SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB2
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
------------------------------------------------------
(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
Amount to
be Proposed maximum Proposed maximum Exercise Amount of
Title of each class of securities to be registered offering price per aggregate offering price per Proceeds registration
registered (1) share (2) price (2) share (2) to DSEN fee
- ----------------------------------------- ---------- ----------------- ----------------- ---------- --------- ------------
Common Shares, par value $.001 underlying
secured convertible debenture 22,744,965 $.31 $7,050,939 $754.45
(3)
Shares underlying warrants
6,497,965 $.40 $2,599,186 $278.11
(4)
Total Registration Fee $1,032.56
(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 $2,274,288 in
convertible debentures issued in connection with a June 2006 financing and
one year interest, including a 50% reserve, plus additional shares related
to the November 2004 funding to meet reserve requirements, converted at a
fixed conversion price of $.23 per share.
(4) Common stock issuable upon the conversion of warrants issued in relation
to the funding.
---------------------
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 June 30, 2006
29,242,930 Shares of Common Stock
This prospectus relates to the resale by the selling stockholders of up to
29,242,930 shares of Datascension Inc.'s ("DSEN") common stock, including up to
16,315,544 shares of common stock underlying convertible notes in a principal
amount of $2,274,288 and up to 6,497,965 shares of common stock issuable upon
the exercise of common stock purchase warrants at $.40 a share plus 6,429,421
shares of common stock relating to the reserve requirements of the convertible
debentures issued in November 2004 and March 2005 which were registered of Form
SB2 file number 333-121851. The current convertible notes are basically
convertible into common stock at a fixed conversion price of $0.35. In the
event DSEN does not timely file an annual report on Form 10-KSB with the
Securities and Exchange Commission for the year ended December 31, 2006
containing certified audited financial statements showing net revenues of not
less than $12,000,000 for the 2006 calendar year with earnings before taxes of
not less than $500,000, the Conversion Price then in effect shall be reduced by
one-third from and after the actual filing date of the above described Form 10-
KSB or if not filed by April 15, 2007. The terms of the convertible notes
issued in May 2005 are in agreement with the new notes.
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 June 21, 2006, was $0.30.
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 June 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 10
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 March 31, 2006, we generated revenues in the amount
of $3,166,101 and net income of $276,474. In addition, for the twelve months
ended December 31, 2005, we generated revenues in the amount of $9,752,935 and
net income before and after discontinued operations of $1,821,798. Our
accumulated deficit for the year ended December 31, 2005 was ($11,158,968).
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 29,242,930 including i) up to 16,315,544 shares of common stock
underlying convertible debentures in the amount of $2,274,288, ii) up to
6,497,965 additional shares underlying convertible debenture that were issued
in November 2004 and March 2005, and iii) up to 6,429,421 shares of common
stock issuable upon the exercise of purchase warrants at an exercise price of
$.40 per share.
Common Stock Outstanding after offering
Up to 46,229,318 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 17,891,388 shares of common stock outstanding as of June
26, 2006 and assumes the subsequent conversion of the aggregate sum of
$2,274,288, plus addition shares pursuant to the reserve requirements of the
November 17, 2004 subscription agreement for $1,875,000 and the March 31, 2005
subscription agreement for $125,000, subscription agreement plus the exercise
of warrants by our selling stockholders.
On June 12, 2006, DSEN entered into a subscription agreement for $2,274,288,
whereby we issued Convertible Debentures to the following: 1)$571,429 to Alpha
Capital Aktiengesellschaft, and 2)$1,702,859 to the Longview Fund LP. Interest
on these notes shall accrue at a rate of 6% per annum.
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. The underlying shares for these notes
were registered via Form SB2 file number 333-121851
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. The underlying shares for these
notes were registered via Form SB2 file number 333-121851 .
The Conversion Price per share of the above convertible notes shall be $0.35.
In the event the holder does not timely file an annual report on Form 10-KSB
with the Securities and Exchange Commission for the year ended December 31,
2006 containing certified audited financial statements showing net revenues of
not less than $12,000,000 for the 2006 calendar year with EBITDA of not less
than $500,000, the Conversion Price then in effect shall be reduced by one-
third from and after the actual filing date of the above described Form 10-KSB
or if not filed by April 15, 2007, then from and after April 15, 2007.
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 June 12, 2006, DSEN issued common stock purchase warrants to
purchase 6,797,965 shares of DSEN common stock to the above note holders, at an
exercise price of $.40 per share.
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 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.
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 44% of our total net revenues from three clients
in fiscal 2005. For the year ended December 31, 2004 we derived approximately
45% of our total net revenues from our top three clients. If we 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 $6.9 million, or approximately 71%,
of our total net revenues for 2005. 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:
OUR CONVERTIBLE NOTES COULD REQUIRE US TO ISSUE A GREAT 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 at worse case can be converted at the fixed
rate of $0.233. 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.
The number of shares that may be issued upon conversion of the total
convertible debt outstanding is as follows:
Current funding: $ 2,274,288
Prior fundings: $ 2,384,011
-----------
Total debt $ 4,658,299
Shares @ $.233 per shares 19,992,700
Total Warrants 9,922,965
Total issuance 29,915,665
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 $.35 or $.23 and a portion at $.40 per
share. At March 31, 2006, 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 $.40, the investors would also experience
immediate dilution of their investment upon exercising the warrants.
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 $2,274,288 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 of the
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
$ 2,719,188 .
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.
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 Year Quarter Ended High *Low *
----------- ------------------- ----- -----
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
2006 March 31, 2006 $.042 $0.24
* 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 June 22, 2006, there were approximately 719 registered shareholders
of the DSENs Common Stock and 17,987,221 shares issued and 17,891,388 shares
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, Three Months Ended March 31,
2005 2004 2006 2005
Restated Restated
(Audited) (Unaudited)
----------- ----------- ----------- -----------
Revenue $ 9,752,935 $ 8,471,440 $ 3,166,101 $ 2,005,612
Cost of Revenue 7,633,641 7,071,784 2,402,324 1,599,936
Gross Margin 2,119,295 1,399,656 763,777 405,676
Selling General and Administrative 2,141,277 2,430,666 4,778,085 480,196
Depreciation & Amortization 190,530 270,893 49,716 41,266
Costs associated with asset impairment 328,492
Total Expenses 2,331,807 3,030,051 527,801 521,462
----------- ----------- ----------- -----------
Operating Income (212,512) (1,630,395) 235,976 (115,786)
Total Other Income (Expense) 2,034,311 (2,690,970) 40,498 1,518,097
Net Income (Loss) 1,821,798 (4,321,365) 276,474 1,402,311
Discontinued Operations (1,731,001)
Net Income (Loss) after
Discontinued operation $ 1,821,798 $(6,052,366)
Diluted Weighted average Common Shares
outstanding 40,965,903 16,594,223 17,282,221 16,267,846
=========== =========== =========== ===========
Net income (loss) per share $ 0.04 $ (0.36) $ 0.02 $ 0.09
Total Assets $ 5,406,933 $ 5,804,398 $ 5,169,190 $ 6,576,175
Total Liabilities $ 4,790,579 $ 6,259,566 $ 4,276,302 $ 3,807,808
Shareholders' equity (deficit) $ 616,414 $ (558,716) $ 892,888 $ 2,768,367
* 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 Annual Report. 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 Annual Report.
Overview
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.
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, 2005, we recorded an other income item of
$2,978,779, of which, $1,414,618 and $1,564,161 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, 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.
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, 2005, the estimated
fair value of our derivative liability was $1,003,106, as well as a warrant
liability of $278,502. 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. 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, 2005, the company used the closing price of $0.24 and
the exercise price of $0.30 for the 3,125,000 and $0.50 for the 300,000
warrants. For the year ended December 31, 2005, due in part to an decrease in
the market value of the Company's common stock to $0.24 from $0.65 at December
31, 2004, the Company recorded an "other income" item on the consolidated
statement of operations for the change in fair value of $2,978,779. At December
31, 2005, the estimated fair value of the derivative liability was
approximately $1 million. 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.
Plan of Operation
(a) Cash Requirements
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, on April 1, 2005, we issued a convertible
note for $125,000 and on June 12, 2006 we issued $2,274,288 in convertible
notes receiving net proceeds of $1,678,450 which was reduced by $240,002
representing the repayment by DSEN of a promissory note due to the Longview
Fund, L.P. Pursuant to the June 12, 2006 subscription agreement, all of the
above convertible notes have a fixed conversion price of $.35 which nay be
reduced by one third if certain performance criteria are not met.
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.
In the next twelve months, the company's goal is to secure funding for the
development and build out of a new call center to allow for additional
capacity, while continuing to focus on the inbound and programming initiatives.
Over the next 24 months the company's focus is on expanding our client base to
meet or exceed the capacity a new space will provide us, while also seeking a
strategic acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO MARCH 31, 2005
For the three-months, ended March 31, 2006, DSEN has generated $3,166,101 in
revenues compared to $2,005,612 in revenues for the three-months ended March
31, 2005, for an increase of $1,160,489. 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 three-months ended March 31, 2006 was $2,402,324
compared to $1,599,936 for the three-months ended March 31, 2005 or a increase
of $802,388. This increase was a result of the increased clients and service
contracts completed.
Total general and administrative expenses decreased to $478,085 for the three-
months ended March 31, 2006 from $480,196 for the three-months ended March 31,
2005, a net decrease of $2,111. In the three-months ended March 31, 2005, the
company had the final administrative and payroll costs for our Nevada office.
Our expenses decreased related to this, but there was also an increase in
overhead due to expanded services.
Depreciation expense for the three-months ended March 31, 2006 was $49,716
compared to $41,266 for the three-months ended March 31, 2005, an increase of
$8,450. The increase resulted from the purchase of additional assets in the
last twelve months.
Interest expense for the three-months ended March 31, 2006 was $83,537 compared
to $74,115 for the three-months ended March 31, 2005 an increase of $9,422.
This increase relates to the debt funding increase in the last twelve months.
Datascension generated a net profit of $276,474 for the three months ended
March 31, 2006, versus net income of $1,402,311 for the same period in 2005.
The decrease in profit of $1,125,837 is a result of the decrease in income
related to the derivative and warrant liabilities. For the three months ended
March 31, 2006, DSEN has increased its working capital position by a net amount
of $206,401 from negative $1,898,111 as of December 31, 2005 to negative
$1,691,710 as of March 31, 2006. This is due to a decrease in cash of $181,496
and a decrease in prepaid expenses of $16,016, while there was also a decrease
in current liabilities of $491,027.
Capital Resources and Liquidity
On March 31, 2006 DSEN had total assets of $5,169,190 compared to $4,714,021
on March 31, 2005, an increase of $455,169. The reason for the increase in
assets is a result of the increase in accounts receivable and purchase of other
assets. DSEN had a total stockholders' equity of $892,888 on March 31, 2006
compared to a deficit of $(46,173) on March 31, 2005, an increase in equity of
$939,061, which is in part due to the net income during the past 12 months.
All assets are booked at historical purchase price and there is no variance
between book value and the purchase price.
On March 31, 2006 DSEN had Property and Equipment of $987,182 compared to
$961,120 on March 31, 2005, or an increase of $26,062 which is a result of the
purchase of predictive dialers for Datascension's call center operations and
the depreciation during the last twelve months.
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 2006.
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, on April 1, 2005, we issued a convertible
note for $125,000 and on June 12, 2006 we issued $2,274,288 in convertible
notes receiving net proceeds of $1,678,450 which was reduced by $240,002
representing the repayment by DSEN of a promissory note due to the Longview
Fund, L.P. Pursuant to the June 12, 2006 subscription agreement, all of the
above convertible notes have a fixed conversion price of $.35 which nay be
reduced by one third if certain performance criteria are not met.
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.
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
For the calendar year, ended December 31, 2005, the Company has generated
$9,752,935 in revenues and generated a gross profit of $2,119,295 for the same
period. This compares to $8,471,440 in revenues and a profit of $1,399,656 for
the calendar year ended December 31, 2004. For the calendar year ended December
31, 2005, the Company has increased its working capital position by $1,976,118
from a negative $3,874,229 as of December 31, 2004 to a negative $1,898,111 as
at December 31, 2005.
Analysis of the calendar year ended December 31, 2005 compared to the
calendar year ended December 31, 2004.
Net income was $1,821,798 for the calendar year ended December 31, 2005
compared to a loss of $4,321,365 for the calendar year ended December 31, 2004,
an increased gain of $6,143,163. The increase in net income was attributable to
the increase in revenue for an increase in operating income of $1,417,883 and
an increase in other income of $4,725,281.
Total expenses decreased to $2,331,807 for the calendar year ended
December 31, 2005 from $3,030,051 for the calendar year ended December 31,
2004, a decrease of $698,244. The decrease in expenses related to the shutting
down of the Nevada location, which included a reduction in overhead, as well as
a decrease in depreciation of $80,363.
Depreciation expense for the calendar year ended December 31, 2005 was
$190,530 compared to $270,893 for the calendar year ended December 31, 2004, a
decrease of $80,363.
Interest expense for the calendar year ended December 31, 2005 was
$313,421 compared to $216,507 for the calendar year ended December 31, 2004 an
increase of $96,914 which was a result of the higher interest accruing debt
being a liability on the books of the company for twelve months in 2005 and
only 2 months in 2004.
Liquidity and Capital Resources
Liquidity
For the calendar year ended December 31, 2005, DSEN has increased its working
capital position by a net amount of $1,898,111 to negative $1,976,118 as of
December 31, 2005 from negative $3,874,229 as of December 31, 2004 as a result
of the decrease in liabilities related to the convertible debt.
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 and is expecting monthly
cash flow in 2006 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, 2005 DSEN had total assets of $5,406,993 compared to $5,804,398
on December 31, 2004, a decrease of $397,405. The reason for the decrease in
assets is a result of the decrease in cash of $281,306, an increase in
receivables of $720,109, a decrease in prepaid expenses of $71,557, with a
corresponding increase in net property and equipment of $255,513 and a decrease
in assets held for sale of $1,015,014. DSEN had a total stockholders' equity of
$616,414 on December 31, 2005 compared to $(558,716) on December 31, 2004, an
increase in equity of $1,175,130.
All assets are booked at historical purchase price and there is no variance
between book value and the purchase price.
On December 31, 2005 DSEN had Property and Equipment of $936,859 compared to
$681,346 on December 31, 2004, or an increase of $255,513.
The fixed and ongoing expenses of Datascension are as follows:
Accounts Payable and Accrued Liabilities
The Company has $135,467 in accounts payable and approximately $1,766,493 in
accrued payroll costs for the operations of the California, Costa Rica, and
Dominican Republic location as of December 31, 2005.
The Company has entered into agreements for long-term notes payable. Long-term
notes payable consists of the following at December 31, 2005:
Note payable to a vendor, monthly payments of $348 inclusive of 7% annual
interest through September 2006, secured by equipment.
$ 5,715
Note payable to a vendor, monthly payments of $7,375 inclusive of 10.83% annual
interest through December 2007, secured by equipment.
238,572
----------
244,287
Less current portion (104,402)
----------
$ 139,885
==========
Principal maturities are as follows:
Twelve months ended December 31,
2006 $ 33,893
2007 65,530
---------
$ 99,423
=========
Additionally, the company has the following short term notes payable as of
December 31, 2005.
Dell Financial Services $ 1,966
Wells Fargo Credit Card 45,492
Advanta Credit Card 9,579
--------
Total 57,037
========
At December 31, 2004, aggregate future minimum payments under these leases, are
as follows:
Twelve months ended December 31,
2006 $ 133,259
2007 105,773
2008 105,773
2009 -
Thereafter -
----------
Total minimum lease payments $ 344,805
==========
For the year ended December 31, 2005, we recorded an other income item of
$2,978,779, of which $1,432,250 of other income related to the decrease in
value of the debt features on the $1.875 million convertible note, $1,523,789
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, $40,372 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 $17,632 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 year ended December 31, 2005:
$1,432,250 income, decrease in value of 2004 derivative liability
1,523,789 income, decrease in value of 2004 warrant liability
(17,632) expense, increase in 2005 derivative liability
40,372 income, decrease in value of 2005 warrant liability
----------
$2,978,779 other income related to convertible debt
==========
For the year ended December 31, 2005, the company recorded $641,065 of interest
expense related to the accretion of debt related to the convertible financing.
For the year ended December 31, 2005:
$604,608 of interest expense related to accretion of 2004 convertible debt
36,457 of interest expense related to accretion of 2005 convertible debt
--------
$641,065 of interest expense related to convertible debt
========
The balance of the carrying value of the convertible debt as of December 31,
2005 is:
$ 241,111 December 31, 2004 value
604,608 accretion of 2004 convertible debt
58,667 original carrying value on 2005 convertible debt
36,457 accretion of 2005 convertible debt
213,630 interest accrual on loan minus payments of interest
---------
$1,153,723 December 31, 2005 carrying value of debt
==========
The balance of the carrying value of the derivative liability as of December
31, 2005 is:
$ 2,408,178 December 31, 2004 value of derivative liability
(1,432,250) income, decrease in value of 2004 derivative liability
9,548 original carrying value on 2005 derivative liability
17,632 expense, increase in 2005 derivative liability
(2) rounding
----------
$ 1,003,106 December 31, 2005 value of derivative liability
==========
The balance of the carrying value of the warrant liability as of December 31,
2005 is:
$ 1,785,877 December 31, 2004 value of warrant liability
(1,523,789) income, decrease in value of 2004 warrant liability
56,785 original carrying value on 2005 warrant liability
(40,371) income, decrease in 2005 warrant liability
----------
$ 278,502 December 31, 2005 value of warrant liability
==========
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
=========
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.
Material Commitments for Capital Expenditures.
The Company 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 the Company'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
The Company'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.
The company currently does not have any off-balance sheet arrangements.
Safe Harbor
The discussions of the results of operations and financial condition of
the Company should be read in conjunction with the financial statements and
notes pertaining to them that appear elsewhere in this Form 10-KSB. Statements
made in this Form 10-KSB that are not historical or current facts are "forward-
looking statements" made pursuant to the safe harbor provisions of Section 27A
of the Securities Act of 1933 (the "Act") and Section 21E of the Securities
Exchange Act of 1934. These statements often can be identified by the use of
terms such as "may," "will," "expect," "believe," "anticipate," "estimate,"
"approximate" or "continue," or the negative thereof. The Company intends that
such forward-looking statements be subject to the safe harbors for such
statements. The Company wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made.
Any forward-looking statements represent management's best judgment as to what
may occur in the future. However, forward-looking statements are subject to
risks, uncertainties and important factors beyond the control of the Company
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
These factors include adverse economic conditions, highly speculative nature of
oil and gas exploration and development, risks of foreign operation, entry of
new and stronger competitors, inadequate capital and unexpected costs. The
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statement
or to reflect the occurrence of anticipated or unanticipated events.
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 or about April 10, 1992, the Issuer, with majority
shareholder vote filed Articles of Amendment to the Articles of Incorporation
with the Secretary of State of Nevada, authorizing five million (5,000,000)
shares of Preferred Stock each have a par value of $0.001, with such rights,
preferences and designations and to be issued in such series as determined by
the Board of Directors of the Corporation. DSEN in accordance with Section
78.250 of the Nevada Revised Statues and as a result of the majority consent of
shareholders executed on or about March 3, 1995 changed the name from Swiss
Technique, Inc., to Nutek, Inc. DSEN filed a Certificate of Amendment of
Articles of Incorporation with the Secretary of State of Nevada to change its
name.
On December 24, 2003, 63.34% of the votes entitled to be cast at a meeting of
DSEN's shareholders consented in writing to change the name of the corporation
from Nutek Inc. to Datascension Inc. ("DSEN") The Board of Directors of Nutek,
Inc. at a meeting duly convened, held on the 5th day of January, 2004, adopted
a resolution to amend the original articles of incorporation for the name
change.
The Company 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,
Inc have been 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 the Company'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.
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 the Company'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 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.
(A) Datascension International Inc., conducts telephone market research and
provides data entry services for third parties;
DSEN's mailing address is: 145 State College Blvd, Suite 350, Brea, CA
92821, phone number: 714-482-9750. The Company websites 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, Datascension's CATI telephone facility employs approximately 551
part- and full-time telephone interviewers, many of whom are bilingual in
Spanish and English. Datascension and other leading research agencies have
found that streamlining their systems with integrated CATI and automatic
dialing capabilities have resulted in quicker turnaround, lower costs and
increased field capacity for phone research projects.
Internet Data Collection
Datascension has a full-time programming staff experienced in designing all
types of web surveys, web panels, and data collection sites.
Database Engineering
Datascension has the expertise to create databases from very small to the most
complex fully relational database. Its database software allows the end-user to
connect to Datascension's system via the Internet and run reports and pull data
with relatively no training.
Data Storage
Datascension employs 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 & Mining
Datascension staff can program banners using the latest version of Quantum
(SPSS) tabulation software. They have extensive experience of handling most
types of data including ASCII, flat file, CSV, XML and many other formats.
In-bound Customer Service
Datascension's expertise in handling customer service calls covers a wide
spectrum of industries from the automotives to the garbage disposal industry.
Activities include on-line order booking to technical support for client
products and services.
Bilingual Interviewing
At Datascension, we recognize the need to provide an accurate representation of
the audiences we are surveying and are committed to ensuring that our
interviewers are able to deliver.
People of Hispanic or Latino descent comprise 12.5% of the US population,
according to 2000 US Census figures. Datascension has recognized the importance
of surveying this population. Datascension has begun a more concerted effort to
target the Hispanic community and garner their input as a separate and unique
segment of our society.
To that end, we contract a number of bilingual interviewers who are skilled in
conducting research in both Spanish and English.
Major Clients
DSEN has two major clients, The National Research Group which accounts for
about 10% of sales each year and Sandelman & Associates, which accounts for
about 25% of sales each year.
All of the revenue generated is from our Datascension International
subsidiary, with about 91% of the revenue from the telephone interviewing with
approximately 5.3% 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 and
located domestically and the contract workers arfe located internationally. In
total we have six hundred twelve (612) individual working for DSEN, of which
two (2) are Officers of DSEN as of December 31, 2005. Of the 612 employees, 7
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 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 2005 and
2004 respectfully was $151,439 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 20,000 square with
an aggregate monthly rental of $20,000. 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.
The common stock transactions during 2005 were as follows:
During the fiscal year ended December 31, 2005, 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 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.
During the year ended December 31, 2005, 1,250,000 post-split shares of
restricted common stock valued at $.05 per share were issued to five (5)
individuals, pursuant to a consulting agreement in connection with which we
received certain 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.
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;
- 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.
Issuer Repurchases
We did not make any repurchases of our equity securities during the year ending
December 31, 2005.
Management
Directors and Executive Officers
The following table sets forth information regarding our executive officers,
certain other officers and directors as of June 26, 2006:
Name Age Position/Office Served Since
------------------ --- --------------- --------------
Robert Sandelman 47 Director May 2005
David Scott Kincer 39 COO/Director September 2001
Joseph Harmon 29 VP/Director September 2001
David Lieberman 61 Director June 2006
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
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.
David Lieberman - Director
Mr. Lieberman's experience includes serving in various Senior Executive
positions with a strong financial and operations background. Currently Mr.
Lieberman is on the Board of Directors of Dalrada Financial Corporation, an
over the counter public company. Mr. Lieberman has been the Chief Financial
Officer for John Goyak & Associates, Inc., an aerospace consulting firm located
in Las Vegas, NV since 2003. Lieberman previously served as President and Chief
Operating Officer of both JLS Services, Inc., since 1996, and International
Purity, since 1997. From 1994 through 1996 Mr. Lieberman served as Chief
Financial Officer and Chief Operating officer for California Athletic Clubs,
Inc. Mr. Lieberman has over thirty years of financial experience beginning with
five years as an accountant with Price Waterhouse from 1967 through 1972. Mr.
Lieberman attended the University of Cincinnati, where he received his B.A. in
Business. Mr. Lieberman is also a licensed CPA in the state of California.
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 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, 2005, 2004, 2003 and 2002, respectively, to DSEN's officers.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATIONAWARDS PAYOUTS
NAME AND PRINCIPAL YEAR SALARY BONUS Restricted SECURITIES UNDERLYING ALL OTHER
POSITION Stock Award(s) OPTIONS(#) COMPENSATION
David Scott Kincer 2005 $196,468 15,0000 0 0 36,001 (3)(4)
COO 2004 $150,000 5,824 100,000 (1) 540,000 (2) 968 (3)
2003 $150,000 0 0 0 0
2002 $ 75,000 0 0 0 0
Joseph Harmon * 2005 $ 85,746 0 0 0 201,630 (3)(4)
Secretary/V.P. 2004 $ 76,500 6,048 50,000 135,000 178,708 (3)
2003 $ 76,500 0 0 0 180,104 (3)
2002 $ 68,750 2,500 0 0 141,360 (3)
* 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 period equal
to five (5) years (the "Initial Option").
(3) Commissions for client contracts.
(4) 401(k) match.
Common Stock
On December 31, 2004, 100,000 post split shares of common stock valued at $.02
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
and/or the federal small issue exception for bonus shares of reporting
companies.
On December 31, 2004, four officers 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 below employment agreement for additional information on stock given to
executive officers.
Employment Agreements
Effective June 9, 2006, we entered into separate renewed three year
employment agreements with our Chief Executive Officer, David S. Kincer; and
our Vice President of Datascension International, Inc (subsidiary) Joseph
Harmon.
The main terms of Mr. Kincer's agreement is as follows:
(a) Base Salary The Executive shall receive an annual base salary
of $275,000.00 payable in monthly or more frequent installments in accordance
with the Company's payroll policies (such annual base salary as adjusted
pursuant to this Section 3(a) shall hereinafter be referred to as "Base
Salary"). The Executive's Base Salary shall be reviewed, and may be increased
but not decreased, annually, by the Board pursuant to its normal performance
review policies for senior executives, with the first such review occurring not
later than December 2006. Should the Company for any reason be unable to pay
the Executive monthly or more frequent installments in accordance with the
Company's payroll policies, the Executive may elect either of the following
alternatives, or a combination thereof;
(i) Executive may elect to treat the unpaid compensation as a
loan payable on demand that accrues an annual interest of ten (10%) percent;
and/or
(ii) Executive may elect to receive common stock of the Company
issued under an S-8 registration statement which will provide the Executive
common stock at fair market value based on the average closing price for the
five (5) trading days preceding the request for issuance of stock for the
effective pay period. Executive may also elect to receive common stock of the
Company issued under an S-8 registration statement which will provide the
Executive common stock at fair market value based on the average closing price
of the five (5) trading days preceding the request for issuance of stock for
the loan payable on demand pursuant to subsection 3(a)(i).
(b) Initial Restricted Stock Award. The Company shall make an
initial signing award to the Executive of 500,000 restricted shares of the
Company's common stock under and subject to the terms and conditions of the
Company's Stock Compensation Plan dated January 1, 2004 or as thereafter
amended (the "Stock Plan").
(c) Restricted Stock Option Award. The Company shall make an award
to the Executive of restricted shares of the Company's common stock under and
subject to the terms and conditions of the Stock Plan and Common Stock Purchase
Warrant, as follows:
(i) For calendar year 2006, if the Company's sales exceed
$12,000,000 and $500,000 in EBIDTA, 500,000 options at
$.30 per share.
(i) For calendar year 2007, if the Company's sales exceed
$15,000,000 and $1,000,000 in EBIDTA, 1,000,000 options
at $.30 per share.
Nevertheless, if the Company's 2007 sales/EBIDTA exceed
the prior year (2006), there will be an award of
500,000 options at $.30 per share.
(iii) For calendar year 2008, if the Company's sales exceed
$18,000,000 in sales and $1,500,000 in EBIDTA, 1,000,000
options at $.30 per share. Nevertheless, if the Company's
2008 sales/EBIDTA exceed the prior year (2007), there
will be an award of 500,000 options at $.30 per share.
In any event resulting in the sale of the Company, all options
awarded to Executive shall become immediately redeemable. If the Executive is
terminated, without cause, at any time, the options become immediately
redeemable.
The main terms of Mr. Harmon's agreement is as follows:
(a) Base Salary. The Executive shall receive an annual base salary of
$140,000.00 plus 1% on all work revenues on services rendered over $15.00 per
hour that is not otherwise pass through costs payable in monthly or more
frequent installments in accordance with the Company's payroll policies (such
annual base salary as adjusted pursuant to this Section 3(a) shall hereinafter
be referred to as "Base Salary"). The Executive's Base Salary shall be
reviewed, and may be increased but not decreased, annually, by the Board
pursuant to its normal performance review policies for senior executives, with
the first such review occurring not later than December 2006. Should the
Company for any reason be unable to pay the Executive monthly or more frequent
installments in accordance with the Company's payroll policies, the Executive
may elect either of the following alternatives, or a combination thereof;
(i) Executive may elect to treat the unpaid compensation as a
loan payable on demand that accrues an annual interest of ten (10%) percent;
and/or
(ii) Executive may elect to receive common stock of the Company
issued under an S-8 registration statement which will provide the Executive
common stock at fair market value based on the average closing price for the
five (5) trading days preceding the request for issuance of stock for the
effective pay period. Executive may also elect to receive common stock of the
Company issued under an S-8 registration statement which will provide the
Executive common stock at fair market value based on the average closing price
of the five (5) trading days preceding the request for issuance of stock for
the loan payable on demand pursuant to subsection 3(a)(i).
(b) Initial Restricted Stock Award. The Company shall make an
initial signing award to the Executive of 150,000 restricted shares of the
Company's common stock under and subject to the terms and conditions of the
Stock Compensation Plan dated January 1, 2004 or as thereafter amended (the
"Stock Plan")
(c) Restricted Stock Option Award. The Company shall make an award
to the Executive of restricted shares of the Company's common stock under and
subject to the terms and conditions of the Stock Plan and Common Stock Purchase
Warrant, a copy of which is attached and incorporated herein as as follows:
(i) For calendar year 2006, if the Company's sales exceed
$12,000,000 and $500,000 in EBIDTA, 150,000 options at
$.30 per share.
(ii) For calendar year 2007, if the Company's sales exceed
$15,000,000 and $1,000,000 in EBIDTA, 300,000 options at
$30 per share. Nevertheless, if the Company's 2007
sales/EBIDTA exceed the prior year (2006), there will be
an award of 150,000 options at $.30 per share.
(iii) For calendar year 2008, if the Company's sales exceed
$18,000,000 in sales and $1,500,000 in EBIDTA, 300,000
options at $.30 per share. Nevertheless, if the Company's
2008 sales/EBIDTA exceed the prior year (2007), there
will be an award of 150,000 options at $.30 per share.
In any event resulting in the sale of the Company, all options
awarded to Executive shall become immediately redeemable. If the Executive is
terminated, without cause at any time, the options become immediately
redeemable.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
There were no options granted or exercised by the directors and executive
officers during the year ended December 31, 2005.
Compensation of Directors
There were no arrangements pursuant to which any director of the Company
was compensated through December 31, 2005 for any service provided as a
director. In June 2006, Robert Sandelman and David Lieberman were each given
30,000 shares as compensation for calendar year 2006. No additional
compensation is contemplated for the foreseeable future.
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, 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.
Name and Address of
Class Beneficial Owner (1) Number of Shares Percent Owned (2)
- ------ -------------------- ---------------- -----------------
Common David Scott Kincer 2,742,167* 15.33%
Common Joseph Harmon 400,556* 2.24%
Common Robert Sandelman 259,167 1.45%
Common David Lieberman 30,000 0.17%
Common Directors as a group 3,431,890* 19,18%
Common Murray Conradie 2,561,136 14.31%
Common Edward Dale Tschiggfrie 1,004,962* 5.62%
Common Longview Fund, LP 1,007,272* 5.63%
* Post split
The percentage ownership calculations listed above are based upon
17,891,388 shares of common stock being outstanding, and no options granted
being exercised as of June 26, 2006.
Persons Sharing Ownership of Control of Shares
Management has no knowledge of the existence of any arrangements or
pledges of the Company's securities which may result in a change in control of
the Company.
No person owns or shares the power to vote ten percent (10%) or more of
the Company's securities. HOW MANY SHARES DOES MURRAY HAVE, DOESN'T HE HAVE
MORE?
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, 2005, the Company has an outstanding note payable to Scott
Kincer, the Company's CEO, in the amount of $3,000. 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 the Company 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
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 June 26, 2006, DSEN had seventeen million nine hundred eighty seven
thousand two hundred twenty one (17,987,221) shares of its $.001 par value
common voting stock issued and seventeen million eight hundred ninety one
thousand three hundred eighty eight (17,891,388)outstanding which are held by
seven hundred and nineteen (719) shareholders of record. There are 506,400
preferred shares issued and outstanding as of June 26, 2006.
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
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 95,833 shares of treasury stock at June 26, 2006.
WARRANTS AND OPTIONS:
None at June 26, 2006 other than those listed below and those disclosed in the
Employment Agreement section.
Options issued November 9, 2004 per employment agreement: Five year options
with an exercise price of $0.30.
1. Scott Kincer 540,000 shares
2. Joey Harmon 135,000 shares
3. Jason Griffith 270,000 shares
4. Murray Conradie 540,000 shares
Warrants issued November 17, 2004: Five year warrants with an
exercise price of $.30.
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
Warrant issued June 12, 2006: Two warrants with an exercise price of
$.40.
1. Longview Fund LP - 4,865,311 shares
2. Alpha Capital Akientengsellschaft - 1,632,654 shares
Warrants issued June 9, 2006: Five year warrants with an exercise price of
$0.30, with 50% vested upon issuance and 50% vested upon effectiveness of the
SB-2 filed in June 2006.
1. Arthur De Joya - 50,000 shares
2. Jason Griffith - 50,000 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 17,987,221 shares issued and
17,891,388 shares outstandingof 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.
This statement also includes the registration of 6,497,965 warrants with an
exercise price of $0.40 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 June 12, 2006, DSEN entered into a subscription agreement for $2,274,288,
whereby we issued Convertible Debentures to the following: 1)$571,429 to Alpha
Capital Aktiengesellschaft, and 2)$1,702,859 to the Longview Fund LP. Interest
on these notes shall accrue at a rate of 6% per annum.
Also included in the registration are additional shares related to the
following past fundings:
1. 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. The underlying shares for these notes
were registered via Form SB2 file number 333-121851
2. 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. The underlying shares for these
notes were registered via Form SB2 file number 333-121851
The Conversion Price per share for all of the above convertible notes shall be
$0.35. In the event the holder does not timely file an annual report on Form
10-KSB with the Securities and Exchange Commission for the year ended December
31, 2006 containing certified audited financial statements showing net revenues
of not less than $12,000,000 for the 2006 calendar year with EBITDA of not less
than $500,000, the Conversion Price then in effect shall be reduced by one-
third from and after the actual filing date of the above described Form 10-KSB
or if not filed by April 15, 2007, then from and after April 15, 2007.
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 one hundred twenty (120) days
from the date the notes were issued. 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 one hundred twenty (120) days from the date
the notes were issued, 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. 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
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.
Shares Beneficially
Shares Beneficially Owned Shares Offered Owned After Offering If All
Prior to the Offering For Sale (6) Offered Shares Are Sold (7)
----------------------- ----------- --------------------------
Number of Percentage Number of
Selling Stockholder Shares (5) Shares Percentage
- ---------------------------- ---------- ---------- ----------- --------- ----------
Alpha Capital
Aktiengesellschaft (1) 7,143,155 29.6% 7,143,155 0 0%
Longview Fund LP (2) 19,967,946 54.0% 19,967,946 0 0%
Longview Equity Fund, LP (3) 1,472,885 7.8% 1,472,855 0 0%
Longview International
Equity Fund, LP (4) 658,944 3.7% 658,944 0 0%
* 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.
(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 17,891,388 shares of our common stock issued as of
June 26, 2006.
(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;
- 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 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) David S. Kincer 2,242,167, 2)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.
EXPERTS
The financial statements of DSEN at December 31, 2005 and 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 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.
DATASCENSION, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
UNAUDITED AUDITED
3/31/2006 12/31/2005
============ ============
CURRENT ASSETS:
Cash $ 93,791 $ 275,287
Accounts receivable 2,166,964 2,254,078
Prepaid expenses 98,733 114,749
Investment in Century Innovations 108,469 108,469
------------ ------------
TOTAL CURRENT ASSETS $ 2,467,957 $ 2,752,583
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 987,182 936,859
OTHER ASSETS:
Website assets, net of amortization 4,520 4,520
Deposits 16,749 20,249
Goodwill 1,692,782 1,692,782
------------ ------------
TOTAL OTHER ASSETS 1,714,051 1,717,551
------------ ------------
TOTAL ASSETS $ 5,169,190 $ 5,406,993
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
3/31/2006 12/31/2005
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 56,111 $ 135,467
Accrued expenses 1,476,894 1,766,493
Notes payable, related party 2,000 9,000
Short term notes payable 200,000 200,000
Convertible debt 1,364,101 1,153,723
Derivative liability 558,579 1,003,106
Warrant Liability 443,743 278,502
Current portion of long-term notes payable 58,239 104,402
------------ ------------
TOTAL CURRENT LIABILITIES $ 4,159,667 $ 4,650,694
LONG-TERM DEBT
Long-term notes payable, net of current portion 116,635 139,885
------------ ------------
TOTAL LONG-TERM DEBT 116,635 139,885
TOTAL LIABILITIES 4,276,302 4,790,579
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 200,000,000
shares authorized; 17,082,221 and 17,482,221 shares
issued, 16,986,388 and 17,386,388 outstanding at
March 31, 2006 and December 31, 2005, respectively 160,700 161,100
Additional paid-in capital-common stock 11,363,445 11,563,045
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 (96,875) (296,875)
Treasury stock, at cost; 95,833 at March 31, 2006 (134,388) (134,388)
Accumulated deficit (10,882,494) (11,158,968)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 892,888 616,414
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,169,190 $ 5,406,993
============ ============
DATASCENSION, INC.
CONSOLIDATED STATEMENT OF OPERATION
RESTATED
FOR THE FOR THE
3 MONTHS ENDED 3 MONTHS ENDED
3/31/2006 3/31/2005
============ ============
REVENUE $ 3,166,101 $ 2,005,612
COST OF GOODS SOLD 2,402,324 1,599,936
------------ ------------
GROSS PROFIT 763,777 405,676
EXPENSES:
Selling, general and administrative $ 478,085 $ 480,196
Depreciation and amortization 49,716 41,266
------------ ------------
TOTAL EXPENSES 527,801 521,462
------------ ------------
OPERATING INCOME 235,976 (115,786)
OTHER INCOME (EXPENSE):
Interest income - 220
Forgiveness of debt - 2,962
Interest expense (83,537) (74,115)
Other Income (Expense) related to convertible 279,288 1,744,131
Interest income (expense) related to convertible (155,253) (155,101)
------------ ------------
TOTAL OTHER INCOME 40,498 1,518,097
------------ ------------
NET INCOME (LOSS) $ 276,474 $ 1,402,311
============ ============
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 17,282,221 16,267,846
============ ============
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 17,282,221 16,267,846
============ ============
BASIC NET INCOME PER SHARE $ 0.02 $ 0.09
============ ============
DILUTED NET INCOME PER SHARE $ 0.02 $ 0.09
============ ============
DATASCENSION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
RESTATED
FOR THE FOR THE
3 MONTHS ENDED 3 MONTHS ENDED
3/31/2006 3/31/2005
============ ============
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 276,474 $ 1,402,311
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in warrant liability 165,241 (872,902)
Change in derivative liability (444,527) (804,896)
Depreciation and amortization 49,716 41,266
(Decrease) in asset held for sale - 1,015,014
Distribution of asset held for sale - (1,003,831)
(Increase) Decrease in accounts receivable 87,114 (2,837)
Increase in prepaid expenses 16,016 60,514
Increase in deposits 3,500 3,750
Decrease in accounts payable (79,356) (2,375)
Decrease in accrued expenses (289,599) (309,590)
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES $ (215,421) $ (473,576)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (100,039) (360,077)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES $ (100,039) $ (360,077)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable (69,413) 135,884
Increase (Decrease) in related party payable (7,000) (7,334)
Increase (Decrease) in convertible debt 210,378 258,293
Increase (Decrease) in stock subscriptions - 114,063
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 133,965 $ 500,906
------------ ------------
NET INCREASE IN CASH (181,496) (332,747)
BALANCE, BEGINNING 275,287 556,593
------------ ------------
BALANCE, ENDING $ 93,791 $ 223,846
============ ============
INTEREST PAID $ 11,229 $ 181,763
============ ============
TAXES PAID $ - $ -
============ ============
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.
In the opinion of management, all adjustments necessary in order to make the
financial position, results of operations and changes in financial position at
March 31, 2006, and for all periods presented not misleading have been made.
The results of operations for the period ended March 31, 2006 are not
necessarily an indication of operating results to be expected for the full year
ending December 31, 2006.
During the three months ended March 31, 2006, we recorded an other income item
of $279,288, of which $444,529 of income and $(165,241) of expense related to
the debt features and warrants, to reflect the change in fair value of the
derivative and warrant liability. During the three months ended March 31, 2005,
we recorded an other income item of $1,744,131, of which, $814,444 (income) and
$929,687 (income) related to the debt features and warrants, respectively, to
reflect the change in fair value of the derivative liability.
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. 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. For the three
months ended March 31, 2006, the estimated value of the company's debt features
decreased to $558,579 and the estimated fair value of the warrant liability
increased to $443,743, 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 $279,288, of which $444,529 of income and $(165,241) of expense for
the three months ended March 31, 2006. For the three months ended March 31,
2005, the estimated value of the company's debt features decreased to
$1,603,282, 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 $1,744,131 for the three months ended March 31, 2005.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are made up of the following as of March 31, 2006:
Equipment and machinery $ 472,500
Office equipment 1,168,096
Leasehold improvements 9,959
Accumulated depreciation (663,373)
----------
$ 987,182
The company purchased a software license from a vendor for $100,000 during the
three months ended March 31, 2006. The life of the agreement has been valued
at 7 years for accounting purposes.
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. 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 three months ended March 31,
2006, the Company accreted $144,720 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 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 March 31, 2006 was $419,607.
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.
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 $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 three months ended March 31,
2006, the Company accreted $10,533 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.
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.
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.
The significant fluctuations can create significant income and expense items on
the financial statements of the company.
For the three months ended March 31, 2006:
$ 451,131 income, decrease in value of 2004 derivative liability
(157,519) expense, increase in value of 2004 warrant liability
( 6,602) expense, increase in 2005 derivative liability
( 7,722) income, decrease in value of 2005 warrant liability
----------
$ 279,288 other income related to convertible debt
For the three months ended March 31, 2006, the company recorded $155,253 of
interest expense related to the accretion of debt related to the convertible
financing.
For the three months ended March 31, 2006:
$144,720 of interest expense related to accretion of 2004
convertible debt
10,533 of interest expense related to accretion of 2005
convertible debt
--------
$155,253 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 March 31, 2006
is:
$1,153,723 December 31, 2005 value of debt and accrued interest
144,720 accretion of 2004 convertible debt
10,533 accretion of 2005 convertible debt
55,125 interest accrual on loan minus payments of interest
--------
$1,364,101 March 31, 2006 carrying value of debt
The balance of the carrying value of the derivative liability as of March 31,
2006 is:
$1,003,106 December 31, 2005 value of derivative liability
( 451,131) income, decrease in value of 2004 derivative liability
6,602 expense, increase in 2005 derivative liability
---------
$ 558,579 March 31, 2006 value of derivative liability
The balance of the carrying value of the warrant liability as of March 31, 2006
is:
$ 278,502 December 31, 2004 value of warrant liability
157,519 expense, increase in value of 2004 warrant liability
7,722 income, decrease in 2005 warrant liability
- ---------
$ 443,743 March 31, 2006 value of warrant liability
NOTE 6 - STOCKHOLDERS' EQUITY
There were no issuances of stock during the three months ended March 31, 2006.
The company cancelled 400,000 shares that had previously been issued for
services and correspondingly removed the $200,000 of subscription receivable
from the books.
NOTE 7 - RELATED PARTY TRANSACTIONS
As of March 31, 2006, the Company has an outstanding note payable to Murray
Conradie, the Company's former CEO, in the amount of $2,000. 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. 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 95% 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.
TABLE OF CONTENTS
-----------------
PAGE
----
INDEPENDENT AUDITORS' REPORT:
Independent Auditors Report - 2004 & 2005 F-3
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.
Las Vegas, Nevada
I have audited the accompanying balance sheets of Datascension, Inc., as of
December 31, 2005 and 2004, and the related statements of loss, changes in
stockholders' equity, and cash flows for the years 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 audits 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
audits provide 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. as of
December 31, 2005 and 2004, and the results of its operations and cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
Larry O'Donnell, CPA, P.C.
March 20, 2006
DATASCENSION, INC.
BALANCE SHEETS
AS OF
December 31, 2005 and December 31, 2004
ASSETS
AUDITED AUDITED
RESTATED
12/31/05 12/31/04
------------ ------------
CURRENT ASSETS:
Cash $ 275,287 $ 5 56,593
Accounts receivable 2,254,078 1,533,969
Prepaid expenses 114,749 186,306
Note receivable, related party - -
Investment in Century Innovations 108,469 108,469
------------ ------------
Current portion of notes receivable - -
------------ ------------
TOTAL CURRENT ASSETS $ 2,752,583 $ 2,385,337
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
depreciation 936,859 681,346
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 $ 5,406,993 $ 5,804,398
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
RESTATED
12/31/05 12/31/04
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 135,467 $ 135,533
Accrued expenses 1,766,493 1,390,880
Notes payable, related party 9,000 60,038
Short term notes payable 200,000 121,742
Convertible debt 1,153,723 241,111
Derivative liability 1,003,106 2,408,178
Warrant Liability 278,502 1,785,877
Current portion of long-term notes payable 104,402 116,207
------------ ------------
TOTAL CURRENT LIABILITIES $ 4,650,694 $ 6,259,566
LONG-TERM DEBT
Long-term notes payable, net of current portion 139,885 103,548
------------ ------------
TOTAL LONG-TERM DEBT 139,885 103,548
TOTAL LIABILITIES 4,790,579 6,363,114
STOCKHOLDERS' EQUITY:
Common stock:
Common stock, $0.001 par value, 200,000,000
shares authorized; 17,482,221 and 16,257,290 shares
issued, 17,386,388 and 16,161,457 outstanding at
December 31, 2005 and 2004, respectively 161,100 159,875
Additional paid-in capital-common stock 11,563,045 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 (296,875) (119,063)
Treasury stock, at cost; 95,833 at December 31, 2004 (134,388) (134,388)
Accumulated deficit (11,158,968) (11,976,936)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 616,414 (558,716)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,406,993 $ 5,804,398
============ ============
See accompanying notes to financial statements
F-5
DATASCENSION, INC.
STATEMENT OF OPERATIONS
FOR YEARS ENDED
December 31, 2005 and December 31, 2004
AUDITED AUDITED
RESTATED
FOR THE FOR THE
YEAR ENDED YEAR ENDED
12/31/05 2004
------------ ------------
REVENUE $ 9,752,935 $ 8,471,440
COST OF GOODS SOLD 7,633,641 7,071,784
------------ ------------
GROSS PROFIT 2,119,295 1,399,656
EXPENSES:
Selling, general and administrative $ 2,141,277 $ 2,430,666
Depreciation 190,530 270,893
Asset impairment - 328,492
------------ ------------
TOTAL EXPENSES 2,331,807 3,030,051
------------ ------------
OPERATING INCOME (212,512) (1,630,395)
OTHER INCOME (EXPENSE):
Interest income 610 743
Forgiveness of debt 2,962 55,000
Other income 6,446 11,210
Interest expense (313,421) (216,507)
Other Income (Expense) related to convertible 2,978,779 (2,489,116)
Interest income (expense) related to convertible (641,065) (52,300)
------------ ------------
TOTAL OTHER INCOME 2,034,311 (2,690,970)
------------ ------------
NET INCOME (LOSS) $ 1,821,798 $ (4,321,365)
============ ============
DISCONTINUED OPERATIONS $ - $ (1,731,001)
NET INCOME (LOSS) AFTER DISCONTINUED OPERATIONS $ 1,821,798 $ (6,052,366)
============ ============
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 18,145,903 15,671,867
============ ============
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 40,965,903 16,594,223
============ ============
BASIC NET INCOME PER SHARE $ 0.10 $ (0.28)
============ ============
DILUTED NET INCOME PER SHARE $ 0.04 $ (0.26)
============ ============
DISCONTINUED - BASIC $ - $ (0.11)
============ ============
NET INCOME AFTER DISCONTINUED - BASIC $ 0.10 $ (0.39)
============ ============
DISCONTINUED - DILUTED $ - $ (0.10)
============ ============
NET INCOME AFTER DISCONTINUED - DILUTED $ 0.04 $ (0.36)
============ ============
See accompanying notes to financial statements
F-6
DATASCENSION Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED
December 31, 2005 and December 31, 2004
AUDITED
Common Common Additional Preferred-A Preferred Preferred
Stock Stock Paid-in Add. Paid Stock Shares Stock
Shares Amount Capital In Capital Series B Series B
----------- --------- ------------ ----------- ----------- ---------
Balance at December 31, 2003 150,552,069 $ 150,551.79 $ 10,802,059 $ (0) 508,500 509
Prior period adjustment
Sale of Stock 1,875,000 1,875 73,125 - - -
Settlement of Series B 500,000 500 25,500 - (2,600) (2.6)
Distribution / Sale of Nutek - - - - - -
Oil Ownership
Adjustment for Preferred 3,950,000 3,950 (3,950) - - -
Converted
Additional shares issued 1,100,000 1,100 9,400 - - -
related to prior contract
Additional cost for dialers 520,833 521 7,812 - - -
Investment not recorded in 225,000 225 - - - -
prior qtr
Issuances for Services 850,000 $ 850 $ 115,350
Reverse Stock Split - Balance 15,957,290 $ 159,575 $ 11,029,295 $ (0) 505,900 $ 506
Issuances for Services 300,000 300
Distribution of Century
Innovations
Century no longer
consolidated
Write down of assets
Move receivable to subscribed
stock
Net Profit for Year
Ended December 31, 2004 - - - - - -
----------- --------- ------------ ----------- ----------- ---------
Balance at December 31, 2004 16,257,290 $ 159,875 $ 11,029,295 $ (0) 505,900 $ 506
=========== ========= ============ =========== =========== =========
Stock issued for services 950,000 $ 950 474,050
Settlement and Distribution
of Nutek Oil
Settlement of subscribed
stock
Stock issued for services 300,000 $ 300 $ 59,700
Rounding error (25,069) $ (25)
Net Profit for Year
Ended December 31, 2005 - - - - - -
----------- --------- ------------ ----------- ----------- ---------
Balance at December 31, 2005 17,482,221 $ 161,100 $ 11,563,045 $ - 505,900 $ 506
=========== ========= ============ =========== =========== =========
Preferred-B Non-Controlling
Add. Paid Treasury Subscribed Interest Income Total
In Capital Stock Stock In Subsidiary Deficit Equity
----------- ---------- ----------- --------------- ------------ ------------
Balance at December 31, 2003 $ 507,992 $ (134,388) $ (153,750) $ 311,136 $ (5,190,486) $ 6,293,623
Prior period adjustment 219,709 219,709
Sale of Stock - - - - - 75,000
Settlement of Series B (25,997) - - - - -
Distribution / Sale of Nutek - - - (311,136) (83,708) (394,844)
Oil Ownership
Adjustment for Preferred - - - - - -
Converted
Additional shares issued - - - - - 10,500
related to prior contract
Additional cost for dialers - - - - - 8,333
Investment not recorded in - - - - - 225
prior qtr
Issuances for Services 116,200
Reverse Stock Split - Balance $ 481,994 $ (134,388) $ (153,750) $ 0 $ (5,054,485) $ 6,212,546
Issuances for Services 300
Distribution of Century (976,221) (976,221)
Innovations
Century no longer 106,137 106,137
consolidated
Write down of assets 153,750 153,750
Move receivable to subscribed (119,063) (119,063)
stock
Net Profit for Year
Ended December 31, 2004 - - - - (6,052,366) (6,052,366)
----------- ---------- ----------- --------------- ------------ ------------
Balance at December 31, 2004 $ 481,994 $ - $ (134,388) $ (119,063) $(11,976,936) $ (674,917)
=========== ========== =========== =============== ============ ============
Stock issued for services $ (475,000) -
Settlement and Distribution (1,003,831) (1,003,831)
of Nutek Oil
Settlement of subscribed $ 297,188 297,188
stock
Stock issued for services 60,000
Rounding error (25)
Net Profit for Year
Ended December 31, 2005 - - - - 1,821,798 1,821,798
----------- ---------- ----------- --------------- ------------ ------------
Balance at December 31, 2005 $ 481,994 $ (134,388) $ (296,875) $ 0 $(11,158,968) $ 500,213
=========== ========== =========== =============== ============ ============
See accompanying notes to financial statements
F-7
DATASCENSION Inc.
STATEMENT OF CASH FLOWS
FOR YEARS ENDED
December 31, 2005 and December 31, 2004
AUDITED AUDITED
RESTATED
FOR THE YEAR FOR THE YEAR
ENDED ENDED
12/31/05 12/31/04
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,821,798 $ (6,052,366)
Adjustments to reconcile net income to net
cash provided by operating activities:
Issued for services 60,000 135,333
Discontinued operations / impairment of assets - 1,688,070
Impairment of assets - 328,492
Noncash expenses associated with convertible debt - 2,489,116
Change in warrant liability (1,507,375) 936,714
Change in derivative liability (1,405,072) 768,225
Depreciation and amortization 190,530 270,893
(Decrease) in asset held for sale 1,015,014 -
Distribution of asset held for sale (1,003,831) -
(Decrease) Increase in contingent liabilities - (338,461)
Forgiveness of debt - (55,000)
(Increase) Decrease in accounts receivable (720,108) (446,275)
Increase in prepaid expenses 110,596 8,317
Increase in deposits 5,150 26,493
Decrease in accounts payable (66) (142,489)
Decrease in accrued expenses 375,613 1,208,503
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES $ (1,057,750) $ 825,565
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in notes receivable - 7,050
Purchase of property and equipment (485,119) (219,996)
------------ ------------
Purchase of intangible assets - -
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (485,119) (212,946)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 102,800 222,899
Increase (Decrease) in related party payable (51,038) (268,502)
Increase (Decrease) in convertible debt 912,612 241,111
Increase (Decrease) in stock subscriptions 297,188 -
Issuance of common stock - 75,225
(Decrease) Increase in line of credit - (449,650)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,261,563 (178,917)
------------ ------------
NET INCREASE IN CASH (281,307) 433,702
BALANCE, BEGINNING 556,593 122,891
------------ ------------
BALANCE, ENDING $ 275,286 $ 556,593
============ ============
INTEREST PAID $ 68,765 $ 97,728
============ ============
TAXES PAID $ - $ -
============ ============
See accompanying notes to financial statements
F-8
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.
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 when the work is completed (survey
completed) 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. 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.
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, 2005 amounted to $3,210.
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. The
majority of the Company's customers are located within the United States of
America.
During the year ended December 31, 2005, the Company had three major clients
which accounted for 20%, 13% and 11%, respectively, of the sales for the year.
Management does not believe the loss of these clients would materially affect
the ability to conduct and sell market research.
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 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.
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.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections. This statement applies to all voluntary changes in accounting
principle and requires retrospective application to prior periods' financial
statements of changes in accounting principles, unless this would be
impracticable. The statement also makes a distinction between "retrospective
application" of an accounting principle and the "restatement" of financial
statements to reflect the correction of an error. This statement is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005.
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, 2005 and 2004:
2005 2004
----------- ------------
Net income (loss), as reported $ 1,821,798 $ (6,052,366)
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 $ 1,821,798 $ (6,255,357)
=========== ============
Net income (loss) per common share:
Basic per share,
as reported $ 0.10 $ (0.39)
=========== ============
Fully diluted per share,
as reported $ 0.04 $ (0.36)
=========== ============
Basic per share, pro forma $ 0.10 $ (0.40)
=========== ============
Fully diluted per share, pro forma $ 0.04 $ (0.38)
=========== ============
There were no stock options granted for the year ended December 31, 2005. See
Note 4 and Note 5. 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.
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, 2005, we recorded an other income item of
$2,978,779, of which, $1,414,618 and $1,564,160 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, 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.
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, 2005, the estimated
fair value of our derivative liability was $1,003,106, as well as a warrant
liability of $278,502. 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. 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, 2005, the company used the closing price of $0.24 and
the exercise price of $0.30 for the 3,125,000 and $0.50 for the 300,000
warrants. For the year ended December 31, 2005, due in part to an decrease in
the market value of the Company's common stock to $0.24 from $0.65 at December
31, 2004, the Company recorded an "other income" item on the consolidated
statement of operations for the change in fair value of $2,978,779. At December
31, 2005, the estimated fair value of the derivative liability was
approximately $1 million. 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.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are made up of the following as of December 31,
2005:
Equipment and machinery $ 472,500
Office equipment 1,068,096
Leasehold improvements 9,959
Accumulated depreciation (613,696)
--------------
$ 936,859
==============
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 December 31,
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, 2005
and 2004, the Company accreted $604,608 and $52,300, respectively, of debt
discount related to the 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 year
ended December 31, 2005, the warrant derivative liability had decreased to a
value of $262,088, due in part to a decrease in the market value of the
Company's common stock to $0.24 from $0.65 at December 31, 2004, which resulted
in an "other income" item of $1,523,789 for the year ended December 31, 2005.
The company used a closing price of $0.24, an exercise price of $0.30, a 3.88
years remaining term, and a 50% 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 year ended
December 31, 2005, the estimated value of the debt features decreased to
$975,928, 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 $1,432,250 for the year ended December 31, 2005.
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 year ended December 31, 2005,
the Company accreted $36,457 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 year ended December 31, 2005,
the warrant liability had decreased to a value of $16,414, due in part to a
decrease in the market value of the Company's common stock to $0.24 from $0.50
at March 31, 2005, which resulted in an "other income" item of $40,372. The
company used aclosing price of $0.24, an exercise price of $0.50, a 4.25 year
remaining term, and a 50% 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 year ended December 31, 2005,
the estimated value of the debt features increased to $27,180, 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 $17,632.
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 year ended December 31, 2005, we recorded an other income item of
$2,978,779, of which $1,432,250 of other income related to the decrease in
value of the debt features on the $1.875 million convertible note, $1,523,789
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, $40,372 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 $17,632 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 year ended December 31, 2005:
$1,432,250 income, decrease in value of 2004 derivative liability
1,523,789 income, decrease in value of 2004 warrant liability
(17,632) expense, increase in 2005 derivative liability
40,372 income, decrease in value of 2005 warrant liability
----------
$2,978,779 other income related to convertible debt
For the year ended December 31, 2005, the company recorded $641,065 of interest
expense related to the accretion of debt related to the convertible financing.
For the year ended December 31, 2005:
$604,608 of interest expense related to accretion of 2004
convertible debt
36,457 of interest expense related to accretion of 2005
convertible debt
--------
$641,065 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 December 31,
2005 is:
$ 241,111 December 31, 2004 value
604,608 accretion of 2004 convertible debt
58,667 original carrying value on 2005 convertible debt
36,457 accretion of 2005 convertible debt
213,630 interest accrual on loan minus payments of interest
- ----------
$1,153,723 December 31, 2005 carrying value of debt
The balance of the carrying value of the derivative liability as of December
31, 2005 is:
$ 2,408,178 December 31, 2004 value of derivative liability
(1,432,250) income, decrease in value of 2004 derivative liability
9,548 original carrying value on 2005 derivative liability
17,632 expense, increase in 2005 derivative liability
(2) rounding
- -----------
$ 1,003,106 December 31, 2005 value of derivative liability
The balance of the carrying value of the warrant liability as of December 31,
2005 is:
$ 1,785,877 December 31, 2004 value of warrant liability
(1,523,789) income, decrease in value of 2004 warrant liability
56,785 original carrying value on 2005 warrant liability
(40,371) income, decrease in 2005 warrant liability
- -----------
$ 278,502 December 31, 2005 value of warrant liability
NOTE 5 - STOCKHOLDERS' EQUITY
Common stock:
During the fiscal year ended December 31, 2005, 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 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.
During the fourth quarter of 2005, 300,000 shares of restricted common stock
valued $0.20 per share were issued pursuant to a consulting agreement 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 consultant
was a sophisticated investors with enough knowledge and experience in business
to evaluate the risks and merits of the investment.
A rounding error of 25,069 shares was discovered during our year end audit and
an adjustment has been made to the financial statements.
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.
Options / Warrants
During the year ended December 31, 2005, there were no options or warrants
issued to employees.
During the year ended December 31, 2005, there were 300,000 warrants issued
related to the convertible debt incurred at March 31, 2005.
See Note 1 and Note 4 Convertible Notes.
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, 2005:
Note payable to a vendor, monthly payments of $348
inclusive of 7% annual interest through September 2006,
secured by equipment. $ 5,715
Note payable to a vendor, monthly payments
of $7,375 inclusive of 10.83% annual interest through
December 2007, secured by equipment. 238,572
-----------
244,287
Less current portion (104,402)
-----------
$ 139,885
===========
Principal maturities are as follows:
Twelve months ended December 31,
2006 $ 33,893
2007 65,530
-----------
$ 99,423
===========
Additionally, the company has the following short term notes payable as of
December 31, 2005.
Dell Financial Services $ 1,966
Wells Fargo Credit Card 45,492
Advanta Credit Card 9,579
---------
Total 57,037
NOTE 7 - 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, 2005
-----------------
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, 2005 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:
Percent of
Year Ended Pretax
December 31, 2005 Income
----------------- ----------
Expected $ 14,133 34%
Valuation allowance (14,133) (34%)
------------ ----
Actual expense $ - 0%
============ ====
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company has $135,467 in accounts payable and approximately $1,766,494 in
accrued payroll costs for the operations of the California, Costa Rica, and
Dominican Republic location as of December 31, 2005.
NOTE 9 - RELATED PARTY TRANSACTIONS
As of December 31, 2005, the Company has an outstanding note payable to Scott
Kincer, the Company's COO, in the amount of $3,000. This payable accrues
interest at 1% monthly due on the first day of each month.
NOTE 10 - 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,
2006 $ 133,259
2007 105,773
2008 105,773
2009 -
Thereafter -
-------------
Total minimum lease payments $ 344,805
=============
NOTE 11 - 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.
There were no options granted or exercised by the directors and executive
officers during the year ended December 31, 2005.
Compensation cost for options granted has not been recognized in the
accompanying financial statements. See Note 2 Stock Based Compensation for
pro-forma disclosures.
As discussed in Note 4 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, 2005 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 4,610 $ 0.30 - $ -
Granted:
Options - $ - 1,485 $ 0.30
Warrants 300 $ 0.50 3,125 $ 0.30
Exercised - $ - - $ -
Expired:
Warrants (-) $ - - $ -
--------- -------- -------- ---------
Options and warrants
outstanding and
exercisable at end
of period 4,910 $ 0.32 4,610 $ 0.30
======== ======== ======== =========
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, 2005, all of which are exercisable.
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- --------------- ---------------- ---------------- ----------------
$ 0.30 - 0.50 4,910,000 4 years $ 0.32
NOTE 12 - DISCONTINUED OPERATIONS
In 2004, management determined it was in the best interest of shareholders to
write off all impaired assets and business which conflicted 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.
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 the
company is furthering its 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 13 - 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 14 - SUBSEQUENT EVENTS
There have been no material subsequent events.
NOTE 15 - 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 95% 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 16 - RESTATEMENT OF FINANCIAL STATEMENTS
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.
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.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses related to the securities being registered shall be paid by the
Registrant.
SEC Registration Fee $ 1,032.56
Printing and Engraving Expenses $ 3,000.00
Legal Fees and Expenses $ 46,000.00
Accounting Fees and Expenses $ 15,000.00
Transfer Agent Fees $ 5,000.00
Blue Sky Fees $ 1,000.00
Miscellaneous $ 5,000.00
-----------
Total $ 76,032.56
===========
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 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 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.
On May 25, 2006, 135,000 shares of restricted common stock valued at $.30 per
share were issued to four (4) individuals 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 hold holder was a sophisticated investor with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On May 25, 2006, 60,000 shares of restricted common stock valued at $.50 per
share were sold to an individual investor. 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 June 9, 2006, 650,000 shares of common stock valued at $.30 per share were
issued to two (2) individual employees, Scott Kincer (500,000 shares) and
Joseph Harmon (150,000 shares) in consideration of terms under their employment
agreements, which granted them stock awards of common shares . 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 employees
were sophisticated investors with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
On June 9, 2006, 60,000 shares of common stock valued at $.30 per share were
issued to two (2) individual directors, Robert Sandelman (30,000 shares) and
David Lieberman (30,000 shares) in consideration of terms under their
agreements to act as directors , which granted them stock awards
of common shares . 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 se directors were sophisticated investors with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On June 12, 2006, DSEN entered into a subscription agreement for $2,274,288,
whereby we issued Convertible Debentures to the following: 1)$571,429 to Alpha
Capital Aktiengesellschaft, and 2)$1,702,859 to the Longview Fund LP. Interest
on these notes shall accrue at a rate of 6% per annum. In addition, DSEN issued
common stock purchase warrants to purchase 6,497,965 shares of DSEN common
stock at an exercise price of $.40 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.
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
On June 9, 2006, 60,000 shares of common stock valued at $.30 per share were
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
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. (9)
10.31 Service Agreement - Towne, Inc. (9)
10.32 Service Agreement - Sandelman & Associates (9)
10.33 Service Agreement - Knowledge Networks, Inc. (9)
10.34 Employment Agreement David Scott Kincer *
10.35 Warrant Agreement David Scott Kincer *
10.36 Employment Agreement Joseph Harman *
10.37 Warrant Agreement Joseph Harman *
Exhibit 21. Subsidiaries of the small business issuer (8)
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.*
* 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 August 8,
2005
(9) Previously filed as an exhibit to the Company's Form SB2/A, filed October
11, 2005
(b) Reports on Form 8-K
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 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.
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.
On February 2, 2006, Registrant filed a Current Report on Form 8-K relating to
the restatement of its consolidated financial statements for the fiscal year
ended December 31, 2004, and interim financial data for the nine months ended
September 30, 2005
On May 2, 2006, Registrant filed a Current Report on Form 8-K relating to
entering into a Recapitalization Agreement with TBeck Capital, Inc., a Florida
corporation.
On June 15, 2006, Registrant filed a Current Report on Form 8-K relating to
entering into a funding agreement with Longview et al, ("Longview") the
Company's current investment group.
On June 16, 2006, Registrant filed a Current Report on Form 8-K/A revising the
Disclosure filed in Form 8-K on June 15, 2006.
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: June 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: June 30, 2006
/s/ Joseph Harmon
- ----------------------
Joseph Harmon, Vice President, Director
Date: June 30, 2006