U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number: 000-29087
Datascension, Inc.
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(Name of small business issuer in its charter)
Nevada 87-0374623
- ------------------------ --------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
145 S. State College Blvd, Suite 350, Brea, CA 92821
- ----------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
714-482-9750 (Telephone) 714-482-9751 (Fax)
--------------------------------------------
(Issuer's telephone number)
6330 McLeod Drive, Suite 1, Las Vegas, NV 89120
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.Yes [X] No[ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). (Check one): Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The Registrant has 17,232,290 outstanding, par value $.001 per share as of
February 10, 2006. The Registrant has 505,900 shares of Preferred Stock Series
B issued and outstanding as of February 10, 2006.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
2
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...................................... 4
Balance Sheet (unaudited)................................. F1
Statements of Operations (unaudited)...................... F2
Statements of Cash Flows (unaudited)...................... F3
Notes to Financial Statements............................. F4-F10
Item 2. Management's Discussion and Analysis of Plan
of Operation............................................. 5
Item 3. Controls and Procedures.................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 8
Item 2. Unregistered Sales of Equity and Use of Proceeds.......... 8
Item 3. Defaults upon Senior Securities........................... 10
Item 4. Submission of Matters to a Vote of Security Holders....... 10
Item 5. Other Information.......................................... 10
Item 6. Exhibits and Reports on Form 8-K........................... 10
Signatures........................................................... 11
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements of Datascension, Inc., ("DSEN")
included herein have been prepared in accordance with the instructions to
quarterly reports on Form 10-QSB pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote data
necessary for fair presentation of financial position and results of operations
in conformity with accounting principles generally accepted in the United
States of America have been condensed or omitted. It is therefore suggested
that these financial statements be read in conjunction with the summary of
significant accounting policies and notes to financial statements included in
DSEN's Annual Report on Form 10-KSB for the year ended December 31, 2004.
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 presented 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.
DATASCENSION, INC.
BALANCE SHEETS
AS OF
September 30, 2005 and December 31, 2004
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
DATASCENSION, INC.
STATEMENT OF OPERATIONS
FOR
Three and nine months ended September 30, 2005 and 2004
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 9/30/05 9/30/04
Restated Restated
-------------- -------------- -------------- --------------
REVENUE $ 2,365,454 $ 2,101,033 $ 6,864,011 $ 6,380,488
COST OF GOODS SOLD 2,127,257 1,663,996 5,718,341 5,091,217
-------------- -------------- ------------ --------------
GROSS PROFIT 238,197 437,037 1,145,670 1,289,271
EXPENSES:
Selling, general and administrative $ 560,697 $ 371,393 $ 1,409,080 $ 1,014,082
Depreciation 44,888 85,646 131,885 256,133
-------------- -------------- ------------ --------------
TOTAL EXPENSES 605,585 457,039 1,540,965 1,270,215
OPERATING INCOME (367,388) (20,002) (395,295) 19,056
OTHER INCOME (EXPENSE):
Interest income 281 61 610 466
Forgiveness of debt - 54,039 2,962 54,039
Other income 3,000 3,250 6,382 5,435
Interest expense (81,362) (20,697) (263,125) (68,765)
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 2,127,631 (6,126)
NET INCOME (LOSS) $ (377,925) $ 16,651 $ 1,732,336 $ 12,930
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 17,207,290 15,944,790 17,099,415 15,510,066
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 28,617,290 15,944,790 28,390,550 15,510,066
BASIC NET INCOME PER SHARE $ (0.02) $ 0.001 $ 0.10 $ 0.001
DILUTED NET INCOME PER SHARE $ (0.01) $ 0.001 $ 0.06 $ 0.001
The accompanying notes to the financial statements
should be read in conjunction with the above financial statements.
F-2
DATASCENSION Inc.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2005 AND 2004
Unaudited
For the 9 months ended
------------------------------
9/30/05 9/30/04
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
Change in warrant liability (1,277,900) -
Change in derivative liability (1,519,669) -
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 $ (776,207) $ 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
(Decrease) Increase in line of credit - (3,948)
----------------- ----------
Net cash provided by financing activities 908,457 (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.
4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following is a discussion of certain factors affecting DSEN's results
of operations, liquidity and capital resources. You should read the following
discussion and analysis in conjunction with the Registrant's consolidated
financial statements and related notes that are included herein under Item 1
above.
Overview
Datascension Inc, ("DSEN") 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
5
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.
DSEN's website address is http://www.datascension.com.
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.
Forward-Looking Information
This quarterly report contains forward-looking statements. The forward-
looking statements include all statements that are not statements of historical
fact. The forward-looking statements are often identifiable by their use of
words such as "may," "expect," "believe," "anticipate," "intend," "could,"
"estimate," or "continue," "Plans" or the negative or other variations of those
or comparable terms. Our actual results could differ materially from the
anticipated results described in the forward-looking statements. Factors that
could affect our results include, but are not limited to, those discussed in
Item 2, "Management's Discussion and Analysis or Plan of Operation" and
included elsewhere in this report. DSEN makes no commitment to update any
forward-looking statement or to disclose any facts, events, or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
Item 3. Controls and Procedures.
(a) Our Chief Executive Officer (CEO) and Principal Financial Officer
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this report. Based
upon the evaluation, concluded that the disclosure controls and procedures are
effective in ensuring all required information relating to DSEN is included in
this quarterly report.
We also maintain a system of internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f)) designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
(b) Changes in internal controls. During our most recent fiscal
quarter, there have been no changes in our internal control over financial
reporting that occurred that have materially affected or are reasonably likely
to materially affect our internal control over financial reporting.
The company has restated the December 31, 2004 10KSB, as well as the
the March 31, 2005 10QSB, the June 30, 2005 10QSB, and the September 30, 2005
10QSB to reflect an adjustment in the treatment of the convertible debt entered
into in November 2004. Management is of the opinion that while the restatements
were made to the financial statements, the company still maintains effective
controls over its financial statements.This restatement is viewed as a one-time
error and is not reflective of the controls in place. The one time error in the
accounting treatment was due to a previous interpretation of accounting rules
which had subsequently changed.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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.
Item 2. Unregistered Sales of Equity Security and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
(a) Exhibit 31. Certifications required by Rule 13a-14(a) or Rule 15d-
14(a)
31.1 Certification of Chief Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C.ss.1850 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(b) Exhibit 32. Certifications required by Rule 13a-14(b) or Rule 15d-
14(b) and section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.1 Certification of Chief Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C.ss.1850 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
None
10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Datascension, Inc.
/s/ Scott Kincer
----------------------
Scott Kincer
President, Chairman and Director
(Principal Executive Officer)
/s/ Scott Kincer
-------------------
Scott Kincer
(Principal Financial Officer)
Date: February 10 2006
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
/s/ Scott Kincer
----------------------
Scott Kincer
President, Chairman and Director
(Principal Executive Officer)
11
/s/ Scott Kincer
-------------------
Scott Kincer
(Principal Financial Officer)
Date: February 10, 2006
12