balance at December 31, 2003 509 507,992 (134,388) (153,750) 311,136 (5,190,486) 6,293,623
----- -------- --------- ---------- ---------- ----------- ----------
Removal of Nutek Oil retained earnings 219,709 219,709
Sale of Stock - - - - - - 75,000
Issuance for Services - - - - - - 6,250
Settlement of Series B (3) (25,997) - - - - -
Distribution / Sale of Nutek Oil - - - - (311,136) (83,708) (394,844)
Ownership
Issuances for Services - - - - - - 37,750
Issuances for Services - - - - - - 6,250
Adjustment for Preferred Converted - - - - - - -
Shares issued for prior contract adjustment - - - - - - 10,500
Additional cost for dialers - - - - - - 8,333
Prior quarter investment adjustment - - - - - - 225
Issuances for Services
Issuances for Services
Distribution of Century Innovations (976,221)
Century no longer consolidated 106,137
Write down of assets 153,750
Move receivable to subscribed stock (119,063)
Net Loss for Year - - - - - (6,052,366) (6,052,366)
----- -------- --------- ---------- ---------- ----------- ----------
Balance at December 31, 2004 506 481,994 (134,388) (119,063) 0 (11,976,936)$(558,717)
----- -------- --------- ---------- ---------- ----------- ----------
See accompanying notes to financial statements
F-7
DATASCENSION Inc.
STATEMENT OF CASH FLOWS
FOR YEARS ENDED
December 31, 2004 and December 31, 2003
Restated Restated
Audited Audited
FOR THE YEAR ENDED FOR THE YEAR ENDED
CASH FLOWS FROM OPERATING ACTIVITIES: 12/31/04 12/31/03
------------------ ------------------
Net income $ (6,052,366) $ (246,533)
Adjustments to reconcile net income to net
cash provided by operating activities:
Issued for services 135,333 61,153
Discontinued operations / impairment of assets 1,688,070 -
Impairment of assets 328,492
Non cash expenses associated with convertible debt 2,489,116
Depreciation and amortization 270,893 340,231
Investment in Century Innovations - -
(Decrease) Increase in contingent liabilities (338,461)
Increase in non-controlling interest in subsidiary - (44,645)
Forgiveness of debt (55,000) (62,217)
(Increase) Decrease in accounts receivable (446,275) 206,027
Increase in inventory - (5,108)
Increase in prepaid expenses 8,317 (75,216)
Increase in deposits 26,493 (21,608)
Decrease in accounts payable (142,489) (313,704)
Decrease in accrued expenses 1,208,503 29,024
------------------ ----------------
NET CASH USED BY OPERATING ACTIVITIES $ (879,374) $ (132,596)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in notes receivable 7,050 308,402
Purchase of property and equipment (219,996) (90,290)
Purchase of intangible assets - (23,897)
------------------ ----------------
NET CASH USED BY INVESTING ACTIVITIES (212,946) 194,215
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 222,899 (175,992)
Increase (Decrease) in related party payable (268,502) -
Increase (Decrease) in convertible debt 241,111 -
Issuance of common stock 75,225 117,043
Change in warrant liability 936,714 -
Change in derivative liability 768,225 -
(Decrease) Increase in line of credit (449,650) 75,850
------------------ ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,526,022 16,901
------------------ ----------------
NET INCREASE IN CASH 433,702 78,520
BALANCE, BEGINNING 122,891 44,371
BALANCE, ENDING $ 556,593 $ 122,891
================== ================
INTEREST PAID $ 97,728 $ 20,697
TAXES PAID $ - $ -
See accompanying notes to financial statements
F-8
DATASCENSION, INC.
DATASCENSION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - HISTORY AND ORGANIZATION OF THE COMPANY
Datascension, Inc. (formerly known as Nutek, Inc.) was incorporated
in August 1991 under the laws of the State of Nevada as Nutek, Inc.
(the "Company") and is engaged in the market research industry.
Datascension International, Inc. and related assets were purchased
on September 27, 2001 for $2,200,000 using company shares at fair
market value. Datascension International, Inc. is a premier data
solutions company representing a unique expertise in the collecting,
storage, processing, and interpretation of data. During 2002,
Datascension International, Inc. expanded operations into Costa
Rica.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's policy is to prepare the financial statements on the
accrual basis of accounting. The fiscal year end is December 31. In
the opinion of management, all adjustments considered necessary for
a fair presentation have been included.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
maturities of three months or less when purchased.
Investments and Marketable Securities
The Company has adopted FASB No. 115. Equity securities are
classified as available for sale and reported at fair value.
Investments are recorded at the lower of cost or market. Any
reductions in market value below cost are shown as unrealized losses
in the consolidated statement of operations.
Consolidation Policy
The accompanying consolidated financial statements include the
accounts of Datascension, Inc. and Datascension International, Inc.
All significant inter-company balances and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make
estimates and assumptions which affect the reported amounts of
assets and liabilities as of the date of the financial statements
and revenues and expenses for the period reported. Actual results
may differ from these estimates.
Comprehensive Income
Statements of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130), requires that total comprehensive
income be reported in the financial statements. The Company does not
have any items considered to be other comprehensive income for the
year ended December 31, 2004.
Fixed Assets
Fixed assets are stated at cost. Expenditures that materially
increase the life of the assets are capitalized. Ordinary
maintenance and repairs are charged to expense as incurred. When
assets are sold or otherwise disposed of, the cost and the related
accumulated depreciation and amortization are removed from the
accounts and any resulting gain or loss is recognized at that time.
Depreciation is computed primarily on the straight-line method for
financial statement purposes over the following estimated useful
lives:
Computer equipment 5 years
Furniture and fixtures 7 years
Office equipment 5 years
Equipment and machinery 20 years
All assets are booked at historical purchase price and there is no
variance between book value and the purchase price.
Revenue Recognition
We recognize revenues when survey data is delivered to the client in
accordance with the terms of our agreements. Research products are
delivered within a short period, generally ranging from a few days
to approximately eight weeks. An appropriate deferral is made for
direct costs related to contracts in process, and no revenue is
recognized until delivery of the data has taken place. Billings
rendered in advance of services being performed, as well as customer
deposits received in advance, are recorded as a current liability
included in deferred revenue. We are required to estimate contract
losses, if any, and provide for such losses in the period they are
determined and estimable. We do not believe that there are realistic
alternatives to our revenue recognition policy given the short
period of service delivery and the requirement to deliver completed
surveys to our customers. We do not believe there is significant
risk of recognizing revenue prematurely since our contracts are
standardized, the earnings process is short and no single project
accounts for a significant portion of our revenue.
Intangible Assets
The Company has adopted SFAS No. 142, "Goodwill and Other Intangible
Assets", which requires that goodwill and other indefinite lived
intangible assets are no longer amortized, but reviewed annually, or
sooner if deemed necessary, for impairment. Intangible assets with
finite lives are amortized over the useful life. Under guidance from
SFAS No. 142, management has determined that the assets in the
subsidiaries determined to be discontinued operations should be
impaired. The respective assets have been written down. See Note 13
Discontinued Operations.
Net Income Per Share
Basic net income per share is computed using the weighted average
number of shares of common stock outstanding for the period end. The
net income (loss) for the period end is divided by the weighted
average number of shares outstanding for that period to arrive at
net income per share.
Diluted net income per share reflects the potential dilution that
could occur if the securities or other contracts to issue common
stock were exercised or converted into common stock.
Compensated Absences
The Company has made no accrual for vacation or sick pay because the
Company does not provide for these benefits.
Advertising
Advertising costs are expensed when incurred. Advertising for the
year ended December 31, 2004 amounted to $3,176.
Research and Development
The Company expenses its research and development in the periods
incurred.
Concentrations of Credit Risk
Credit risk represents the accounting loss that would be recognized
at the reporting date if counter parties failed completely to
perform as contracted. Concentrations of credit risk (whether on or
off balance sheet) that arise from financial instruments exist for
groups of customers or counter parties when they have similar
economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in
economic or other conditions described below.
The Company operates in one segment, the market research industry.
100% of the Company's customers are located within the United States
of America.
During the year ended December 31, 2004, the Company had three major
clients, The National Research Group and Roper ASW each account for
about 10% of sales each year and Sandelman & Associates, which
accounts for about 25% of sales each year. Management believes the
loss of one of these key clients would materially affect the
operations of the company in the short term.
Convertible Debt Financing and Derivative Liabilities
In accordance with Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended ("SFAS 133"), the holder's conversion right provision,
interest rate adjustment provision, liquidated damages clause, cash
premium option, and the redemption option (collectively, the debt
features) contained in the terms governing the Notes are not clearly
and closely related to the characteristics of the Notes.
Accordingly, the features qualified as embedded derivative
instruments at issuance and, because they do not qualify for any
scope exception within SFAS 133, they were required by SFAS 133 to
be accounted for separately from the debt instrument and recorded as
derivative financial instruments.
During the year ended December 31, 2004, we recorded an other
expense item of $2,489,116, of which, $1,639,953 (expense) and
$849,163 (expense) related to the debt features and warrants,
respectively, to reflect the change in fair value of the derivative
liability. During the year ended December 31, 2003, there was no
income or expense items related to convertible debt as there was
none outstanding.
During the nine months ended September 30, 2005, we recorded an
other income item of $2,863,902, of which, $1,529,217 (income) and
$1,334,685 (income) related to the debt features and warrants,
respectively, to reflect the change in fair value of the derivative
liability. During the nine months ended September 30, 2004, there
was no income or expense items related to convertible debt as there
was none outstanding.
At each balance sheet date, we adjust the derivative financial
instruments to their estimated fair value and analyze the
instruments to determine their classification as a liability or
equity. As of December 31, 2004, the estimated fair value of our
derivative liability was $2.41 million, as well as a warrant
liability of $1.79 million. As of December 31, 2003, there was no
asset or liability related to convertible debt. The estimated fair
value of the debt features was determined using the probability
weighted averaged expected cash flows / Lattice Model. The model
uses several assumptions including: historical stock price
volatility (utilizing a rolling 120 day period), risk-free interest
rate (3.50%), remaining maturity, and the closing price of the
Company's common stock to determine estimated fair value of the
derivative asset. In valuing the debt features at December 31, 2004,
the company used the closing price of $0.65 and the exercise price
of $0.30. For the year ended December 31, 2004, due in part to an
increase in the market value of the Company's common stock to $0.65
from $0.40 at issuance, the Company recorded an "other expense" item
on the consolidated statement of operations for the change in fair
value of $1,639,953. At December 31, 2004, the estimated fair value
of the debt features was approximately $2,408,178. For the nine
months ended September 30, 2005, the estimated value of the
company's debt features decreased to $888,509, thus the company
recorded an "other income" item on the consolidated statement of
operations for the change in fair value of the debt features of
$1,529,217 for the nine months ended September 30, 2005.
Recently Issued Accounting Pronouncements
FASB Interpretation 46R "Consolidation of Variable Interest
Entities", as revised (FIN 46R), requires that variable interest
entities created before December 31, 2003 be consolidated during the
first interim period beginning after December 15, 2003. Management
does not believe this pronouncement will have a material effect on
the financial statements of the company.
In January, 2004 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 (revised 2003)
"Employers' Disclosures about Pensions and Other Postretirement
Benefits", an amendment of FASB Statements No. 87, 88, and 106. The
Statement revises employers' disclosures about pension plans and
other postretirement benefit plans. The statement retains the
disclosure requirements contained in FASB Statement No. 132, which
it replaces, and requires additional annual disclosures about the
assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other defined benefit
postretirement plans. Statement No. 132R requires us to provide
disclosures in interim periods for pensions and other postretirement
benefits. Management does not believe this pronouncement will have a
material effect on the financial statements of the company.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs an
amendment of ARB No. 43, Chapter 4." This Statement clarifies the
accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials. This Statement is effective
for inventory costs incurred during fiscal years beginning after
June 15, 2005. Management does not believe this pronouncement will
have a material effect on the financial statements of the company.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real
Estate Time-Sharing Transactions - an amendment of FASB Statements
No. 66 and 67." This Statement references the financial accounting
and reporting guidance for real estate time-sharing transactions
that is provided in AICPA Statement of Position 04-2, "Accounting
for Real Estate Time-Sharing Transactions." This Statement also
states that the guidance for incidental operations and costs
incurred to sell real estate projects does not apply to real estate
time-sharing transactions. This Statement is effective for financial
statements for fiscal years beginning after June 15, 2005.
Management does not believe this pronouncement will have a material
effect on the financial statements of the company.
F-11
(cont)
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 29." This
Statement eliminates the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly
as a result of the exchange. This Statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. The Company does not expect application of SFAS
No. 153 to have a material affect on its financial statements.
Accounts Receivable
Accounts receivable are stated at the amount management expects to
collect from outstanding balances. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to a
valuation allowance based on its assessment of the current status of
individual accounts. Balances outstanding after management has used
reasonable collection efforts are written off through a charge to
the valuation allowance and a credit to trade accounts receivable.
Changes in the valuation allowance have not been material to the
financial statements.
Stock Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion No.
25,
Accounting for Stock Issued to Employees, and Related
Interpretations, in accounting for stock options issued to
employees. Under APB No. 25, employee compensation cost is
recognized when estimated fair value of the underlying stock on date
of the grant exceeds exercise price of the stock option. For stock
options and warrants issued to non-employees, the Company applies
SFAS No. 123, Accounting for Stock-Based Compensation, which
requires the recognition of compensation cost based upon the fair
value of stock options at the grant date using the Black-Scholes
option pricing model.
The following table represents the effect on net loss and loss per
share if the Company had applied the fair value based method and
recognition provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation",
to stock-based employee compensation for the year ended December 31,
2004 and 2003:
2004 2003
Net loss, as reported $(6,052,366) $ (246,533)
Add: Stock-based employee
compensation expense
included in reported loss,
net of related tax effects -- --
Deduct: Total stock-based employee
compensation expense determined
under fair value based methods
for all awards, net of related tax effects (202,991) --
----------- ----------
Pro forma net loss $(6,255,357) $ (246,533)
Net loss per common share:
Basic loss per share, as reported $(0.39) $ (0.03)
Fully diluted loss per share, as reported $(0.36) $ (0.03)
Basic loss per share, pro forma $(0.40) $ (0.03)
Fully diluted loss per share, pro forma $(0.38) $ (0.03)
F-12
There were no stock options granted for the year ended December 31,
2003. See Note 5 Warrants and Option. For the options granted in
November 2004, the company used the exercise price of $0.30, the
fair market value of $0.40 per share, a 5 year term, and 25%
volatility to determine the value of the options. The latter options
do not vest until January 2005.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are made up of the following as of December
31, 2004:
Equipment and machinery $ 472,500
Office equipment 690,680
Leasehold improvements 9,959
Accumulated depreciation (491,793)
---------
$ 681,346
NOTE 4 - RECEIVABLE FROM NUTEK OIL - ASSET HELD FOR SALE
On April 14, 2005, DSEN filed a Current Report on Form 8-K, relating
to the conversion of the South Texas Oil Company asset held for sale
into shares in South Texas Oil Company (formerly known as Nutek Oil)
and will be distributing its ownership interest in South Texas Oil
Company to shareholders of DSEN.
The dividend will take the form of a dividend certificate
representing restricted common stock, which will be distributed to
DSEN's beneficial stockholders of record as of the record date of
April 27, 2005.
The stock dividend will be distributed to owners of DSEN's common
stock as of the record date in a ratio of one share of South Texas
Oil Company, for approximately every 18 shares of common stock held
in DSEN.
On December 31, 2004 the company reviewed any need for impairment of
assets per SFAS 144. A loan is considered impaired if it is probable
that the creditor will be unable to collect all amounts due under
the contractual terms of the loan agreement. In evaluating the
impairment of the assets of the company at year end, the company
considered, among other items, (1) materiality of the asset, (2)
previous loss experience, and (3) assets that are not readily
marketable or susceptible to decline in value.
After discussions with the Board and with the management of both
Datascension, and Nutek Oil, it was determined to be in the best
interest of the Company and shareholders for the note to be
converted to stock and distributed to the shareholders.
Pursuant to the previous dividends on August 1, 2001 and January 8,
2004, the company determined it was in the best interest of it's
shareholders to convert the balance of the note into the common
stock of Nutek Oil and distribute the pro rata shares to our
shareholders. This coincides with managements plan to write off any
assets which are attributable to the history of the company which
are non-operational in nature, etc.
As of the December 31, 2004, the value of the loan to be converted
is $1,015,014 and is classified on the balance sheet of the Company
as an Asset Held For Sale.
The stock of Nutek Oil traded over $1.00 during the week of the
conversion to settle the debt owed to Datascension. The stock has
since traded as high as $1.25. Management felt strongly that the
shareholders and company were never at risk of losing the value of
the receivable. When Datascension made the agreement to convert the
receivable into the stock of Nutek Oil, it was agreed to be
converted at the $1,015,014 value of stock. The number of shares
(957,349) was only later determined based on the then average price
of $1.06. Management did not feel there was a risk of shareholders
receiving less than full credit for the value of the note.
NOTE 5 - STOCKHOLDERS' EQUITY
During the fiscal year ended December 31, 2004, the Company issued
securities using the exceptions available under the Securities Act
of 1933 including unregistered sales made pursuant to Section 4(2)
of the Securities Act of 1933 as follows:
On April 20, 2004, 500,000 pre split shares of restricted common
stock valued at $.05 per share were issued pursuant to a consulting
agreement in connection with which we received certain investor
relations services. The issuance of these securities was effected
through a private transaction not involving a public offering and
was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
On April 20, 2004, 2,970,833 pre split shares of restricted common
stock
F-13
(cont)
valued at $.03 per share were issued to sophisticated investors who
indicated that they had such knowledge and experience in financial
matters that they were capable of evaluating the merits and risks
of the investment. The individuals took their shares for investment
purposes without a view to distribution and had access to
information concerning the Company. The issuance of these
securities was effected through a private transaction not involving
a public offering and was exempt from the registration provisions
of the Securities Act pursuant to Section 4(2) thereof.
On June 30, 2004, 750,000 pre split shares of restricted common
stock valued at $.03 per share were issued pursuant to a
consulting agreement in connection with which we received certain
legal services.The issuance of these securities was effected through
a private transaction not involving a public offering and was
exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
On September 3, 2004, 1,000,000 pre split shares of restricted
common stock valued at $.05 per share were issued to a note holder
in satisfaction of amounts due. The issuance of these securities was
effected through a private transaction not involving a public
offering and was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
On September 30, 2004, 62,269 pre split shares of restricted common
stock valued at $.06 per share were issued to SRC Bondholders
in satisfaction of amounts due to them. The issuance of these
securities was effected through a private transaction not
involving a public offering and was exempt from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
On December 31, 2004, the holders of 39,500 shares of our Series A
convertible preferred stock elected to convert such shares into
3,950,000 shares of our common stock. These shares had originally
been converted from common stock to Series A Preferred stock on
December 27, 2001 at $5.42 per share. These conversions were
the effected through private transactions not involving a public
offering and were exempt in each case from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
On November 17, 2004, DSEN issued an aggregate of $1,875,000 in
Convertible Debentures, pursuant to a Securities Purchase Agreement
(the "Agreement") to the following: $350,000 Convertible Debenture
to Alpha Capital Aktiengesellschaft, $525,000 Convertible Debenture
to the Longview Equity Fund LP, $775,000 Convertible Debenture to
the Longview Fund LP., and $225,000 Convertible Debenture to the
Longview International Equity Fund, LP. In addition, issued common
stock purchase warrants to purchase 3,125,000 shares of DSEN
common stock to the above note holders,at an exercise price of $0.30
per share.
On December 31, 2004, 300,000 post split shares of common stock
valued at $.20 per share were issued to four employees in
consideration of terms under their employment agreements, which
granted stock awards of common shares to certain employees.
F-14
(cont)
The issuance of these securities was effected through a private
transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section
4(2) thereof and/or the federal small issue exception for bonus
shares of reporting companies.
Options / Warrants
On December 31, 2004, four employees were given the option to
purchase additional shares of common stock for $0.30. These options
do not vest until January 2005 and at such time, the company will
recognize a compensation expense for the fair market value of those
options, which is anticipated to be the fair market value of the
common stock minus the exercise price of the respective options. See
Note 2 Stock Based Compensation, Note 7 Convertible Notes, and Note
12 Warrants and Options.
NOTE 6 - NOTES PAYABLE
The Company has entered into agreements for long-term notes payable.
Long-term
notes payable consists of the following at December 31, 2004:
Note payable to a vendor, no specific repayments terms
and no stated interest rate. Secured by assets. $ 40,000
Note payable to a vendor, monthly payments of $348
inclusive of 7% annual interest through September 2006,
secured by equipment. 6,245
Note payable to a vendor, monthly payments
of $7,375 inclusive of 10.83% annual interest through
December 2006, secured by equipment. 158,510
Note payable to a vendor, monthly payments of $906,
inclusive of 12% annual interest through February 2006.
Secured by equipment. 15,000
---------
219,755
Less current portion (116,207)
----------
$ 103,548
Principal maturities are as follows:
Twelve months ended December 31,
2005 $ 4,125
2006 33,893
2007 65,530
--------
$ 103,548
Additionally, the company has the following short term notes payable as of
December 31, 2004.
Dell Financial Services $ 3,467
Public Relations Contract 60,000
Wells Fargo Credit Card 48,577
Advanta Credit Card 9,698
----------
Total 121,742
Convertible debentures consist of the following at December
31, 2004, and December 31, 2003:
2004 2003
8% convertible subordinated debentures,
due in November 2007, convertible
into shares of common stock at 1,875,000 -
any time prior to maturity.
Interest is payable quarterly,
and principal is due at maturity.
--------- -----
1,875,000 -
Less: Discount being accrete (1,652,639) (-)
Plus: Accrued interest 18,750 (-)
--------- -----
Total debt 241,111 -
Less: current portion (0) (-)
--------- -----
Convertible debentures, less current portion $ 241,111 $ -
--------- -----
Included in the above values is $18,750 of accrued interest
related to the
convertible notes as of December 31, 2004.
F-15
NOTE 7 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES
NOTES PAYABLE - $1,875,000, NOVEMBER 2004
In November 2004, the Company issued $1,875,000 in principal amount
of Notes to third parties. As part of the financing transaction, the
Company issued warrants to purchase 3,125,000 shares of common stock
at a per share purchase price of $0.30 per share.
The Notes accrue interest at a rate of prime + 3% per annum. The
Notes are due and payable in November 2007. After a thorough review
of the terms of the note and respective covenants, the company has
determined the more conservative method of including the entire debt
as a current liability on the balance sheet. The convertible note
and warrant documents were filed in an 8-K by the Company on
November 23, 2004. The Note was entered into pursuant to the terms
of a subscription agreement between the Company and the Holder,
which was also included in the 8-K filed on November 23, 2004.
Interest payable on this Note shall accrue at the "prime rate"
published in The Wall Street Journal from time to time, plus three
percent (3%). The Interest Rate shall not be less than eight
percent (8%). Interest shall be calculated on a 360 day year.
Interest on the Principal Amount shall be payable monthly,
commencing 120 days from the closing and on the first day of each
consecutive calendar month thereafter (each, a "Repayment Date") and
on the Maturity Date.
Amortizing payments of the outstanding Principal Amount of this Note
shall commence on the first (1st) Repayment Date and shall recur on
each succeeding Repayment Date thereafter until the Principal Amount
has been repaid in full. On each Repayment Date, the Company should
make payments to the Holder in the amount of one- thirty-second
(1/32nd) of the initial Principal Amount (the "Monthly Principal
Amount"), together with any accrued and unpaid interest plus any and
all other amounts which are then owing under this Note that have not
been paid (the Monthly Principal Amount, together with such accrued
and unpaid interest and such other amounts, collectively, the
"Monthly Amount"). Any Principal Amount that remains outstanding on
the Maturity Date shall be due and payable upon maturity.
Following the occurrence and during the continuance of an Event of
Default (as discussed in the Note), the annual interest rate on the
Note shall automatically be increased by two percent (2%) per month
until such Event of Default is cured.
The Holder shall convert into shares of Common Stock all at the
Fixed Conversion Price or the maximum portion of the Monthly Amount
due on each Repayment Date provided that the average closing price
of the Common Stock for the twenty (20) consecutive trading days
immediately preceding such Repayment Date shall be greater than or
equal to 15% above the Fixed Conversion Price ("Conversion
Criterion"). The Monthly Amount due on a Repayment Date that is not
converted shall be paid by the Company (i) in cash at the rate of
104% of such Monthly Amount otherwise due, or (ii) in registered,
unlegended, free- trading Common Stock at an applied conversion rate
equal to eighty-five percent (85%) of the average of the five (5)
lowest closing bid prices for the preceding twenty (20) trading
days.
The Notes also provide for liquidated damages on the occurrence of
several events.
As compensation to the Subscriber, the Company agrees to pay (as
liquidated damages and not as a penalty) $100 per business day after
the Delivery Date for each $10,000 of Note principal amount being
converted of the corresponding Shares which are not timely
delivered.
An additional liquidating damages provision states that if the
Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if seven (7) business
days after the Delivery Date the Subscriber purchases shares of
Common Stock to deliver in satisfaction of a sale by such Subscriber
of the Common Stock which the Subscriber was entitled to receive
upon such conversion (a "BUY-IN"), then the Company shall pay in
cash to the Subscriber (in addition to any remedies available to or
elected by the Subscriber) the amount by which (A) the Subscriber's
total purchase price for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the
Note for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which
amount shall be paid as liquidated damages and not as a penalty).
For example, if the Subscriber purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 of note principal
and/or interest, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in
respect of the Buy-In.
Additionally, if the Company is unable to deliver to the holder of
Registrable Securities, then as Liquidated Damages, an amount equal
to two percent (2%) for each thirty (30) days or part thereof,
thereafter of the Purchase Price of the Notes remaining unconverted
and purchase price of Shares issued upon conversion of the Notes.
The Company must pay the Liquidated Damages in cash or an amount
equal to two hundred percent of such cash Liquidated Damages if paid
in additional shares of registered unlegended free-trading shares of
Common Stock. Such Common Stock shall be valued at a per share value
equal to 85% of the average of the five (5) lowest closing bid
prices of the Common Stock for the twenty (20) trading days
preceding the first day of each thirty (30) day or shorter period
for which Liquidated Damages are payable. As of September 30, 2005,
no liquidating damages have been incurred by the company.
Redemption Option - The Company will have the option of prepaying
the outstanding Principal Amount ("Optional Redemption"), in whole
or in part, by paying to the Holder a sum of money equal to one
hundred twenty percent (120%) of the Principal Amount to be
redeemed, together with accrued but unpaid interest thereon
Debt features. The Holder shall have the right, but not the
obligation, to convert all or any portion of the then aggregate
outstanding Principal Amount of this Note, together with interest
and fees due hereon, into shares of Common Stock.
The $1,875,000 in proceeds from the financing transaction were
allocated to the debt features and to the warrants based upon their
fair values. After the latter allocations, there was $170,061 of
remaining value to be allocated to the Note on the financial
statements.
The debt discount is being accreted using the effective interest
method over the term of the note.
The value of the discount on the converted notes on the books is
being accreted over the term of the note (three years). For the
years ended December 31, 2004 and 2003, the Company accreted $52,300
and $0, respectively, of debt discount related to the Notes. For the
nine months ended September 30, 2005, the Company accreted $457,360
of the debt discount related to these Notes.
WARRANTS ISSUED
The estimated fair value of the 3,125,000 warrants at issuance
(11/11/2004) was $936,714 and has been classified as a derivative
instrument and recorded as a liability on the Company's balance
sheet in accordance with current authoritative guidance. The
estimated fair value of the warrants was determined using the Black-
Scholes option-pricing model with a closing price of $0.40, an
exercise price of $0.30, a 5.0 year term, and a volatility factor of
89%. The model uses several assumptions including: historical stock
price volatility (utilizing a rolling 120 day period), risk-free
interest rate (3.50%), remaining maturity, and the closing price of
the Company's common stock to determine estimated fair value of the
derivative liability. In valuing the warrants at December 31, 2004,
the company used the closing price of $0.65, the exercise price of
$0.30, a 4.88 year remaining term, and a volatility of 116% In
accordance with the provisions of SFAS No. 133, Accounting for
Derivative Instruments, the Company is required to adjust the
carrying value of the instrument to its fair value at each balance
sheet date and recognize any change since the prior balance sheet
date as a component of Other Income (Expense). The warrant
derivative liability at December 31, 2004, had increased to a fair
value of $1,785,877, due in part to an increase in the market value
of the Company's common stock to $0.65 from $0.40 at issuance, which
resulted in an "other expense" item of $849,163 on the Company's
books. For the nine months ended September 30, 2005, the warrant
derivative liability had decreased to a value of $474,525, due in
part to a decrease in the market value of the Company's common stock
to $0.40 from $0.65 at December 31, 2004, which resulted in an
"other income" item of $1,311,352 for the nine months ended
September 30, 2005. The company used a closing price of $0.32, an
exercise price of $0.30, a 4.13 years remaining term, and a 54%
volatility factor.
The recorded value of such warrants can fluctuate significantly
based on fluctuations in the market value of the underlying
securities of the issuer of the warrants, as well as in the
volatility of the stock price during the term used for observation
and the term remaining for the warrants.
In accordance with Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended ("SFAS 133"), the debt features provision (collectively,
the features) contained in the terms governing the Notes are not
clearly and closely related to the characteristics of the Notes.
Accordingly, the features qualified as embedded derivative
instruments at issuance and, because they do not qualify for any
scope exception within SFAS 133, they were required by SFAS 133 to
be accounted for separately from the debt instrument and recorded as
derivative financial instruments.
DEBT FEATURES
Pursuant to the terms of the Notes, these notes are convertible at
the option of the holder, at anytime on or prior to maturity. There
is an additional interest rate adjustment feature, a liquidated
damages clause, a cash premium option, as well as the redemption
option. The debt features represents an embedded derivative that is
required to be accounted for apart from the underlying Notes. At
issuance of the Notes (11/11/2004), the debt features had an
estimated initial fair value of $768,225, which was recorded as a
discount to the Notes and a derivative liability on the consolidated
balance sheet. In subsequent periods, if the price of the security
changes, the embedded derivative financial instrument related to the
debt features will be adjusted to the fair value with the
corresponding charge or credit to other expense or income. The
estimated fair value of the debt features was determined using the
probability weighted averaged expected cash flows / Lattice Model
with a closing price of $0.40, an exercise price of $0.30, a 3.0
year term, and a volatility factor of 89%. The model uses several
assumptions including: historical stock price volatility (utilizing
a rolling 120 day period), risk-free interest rate (3.50%),
remaining maturity, and the closing price of the Company's common
stock to determine estimated fair value of the derivative liability.
In valuing the debt features at December 31, 2004, the company used
the closing price of $0.65 and the exercise price of $0.30, 2.88
year remaining term, and a volatility of 116%. For the year ended
December 31, 2004, due in part to an increase in the market value of
the Company's common stock to $0.65 from $0.40 at issuance, the
Company recorded an "other expense" on the consolidated statement of
operations for the change in fair value of the debt features of
approximately $1,639,953. At December 31, 2004, the estimated fair
value of the debt features was approximately $2,408,178. For the
nine months ended September 30, 2005, the estimated value of the
debt features decreased to $868,156, thus the company recorded an
"other income" item on the consolidated statement of operations for
the change in fair value of the debt features related to these notes
of $1,540,022 for the nine months ended September 30, 2005. The
company used a closing price of $0.32, an exercise price of $0.272,
a 2.13 years remaining term, and a 54% volatility factor.
The recorded value of the debt features related to the Notes can
fluctuate significantly based on fluctuations in the fair value of
the Company's common stock, as well as in the volatility of the
stock price during the term used for observation and the term
remaining for the warrants.
Pursuant to the terms of the Notes, the Company has the option of
prepaying the outstanding Principal Amount in whole or in part, by
paying to the Holder a sum of money equal to one hundred twenty
percent (120%) of the Principal Amount to be redeemed, together with
accrued but unpaid interest thereon and any and all other sums due.
Because the terms of the 2004 convertible note require such
classification, the accounting rules required additional convertible
notes and non-employee warrants to also be classified as
liabilities, regardless of the terms of the new notes and / or
warrants. This presumption has been made due to the company no
longer having the control to physical or net share settle subsequent
convertible instruments because it is tainted by the terms of the
2004 convertible notes. Were the 2004 convertible notes to not have
contained those terms or even if the 2004 transaction were not
entered into, it could have altered the treatment of the March 31,
2005 notes and the conversion features of the latter agreement may
have resulted in a different accounting treatment from the liability
classification. The March 31, 2005 note, as well as any subsequent
convertible notes or warrants, will be treated as derivative
liabilities until all such provisions are settled.
NOTE 8 - INCOME TAXES
Deferred income taxes result from timing differences in the
recognition of
expense for tax and financial statement purposes. Statements of
Financial
Accounting Standards No. 109 "Accounting for Income Taxes", (SFAS
109) requires
deferred tax liabilities or assets at the end of each period to be
determined
using the tax rate expected to be in effect when taxes are actually
paid or
recovered. The sources of those timing differences and the current
tax effect
of each were as follows:
Year
Ended
December 31, 2004
Depreciation and amortization $ 7,768
Net operating loss carry forward 6,365
Valuation allowance (14,133)
--------
$ -
The components of the net deferred tax asset at December 31, 2004
under SFAS
109 are as follows:
Depreciation and amortization $ 1,000,531
Net operating loss carryforward (1,288,138)
Valuation allowance 287,607
-----------
$ -
Reconciliations between the actual tax expense and the amount
computed by applying the U.S. Federal Income Tax rate to income before
taxes are as follows:
Year Percent of
Ended Pretax
December 31, 2004 Income
Expected $ 14,133 34%
Valuation allowance (14,133) (34%)
----------- ------
Actual expense $ - 0%
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company has $135,533 in accounts payable and approximately
$1,390,880 in accrued payroll costs for the operations of the
California, Nevada, Costa Rica, and Dominican Republic location
as of December 31, 2004.
F-17
NOTE 10 - RELATED PARTY TRANSACTIONS
As of December 31, 2004, the Company has an outstanding note payable
to Murray Conradie, the Company's CEO, in the amount of $30,688.
This payable accrues interest at 1% monthly due on the first day of
each month.
As of December 31, 2004, the Company has an outstanding note payable
to Scott Kincer, the Company's COO, in the amount of $29,000. This
payable accrues interest at 1% monthly due on the first day of each
month.
As of December 31, 2004, the Company has an outstanding note payable
to Jason Griffith, the Company's CFO, in the amount of $350. This
payable accrues interest at 1% monthly due on the first day of each
month.
NOTE 11 - CONTINGENCIES AND COMMITMENTS
Leases
The Company is committed under several non-cancelable lease
agreements for office space with various termination dates through
2011.
At December 31, 2004, aggregate future minimum payments under these
leases, are as follows:
Twelve months ended December 31,
2005 $ 152,141
2006 133,259
2007 105,773
2008 105,773
2009 -
Thereafter -
-----------
Total minimum lease payments $ 496,946
NOTE 12 - WARRANTS AND OPTIONS
The Company has adopted FASB No. 123 and will account for stock
issued for services and stock options under the fair value method.
The following table sets forth the options granted in 2004 to each
of the directors and executive officers:
Option/SAR Grants in Last Fiscal Year (Individual Grants):
Number of Percent of total
Securities Options/SARs
Underlying granted to Exercise or
Options/SARS employees in base price Expiration
Name Granted fiscal year ($/Share) date
---------- ---------- -------------- --------- -----------
Murray N. Conradie 540,000 36.4 $0.30 1/1/10
Scott Kincer 540,000 36.4 $0.30 1/1/10
Jason F. Griffith 270,000 18.8 $0.30 1/1/10
Joey Harmon 135,000 9.1 $0.30 1/1/10
F-18
There were no other options granted or exercised by the directors
and executive officers during the year ended December 31, 2004.
Compensation cost for options granted to employees has not been
recognized in the accompanying financial statements. These options
do not vest until January 2005. See Note 2 Stock Based Compensation
for proforma disclosures.
As discussed in Note 7 Convertible Notes, the company issued
3,125,000 warrants
for the purchase of common stock at $0.30 to four (4) different
entities related to a convertible note.
The following is a schedule of the activity relating to the
Company's stock
options and warrants.
Year Ended Year Ended
December 31, 2003 December 31, 2004
-------------- --------------
Weighted Avg. Weighted Avg.
Shares Exercise Shares Exercise
(x 1,000) Price (x1,000) Price
--------- --------- -------- -----------
Options and warrants
outstanding at
beginning of year - $ - - $ -
Granted:
Options - $ - 1,485 $ 0.30
Warrants - $ - 3,125 $ 0.30
Exercised - $ - - $ -
Expired:
Warrants ( - ) $ - - $ -
---- ----- ---- ----
Options and warrants
outstanding and
exercisable at end
of period - $ - 4,610 $ -
==== ====== ==== ===
Weighted average fair
value of options and
warrants granted during
the year $ - $ -
The following table summarizes information about the Company's stock options
and warrants outstanding at December 31, 2004, all of which are exercisable.
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- --------------- ---------------- ----------------- -----------------
$ 0.30 4,610,000 5 years $ 0.30
F-19
NOTE 13 - DISCONTINUED OPERATIONS
Management has determined it is in the best interest of shareholders
to write off all impaired assets and business which conflict with
the core operation of the company, the market research industry.
This write of discontinued operations includes the assets and
activities of SRC International and Kristi & Company. The assets of
Century Innovations have been distributed as well. See Note 14
Investment in Century Innovations.
As a result of receiving the current funding, the plans to spin off
of Datascension International have been put on hold indefinitely.
With the receipt of funding in November, the decision to remove
Century Innovations and write down the impaired assets in the non
operating subsidiaries, the company effectively made the single
focus of the company the call center operation and with the recently
announced changed in management (See Subsequent Event Note) the
company is furthering it's goal as having Datascension International
be the main focus of the company as a whole.
The company has expensed all asset values and costs associated with
these entities as a line item called Discontinued Operations on the
income statement.
The company has stated it plans on focusing on Datascension
International, the call center subsidiary. The expansions currently
are planned for the Costa Rica facilities.
NOTE 14 - INVESTMENT IN CENTURY INNOVATIONS
The Company previously distributed a portion of its ownership to
Datascension shareholders. The Company has additionally distributed
all but 10% of its ownership in Century to Century as Treasury Stock
on the books of Century. It will remain as Treasury Stock on the
books of Century until the effectiveness of a Form 10 registration
to be filed by Century for the shares. Within sixty (60) days of the
Form 10's effectiveness, Century will work with the Company to
distribute the shares to the then current Datascension shareholders.
NOTE 15 - SUBSEQUENT EVENTS
On March 3, 2005, the Company's Chief Executive Officer and Chairman
of the Board, Murray Conradie, announced his resignation from the
Company to focus on the development of Nutek Oil Inc. This change
will take effect on April 1, 2005.
Effective April 1, 2005, Scott Kincer, the Company's current Chief
Operating Officer will be appointed the Chief Executive Officer and
Chairman of the Board. It is not anticipated that Mr. Kincer's
employment contract will be altered or materially affected with this
change.
The Company's Chief Financial Officer and member of the Board of
Directors, Jason Griffith, announced his resignation from the
Company to focus on the development of his CPA firm and Nutek Oil
Inc. He will be transferring control of the recordkeeping for the
Company to the California office as of April 1, 2005.
Both Mr. Conradie and Mr. Griffith will remain as consultants to the
Company.
As of April 1, 2005, the Company's corporate head office are located
at 145 S. State College Blvd, Suite 350, Brea CA 92821. The new
company phone number will be 714-482-9750 and 714-482-9751 (fax).
This address and contact information is the current location for the
Datascension International California office.
F-20
NOTE 16 - FOREIGN OPERATIONS
The company currently operates out of the United States, Costa Rica
and the Dominican Republic. The future plans of the company involve
the slowing growth at the Dominican Republic facility while focusing
on the potential and available growth in Costa Rica. Management does
not feel there is a currency risk or need to assess a foreign
currency translation adjustment or other comprehensive income item
as income and expense items are negotiated in the US dollar. The
Company maintains their accountings records in U.S. dollars and all
payments are made in US dollars. All debts and assets on the books
of the company are valued based on US dollars and are not translated
from a foreign currency amount. The Company currently coordinates
all foreign operations, and supervision activities using part time
employees, consultants and contract labor. Approximately 85% of the
company's workforce is outside of the United States. Currently 100%
of the company's clients are US based companies. Any resulting
foreign exchange fluctuations do not affect the payment of
employees, contract labor or off shore operations.
NOTE 17 - RESTATEMENT OF FINANCIALS
2003
The net loss for 2003 was previously reported as $(182,895), while
the 2003 restated loss is $246,533, an increase of $63,638, which is
attributable to the increase in amortization expense of $63,638. The
effect of the restatement to the 2003 balance sheet was a decrease
in the asset value of the intangible assets which had previously not
been amortized correctly. The value of the other assets decreased
$63,638.
2004
The loss after discontinued operations for 2004 was originally
$4,791,105, while the 2004 restated loss after discontinued
operations is reported as $6,052,366, an increase of $1,261,261.
This is due to an increase in other expenses related to the
convertible debt of $2,489,116, as well as an increase in the
interest expense related to the convertible debt of $52,300, coupled
with a decrease in the beneficial conversion feature debt discount
expense of $1,203,646, a decrease in the loss from discontinued
operations of $63,638, and a decrease in interest expense of
$12,871.
On the 2004 balance sheet, the restatement resulted in the removal
of $2,077,604 of debt discount from the other asset section, an
increase in prepaid expenses of $5,879. The convertible debt in the
liability section of the company's financial statements decreased
from $1,893,750 to $241,111, while there was an increase in the
derivative liability from $0 to $2,408,178, as well as an increase
in the warrant liability from $0 to $1,785,877 and a decrease in
additional paid in capital of $3,300,000.
The basic loss per share increased from the previously reported
$0.19 per share to $0.28 per share for the year ended December 31,
2004, while the diluted loss per share increased from the previously
reported $0.18 per share to $0.26 per share.
It is anticipated that the company will restate the December 31,
2004 10KSB to reflect the above adjustments.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICER
Article XI of the Articles of Incorporation for DSEN
do contain provisions for indemnification of the officers and
directors; in addition, Section 78.751 of the Nevada General
Corporation Laws provides as follows: 78.751 Indemnification of
officers, directors, employees and agents; advance of expenses.
Consistent with the overall scope of Section 78.751 of the
Nevada Revised Statutes, Article VI of DSEN's Bylaws, state in
general, that any director or officer of DSEN who is the subject of
or a participant in a threatened, pending or completed legal action
by reason of the fact that such individual is or was a director or
officer shall be indemnified and held harmless by DSEN from and
against the consequences of such action if it is determined that he
acted in good faith and reasonably believed (i) his conduct was in
DSEN's best interest, (ii) in all other cases, that his conduct was
not opposed to the best interests of DSEN, and (iii) with respect
to criminal proceedings, that he had no reasonable cause to
believe his conduct was unlawful; provided that if it is
determined that such person is liable to DSEN or is found liable
on the basis that personal benefit was improperly received
by such person, the indemnification is limited to reasonable
expenses actually incurred by such person in connection with the
legal action and shall not be made in respect of any legal action in
which such person shall have been found liable for willful or
intentional misconduct in the performance of his duty to
DSEN. Any indemnification (unless ordered by a court of competent
jurisdiction) shall be made by DSEN only upon a determination that
indemnification of such person is proper in the circumstances by
virtue of the fact that it shall have been determined that such
person has met the applicable standard of conduct.
The Bylaws also provide that reasonable expenses, including
court costs and attorneys' fees, incurred by officers and
directors in connection with a covered legal action shall be paid by
DSEN at reasonable intervals in advance of the final disposition of
such action, upon receipt by DSEN of a written affirmation by
such person of his good faith belief that he has met the
standard of conduct necessary for indemnification, and a written
undertaking by or on behalf of such person to repay the amount paid
or reimbursed by DSEN if it is ultimately determined that he is
not entitled to be indemnified.
The Board of Directors of DSEN may also authorize DSEN
to indemnify employees or agents of DSEN, and to advance the
reasonable expenses of such persons, to the same extent,
following the same determinations and upon the same conditions as
are required for the indemnification of and advancement of
expenses to directors and officers of DSEN. As of the
date of this Registration Statement, the Board of Directors has
not extended indemnification rights to persons other than directors
and officers.
The Bylaws also provide that DSEN has the power and authority
to purchase and maintain insurance or other arrangements on
behalf of any director, officer, employee, or agent of DSEN or
any affiliate of DSEN on similar terms as those described in Section
78.752 of the Nevada Revised Statutes. DSEN's Articles of
Incorporation relieve its directors from liability for monetary
damages to the full extent permitted by Nevada law. Sections
78.751 and 78.752 of the General Corporation Law of the State
of Nevada authorize a corporation to indemnify, among others, any
officer or director against certain liabilities under specified
circumstances, and to purchase and maintain insurance on behalf
of its officers and directors.
Commission Policy
Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers or persons
controlling DSEN. DSEN has been informed that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
48
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses related to the securities being registered shall be
paid by the
Registrant.
SEC Registration Fee $ 494.13
Printing and Engraving Expenses $ 5,000.00
Legal Fees and Expenses $20,000.00
Accounting Fees and Expenses $15,000.00
Transfer Agent Fees $ 5,000.00
Blue Sky Fees $ 1,000.00
Miscellaneous $ 5,000.00
- ----------
Total $51,494.13
RECENT SALES OF UNREGISTERED SECURITIES
DSEN made the following sales of stock without registration
using the exceptions available under the Securities Act of 1933,
as amended, including unregistered sales made pursuant to Section
4(2) of the Securities Act of 1933, as follows:
On February 7, 2002, 850,000 pre split shares of restricted common
stock valued at par value ($.001) were issued to one (1)
individual, Pauline Sue Alberti, a former employee for the
settlement of a lawsuit. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a
public offering. We made a determination that the former employee
was a sophisticated investor with enough knowledge and experience
in business to evaluate the risks and merits of the investment.
On March 11, 2002, 60,902 pre split shares of restricted common
stock valued at $.025 per share were issued to two (2) individual
creditors Mr. Armstrong and Mr. Booker in satisfaction of amounts
owed for services. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On March 21, 2002, 500,000 pre split shares of restricted common
stock valued at $.03 per share were issued to one (1) individual,
James Stock pursuant to a consulting agreement in connection with
which we received certain investor relations services. The
issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale
of securities not involving a public offering. We made a
determination that the consultant was a sophisticated
investor with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On March 29, 2002, 36,812 pre split shares of restricted common
stock valued at $.025 per share were issued to one (1)
individual creditor Specialty Mud in satisfaction of amounts owed
for services. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a
public offering. We made a determination that the creditors
were sophisticated investors with enough knowledge and experience
in business to evaluate the risks and merits of the investment.
On April 4, 2002, 40,000 pre split shares of restricted common stock
valued at $.025 per share were issued to one (1) individual
creditor Clipper Operating Company in satisfaction of amounts
owed for services. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a
public offering. We made a determination that the creditors were
sophisticated investors with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
On April 15, 2002, 4,375 pre split shares of restricted common stock
valued at $.025 per share were issued to one (1) individual
creditor Hanzik Hydraulics in satisfaction of amounts owed for
services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We
made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On April 16, 2002, 2,887 pre split shares of restricted common
stock valued at $.025 per share were issued to one
49
(1) individual creditor L.R. Pruitt in satisfaction of amounts
owed for services. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a
public offering. We made a determination that the creditors
were sophisticated investors with enough knowledge and experience
in business to evaluate the risks and merits of the investment.
On April 24, 2002, 20,775 pre split shares of restricted common
stock valued at $.025 per share were issued to one (1) individual
creditor Progress Drilling in satisfaction of amounts owed for
services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We
made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On April 30, 2002, 32,535 pre split shares of restricted common
stock valued at $.025 per share were issued to three (3)
individual creditors Clipper Operating, L. Bannert and Mr.
Harrison in satisfaction of amounts owed for services. The
issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of
securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks
and merits of the investment.
On May 13, 2002, 49,567 pre split shares of restricted common stock
valued at$.025 per share were issued to one (1) individual creditor
C&S Well Service in satisfaction of amounts owed for services.
The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of
securities not involving a public offering. We made a determination
that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and
merits of the investment.
On May 24, 2002, 13,517,240 pre split shares of common stock
valued at $.0725 per share were issued to one (1) individual,
Jorge Montero Pochet for the purchase of Sin Fronteras, Inc.
The issuance of these securities was effected through a private
transaction not involving a public offering and was exempt from
the registration provisions of the Securities Act pursuant to
Section 4(2) thereof and/or Rule 506 of Regulation D promulgated
thereunder.
On May 30, 2002, 10,000 pre split shares of restricted common
stock valued at $.025 per share were issued to one (1) individual
creditor Clipper Operating Company in satisfaction of amounts
owed for services. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On August 20, 2002, 1,650,000 pre split shares of restricted
common stock valued at $.042 per share were issued to one (1)
individual sophisticated investor B. Beaulieu who indicated that he
had such knowledge and experience in financial matters that they
were capable of evaluating the merits and risks of the investment.
The individual took their shares for investment purposes without
a view to distribution and had access to information concerning
the Company. The issuance of these securities was effected
through a private transaction not involving a public
offering and was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
On November 14, 2002, 299,152 pre split shares of restricted
common stock valued at par ($.001) per share were issued to
one (1) individual, Randle Merriman to make up an error in a prior
issuance to sophisticated investors who indicated that they had such
knowledge and experience in financial matters that they were capable
of evaluating the merits and risks of the investment. All
individuals took their shares for investment purposes without
a view to distribution and had access to information
concerning the Company. The issuance of these securities was
effected through a private transaction not involving a public
offering and was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
On November 14, 2002, 297,915 pre split shares of restricted
common stock valued at $.045 per share were issued to two (2)
individual employees Kimberly Hunter and Jason Griffith in
consideration for employment services previously rendered. The
issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of
securities not involving a public offering. We made a
determination that the former employees were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On November 20, 2002, 209,215 pre split shares of restricted
common stock valued at $.025 per share were issued 50 to five (5)
individual creditors Clipper Operating, K. Moore, K. Sydnor, P.
Horick and Deagan Services in satisfaction of amounts owed for
services. The
issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a
sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks
and merits of the investment.
On February 12, 2003, 500,000 pre split shares of restricted
common stock valued at $.05 per share were issued to one (1)
individual, James Stock a sophisticated investor who indicated
that they had such knowledge and experience in financial
matters that they were capable of evaluating the meritsand risks of
the investment. The individuals took their shares for investment
purposes without a view to distribution and had access to
information concerning the Company. The issuance of these
securities was effected through a private transaction not involving
a public offering and was exempt from the registration provisions
of the Securities Act pursuant to Section 4(2) thereof.
On February 12, 2003, 1,500,000 pre split shares of restricted
common stock valued at $.03 per share were issued to two (2)
individual sophisticated investors Bill Tannaz and Jim Stock who
indicated that they had such knowledge and experience in financial
matters that they were capable of evaluating the merits and
risks of the investment. The individuals took their shares for
investment purposes without a view to distribution and had
access to information concerning the Company. The issuance of
these securities was effected through a private transaction not
involving a public offering and was exempt from the registration
provisions of the Securities Act pursuant to Section 4(2)
thereof.
On February 19, 2003, 500,000 pre split shares of restricted
common stock valued at $.05 per share were issued one (1)
individual, Jim Stock pursuant to a consulting agreement in
connection with which we received certain investor relations
services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We
made a determination that the consultant was a sophisticated
investor with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On May 20, 2003, 200,000 pre split shares of restricted common
stock valued at par ($.001) per share were issued to one (1)
individual, David Shutvet to make up an error in a prior issuance
to sophisticated investors who indicated that they had such
knowledge and experience in financial matters that they were
capable of evaluating the merits and risks of the investment. All
individuals took their shares for investment purposes without a
view to distribution and had access to information concerning
the Company. The issuance of these securities was effected
through a private transaction not involving a public offering and
was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
On May 20, 2003, 27,401 pre split shares of restricted common
stock valued at $.049 per share were issued to one (1) individual
creditor Clipper Operating Company in satisfaction of amounts owed
for services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We
made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On May 20, 2003, 1,290,000 pre split shares of restricted common
stock valued at $.03 per share were issued pursuant to one (1)
individual entity, Redwood Public Relations pursuant to a consulting
agreement in connection with which we received certain investor
relations services. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a
public offering. We made a determination that the consultant was
a sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
On June 5, 2003, 500,000 pre split shares of restricted common
stock valued at $.03 per share were issued to one (1) individual
sophisticated investor Bill Tannaz who indicated that they had
such knowledge and experience in financial matters that they were
capable of evaluating the merits and risks of the investment.
The individual took their shares for investment purposes without a
view to distribution and had access to information concerning the
Company. The issuance of these securities was effected through a
private transaction not involving a public offering and was exempt
from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
On June 5, 2003, 87,333 pre split shares of restricted common
stock valued at $.03 per share were issued to one (1)
individual creditor B. Willis in satisfaction of amounts owed
for services. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not
51
involving a public offering. We made a determination that the
creditors were sophisticated investors with enough knowledge
and experience in business to evaluate the risks and merits of the
investment.
On June 14, 2003, 500,000 pre split shares of restricted common
stock valued at $.05 per share were issued to one (1) individual
creditor Ian Burr & Company in satisfaction of amounts owed for
services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We
made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On June 30, 2003, 175,000 pre split shares of restricted common
stock valued at $.06 per share were issued to one (1) individual
creditor Accentuate, Inc in satisfaction of amounts owed for
services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We
made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On July 28, 2003, 642,889 pre split shares of restricted common
stock valued at $.03 per share were issued to two (2) individual
sophisticated investors Edward D. Tschiggfrie and B. Willis who
indicated that they had such knowledge and experience in
financial matters that they were capable of evaluating the merits
and risks of the investment. The individuals took their shares for
investment purposes without a view to distribution and had
access to information concerning the Company. The issuance of
these securities was effected through a private transaction not
involving a public offering and was exempt from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
On September 5, 2003, 1,683,741 pre split shares of restricted
common stock valued at $.06 per share were issued to ten (10)
individual SRC Bondholders James and Joann Foster, Lillian and
James M. Chudnow, Leo van Cleve, Irma Player Hall, Elizabeth
and George Parry, Delphyne L. Georgeson, William R. Schoen, Paul
R. Mathis, Luis P. Zonta, Blanche M. Jones in satisfaction of
amounts due to them. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a
public the SRC Bondholders were sophisticated investors with
enough knowledge and experience in business to evaluate the risks
and merits of the investment.
On December 31, 2003, 35,000 pre split shares of restricted common
stock valued at $.12 per share were issued to one (1) individual
creditor B. Willis in satisfaction of amounts owed for services.
The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of
securities not involving a public offering. We made a determination
that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and
merits of the investment.
On December 31, 2003, three (3) individual holders of 505,758
shares of our Series A convertible preferred stock Murray Conradie,
Kristi Conradie and Scott Kincer elected to convert such shares
into 50,575,800 shares of our common stock. These shares had
originally been converted from common stock to Series A Preferred
stock on December 27, 2001 at $5.42 per share. These
conversions were the effected through private transactions not
involving a public offering and were exempt in each case from the
registration provisions of the Securities Act pursuant to Section
4(2) thereof.
On December 31, 2003, 1,512,662 pre split shares of common stock
valued at $.06 per share were issued to two employees Murray
Conradie and Jason Griffith in consideration for employment
services previously rendered. The issuance of these securities was
in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a
public offering. We made a determination that the two employees
were sophisticated investors with enough knowledge and experience
in business to evaluate the risks and merits of the investment.
On December 31, 2003, 140,000 pre split shares of restricted
common stock valued at $.06 per share were issued to one (1)
individual creditor Accentuate, Inc in satisfaction of amounts owed
for services. The issuance of these
securities was in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933 as a sale of securities not
involving a public offering. We made a determination that the
creditors were sophisticated investors with enough knowledge and
experience in business to evaluate the risks and merits of the
investment.
On December 31, 2003, one (1) individual holder of 26,000 shares of
our Series B convertible preferred stock Dan Moeleker elected to
convert such shares into 500,000 shares of our common stock. These
conversions were the
52
effected through private transactions not involving a public
offering and were exempt in each case from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
On April 20, 2004, 500,000 pre split shares of restricted common
stock valued at $.05 per share were issued to one (1) individual,
James Stock pursuant to a consulting agreement in connection with
which we received certain investor relations services. The
issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale
of securities not involving a public offering. We made a
determination that the consultant was a sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On April 20, 2004, 2,970,833 pre split shares of restricted common
stock valued at $.03 per share were issued to two (2) individual
sophisticated investors Edward D. Tschiggfrie and B. Willis who
indicated that they had such knowledge and experience in financial
matters that they were capable of evaluating the merits and
risks of the investment. The individuals took their shares for
investment purposes without a view to distribution and had
access to information concerning the Company. The issuance of
these securities was effected through a private transaction not
involving a public offering and was exempt from the registration
provisions of the Securities Act pursuant to Section 4(2)
thereof.
On June 30, 2004, 750,000 pre split shares of restricted common
stock valued at $.03 per share were issued pursuant to a
consulting agreement to one (1) individual, Michael Morrison in
connection with which we received certain legal services. The
issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of
securities not involving a public offering. We made a determination
that the consultant was a sophisticated investor with enough
knowledge and experience in business to evaluate the risks and
merits of the investment.
On September 3, 2004, 1,000,000 pre split shares of restricted
common stock valued at $.05 per share were issued to one (1)
individual note holder J. Frank in satisfaction of amounts due.
The issuance of these securities was in a transaction deemed to
be exempt under Section 4(2) of the Securities Act of 1933 as a
sale of securities not involving a public offering. We made
a determination that the hold holder was a sophisticated investor
with enough knowledge and experience in business to evaluate the
risks and merits of the investment.
On September 30, 2004, 62,269 pre split shares of restricted
common stock valued at $.06 per share were issued to one (1)
individual SRC Bondholder Gertrude Madich in satisfaction of amounts
due to them. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We
made a determination that the creditors were sophisticated
investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On November 17, 2004, DSEN issued an aggregate of $1,875,000 in
Convertible Debentures, pursuant to a Securities Purchase Agreement
(the "Agreement") to the following four (4) individual entities:
$350,000 Convertible Debenture to Alpha Capital
Aktiengesellschaft, $525,000 Convertible Debenture to the
Longview Equity Fund LP, $775,000 Convertible Debenture to the
Longview Fund LP., and $225,000 Convertible Debenture to the
Longview International Equity Fund, LP. In addition, DSEN issued
common stock purchase warrants to purchase 3,125,000 post reverse
shares of DSEN common stock at an exercise price of $.30 per share.
The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of
securities not involving a public offering. We made a determination
that the investors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and
merits of the investment as well as accredited investors.
On December 31, 2004, two (2) individual holders of 39,500 shares of
our Series A convertible preferred stock Murray Conradie and
Scott Kincer elected to convert such shares into 395,000 post
reverse shares of our common stock. These shares had originally been
converted from common stock to Series A Preferred stock on
December 27, 2001 at $5.42 per share. The issuance of these
securities was in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933 as a sale of securities not
involving a public offering. We made a determination that the
preferred stock holders were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and
merits of the investment.
On December 31, 2004, 300,000 post split shares of common stock
valued at $.02 per share were issued to four (4) individual
employees, Murray Conradie, Scott Kincer, Joseph Harmon and Jason
Griffith in consideration of terms under their employment
agreements, which granted stock awards of common shares to certain
employees. The
53
issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a
sale of securities not involving a public offering. We made a
determination that the former employees were sophisticated investors
with enough knowledge and experience in business to evaluate the
risks and merits of the investment.
On March 31, 2005, DSEN issued a $125,000 Convertible Debenture,
pursuant to a Securities Purchase Agreement (the "Agreement") to
one (1) entity the Longview Fund LP. In addition, DSEN issued a
common stock purchase warrant to purchase 300,000 post reverse
shares of DSEN common stock at an exercise price of $.50 per
share. The issuance of these securities was in a transaction deemed
to be exempt under Section 4(2) of the Securities Act of 1933 as a
sale of securities not involving a public offering. We made a
determination that the investors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks
and merits of the investment as well as accredited investors.
54
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following documents are included or incorporated by reference as exhibits
to this report:
(2) a) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession.
2.1 Plan and Articles of Merger, filed 8/23/91(1)
2.2 Plan of Reorganization and Agreement, dated 9/20/97(1)
(3) Articles of Incorporation & By-Laws
3.1 Articles of Incorporation of the Company Filed August 23, 1991(1)
3.2 Articles of Amendment filed on April 10, 1992(1)
3.3 Certificate of Amendment of Articles of Incorporation filed on
3/3/95(1)
3.4 By-Laws of the Company adopted August 24, 1991(1)
3.5 Certificate of Amendment of Articles of Incorporation filed on
2/19/01
3.6 Articles of Incorporation - Nutek Oil, Inc. (Subsidiary)
3.7 Articles of Incorporation - Kristi and Co, Inc. (Subsidiary)
3.8 Articles of Incorporation - SRC International, Inc. (Subsidiary)
3.9 Articles of Incorporation - Century Innovations, Inc. (Subsidiary)
3.10 Articles of Incorporation - Datascension International, Inc.
(Subsidiary)
3.11 Certificate of Amendment of Articles of Incorporation filed on
1/26/04
(4) Instruments Defining the Rights of Security Holders
4.1 Those included in exhibit 3, and sample of Stock Certificate (1)
4.2 Preferred Stock (1)
5.1 Legal Opinion *
(10) Material Contracts
10.1 Purchase Agreement - Kristi and Co dated 1/6/00 (1)
10.2 Agreement for Promotion and Revenue Sharing Plan, dated 9/2/99 (1)
10.3 Purchase Agreement - Elite Fitness, dated 10/4/99 (1)
10.4 Purchase Agreement - Patent #5833350, dated 9/15/99 (1)
10.5 Purchase Agreement - Clock Mold, dated 4/30/99 (1)
10.6 Plan of Purchase and Agreement, dated 11/30/97 (1)
10.7 Transitional Employer Agreement (1)
10.8 Lease, dated October 15, 1999 (1)
10.9 Letter of Intent - Mineral Acres, dated 11/1/99 (1)
10.10 Compensation Plan (1)
10.11 Key Employees Incentive Stock Option Plan (1)
10.12 Purchase Agreement - Kristi & Company (2)
10.13 Blank
10.14 Purchase Agreement - Printing Equipment (3)
10.15 Blank
77
(cont)
10.16 Employment Agreement Murray N. Conradie (4)
10.17 Employment Agreement Donald L. Hejmanowski (4)
10.18 Employment Agreement Kristi L. Conradie (4)
10.19 Purchase Agreement - Datascension Inc. (5)
10.20 Employment Agreement David Scott Kincer (5)
10.21 Certificate of Preference Rights.
10.22 Purchase Agreement - Sin Fronteras Inc
10.23 Press Release dated May 29, 2002
10.24 Subscription Agreement for November 17, 2004 Funding (6)
10.25 Form of Convertible Note - November 17, 2004 Funding (6)
10.26 Form of Warrant - November 17, 2004 Funding (6)
10.27 Subscription Agreement for March 31, 2005 issuance. (7)
10.28 Convertible Note - March 31, 2005. (7)
10.29 Warrant - March 31, 2005. (7)
10.30 Service Agreement - Harris Interactive, Inc. (8)
10.31 Service Agreement - Towne, Inc. (8)
10.32 Service Agreement - Sandelman & Associates (8)
10.33 Service Agreement - Knowledge Networks, Inc. (8)
Exhibit 21. Subsidiaries of the small business issuer
Exhibit 23. Consent of Experts and Counsel
23.1 Consent of Counsel, Owen Naccarato (included in Exhibit 5.1)
23.2 Consent of Independent Auditor Larry O'Donnell, CPA, P.C.*
23.3 Consent of Gary V. Campbell, Certified Public Accountants.*
* Included with this filing
(1) Previously filed as an exhibit to the Company's Form 10-SB, filed
January 24, 2000.
(2) Previously filed as an exhibit to the Company's Number 1
Amendment to Form 10-SB, filed May 22, 2000.
(3) Previously filed as an exhibit to the company's quarterly report
for the period ended March 31, 2003
(4) Previously filed as an exhibit to the company's quarterly report
for the period ended June 30, 2003
(5) Previously filed as an exhibit to the company's quarterly report
for the period ended September 30, 2003
(6) Previously filed on Form 8-K November 23, 2004, File No. 000-
29087
(7) Previously filed as an exhibit to the Company's Form SB2/A, filed
April 27, 2005
(8) Previously filed as an exhibit to the Company's Form SB2/A, filed
October 11, 2005
(b) Reports on Form 8-K
The Company's report on Form 8-K dated March 26, 2003
On March 26, 2003, Registrant filed a Current Report on Form 8-K,
relating to the Company, along with a number of individual
shareholders, filing a federal lawsuit on March 21, 2003 in the
United States District Court, District of Nevada, against
Ameritrade Holding Corp., E*Trade Group Inc., Fidelity
Brokerage Services LLC, Maxim Group LLC and Charles Schwab &
Company Inc., for securities fraud, breach of contract, and
negligence, among other claims. The plaintiff group is also
demanding declaratory and injunctive relief, including asking for
general, special and punitive financial damages; and that the matter
be taken up for jury trial in the jurisdiction of the United
States District Court's Nevada District.
The Company's report on Form 8-K dated October 20, 2003
On October 20, 2003, Registrant filed a Current Report on Form 8-K,
related to the announcement of the placement of the patented
TekPlate product and various related licenses, marketing
agreements, etc., into a subsidiary corporation that will be spun
off from the parent Nutek as a wholly owned subsidiary and has
declared a stock dividend in that company. The dividend will take
the form of a dividend certificate representing common stock, which
will be distributed to the Company's beneficial stockholders of
record as of the record date. The stock dividend will be
distributed to owners of the Company's common stock as of the record
date in a ratio of one share of dividend stock in the subsidiary to
be spun off, for every 300 shares of common stock owned in Nutek
Inc.
The Company's report on Form 8-K dated October 29, 2003
On October 29, 2003, Registrant filed a Current Report on Form 8-K,
relating to the decision by the Board of Directors to extend the
record date of the dividend of its subsidiary. The new record
date will be Friday, November 7, 2003. The reason for the
extension was to allow for time to fully explain and provide the
NASD, transfer agent, and shareholders information related to the
dividend.
56
The Company's report on Form 8-K dated October 31, 2003
On October 31, 2003, Registrant filed a Current Report on Form 8-
K, updating shareholders on the lawsuit against the securities
firms. The plaintiffs filed an amended complaint alleging
securities fraud; common law fraud; conversion; negligence;
breach of contract; breach of covenant of good faith and
fair dealing; negligence based on knowledge of specific
problems in the securities industry; bad faith conduct;
deceptive trade
practice; racketeering; interference with contracts;
interference with prospective economic advantages; conversion;
conspiracy; declaratory relief and injunctive relief. The amended
complaint also added (a) fifteen (15) additional plaintiffs,
bringing the total number of plaintiffs to twenty five (25), and
(b) thirty (30) additional defendants, including twenty
two (22) named individuals from the securities industry.
The Company's report on Form 8-K dated December 24, 2003
On December 24, 2003, Registrant filed a Current Report on Form 8-
K, relating to the December 8th, 2003 press release
announcing the Company would be distributing its ownership
interest in Nutek Oil, Inc. to shareholders. Nutek Oil Inc. is a
majority owned subsidiary which is traded under the stock symbol
NUTO. The dividend will take the form of a dividend
certificate representing restricted common stock, which will
be distributed to the Company's beneficial stockholders of
record as of the record date, which is January 8, 2004. The
stock dividend will be distributed to owners of the Company's
common stock as of the record date in a ratio of one share
of dividend stock in the subsidiary to be spun off, for every
500 shares of common stock owned in Nutek Inc.
DSEN's report on Form 8-K dated January 26, 2004
On January 26, 2004, Registrant filed a Current Report on
Form 8-K relating to the press release issued announcing the
corporation name change from Nutek Inc. to Datascension Inc. and
require a mandatory share exchange. The Amended Bylaws of the
Corporation additionally require all shares include the name of
the beneficial owner of the shares.
DSEN's report on Form 8-K dated February 19, 2004
On February 19, 2004, Registrant filed a Current Report on
Form 8-K, relating to a press release issued by the Registrant's
subsidiary, Datascension International, announcing the receipt of a
contract from Sandelman & Associates for $3.5 million.
DSEN's report on Form 8-K dated March 24, 2004
On March 24, 2004, Registrant filed a Current Report on Form
8-K, stating that DSEN had received confirmation from the NASD that
the "V" would be removed from the Registrant's stock symbol,
effective March 25, 2004. All trades conducted while the "V" was
present, that is "trading as when issued", will be expected to
clear and settle by March 30, 2004. The Company's stock symbol
will be DTSN and will be changed back to T+3 status effective March
25, 2004.
DSEN's report on Form 8-K dated June 21, 2004
On June 21, 2004, Registrant filed a Current Report on Form
8-K, stating that DSEN had appointed Larry O'Donnell, CPA,
P.C., as the Registrant's independent accountants for the year
ending December 31, 2004. The selection of accountants was approved
by the Registrant's Board of Directors. Larry O'Donnell, CPA,
P.C. was engaged by the Registrant on June 18, 2004.
DSEN's report on Form 8-K dated October 22, 2004
On October 22, 2004, Registrant filed a Current Report
on Form 8-K, stating that pursuant to N.R.S. 78.060, 78.120,
the Company's Board of Directors of Datascension, Inc.,
unanimously voted to amend the corporate bylaws to no longer
require the issuance of the Registrant's common stock in beneficial
holder name. This amendment to the bylaws will allow shares to be
issued in the name of CEDE & Co. and be traded
57
through the Depository Trust & Clearing Corporation (DTC). The
reason for the bylaw change is the Company has been in
discussions with several funding sources to obtain financing for
additional expansion and growth of operations; however, these
sources have indicated they are unwilling to provide financing to
the company until such time as the company's shares trade and clear
through the depository trust.
DSEN's report on Form 8-K dated November 4, 2004
On November 4, 2004, Registrant filed a Current Report on
Form 8-K, stating that in accordance with the previous vote by
shareholders, the Board of Directors has instituted new
employment contracts with the Registrants officers and directors.
Attached to the Form 8-K are the employment contracts for
Murray Conradie (its CEO), Scott Kincer (its COO), Jason Griffith
(its CFO), and Joseph Harmon (its Vice President).
The Board structured the employment contracts based on
industry standard. Inclusive in the above signed agreements are
an executive compensation plan which includes options, which become
exercisable upon the reaching of certain milestones by the company.
DSEN's report on Form 8-K dated November 23, 2004
On November 23, 2004, Registrant filed a Current Report on Form
8-K, stating that the Registrant received funding from
institutional and accredited investors with Gross proceeds
of $1,875,000, with net proceeds to the Company of $1,657,500.
This will be considered a debt on the company's books.
DSEN's report on Form 8-K dated November 23, 2004
On November 23, 2004, Registrant filed a Current Report on Form 8-K
relating to the press release issued announcing Robert L.
Sandelman., to the board of Datascension International, Inc.
DSEN's report on Form 8-K dated January 6, 2005
On January 6, 2005, Registrant filed a Current Report on Form 8-K
relating to
the press release issued announcing the focus and direction of the
company.
DSEN's report on Form 8-K dated March 3, 2005
On March 3, 2005, Registrant filed a Current Report on Form 8-K
relating to the press release issued announcing changes to the board
of directors Century Innovations a subsidiary of DSEN.
DSEN's report on Form 8-K dated March 8, 2005
On March 8, 2005, Registrant filed a Current Report on Form 8-K
relating to the press release issued announcing the resignation of
Murray Conradie as CEO and Chairman of the Board of Directors to
focus on the development of Nutek Oil Inc.
DSEN's report on Form 8-K dated April 14, 2005
On April 14, 2005, Registrant filed a Current Report on Form 8-K
relating to
the press release issued announcing the Company has converted the
South Texas Oil Company asset held for sale to shares in South
Texas Oil Company (formerly known as Nutek Oil) and will be
distributing its ownership interest in South Texas Oil
Company to shareholders of Datascension, Inc.
DSEN's report on Form 8-K dated April 15, 2005
On April 15, 2005, Registrant filed a Current Report on Form 8-K
relating to the press release issued announcing the issued a
news release announcing the filing of the Annual 10KSB Report for
2004.
58
DSEN's report on Form 8-K dated April 28, 2005
On April 28, 2005, Registrant filed a Current Report on Form 8-K
relating to the press release issued announcing the announced the
time and place for the upcoming Datascension Shareholders Meeting.
The definitive date for the shareholder meeting was June 22, 2005.
DSEN's report on Form 8-K dated May 3, 2005
On May 3, 2005, Registrant filed a Current Report on Form 8-K
relating to the press release issued announcing that Mr. Robert
Sandelman who is currently a board member of Datascension
International, the subsidiary of Datascension, was nominated by the
board and accepted the position as a Director of Datascension, Inc.
UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
Undertaking (a)
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of the Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business
issuer under the Securities Act to any purchaser in the initial
distribution of the securities, the undersigned small business
issuer undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration
statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold
to such purchaser by means of any of the following communications,
the undersigned small business issuer will be a seller to the
purchaser and will be considered to offer or sell such securities to
such purchaser:
i) Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed
pursuant to Rule 424;
ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned small business issuer
or used or referred to by the undersigned small business issuer;
iii)The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned
small business issuer or its securities provided by or on behalf of
the undersigned small business issuer; and
iv) Any other communication that is an offer in the offering
made by the undersigned small business issuer to the purchaser
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling
person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form SB-2
and authorized this registration statement to be signed on its
behalf by the undersigned, in the City of Brea, California 92821
Datascension, Inc.
/s/ Scott Kincer /s/ Scott Kincer
---------------------- -------------------
Scott Kincer Scott Kincer
President, Chairman and Director(Principal Financial Officer)
(Principal Executive Officer)
Date: January 30, 2006
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following
persons in the capacities and on the dates indicated:
Datascension, Inc.
/s/ Scott Kincer
- ----------------------
Scott Kincer
President, Chairman and Director
(Principal Executive Officer)
Date: January 30, 2006
/s/ Joseph Harmon
_______________________
Joseph Harmon, Vice President, Director
Date: January 30, 2006