SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB2
AMENDMENT NO. 4
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
Title of each class of securities to be Amount to Proposed maximum Proposed maximum Exercise Proceeds Amount of
registered be offering price per aggregate offering price per to DSEN registration
registered share (2) price (2) share (2) fee
(1)
Common Shares, par value $.001 underlying
secured convertible debenture 9,875,000 $.30 $2,962,500 $375.35(3)
Common Shares, par value $.001 underlying
secured convertible debenture 280,000 $.50 $ 140,000 $ 17.74(4)
Shares underlying warrants
3,125,000 $.30 $937,500 $118.78(5)
Shares underlying warrants
300,000 $.50 $150,000 $19.01 (5)
Total Registration Fee $530.87(6)
(1) Includes shares of our common stock, par value $0.001 per share, which may
be offered pursuant to this registration statement, which shares are
issuable upon conversion of a convertible debentures the exercise of
warrants held by the selling stockholder. In addition to the shares set
forth in the table, the amount to be registered includes an indeterminate
number of shares issuable upon conversion of the debentures and the exercise
of the warrants as such number may be adjusted as a result of stock splits,
stock dividends and similar transactions in accordance with Rule 416. The
number of shares of common stock registered hereunder represents a good
faith estimate by us of the number of shares of common stock issuable upon
conversion of the debentures and upon exercise of the warrants. For purposes
of estimating the number of shares of common stock to be included in this
registration statement, we calculated a good faith estimate of the number of
shares of our common stock that we believe will be issuable upon conversion
of the debentures to account for market fluctuations and the number of
shares of common stock that we believe will be issuable upon exercise of the
warrants to account for antidilution and price protection adjustments.
Should the conversion ratio of the secured convertible debentures result in
our having insufficient shares, we will not rely upon Rule 416, but will
file a new registration statement to cover the resale of such additional
shares should that become necessary. In addition, should a decrease in the
exercise price as a result of an issuance or sale of shares below the then
current market price, result in our having insufficient shares, we will not
rely upon Rule 416, but will file a new registration statement to cover the
resale of such additional shares should that become necessary.
(2)Estimated solely for the purpose of determining the registration fee.
(3)Common stock issuable upon conversion of an aggregate of $1,875,000 in
convertible debentures issued in connection with a November 2004 financing
including a 50% reserve and one year interest at a fixed conversion price of
$.30 per share.
(4)Common stock issuable upon conversion of a $125,000 in convertible debenture
issued March 31, 2005
including one year interest at a fixed conversion price of $.50 per
share.
(5)Common stock issuable upon the exercise of warrants issued.
(6) $530.87 has been previously paid.
---------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effectiveness date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED September 30, 2005
13,580,000 Shares of Common Stock
This prospectus relates to the resale by the selling stockholders of up to
13,580,000 shares of Datascension Inc.'s ("DSEN") common stock, including up to
9,875,000 shares of common stock underlying convertible notes in a principal
amount of $1,875,000 and up to 3,125,000 shares of common stock issuable upon
the exercise of common stock purchase warrants at $.30 a share. The
convertible notes are basically convertible into common stock at a conversion
price driven by the market price of the stock. If the market price of the
stock is 1) at or below 15% above the fixed Conversion Price or 2) below the
fixed $.30 fixed conversion price at the time of payment, then DSEN may elect
to pay the principal amortization in stock at a price equal to 85% of the
average of the five (5) lowest closing bid prices of the stock over the
previous twenty (20) trading days. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions. In addition this
prospectus includes 280,000 shares underlying a $125,000 convertible note and
up to 300,000 shares of common stock issuable upon the exercise of a common
stock purchase warrant at $.50 a share. The convertible note is convertible
into common stock at a fixed rate of $.50 per share. We will pay the expenses
of registering these shares.
Our Common Stock is registered under Section 12(g) of the Securities Exchange
Act of 1934 and is quoted on the Over-The-Counter Bulletin Board under the
symbol "DSEN". The last reported sales price per share of our common stock as
reported by the Over-The-Counter Bulletin Board on September 27, 2005, was
$0.33.
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 October 7, 2005
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
Section Title Page No.
Summary of Information in the Prospectus 1
Risk Factors 3
Dividend Policy 16
Use of Proceeds 11
Market for Common Equity and Related Stockholder Matters 12
Management's Discussion and Analysis or Plan of Operations 14
Our Business 20
Management 25
Executive Compensation 28
Security Ownership of Certain Beneficial Owners and Management 31
Certain Relationships and Related Transactions 31
Description of Securities 32
Selling Shareholders 34
Plan of Distribution 37
Legal Proceedings 39
Experts 40
Legal Matters 40
Other Available Information 40
Financial Statements F-1
PROSPECTUS SUMMARY
This summary contains all material terms of the offering. To understand this
offering fully, you should read the entire document carefully. Please pay
particular attention to the section entitled "RISK FACTORS" and the section
entitled "FINANCIAL STATEMENTS".
Unless otherwise indicated, this Prospectus assumes that any of DSEN's
outstanding options or warrants have not been exercised into shares of DSEN's
Common Stock.
DATASCENSION, INC.
Datascension, Inc. ("DSEN"), was incorporated under the laws of the State of
Nevada, on August 23, 1991, under the name Swiss Technique, Inc. On March 3,
1995 Datascension, Inc. changed its name from Swiss Technique, Inc., to Nutek,
Inc. and on January 5th, 2004, its name was changed to its present name,
Datascension, Inc.
Datascension International Inc., the only current operating subsidiary and
focus of DSEN, was acquired on July 2, 2001 whereby DSEN acquired 100% of the
issued and outstanding stock of Datascension International.
Datascension International is a data gathering and research company
specializing in the collection, storage, and processing of data by conducting
telephone market research and also provides data entry services for third
parties.
Datascension International services a variety of industries and customers
(including the hospitality, entertainment, and automotive sectors) with
emphasis and commitment to customer service, quality assurance and on-time
project management.
For the three months ended June 30, 2005, we generated revenues in the
amount of $2,577,701 and a net loss of $18,049. In addition, for the twelve
months ended December 31, 2004, we generated revenues in the amount of
$8,672,103 and net loss before discontinued operations of $(3,552,550) and a
net loss after discontinued operations of $(5,283,551). Our accumulated
deficit for the year ended December 31, 2004 was ($11,208,120).
Staff Legal Bulletin No. 4 (September 16, 1977) regarding spin-offs requires
that a non-reporting subsidiary registers the spun-off securities under the
exchange Act. This registration should be filed before or concurrent with the
spin-off. In the case of Nutek Oil, though the spun-off shares were
registered, this did not occur until over a year subsequent to the spin-off.
In the case of Century Innovations, a registration of the spun-off shares has
not been filed to date. As a result these two spin-offs may not have complied
with Section 5 of the Securities Act. Since there was no consideration paid
for the spun-off shares, Datascension management feels there is no liability to
the company for any possible violation of Section 5 of the Securities Act.
DSEN's mailing address is: 145 S. State College Blvd, Suite 350, Brea CA 92821.
The company phone number is 714-482-9750 and 714-482-9751 (fax). DSEN's website
can be found at: www.datascension.com.
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THE OFFERING
Securities Offered by Selling Shareholders
Up to 13,580,000 including i) up to 10,155,000 shares of common stock
underlying convertible debentures in the amount of $2,000,000, and ii)
up to 3,125,000 shares of common stock issuable upon the exercise of
purchase warrants at an exercise price of $.30 per share and 300,000
shares of common stock issuable upon the exercise a purchase warrant
at an exercise price of $.50 per share
Common Stock Outstanding after offering
Up to 30,812,290 Shares
Offering Price
The selling shareholders can sell the shares at any price.
Use of Proceeds
This prospectus relates to shares of DSEN's common stock that may be
offered and sold from time to time by the selling stockholders. We
will not receive any proceeds from the sale of shares by the selling
shareholders. However, we will receive proceeds upon the exercise of
any warrants that may be exercised by the selling shareholders. These
funds will be used for ongoing operations.
Market for our Common Stock
Our Common Stock is quoted on the Over-the Counter Bulletin Board,
also called OTCBB, under the trading symbol "DSEN". The market for
our Common Stock is highly volatile. We can provide no assurance that
there will be a market in the future for our Common Stock.
The above information regarding common stock to be outstanding after the
offering is based on 17,232,290 shares of common stock outstanding as of August
31, 2005 and assumes the subsequent conversion of the aggregate sum of
$2,000,000 in issued convertible debentures and the exercise of warrants by our
selling stockholders.
On November 17, 2004, DSEN entered into a subscription agreement for
$1,875,000, whereby we issued Convertible Debentures to the following:
1)$350,000 to Alpha Capital Aktiengesellschaft, 2) $525,000 to the Longview
Equity Fund LP, 3) $775,000 to the Longview Fund LP., and 4) $225,000 to the
Longview International Equity Fund, LP. Interest on these notes shall accrue
at a rate per annum equal to the "prime rate" published in The Wall Street
Journal from time to time, plus three percent (3%). The prime rate shall be
increased or decreased as the case may be for each increase or decrease in the
prime rate in an amount equal to such increase or decrease in the prime rate;
each change to be effective as of the day of the change in such rate. The
interest rate shall not be less than eight percent (8%). Interest shall be
calculated on the basis of a 360 day year
DSEN shall reduce the principal amount of the note by 1/32nd per month starting
120 days after the closing, payable in cash or registered stock as described
below. If such amortization is in cash, the payment will be at 104% of the
monthly principal amortization amount. The note holders and DSEN must convert
the principal amortization and interest payments through common stock if the
market price for the stock at the time of payment is 15% above the fixed
conversion price of $.30 per share.
If the market price of the stock is 1) at or below 15% above the fixed
Conversion Price or 2) below the fixed $.30 fixed conversion price at the time
of payment, then DSEN may elect to pay the principal amortization in stock at a
price equal to 85% of the average of the five (5) lowest closing bid prices of
the stock over the previous twenty (20) trading days.
On March 31, 2005 DSEN entered into a subscription agreement for $125,000,
whereby we issued an additional two-year Convertible Debenture to the Longview
Fund LP at an interest ate of 12% per annum. This note has a fixed conversion
rate of $.50 per share.
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Each convertible note holder shall not be entitled to convert that amount of
their note that would result in a number of shares of common stock held which
would be in excess of the sum of the number of shares of common stock
beneficially owned by the note holder and its affiliates on that date of more
than 4.99% of the outstanding shares of common stock of DSEN on that date. For
the purposes of this provision, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3. The note holder may void this conversion
share limitation upon 61 days prior notice to DSEN. Therefore, the note holder
can never own more than 4.99%, however, the note holder may decide whether to
convert a note or exercise a warrant to achieve the 4.99% ownership position.
Aggregate conversions over time shall not be limited to 4.99%. This limitation
shall be calculated as of each conversion, thus the note holder would be able
to convert the debt and quickly sell the shares or convert and cover short
sales to maintain the 4.99% threshold.
As part of this funding, the investors have been given a security interest in
all now owned and subsequently acquired right, title and interest of
Datascension Inc. in all accounts (unpaid vendor; contract rights; investment
property; intangible assets, instruments; letters of credit, bankers'
acceptances or guaranties; cash moneys, deposits; securities, bank accounts,
deposit accounts, credits and other property, goods (inventory, equipment,
furniture and fixtures), real or personal property, all present and future
books and records relating to the above items and all products and proceeds of
the above items.
DSEN has the option of prepaying the outstanding principal amount, in whole or
in part, by paying to the note holder a sum of money equal to one hundred
twenty percent (120%) of the principal amount to be redeemed, together with any
accrued interest on that amount.
Further, on November 17, 2004, DSEN issued common stock purchase warrants to
purchase 3,125,000 shares of DSEN common stock to the above note holders, at an
exercise price of $.30 per share and on March 31, 2005 a common stock purchase
warrants to purchase 300,000 shares of DSEN common stock to the above note
holders, at an exercise price of $.50 per share
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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
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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;
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- 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.
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WE MAY EXPERIENCE SIGNIFICANT EMPLOYEE OR CONTRACT LABOR TURNOVER RATES IN THE
FUTURE AND WE MAY BE UNABLE TO HIRE AND RETAIN ENOUGH SUFFICIENTLY TRAINED
CONTRACT LABOR TO SUPPORT OUR OPERATIONS, WHICH COULD HARM OUR BUSINESS.
The market research outsourcing industry is very labor intensive and our
success depends on our ability to attract, hire and retain qualified employees
and contract labor. We compete for qualified personnel with companies in our
industry and in other industries and this competition is increasing in Costa
Rica as the outsourcing industry expands. Our growth requires that we
continually hire and train new contract labor. The outsourcing industry,
including the customer management services industry, has traditionally
experienced high employee turnover. In our case, a significant increase in the
turnover rate among our contract labor would increase our recruiting and
training costs and decrease operating efficiency and productivity, and could
lead to a decline in demand for our services. If this were to occur, we would
be unable to service our clients effectively and this would reduce our ability
to continue our growth and operate profitably. We may be unable to continue to
recruit, hire, train and retain a sufficient labor force of qualified employees
to execute our growth strategy or meet the needs of our business.
OUR SENIOR MANAGEMENT TEAM IS IMPORTANT TO OUR CONTINUED SUCCESS AND THE LOSS
OF MEMBERS OF SENIOR MANAGEMENT COULD NEGATIVELY AFFECT OUR OPERATIONS.
The loss of the services of Scott Kincer, our Chief Executive Officer and
Principal Accounting Officer or Joseph Harmon, our Vice President of Sales and
Marketing, could seriously impair our ability to continue to manage and expand
our business. Our success depends on the continued service and performance of
our executive officers, and we cannot guarantee that we will be able to retain
these individuals.
OUR FACILITIES ARE AT RISK OF DAMAGE BY EARTHQUAKES AND OTHER NATURAL
DISASTERS.
We currently rely on the availability and condition of our leased Costa
Rican and Dominican Republic facilities to provide service and support to our
clients. These facilities are located in regions that are susceptible to
earthquakes and other natural disasters, which may increase the risk of
disruption of information systems and telephone service for sustained periods.
Damage or destruction that interrupts our provision of outsourcing services
could damage our relationship with our clients and may cause us to incur
substantial additional expense to repair or replace damaged equipment or
facilities. While we currently have commercial liability insurance, our
insurance coverage may not be sufficient. Furthermore, we may be unable to
secure such insurance coverage or to secure such insurance coverage at premiums
acceptable to us in the future. Prolonged disruption of our services as a
result of natural disasters may entitle our clients to terminate their
contracts with us.
OUR OPERATIONS COULD SUFFER FROM TELECOMMUNICATIONS OR TECHNOLOGY DOWNTIME,
DISRUPTIONS OR INCREASED COSTS.
We are highly dependent on our computer and telecommunications equipment
and software systems. In the normal course of our business, we must record and
process significant amounts of data quickly and accurately to access, maintain
and expand the databases we use for our services. We are also dependent on
continuous availability of voice and electronic communication with customers.
If we experience interruptions of our telecommunications network with our
clients, we may experience data loss or a reduction in revenues. These
disruptions could be the result of errors by our vendors, clients or third
parties, electronic or physical attacks by persons seeking to disrupt our
operations, or the operations of our vendors, clients or others. A significant
interruption of service could have a negative impact on our reputation and
could lead our present and potential clients not to use our services. The
temporary or permanent loss of equipment or systems through casualty or
operating malfunction could reduce our revenues and harm our business.
OUR CUSTOMER BASE IS CONCENTRATED AND THE LOSS OF ONE OR MORE OF OUR KEY
CUSTOMERS WOULD HARM OUR BUSINESS.
Historically, a majority of our sales have been to relatively few customers. We
expect that sales to relatively few customers will continue to account for a
significant percentage of our net sales for the foreseeable future. The loss
of, or any reduction in interview hours from, a significant customer would harm
our business.
We derived approximately 38.6% of our total net revenues from two
clients in fiscal 2003. For the year ended December 31, 2004 we derived
approximately 45% of our total net revenues from our top three clients. If we
7
were to lose, or if there were a material reduction in business from these
clients or our other significant clients, our net revenues might decline
substantially.
Our ten largest clients accounted for $5.45 million, or approximately
77%, of our total net revenues for 2003. Our ten largest clients accounted for
$6.1 million, or approximately 72%, of our total net revenues for the year
ended December 31, 2004. If we lose business from any of our top ten clients,
our net revenues may decline substantially.
WE COULD CAUSE DISRUPTIONS TO OUR CLIENTS' BUSINESS FROM INADEQUATE SERVICE,
AND OUR INSURANCE COVERAGE MAY BE INADEQUATE TO COVER THIS RISK.
Most of our contracts with our clients contain service level and
performance requirements, including requirements relating to the timing and
quality of responses to market research. The quality of services that we
provide is measured by quality assurance ratings, which are based in part on
the results of customer satisfaction and direct monitoring of interactions
between our professionals and customers. Failures to meet service requirements
of a client could disrupt the client's business and result in a reduction in
revenues or a claim for damages against us. For example, some of our agreements
have standards for service that, if not met by us, result in lower payments to
us. In addition, because many of our projects are business-critical projects
for our clients, a failure or inability to meet a client's expectations could
seriously damage our reputation and affect our ability to attract new business.
Under our contracts with our major clients and many of our contracts with other
clients, our liability for breaching our obligations is generally limited to
actual damages up to a portion of the fees paid to us. To the extent that our
contracts contain limitations on liability, such contracts may be unenforceable
or otherwise may not protect us from liability for damages. While we maintain
general liability insurance coverage, this coverage may be inadequate to cover
one or more large claims, and our insurer may deny coverage.
UNAUTHORIZED DISCLOSURE OF SENSITIVE OR CONFIDENTIAL CLIENT AND CUSTOMER DATA,
WHETHER THROUGH BREACH OF OUR COMPUTER SYSTEMS OR OTHERWISE, COULD EXPOSE US TO
PROTRACTED AND COSTLY LITIGATION AND CAUSE US TO LOSE CLIENTS.
We are typically required to collect and store sensitive data in
connection with our services, including names, addresses and other personal
information. If any person, including any of our employees, penetrates our
network security or otherwise misappropriates sensitive data, we could be
subject to liability for breaching contractual confidentiality provisions or
privacy laws. Penetration of the network security of our data bases could have
a negative impact on our reputation and could lead our present and potential
clients to choose other service providers.
WE MAY CHOOSE TO EXPAND OPERATIONS OUTSIDE OF COSTA RICA OR THE DOMINICAN
REPUBLIC AND MAY NOT BE SUCCESSFUL.
We may consider expanding to countries other than Costa Rica and the
Dominican Republic. We cannot predict the extent of government support,
availability of qualified workers, or monetary and economic conditions in other
countries. Although some of these factors may influence our decision to
establish operations in another country, there are inherent risks beyond our
control, including exposure to currency fluctuations, political uncertainties,
foreign exchange restrictions and foreign regulatory restrictions. One or more
of these factors or other factors relating to international operations could
result in increased operating expenses and make it more difficult for us to
manage our costs and operations, which could harm our business and negatively
impact our operating results.
WE ARE SUBJECT TO EXTENSIVE LAWS AND REGULATION THAT COULD LIMIT OR RESTRICT
OUR ACTIVITIES AND IMPOSE FINANCIAL REQUIREMENTS OR LIMITATIONS ON THE CONDUCT
OF OUR BUSINESS.
The market research and call center industry has become subject to an
increasing amount of federal and state regulation in the past five years.
Despite our focus on outbound market research and a lesser extent inbound call
handling, we are subject to regulations governing communications with consumers
due to the activities we undertake on behalf of our clients to encourage
customers to provide sensitive personal information about themselves. For
example, limits on the transport of personal information across international
borders such as those now in place in the European Union (and proposed
elsewhere) may limit our ability to obtain customer data.
8
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.
9
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE NOTES
COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH WILL
CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
There are a large number of shares underlying the convertible note and
warrants in this offering that may be available for future sale and the sale of
these shares may depress the market price of DSEN's common stock and may cause
substantial dilution to DSEN's existing stockholders.
The number of shares of common stock issuable upon conversion of the
convertible note in this offering may increase if the market price of DSEN's
stock declines. All of the shares, including all of the shares issuable upon
conversion of the notes and debentures and upon exercise of DSEN's warrants,
may be sold without restriction. The sale of these shares may adversely affect
the market price of DSEN's common stock. The issuance of shares upon conversion
of the convertible notes and debentures and exercise of outstanding warrants
will also cause immediate and substantial dilution to DSEN's existing
stockholders and may make it difficult to obtain additional capital.
In addition, our obligation to issue shares upon conversion of our
convertible notes is essentially limitless. The following gives examples of the
number of shares that would be issued if the $2,000,000 of convertible notes in
this offering were converted at one time at prices representing 25%, 50%, and
75% below the current market price (assuming a conversion price to the note
holders of $0.30. As of August 31, 2005, we had 17,232,290 (post-split) shares
of common stock outstanding.
Price Number % of
% Below Per With Discount of Shares Outstanding
Market Share at 15% Issuable Stock
25% $0.225 $ 0.191 10,471,204 61%
50% $ 0.15 $ 0.1275 15,686,274 91%
75% $0.075 $0.06375 31,372,549 182%
SEE THE "SECURITY OWNERSHIP TABLE", DESCRIPTION OF SECURITIES AND THE
"SELLING SECURITY HOLDER TABLE" BEGINNING ON PAGE 31, 34 AND PAGE 35,
RESPECTIVELY, OF THIS PROSPECTUS.
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE IS RESTRICTED BY OUR CURRENT
FINANCING ARRANGEMENT.
For a period of time, DSEN will not be able to issue any equity,
convertible debt or other securities convertible into common stock or equity of
DSEN without the prior written consent of the current note holders, which
consent may be withheld for any reason. The time frame is the sooner of (i)
the registration statement shall have been current and available for use in
connection with the public resale of DSEN's common shares and warrant shares
being registered in this document, for 365 days, (ii) until all of DSEN's
shares being registered in this document have been resold or transferred by the
note holders pursuant to this registration statement or Rule 144, without
regard to volume limitations, or (iii) the date the current notes have been
fully paid.
INVESTORS WHO PURCHASE SHARES OFFERED FOR RESALE BY THIS PROSPECTUS WILL PAY
A PER SHARE PRICE THAT SUBSTANTIALLY EXCEEDS THE VALUE OF DATASCENSION'S ASSETS
AFTER SUBTRACTING ITS LIABILITIES PER SHARE AND THEREFORE WILL INCUR IMMEDIATE
DILUTION TO THE VALUE OF THEIR OWNERSHIP.
The investors would be converting at $.30 and a portion at $.50 per share
At June 30, 2005, the value of Datascension's assets after subtracting its
liabilities per share is a $.05 per share. Since the investors are paying a
price significantly larger than the value of Datascension's assets after
subtracting its liabilities per share (net tangible book value per share), the
investor would experience immediate dilution of their investment. Since the
warrants are also exercisable at $.30 and $.50 per share, the investors would
also experience immediate dilution of their investment upon exercising the
warrants.
10
FURTHER DILUTION COULD OCCUR IN THE FUTURE DUE TO ANY CONTRACTS WE MAY
ENTER INTO WITH THIRD PARTY ENTITIES FOR CONSULTING OR OTHER SERVICES SHOULD
ANY ADDITIONAL COMMON STOCK SHARES BE ISSUED FOR THOSE CONSULTING OR OTHER
SERVICES. THE FOLLOWING ARE SHARES ISSUED PURSUANT TO SERVICE CONTRACTS OVER
THE LAST EIGHTEEN MONTHS.
500,000 pre split shares of restricted stock were issued to Stock Enterprises
for services valued at $25,000 based on a fair market value of the stock of
$0.05 per share. Shares issued on April 20, 2004.
350,000 pre split shares of common stock were issued to the Law Offices of
Michael Morrison (250,000) and the Law Offices of Neil Beller (100,000) for
legal services valued at $31,500 based on a fair market value of the stock of
$0.09 per share. Shares issued on May 21, 2004.
OUR ABILITY TO BE A GOING CONCERN WOULD BE COMPROMISED IN THE EVENT THAT WE ARE
REQUIRED TO REPAY THE BALANCE OF THE OUTSTANDING CONVERTIBLE DEBT ON DEMAND.
We have issued $2,000,000 in convertible notes in this funding. In the event
that we are required to repay the balance of these notes in cash on demand, we
would be forced to seek additional funding which would probably be at a large
discount. If we were unable to obtain the additional funding, we may be forced
to close down operations.
The events that may trigger the above are as follows:
1. Failure to pay any installment of principal, interest or
other sum due under the note when due and such failure continues for a period
of ten days after the due date.
2. Breaches any material covenant or other term or condition
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 Borrower is 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.
11
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.
12
-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 $0.39. (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
13
these forward-looking statements based on our analysis of internal and external
historical trends, but there can be no assurance that we will achieve the
results set forth in these forward-looking statements. Our forward-looking
statements are expressed in good faith and we believe that there is a
reasonable basis for us to make them. We have no obligation to update or
revise these forward-looking statements to reflect future events.
USE OF PROCEEDS
DSEN will not receive any of the proceeds from the sale of the shares
of common stock offered by the selling shareholders under this prospectus.
There is a warrant being issued with the current funding. If the warrant was
exercised, the maximum DSEN would receive are proceeds of approximately
$937,500.
If the resale of the warrant shares fails to be registered pursuant to an
effective registration statement under the Securities Act, this warrant may
affect a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise. In the event of a Cashless
Exercise, in lieu of paying the Exercise Price in cash, the holder shall
surrender this Warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares to which it would otherwise be
entitled by a fraction, the numerator of which shall be the difference between
the then current market price per share of the common stock and the exercise
price, and the denominator of which shall be the then current market price per
share of common stock. For example, if the holder is exercising 100,000
warrants with a per warrant exercise price of $0.75 per share through a
cashless exercise when the Common Stock's current Market Price per share is
$2.00 per share, the holder will receive 62,500 shares of Common Stock.
The proceeds, if any, that DSEN receives from the exercise of warrants
will be used for working capital in support of the growing business.
14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Over-the Counter Bulletin Board, also
called the OTCBB, under the trading symbol "DSEN". The following table set
forth the quarterly high and low bid prices per share for our common stock.
The bid prices reflect inter-dealer prices, without retail markup, markdown, or
commission and may not represent actual transactions.
Fiscal YearQuarter Ended High *Low *
2001 March 31,2001 $3.00 $1.80
June 30, 2001 $3.40 $1.40
September 30, 2001$2.20 $0.70
December 31, 2001 $2.20 $0.70
2002 March 31, 2002 $1.30 $0.50
June 30, 2002 $1.35 $0.60
September 30, 2002$1.20 $0.40
December 31, 2002 $1.00 $0.35
2003 March 31, 2003 $0.80 $0.40
June 30, 2003 $1.10 $0.40
September 30, 2003$1.00 $0.70
December 31, 2003 $0.90 $0.60
2004 March 31, 2004 $2.50 $0.60
June 30, 2004 $1.20 $0.50
September 30, 2004$0.60 $0.40
December 31, 2004 $0.90 $0.35
2005 June 30, 2005 $0.50 $0.39
September 28, 2005$0.48 $0.27
* 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 August 31, 2005 there were approximately 719 registered
shareholders of the DSENs Common Stock and 17,232,290 shares issued and
outstanding.
Transfer Agent and Registrar
DSEN's transfer agent is Transfer Online, Inc., 317 SW Alder Street, 2nd
Floor, Portland, OR 97204.
15
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, Six Months Ended June 30,
2004 2003 2005 2004
(Audited) (Unaudited)
Revenue $ 8,672,103 $ 7,057,087 $ 4,632,725 $ 4,279,455
Cost of Revenue 7,028,686 4,039,343 3,725,252 3,427,221
--------- ---------- --------- ---------
Gross Margin 1,643,417 3,017,743 907,473 852,234
Selling General and Administrative
2,674,427 2,633,934 847,780 642,689
Depreciation & Amortization 270,893 276,593 86,997 170,487
Costs associated with asset impairment 328,492 - - -
Contingent accrual - 292,500
Lawsuit Liability - 45,000
--------- ---------- --------- ---------
Total Expenses 3,273,812 3,248,027 934,777 813,176
Operating Income (1,630,395) (230,384) (27,304) 39,058
Total Other Income (Expense) (1,922,155) 47,389 (216,501) (42,779)
--------- ---------- --------- ---------
Net Income (Loss) (3,552,550)$ (182,895) (243,805) (3,721)
Discontinued Operations (1,731,001) - - -
Net Income (Loss) after
Discontinued operations $(5,283,551)$ (246,533) $ (243,805) (3,721)
Diluted Weighted average Common Shares
outstanding 16,594,223 9,617,251* 16,732,290 15,289,102*
Net income (loss) per share $(0.21) $ (0.00) * $ (0.04) $ (0.00)
Total Assets $5,810,277 $ 7,538,220 $ 4,977,411 $ 7,764,992
Total Liabilities $3,821,698 $ 1,695,648 $ 4,127,405 $ 1,467,586
Shareholders' equity $1,988,579 $ 5,531,435 $ 850,006 $ 6,297,406
* Adjusted for ten to one reverse split
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
Introduction
The following discussion and analysis should be read in conjunction with
our accompanying financial statements and the notes to those financial
statements included elsewhere in this prospectus. The following discussion
includes forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed below and
elsewhere in this prospectus.
Overview
Datascension Inc, through its sole subsidiary Datascension International, Inc,
is engaged in data gathering and conducting outsourced market research. Its
expertise is in the collection, storage, and processing of data. Datascension
International's management team has over 30 years of experience in working with
clients to gather the information they need to make changes or advancements to
their operations. Datascension International services a variety of industries
and customers (including the hospitality, entertainment, and automotive
sectors) with emphasis and commitment to customer service, quality assurance
and on-time project management.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. These estimates and assumptions provide a basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, and these differences may
be material.
We believe the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Foreign Currency
DSEN maintains its accounting records in U.S. dollars and all payments
are made in US dollars. Any resulting foreign exchange fluctuations do not
affect the payment of employees, contract labor or off shore operations.
Datascension interacts with Costa Rica and the Dominican Republic in two
ways; 1) leasing of property, and 2) leasing of workers. Datascension pays
companies incorporated in their respective counties for their services.
Datascension directs the workers on how to perform their job; the worker
leasing company takes care of all government reporting that may be required.
Therefore there are no government regulations that affect our operations and we
are not aware of any government regulations, if any, that would be applicable
to those entities that we do business with that would affect us.
Revenue Recognition.
We recognize revenues when survey data is delivered to the client in
accordance with the terms of our agreements. Research products are delivered
within a short period, generally ranging from a few days to approximately eight
weeks. An appropriate deferral is made for direct costs related to contracts in
process, and no revenue is recognized until delivery of the data has taken
place. Billings rendered in advance of services being performed, as well as
customer deposits received in advance, are recorded as a current liability
included in deferred revenue. We are required to estimate contract losses, if
any, and provide for such losses in the period they are determined and
estimable. We do not believe that there are realistic alternatives to our
revenue recognition policy given the short period of service delivery and the
requirement to deliver completed surveys to our customers. We do not believe
there is significant risk of recognizing revenue prematurely since our
contracts are standardized, the earnings process is short and no single project
accounts for a significant portion of our revenue.
17
Intangible Assets
The Company has adopted SFAS No. 142, "Goodwill and Other Intangible Assets",
which requires that goodwill and other indefinite lived intangible assets are
no longer amortized, but reviewed annually, or sooner if deemed necessary, for
impairment. Under guidance from SFAS No. 142, management has determined that
the assets in the company determined to be discontinued operations should be
impaired. The respective assets have been written down. See Note 13
Discontinued Operations.
Plan of Operation
Short-Term Objectives:
- Continued expansion of outbound production hours
- The building of additional infrastructure in terms of equipment and
staff
- Expansion of non call center activities: computer programming
- Continued installation of predictive dialers to reduce overhead.
Predictive dialers automate the dialing process for our interviewers
which in turn increase the productivity per employee resulting in lower
costs. A predictive dialer is a telephone system that has the ability
to automatically call out using algorithms to speed up or slow down the
dialing process. Once the system has detected a live person, the system
transfers the call to an available agent.
Long-Term Objectives:
- Secure additional business opportunities for Datascension International.
- Expansion of non call center activities: inbound customer service
- Expand Spanish speaking interviewing
- Grow the Datascension International operations extensively through
acquisitions of smaller call center operations which stand to benefit
from the work being shifted overseas.
Management has determined it was in the best interests of shareholders to write
off all impaired assets and operations which were not material and conflicted
with the core operation of DSEN, the market research industry. This write down
of discontinued operations includes the assets and activities of SRC
International and Kristi & Company. The assets and ownership of Nutek Oil and
Century Innovations have been distributed as well in the form of dividends to
shareholders of DSEN.
DSEN had four subsidiaries which were disposed of as follows: the non
operating entities, Kristi & Co, Inc. and SRC International were discontinued
and written down as of December 31, 2004. Century Innovations, Inc and Nutek
Oil, Inc have been spun off as separate operating entities which are managed
and operated by independent management.
Nutek Oil was disposed of by issuing a dividend of the shares held by the
parent company to the shareholders of the parent company. The stock dividend
was distributed to owners of DSEN's common stock as of the record date in a
ratio of one share of dividend stock in the subsidiary for every 500 shares of
common stock owned in Datascension, Inc. The removal of Nutek Oil from the
financials had little or no impact on DSEN's financial results.
Century Innovations was disposed of by issuing a dividend of the shares
held by the parent company to the shareholders of the parent company. The
stock dividend was distributed to owners of DSEN's common stock as of the
record date in a ratio of one share of dividend stock in the subsidiary for
every 300 shares of common stock owned in Datascension, Inc. DSEN has
distributed all but 10% of its ownership in Century to Century as Treasury
Stock on the books of Century. It will remain as Treasury Stock on the books
of Century until the effectiveness of a Form 10 registration to be filed by
Century. Within sixty (60) days of the Form 10's effectiveness, Century will
work with DSEN to distribute the shares to the then current Datascension
shareholders.
As a result of receiving the current funding, the plans to spin off
Datascension International have been placed on hold indefinitely.
In addition, the decision to remove Century Innovations and write down the
impaired assets in the non operating subsidiaries was made so the single focus
of DSEN is the call center operation. The recently announced
18
change in management is furthering the goal of having Datascension
International be the main focus of DSEN.
DSEN has expensed all asset values and costs associated with these
entities as a line item called Discontinued Operations on the income statement.
DSEN does not see any material impact to operations moving forward as a result
of the disposal of these assets, nor does DSEN intend to establish any trends
related to the spin off of subsidiaries.
The two primary goals DSEN continues to focus on and which management
believes will allow DSEN to continue its growth are as follows:
First, focusing on the year-over-year growth in net revenue of DSEN; and
secondly, to continue to make steady progress on our initiatives to diversify
our sources of revenue. To this end, DSEN recently began the implementation of
an expanded in-house programming department to be able to offer clients the
programming services for online market research. DSEN is also continuing to
explore further outsourced research opportunities that could leverage the
capacity of our current operations.
DSEN has begun to offer the services of the in-house programming
department in July and recently secured a relationship with Harris Interactive,
a large research and consulting firm, to provide programming. This
relationship is anticipated to be worth approximately $1.5 million annual
revenue to DSEN.
The revenue from the in-house programming is anticipated to reach
approximately 15% of total current revenue but DSEN intends to raise that
percentage in the future as we attract more clients. It will impact DSEN in
that by offering this service we diversifying our product line which we hope
when we receive programming only projects we can leverage those clients into
utilizing our call center.
More importantly however, the divesture and write downs on the non-
operational and impaired assets will allow management the benefit of focusing
on a single core operation and allow the investment community to better
understand the core operations of DSEN and its single focus moving forward.
RESULTS OF OPERATIONS
Three months ended June 30, 2005 versus three months ended June 30, 2004.
For the three-months, ended June 30, 2005, DSEN has generated $2,577,701 in
revenues compared to $2,245,000 in revenues for the three-months ended June 30,
2004, for an increase of $332,701. The increase in revenue is a result of an
increase in new clients, and an increase in our hourly billing rates.
Cost of goods sold for the three-months ended June 30, 2005 was $2,075,904
compared to $1,724,903 for the three-months ended June 30, 2004 or an increase
of $351,001. This increase is a result in an increased cost of payroll,
expenses.
Total general and administrative expenses decreased to $368,187 for the three-
months ended June 30, 2005 from $464,453 for the three-months ended June 30,
2004, a net decrease of $96,266. This decrease is related to the reduced
overhead in California and due to the winding down of the Nevada office.
Depreciation expense for the three-months ended June 30, 2005 was $45,731
compared to $85,646 for the three-months ended June 30, 2004, a decrease of
$39,915. The decrease resulted from the disposal and write down of assets in
the fourth quarter of 2004.
Interest expense for the three-months ended June 30, 2005 was $109,419 compared
to $18,049 for the three-months ended June 30, 2004 an increase of $91,370.
This increase is from the interest costs related to the November 2004
convertible loan the company received, along with the balance of the increase
including the amortization of the financing costs and additional interest
cost related to the purchase of predictive dialers.
Datascension generated a net loss of $18,049 for the three months ended June
30, 2005, versus net loss of $45,290 for the same period in 2004. The decrease
in losses of $27,241 is a result of the amortization of financing costs. For
the three months ended June 30, 2005, DSEN has increased its working
capital position by a net amount of $42,963 from positive $566,816 as of
December 31, 2004 to $609,779 as of June 30, 2005. This
19
is due to a decrease in cash of $459,178, with a corresponding
increase in accounts receivable of $402,935 and a decrease in prepaid
expenses of $116,944, while there was also a decrease in current liabilities of
$216,150.
Significant Subsequent Events occurring after June 30, 2005:
None.
Capital Resources and Liquidity
Liquidity
Management believes that its current client contracts and receivables will meet
its minimum general and administrative cost requirements and provide the basic
liquidity Datascension needs to operate at current levels over the next twelve
months. However, additional funding will be needed to cover the expenses over
the next several months related to the expansion of our facilities and hiring
and training of new employees.
For the three months ended June 30, 2005, DSEN has increased its working
capital position by a net amount of $42,963 from positive $566,816 as of
December 31, 2004 to $609,779 as of June 30, 2005. This is due to a decrease
in cash of $459,178, with a corresponding increase in accounts receivable of
$402,935 and a decrease in prepaid expenses of $116,944, while there was also a
decrease in current liabilities of $216,150.
Capital Resources
The Registrant's capital resources are comprised primarily of private
investors, including members of management, who are either existing contacts of
Datascension's management or who come to the attention of the Registrant
through brokers, financial institutions and other intermediaries.
Datascension's access to capital is always dependent upon general financial
market conditions, especially those which pertain to venture capital situations
such as oil and gas exploration companies.
On June 30, 2005 DSEN had total assets of $4,977,411 compared to
$7,764,992 on June 30, 2004, a decrease of $2,787,581. The reason for the
decrease in assets is a result of the amortization of the discount on debt
issuance of $182,292, along with the conversion and distribution of the DSEN's
loan to Nutek Oil, Inc of $1,015,014 and write down of assets at year end 2004.
DSEN had a total stockholders' equity of $850,006 on June 30, 2005 compared
to $6,297,406 on June 30, 2004, a decrease in equity of $5,447,400, which is in
part due to the $1,015,014 conversion and distribution of DSEN's loan to
Nutek Oil, Inc., along with the net loss for the six months ended June 30, 2005
of $243,805, as well as the loss from discontinued operations of $1,731,001 and
beneficial conversion feature of $1,759,730, of which the latter two occurred
during the end of 2004.
All assets are booked at historical purchase price and there is no
variance between book value and the purchase price.
On June 30, 2005 DSEN had Property and Equipment of $1,040,431 compared
to $1,846,281 on June 30, 2004, or a decrease of $805,850 which is a result of
the write off of property and equipment at the end of 2004, along with a
offsetting purchase of predictive dialers during the 6 months ended June 30,
2005.
As discussed above DSEN intends to meet its financial needs for
operations through the collection of accounts receivable and servicing of
current contracts.
DSEN's capital resources are comprised primarily of private investors,
who are either existing contacts of the Registrant's management or who come to
the attention of the Registrant through brokers, financial institutions and
other intermediaries. The Registrant's access to capital is always dependent
upon general financial market conditions. The Registrant's capital resources
are not anticipated to change materially in 2005.
DSEN has financed operations through the collections of accounts
receivable, servicing of existing contracts and the sale of common stock and
through financing from financial institutions. In order to sustain operations
in the near term, it is anticipated that DSEN has sufficient working capital
due to the fact that on November 17, 2004 we issued $1,875,000 in convertible
notes, receiving net proceeds of $1,657,500.
20
DSEN's future capital requirements will depend on numerous factors,
including the profitability of our research projects and our ability to control
costs. We believe that our current assets will be sufficient to meet our
operating expenses and capital expenditures. However, we cannot predict when
and if any additional capital contributions may be needed and we may need to
seek one or more substantial new investors. New investors could cause
substantial dilution to existing stockholders.
There can be no assurances that DSEN will be successful in raising
additional capital via debt or equity funding, or that any such transactions,
if consummated, will be on terms favorable to DSEN. In the event that
additional capital is not obtained from other sources, it may become necessary
to alter development plans or otherwise abandon certain ventures.
If DSEN needs to raise additional funds in order to fund expansion,
develop new or enhanced services or products, respond to competitive pressures
or acquire complementary products, businesses or technologies, any additional
funds raised through the issuance of equity or convertible debt securities, the
percentage ownership of the stockholders of DSEN will be reduced, stockholders
may experience additional dilution and such securities may have rights,
preferences or privileges senior to those of DSEN's Common Stock. DSEN does
not currently have any contractual restrictions on its ability to incur debt
and, accordingly, DSEN could incur significant amounts of indebtedness to
finance its operations. Any such indebtedness could contain covenants, which
would restrict DSEN's operations.
Off-Balance Sheet Arrangements.
DSEN currently does not have any off-balance sheet arrangements.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
Analysis of the calendar year ended December 31, 2004 compared to the
calendar year ended December 31, 2003.
For the calendar year, ended December 31, 2004, DSEN has generated
$8,672,103 in revenues compared to $7,057,087 in revenues for the period ended
December 31, 2003, for an increase of $1,615,016. The increase in revenue is a
result of an increase in new clients, along with an increase in our hourly
billing rates.
Cost of goods sold for the year ended December 31, 2004 was $7,028,686
compared to $4,039,344 for the period ended December 31, 2003 or an increase of
$2,989,342. This increase consists of the following: approximately $2,835,000
increase related to direct payroll costs due to an increase in the cost per
hour of employees and increase in revenue / hourly billings, there was a
corresponding increase in the cost of goods sold, with an additional increase
in direct licensing fees of $128,795 and increases in discounts to clients of
$25,526.
Total operating expenses decreased to $3,273,812 for the calendar year ended
December 31, 2004 from $3,311,665 for the calendar year ended December 31,
2003, a net decrease of $37,853. The decrease in expenses was a result of the
productivity increases in personnel as well as reduction in overhead for the
company.
Depreciation and amortization expense for the calendar year ended
December 31, 2004 was $270,893 compared to $340,231 for the calendar year ended
December 31, 2003, a decrease of $69,338. The decrease resulted from the
disposal and write down of assets in the fourth quarter of 2004.
Interest expense for the calendar year ended December 31, 2004 was
$210,628 compared to $97,728 for the calendar year ended December 31, 2003 an
increase of $112,900 which was a result of additional interest cost related to
the purchase of predictive dialers and the interest associated with the
beneficial conversion feature.
Forgiveness of debt for the year ended December 31, 2004 was $55,000 compared
to $99,274 for the same period prior year or a decrease of $44,274. The
decrease was a result of most of the debts with negotiated settlements occurred
in 2003 with the remaining amount management feels was available for settlement
at less than the face amount in 2004.
21
Debt discount and beneficial conversion feature of $1,778,480 was a
result of the $1,875,000 in convertible note issued in October, 2004.
The loss from discontinued operations for the year ended December 31,
2004 was $1,731,001. This loss is made up of the following: the disposal and
write down of Kristi and Co, Inc. of $295,735; SRC International, Inc, of
$322,010; the write off of prepaid items of $129,980; asset impairment of
$206,432; write-offs of plant and equipment of $192,792 and inventory of
$64,070 not assumed by Century Innovations in the spin-off; the reduction
in subscribed stock of $374,941 and additional administrative costs of $145,041
related to the discontinued operations.
The Company generated a net loss after discontinued operations of
$5,283,551 for the same period. This compares to $7,057,087 in revenues and a
net loss of $246,533 for the calendar year ended December 31, 2003. The
increase in losses of $5,037,018 is a result of the discontinued operations of
$1,731,001; increased payroll costs of approximately $1,390,000; the accounting
for the conversion feature on the debt discount in an amount of $1,759,730;
increased interest expense in the amount of $131,650 from the prior year and
expenses related to the stock given to employees and miscellaneous costs of
$24,637.
Liquidity and Capital Resources
For the calendar year ended December 31, 2004, DSEN has increased its
working capital position by a net amount of $600,244 from negative $33,428 as
of December 31, 2003 to $566,816 as at December 31, 2004 as a result of the
increase in accounts receivable and proceeds from funding. This increase is
due to a $433,702 increase in cash, a $446,275 increase in accounts receivable,
offset by an increase in liabilities of $145,317, and net decrease of $134,416
of other assets related to the write off of discontinued operations.
Management believes that its revenues from operations and collections on
accounts receivable will meet its minimum general and administrative cost
requirements and provide the basic liquidity DSEN needs to operate at current
levels over the next twelve months. Currently, DSEN has a monthly cost
requirement of approximately $202,369 for operations (see schedule on page 24)
and is expecting monthly cash flow in 2005 of $213,303. The short term source
of liquidity is from operations. Any long term needs that are above and beyond
what is derived from operations would come from outside sources. The long term
needs and possible sources of funds are not identified at this time. If
required, DSEN could stop growing and hold operations at the current level
without any need for additional funding. However, additional funding will be
required to execute its business plan of expanding the Costa Rica operations in
order to expand the inbound call center initiative. The balance of the funding
required to execute DSEN's planning will need to be obtained from other sources
such as debt or the sale of additional equity.
The expected monthly cash flow is based on existing business and
collections. The expected $213,303 is based on average collections for the
company of approximately $956,127 per month, minus the $202,369 of monthly cost
requirement, and the $513,186 of variable costs related our contract labor
which is paid every month. The latter estimates are based on a review of
the average collections over 90 and 120 day periods. The company reviewed the
trailing three, four, and five month collection and cash receipts cycles
between January 2004 through May 2005. Additionally, the same formulas and
time periods were reviewed in calculating the variable costs required for the
company's contract labor every month.
The call center initiative is as follows: we currently utilize the
majority of our interviewing stations for no more than six hours per day. The
majority of those six hour shifts are during the early afternoon/evening. We
are pursuing customer service related business activities that would enable us
to utilize our stations during the daytime hours when the majority of stations
currently sit idle.
On December 31, 2004 DSEN had total assets of $5,810,277 compared to
$7,538,220 on December 31, 2003, a decrease of $1,727,943. The reason for the
decrease in assets is a result of the increase in cash related to the
convertible funding at the end of the year of $433,702, along with a
corresponding a decrease in the asset values of the discontinued operations and
investment in Century Innovations of $2,488,392 and a net increase of $218,278
related to account receivable increase and inventory decrease and payments on
notes receivable. DSEN had a total stockholders' equity of $1,988,579 on
December 31, 2004 compared to $5,531,435 on December 31, 2003, a decrease in
equity of $3,542,856.
All assets are booked at historical purchase price and there is no
variance between book value and the purchase price.
22
On December 31, 2004 DSEN had Property and Equipment of $681,346 compared
to $3,310,783 on December 31, 2003, or a decrease of $2,629,437 which is a
result of the spin off of Nutek Oil, Century Innovations and the write down of
assets for non-operational entities, SRC International and Kristi and Co, Inc.,
along with an impairment of assets in Dominican Republic.
The fixed and ongoing expenses of Datascension are as follows:
Accounts Payable and Accrued Liabilities
DSEN has $135,533 in accounts payable and approximately $1,390,880 in accrued
payroll costs for the operations of the California, Nevada, Costa Rica, and
Dominican Republic location as of December 31, 2004.
Long-term notes payable consists of the following at December 31, 2004:
Note payable to a vendor, no specific repayments terms
and no stated interest rate. Secured by assets. $ 40,000
Note payable to a vendor, monthly payments of $348
inclusive of 7% annual interest through September 2006,
secured by equipment. 6,245
Note payable to a vendor, monthly payments
of $7,375 inclusive of 10.83% annual interest through
December 2006, secured by equipment. 158,510
Note payable to a vendor, monthly payments of $906,
inclusive of 12% annual interest through February 2006,
secured by equipment
15,000
219,755
Less current portion (116,207)
$ 103,548
Principal maturities are as follows:
Twelve months ended December 31,
2005 $ 4,125
2006 33,893
2007 65,530
$ 103,548
Additionally, DSEN has the following short term notes payable as of December
31, 2004.
Dell Financial Services $ 3,467
Public Relations Contract 60,000
Wells Fargo Credit Card 48,577
Advanta Credit Card 9,698
---------
Total 121,742
At December 31, 2004, aggregate future minimum payments under these leases, are
as follows:
Twelve months ended December 31,
2005 $ 152,141
2006 133,259
2007 105,773
2008 105,773
Thereafter -
Total minimum lease payments $ 496,946
23
Convertible debentures consist of the following at December 31, 2004, and
December 31, 2003:
2004 2003
8% convertible subordinated debentures,
due in November 2007, convertible
into shares of common stock at 1,893,750 -
any time prior to maturity.
Interest is payable quarterly,
and principal is due at maturity.
-------------- ----
1,893,750 -
Less: Unamortized Discount (-) (-)
-------------- ----
Total debt 1,893,750 -
Less: current portion (0) (-)
-------------- ----
Convertible debentures, less current portion $ 1,893,750 $ -
-------------- ----
Included in the above values is $18,750 of accrued interest related to the
convertible notes as of December 31, 2004.
Fixed recurring Selling, General and Administrative expenses would be as
follows:
Estimated monthly average 2005
Salaries and Benefits $121,912
Rent $ 38,814
Equipment Lease/Rental $ 17,227
Telephone and Communications $ 5,931
Licensing Fees $ 15,882
Other $ 2,603
--------
Total Monthly Fixed SG&A costs $202,369
Estimated future cash requirements
As discussed above DSEN intends to meet its financial needs for
operations through the collection of accounts receivable and servicing of
current contracts.
The Registrant's capital resources are comprised primarily of private
investors, who are either existing contacts of the Registrant's management or
who come to the attention of the Registrant through brokers, financial
institutions and other intermediaries. The Registrant's access to capital is
always dependent upon general financial market conditions. The Registrant's
capital resources are not anticipated to change materially in 2005.
DSEN has financed operations through the collections of accounts
receivable, servicing of existing contracts and the sale of common stock and
through financing from financial institutions. In order to sustain operations
in the near term, it is anticipated that DSEN has sufficient working capital
due to the fact that on November 17, 2004, we issued $1,875,000 in convertible
notes, receiving net proceeds of $1,657,500.
24
DSEN's future capital requirements will depend on numerous factors,
including the profitability of our research projects and our ability to control
costs. We believe that our current assets will be sufficient to meet our
operating expenses and capital expenditures. However, we cannot predict when
and if any additional capital contributions may be needed and we may need to
seek one or more substantial new investors. New investors could cause
substantial dilution to existing stockholders.
There can be no assurances that DSEN will be successful in raising
additional capital via debt or equity funding, or that any such transactions,
if consummated, will be on terms favorable to DSEN. In the event that
additional capital is not obtained from other sources, it may become necessary
to alter development plans or otherwise abandon certain ventures.
If DSEN needs to raise additional funds in order to fund expansion,
develop new or enhanced services or products, respond to competitive pressures
or acquire complementary products, businesses or technologies, any additional
funds raised through the issuance of equity or convertible debt securities, the
percentage ownership of the stockholders of DSEN will be reduced, stockholders
may experience additional dilution and such securities may have rights,
preferences or privileges senior to those of DSEN's Common Stock.
DSEN has a contractual restriction on its ability to incur debt.
Pursuant to subscription agreement for this funding, DSEN cannot file any
registration statements or amend any already filed registration statement,
including but not limited to Form S-8, with the Commission or with state
regulatory authorities without the consent of the note holders until the sooner
of (i) this registration statement shall have been current and available for
use in connection with the public resale of the underlying shares and warrant
shares for 365 days, (ii) until all the shares being registered have been
resold or transferred by the note holders pursuant to this registration
statement or Rule 144, without regard to volume limitations (i.e. Rule 144k),
or (iii) the date the note has been fully paid.
A result of this restriction is that any additional funds needed with
most likely have to be provided by the current note holders.
In the event that we are required to repay the balance of these notes in cash
on demand, we would be forced to seek additional funding which would probably
be at a large discount. If we were unable to obtain the additional funding, we
may be forced to close down operations (see risk factors for addition
discussion).
Expected Significant Changes in the Number of Contract Workers
DSEN does not expect any significant change in the number of Contract
workers over the next 12 months of operations. As noted previously, DSEN
currently coordinates most operations using part time employees, consultants
and contract labor.
Consulting Contracts over the last twelve months
500,000 pre split shares of restricted stock were issued to Stock Enterprises
for services valued at $25,000 based on a fair market value of the stock of
$0.05 per share. Shares issued on April 20, 2004.
350,000 pre split shares of common stock were issued to the Law Offices of
Michael Morrison (250,000) and the Law Offices of Neil Beller (100,000) for
legal services valued at $31,500 based on a fair market value of the stock of
$0.09 per share. Shares issued on May 21, 2004.
Material Commitments for Capital Expenditures.
DSEN has made no material commitments for future expansion. When potential
expansion or the need for expansion arises, management reviews the potential of
each property as its leases come up for renewal and makes a decision whether or
not to renew each lease or expand the current facilities, in light of DSEN's
business planning at that time.
The Registrant has no agreements with management, investors, shareholders
or anyone else respecting additional financing at this time. Because of the
nature of the Registrant's business, there are no trends in the nature of its
capital resources which could be considered predictable.
25
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.
26
OUR BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
DSEN was incorporated under the laws of the State of Nevada, on August 23,
1991, under the name Swiss Technique, Inc. The original articles of DSEN
authorized the issuance of fifty million (50,000,000) shares of common stock
with a par value of $0.001. On August 23, 1991, pursuant to Section 78.486,
Nevada Revised Statutes as amended, DSEN filed with the Nevada Secretary of
State articles of merger, whereby DSEN merged with Sun Investments, Inc., a
Utah corporation. On April 10, 1992, DSEN, filed an amendment to the articles
of incorporation authorizing five million (5,000,000) shares of Preferred
Stock, par value of $0.001, with such rights, preferences and designations, to
be issued in such series as determined by the board of directors of DSEN. DSEN
on March 3, 1995, changed its name from Swiss Technique, Inc., to Nutek, Inc.
On September 20, 1997, DSEN filed with the Nevada Secretary of State a plan of
reorganization and agreement between itself and International Licensing Group,
Inc., a Delaware Corporation.
On December 31, 2000, there were 45,188,132 outstanding shares of Common Stock
issued and outstanding and 793,500 shares of Preferred Stock issued or
outstanding. The approval of the Articles of Amendment requires the written
consent of the holders of a majority of the outstanding shares of the Common
Stock, and each share of the Common Stock was entitled to one vote with respect
of the approval of the Certificate of Amendment of the Articles of
Incorporation. By written consent in lieu of a meeting, stockholders of
22,842,754 shares of the Common Stock
approved the corporate actions.
The Certificate of Amendment of the Articles of Incorporation was approved by
written consent on January 9, 2001, at a special Company board of directors
meeting, and the Certificate of Amendment of the Articles of Incorporation was
filed and accepted by the Nevada Secretary of State not to become effective
until February 19, 2001.
On February 19, 2001, deleting the existing ARTICLE IV and replacing it in its
entirety with the following amendments amended the Articles of Incorporation:
"ARTICLE 4: Authorized Shares: The
aggregate number of shares which the
corporation shall have authority to issue
shall consist of two hundred million
(200,000,000) shares of Common Stock having a
$.001 par value, and twenty million
(20,000,000) shares of Preferred Stock
having a $.001 par value. The Common and/or
Preferred Stock of the Company may be issued
from time to time without prior approval by
the stockholders. The Common and/or Preferred
Stock may be issued for such consideration as
may be fixed from time to time by the board of
directors. The Board of Directors may issue
such share of Common and/or Preferred Stock in
one or more series, with such voting powers,
designations, preferences and rights or
qualifications, limitations or restrictions
thereof as shall be stated in the resolution
or resolutions."
This amendment to the Articles of incorporation has been duly adopted, filed
and accepted by the Nevada Secretary of State in accordance with General
Corporation Law of the State of Nevada.
On December 24, 2003, DSEN changed its name from Nutek Inc. to Datascension
Inc. ("DSEN").
DSEN currently has a single operational subsidiary, Datascension International,
Inc. DSEN had four subsidiaries which were disposed of as follows: the non
operating entities, Kristi & Co, Inc. and SRC International were discontinued
and written down as of December 31, 2004. Century Innovations, Inc and Nutek
Oil, Inc have been spun off as separate operating entities which are managed
and operated by independent management.
Nutek Oil was disposed of by issuing a dividend of the shares held by the
parent company to the shareholders of the parent company. The stock dividend
was distributed to owners of DSEN's common stock as of the record date in a
27
ratio of one share of dividend stock in the subsidiary for every 500 shares of
common stock owned in Datascension, Inc.
Century Innovations was disposed of by issuing a dividend of the shares held by
the parent company to the shareholders of the parent company. The stock
dividend was distributed to owners of DSEN's common stock as of the record date
in a ratio of one share of dividend stock in the subsidiary for every 300
shares of common stock owned in Datascension, Inc. DSEN has distributed all
but 10% of its ownership in Century to Century as Treasury Stock on the books
of Century. It will remain as Treasury Stock on the books of Century until the
effectiveness of a Form 10 registration to be filed by Century. Within sixty
(60) days of the Form 10's effectiveness, Century will work with DSEN to
distribute the shares to the then current Datascension shareholders.
DSEN's mailing address is: 145 S. State College Blvd, Suite 350, Brea CA 92821.
The company phone number is 714-482-9750 and 714-482-9751 (fax). DSEN's website
can be found at www.datascension.com.
Present Business
Datascension International Inc., the remaining operating subsidiary and focus
of DSEN, conducts telephone market research and provides data entry services
for third parties.
On July 2, 2001, the DSEN acquired 100% of the issued and outstanding stock of
Datascension International.
Datascension International is a data gathering and research company
specializing in the collection, storage, and processing of data. Datascension
International services a variety of industries and customers (including the
hospitality, entertainment, and automotive sectors) with emphasis and
commitment to customer service, quality assurance and on-time project
management.
Principal Products, Services and Principal Markets.
Services
Telephone Interviewing (CATI or Paper):
Currently, DSEN's CATI telephone facility with locations in Brea, California;
Costa Rica and the Dominican Republic, contracts approximately 551 part- and
full-time telephone interviewers, many of whom are bilingual in Spanish and
English. Datascension uses integrated CATI and automatic dialing systems which
results in quick turnaround and increased field capacity for phone research
projects.
Internet Data Collection:
Datascension contracts part- and full-time programming staff located in Costa
Rica, experienced in designing all types of web surveys, web panels, and data
collection sites.
Database Software:
Datascension database software allows the end-user to connect to DSEN's system
via the Internet to run reports and pull data.
Data Storage:
Datascension provides large disk storage hardware for short and long-term
document and file archive and retrieval.
Document Processing:
Datascension has developed an expertise in data value ensuring the greatest
care in document processing services including clerical handling of documents,
coding, data entry, scanning and storage.
Data Reporting and Mining:
Datascension staff can program banners using the latest version of Quantum
(SPSS) tabulation software. Datascension staff has experience handling most
types of data including ASCII, flat file, CSV, XML and many other formats.
In-bound Customer Service:
Datascension handles customer service calls which cover a wide spectrum of
industries. Activities include on-line
28
order booking to technical support for client products and services.
As of March 31, 2005, inbound customer service revenue contributed
approximately 1% of of total revenue.
Bilingual Interviewing:
Datascension contracts a number of bilingual interviewers who are trained in
conducting research in both Spanish and English, which allows us to interview
our growing Hispanic and Latino audiences.
Major Clients
DSEN has three major clients, The National Research Group and Roper ASW each
account for about 10% of sales each year and Sandelman & Associates, which
accounts for about 25% of sales each year.
All of DSEN`s revenue generated is from our Datascension International
subsidiary, with about 85% of the revenue generated from our telephone
interviewing business line in the calendar year of 2003. In 2004 about 92% of
the revenue is from the telephone interviewing business with approximately 6%
coming from the data services and programming division.
Customers are located through referrals from existing customers and from leads
generated by our sales staff.
Not "telemarketing"
Our business does not involve "telemarketing". Telemarketing, in the call
center industry, refers to the marketing of
goods and services by telephone. We do not market goods or services for
clients, but instead conduct interviews and gather information from
interviewees. As a result the government regulation of the "do not call list"
that has been implemented to stop unsolicited telemarketing does not affect our
industry and we are not bound to comply by the Amended Telemarketing Sale Rule
(TSR).
Who Must Comply with the Amended Telemarketing Sale Rule (TSR)?
The amended TSR regulates "telemarketing"- defined in the Rule as "a plan,
program, or campaign . . . to induce the purchase of goods or services or a
charitable contribution" involving more than one interstate telephone call.
(The FCC regulates both intrastate and interstate calling. More information is
available from www.fcc.gov.) With some important exceptions, any businesses or
individuals that take part in "telemarketing" must comply with the Rule. This
is true whether, as "telemarketers," they initiate or receive telephone calls
to or from consumers, or as "sellers," they provide, offer to provide, or
arrange to provide goods or services to consumers in exchange for payment. It
makes no difference whether a company makes or receives calls using low-tech
equipment or the newest technology-such as voice response units (VRUs) and
other automated systems. Similarly, it makes no difference whether the calls
are made from outside the United States; so long as they are made to consumers
in the United States, those making the calls, unless otherwise exempt, must
comply with the TSR's provisions. If the calls are made to induce the purchase
of goods, services, or a charitable contribution, the company is engaging in
"telemarketing."
Certain sections of the Rule apply to individuals or companies other than
"sellers" or "telemarketers" if these individuals or companies provide
substantial assistance or support to sellers or telemarketers. The Rule also
applies to individuals or companies that provide telemarketers with
unauthorized access to the credit card system.
Competition
The major competitors are as follows:
Datascension International's two largest competitors are both private
companies. The first is "Western Wats" and the second is "OAC" (Opinion Access
Research).
Western Wats:
Western Wats was founded in 1987. Western Wats states that their goal is to
keep their facility small in order to maintain their desired quality and
flexibility. Western Wats has 850 Web-enabled CATI stations in 11 interviewing
facilities throughout the Intermountain West. Western Wats is the largest
privately owned data collection outfit in the United States. The company's
website is `www.westernwats.com'.
29
OAC (Opinion Access Research):
Opinion Access Research is located in Long Island City, New York. The company
provides telephone interviewing, tabulating, coding, data entry and printing
services to companies performing market research activities. OAC states their
strongest asset is their use of Computer Assisted Telephone Interviewing
(CATI), predictive dialing, and their ability for remote monitoring. On an
annual basis OAC completes over 500,000 telephone interviews. The company's
website is `http://www.opinionaccess.com'.
Patents and Trademarks
DSEN has developed DataScan, a suite of proprietary reports for market research
survey project accountability. DataScan consists of more than a dozen different
reports that provide the ability to monitor in real time the effective
incidence, job completes, production and other data by call center supervisor
group and employee.
Datascension has implemented several of the preliminary versions of DataScan
reports with its customers and has received tremendous feedback. Datascension
provides clients with numerous reports, while additional proprietary DataScan
reports are only used by Datascension management to enable proactive
adjustments as needed.
Datascension's technology enables real-time monitoring of employees conducting
the interviews by Datascension management or clients via an Internet
connection. Datascension's DataScan reports capture the data from this real-
time monitoring and distill it into multiple reporting formats to enable
clients to analyze specific aspects of the project.
DataScan reports allow management to monitor an employee in real time no matter
from which location they are operating from. With such detailed and immediate
reporting capabilities, DSEN is better able to ensure the accuracy of results
on clients' research programs.
Need for any government approval of principal products or services.
Datascension International does not require governmental approval to operate in
any of its locations.
Effect of existing or probable governmental regulations on the business
There are no existing or probable government regulations that have or may have
an affect on our business.
Research and Development Plan
None
Employees/Contract workers
DSEN currently has both employees and contracted help. The employees are
located domestically and the contract workers are located internationally. In
total we have five hundred and fifty one (551) individuals working for DSEN, of
which as of December 31, 2004 four (4) were Officers and 60 are full-time. As
DSEN continues to grow and offer additional services and retain additional
clients, it will need to add both full-time and part-time employees/contract
workers.
Description of Property:
The address of the principal office is: 145 S. State College Blvd, Suite
350 Brea California 92821.
DSEN leases 5,102 square feet of office space at 145 S. State College
Blvd, Suite 350 Brea California 92821 with aggregate monthly rent of
approximately $8,724. Combined rent recorded during 2004 and 2003 respectfully
was $165,894 and $165,894.
The address of the Costa Rica facility is: Datascension, SA Mall San
Pedro Ofimall, San Jose, Costa Rica. This office is approximately 30,000 square
with an aggregate monthly rental of $30,000. The facility is leased on a month
to month basis.
The address of the Dominican Republic facility is: Datascension, SA Zona
Franca de San Isidro Carretera
30
Base Aerea San Isidro km 17 apartado 916 Santo Domingo Este, Dominican
Republic. This office is approximately 5,000 square feet with an aggregate
monthly rental of $5,000. The facility is leased on a month to month basis.
We feel the current locations we use are suitable, adequate, and in good
condition for our current as well as for our future operations and business.
DSEN's headquarters and Datascension International's main facility
located in Brea, California, is the centralized location for the majority of
its services. This location is the prior offices of Merrill Lynch and is in
great condition. The Brea facility covers over 8,000 square feet and is the
centralized location for the majority of its services.
The Costa Rica and Dominican Republic telephone facilities accommodate
over 600 interviewing stations and have the ability to expand if needed. In
the Costa Rica facility, there are other businesses, banks, a shopping mall and
a hotel in the facility, both the security and upkeep are top notch. Across
the street from the Costa Rica facility is the local university as well.
Management
Directors and Executive Officers
The following table sets forth information regarding our executive
officers, certain other officers and directors as of March 31, 2005:
Name Age Position/Office Served Since
Robert Sandelman 47 Director May 2005
David Scott Kincer 39 COO/Director September 2001
Joseph Harmon 28 VP/Director September 2001
The following is a brief description of the business background of the
directors and executive officers of DSEN:
David Scott Kincer - CEO/Director
Mr. Kincer joined Datascension as COO and Director in September 2001,
Mr. Kincer has over twenty years experience in collecting, storing an analyzing
consumer data. He also has fifteen years of experience managing data
collection centers, including seven years of experience in Costa Rica. He co-
founded Datascension International in 1999 and became COO of Datascension with
the successful acquisition of Datascension International in 2001. Mr. Kincer
is also the President and Chairman of Datascension International and oversees
the operations of Datascension International from its main facility in Brea,
California. On April 1, 2005 Mr. Kincer began CEO and Chairman of the Board.
Joseph Harmon - VP/Director
After attending California State University, Mr. Harmon started his
career in 1992 at The Verity Group, a full service market research company in
Fullerton, CA. At the Verity Group, Mr. Harmon worked his way up to Director of
Operations and managed a 300-employee operation. He helped grow the company to
a 12 million dollar business and was a key player in the acquisition to The
Polk Company in 1997. He then went to Diagnostic Research where he managed
Telephone Research. In 1998 The Polk Company brought Mr. Harmon back in as a
Sales Manager to help increase sales in the Market Research division. After
Polk, Mr. Harmon helped start Datascension and became Vice President. Mr.
Harman is also Vice President and a Director of Datascension International.
Robert Sandelman - Director (Datascension International, Inc)
Mr. Sandelman is president of Sandelman and associates for the past
five years and has more than 30 years of marketing and advertising management
experience in a variety of consumer product and service industries.
Mr. Sandelman earned both his Bachelor's degree and his Master's degree in
Business Administration from the
31
University of Michigan. He is a member of the National Restaurant Association,
and the International Foodservice Manufacturers Association.
Mr. Conradie resigned as President/CSO and Chairman of the Board on
April 1, 2005 in order to concentrate on Nutek Oil. Concurrently, Mr. Conradie
transferred control of Datascension to Scott Kincer.
Mr. Griffith resigned as CFO and Director of Datascension on April 1,
2005 in order to focus on his accounting practice and his duties as CFO for
Nutek Oil.
Significant Employees
DSEN has not identified any employee who is not an executive who is
expected to make a significant contribution to the business.
Family Relationships
There are no family relationships among the directors, executive officers
or persons nominated or chosen by DSEN to become directors or executive
officers
Legal Proceedings
None of DSEN's directors, executive officers or nominees for such office
have been involved in any legal proceedings related to bankruptcy of an entity
where they held such positions; nor charged or convicted in any criminal
proceedings; nor subject to any order, judgment, or decree permanently or
temporarily enjoining, barring, suspending or other wise limiting their
involvement in any type of business, securities or banking activities; nor
found in any manner whatsoever to have violated a federal or state securities
or commodities law.
None of DSEN's officers or directors, nor to the knowledge of DSEN, any
of DSEN's control persons, has:
- had any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that
time;
- been convicted in a criminal proceeding or is subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
- been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
- been found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state
securities or commodities law, where the judgment has not been
reversed, suspended or vacated.
Committees
DSEN does not have any audit, compensation, and executive committees of
its board of directors. The entire board of directors is serving as DSEN's
audit committee.
Conflicts of Interest
The officers and directors of DSEN are now and may in the future become
shareholders, officers or directors of other companies which may be engaged in
business activities similar to those conducted by DSEN. Accordingly, additional
direct conflicts of interest may arise in the future with respect to such
individuals acting on behalf of DSEN or other entities. Moreover, additional
conflicts of interest may arise with respect to opportunities which come to the
attention of such individuals in the performance of their duties or otherwise.
DSEN does not currently
32
have a right of first refusal pertaining to opportunities that come to
management's attention insofar as such opportunities may relate to DSEN's
proposed business operations.
The officers and directors are, so long as they are officers or directors
of DSEN, subject to the restriction that all opportunities contemplated by
DSEN's plan of operation which come to their attention, either in the
performance of their duties or in any other manner, will be considered
opportunities of, and be made available to DSEN and the companies that they are
affiliated with on an equal basis. A breach of this requirement will be a
breach of the fiduciary duties of the officer or director. If DSEN or the
companies in which the officers and directors are affiliated with both desire
to take advantage of an opportunity, then said officers and directors would
abstain from negotiating and voting upon the opportunity. However, all
directors may still individually take advantage of opportunities if DSEN should
decline to do so. Except as set forth above, DSEN has not adopted any other
conflict of interest policy with respect to such transactions.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who beneficially own more than
ten percent of a
registered class of our equity securities (referred to as "reporting persons"),
to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of common stock. Reporting
persons are required by Commission regulations to furnish us with copies of all
Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 furnished to us, we are
not aware of any person who at any time during the fiscal year ended December
31, 2004, was a director, officer, or beneficial owner of more than ten percent
of our common stock, who failed to file, on a timely basis, reports required by
Section 16(a) of the Securities Exchange Act of 1934 during such fiscal year.
Code of Ethics
We have adopted a code of ethics that applies to our executive officers,
including our Chief Executive Officer and Chief Financial Officer.
Compensation of Directors
There were no arrangements pursuant to which any director of DSEN was
compensated through December 31, 2003 for any service provided as a director.
In addition, no such arrangement is contemplated for the foreseeable future, as
DSEN's only directors are its current executive officers. Should independent
directors be added to DSEN's board of directors, it may be necessary to
purchase Director's and Officer's liability insurance, along with compensate
the director accordingly.
Each director holds office for a 3 year term or until his successor has been
elected and qualified at the annual meeting of DSEN's shareholders. The members
of the Board of Directors serve without remuneration for service on the board.
Corporate officers are appointed by the Board of Directors and serve at the
discretion of the Board.
During the period from January 1, 2003 to December 31, 2003, DSEN held
approximately 12 Board meetings. From January 1, 2004 through December 31,
2004 there have been approximately 16 Board meetings.
33
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by DSEN for services rendered during the fiscal years ended
December 31, 2004, 2003 and 2002, respectively, to DSEN's officers.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND YEAR SALARY BONUS Restricted SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION Stock Award(s) OPTIONS (#) COMPENSATION
Murray Conradie 2004 $150.000 0 100,000 (1) 540,000 (2) 0
President, CEO 2003 $150,000 0 0 0 0
2002 $75,000 0 0 0 0
David Scott Kincer 2004 $150,000 5,824 100,000 (1) 540,000 (2) 968 (5)
COO 2003 $150,000 0 0 0 0
2002 $75,000 0 0 0 0
Jason F. Griffith 2004 $75,000 0 50,000 (1) 270,000 (2) 0
CFO 2003 $61,250 0 0 0 0
2002 $35,000 0 12,292 (3) 50,000 (4) 0
Joseph Harmon 2004 $76,500 6,048 50,000 135,000 178,708 (5)
V.P. 2003 $76,500 0 0 0 180,104 (5)
2002 $68,750 2,500 0 0 141,360 (5)
* Mr. Harmon was paid by Datascension International
(1)DSEN granted an initial signing award to the Executive as of the
Effective Date of his renewed Employment Agreement of restricted shares
of the Company's common stock under and subject to the terms and
conditions of the Stock Compensation Plan (the "Stock Plan"). The
Executive shall vest in 50% of such shares on the 90th day following the
Effective Date and 50% on the six month anniversary of the Effective
Date.
(2)DSEN granted an option award to the Executive under the Stock Plan within
90 days of the Effective Date of his renewed Employment Agreement of a
nonqualified option to purchase shares of DSEN's common stock at a per
share price equal to the fair market value of the common stock on the
grant date (which will be the Effective Date) and an exercise period
equal to five (5) years (the "Initial Option").
(3)Executive received 12,292 shares for unpaid salary which was converted to
common stock restricted stock.
(4)Executive granted an option award of 50,000 shares per paragraph 3.b of
Employment Agreement date June 2002.
(5) Commissions for client contracts.
Common Stock
On December 31, 2004, 300,000 post split shares of common stock valued at $.20
per share were issued to four officers in consideration of terms under their
employment agreements, which granted stock awards of common shares to certain
employees. The issuance of these securities was effected through a private
transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
Employment Agreements
34
Effective January 1, 2004, we entered into separate employment agreements
with our Chief Executive Officer and President of Datascension International,
Inc (subsidiary) David Scott Kincer and our Vice President of both DSEN and
Datascension International, Inc (subsidiary) Joseph Harmon. The employment
agreements are substantially similar and provides for the following:
- employment as one of our executives;
- an annual base salary of $150,000 with eligibility to receive annual
increases as determined in the sole discretion of the Board of Directors
for Mr. Kincer;
- an annual base salary of $76,500 with eligibility to receive annual
increases as determined in the sole discretion of the Board of Directors
for Mr. Harmon;
- an annual cash bonus, which will be awarded upon the achievement of
specified pre-tax operating income;
- participation in all welfare, benefit and incentive plans (including
equity based compensation plans) offered to senior management;
- a term of employment which commenced on January 1, 2004 and continues
through the fifth anniversary thereof. The agreement provides that, in the
event of termination by us "without cause" or by the executive for "good
reason" (which includes a "Change of Control"), the executive will be entitled
to receive from us:
(i) The Executive shall be entitled to a lump sum payment, within 60 days
following termination of his employment, of (A) two times his then current Base
Salary, plus (B) two times the average annual Incentive Bonus paid to or earned
by the Executive (whichever is larger) during the three previous fiscal years
during the Agreement Term or, if there have not been three previous fiscal
years during the Agreement Term, such fewer number of fiscal years as shall
have occurred during the Agreement Term;
Employed 5 years or more, then 100% of (i)
Employed 4 years or more, but less than 5 years; then 75% of (i)
Employed 3 years or more, but less than 4 years; then 50% of (i)
Employed 2 years or more, but less than 3 years; then 25% of (i)
Employed 1 year or more, but less than 2 years; then 10% of (i)
Employed less than 1 year, only what is currently due
The terms of Sections (ii), (iii) and (iv) will not be affected by length of
employment of Executive. Employment with DSEN will be defined as the period
Executive has been employed by DSEN or its subsidiaries.
(ii) The Executive and his eligible dependents shall be entitled to continued
participation, at no cost to the Executive or his eligible dependents, in all
medical, dental, vision and hospitalization insurance coverage, until the
earlier of 18 months following termination of employment or the date on which
he receives equivalent coverage and benefits from a subsequent employer. The
time period described in this Section shall run concurrently with the COBRA
rights of the Executive and his eligible dependents.
(iii) All outstanding unvested stock options granted to the Executive prior to
his termination of employment shall vest, become immediately exercisable and
shall expire, if not exercised, at the earlier of the third anniversary of such
termination of employment or the "expiration date" set forth in the applicable
stock option agreement.
(iv) All outstanding unvested restricted shares of the DSEN's stock awarded to
the Executive prior to his termination of employment shall vest immediately
upon the Executive's termination of employment.
The Executives have also been granted the following initial restricted stock
and initial option awards as part of their Employment Agreements.
(a) Initial Restricted Stock Award. DSEN shall make an initial signing award to
the Executive as of the effective
date of restricted shares of DSEN's common stock under and subject to the terms
and conditions of the Stock Compensation Plan (the "Stock Plan"). The
Executive shall vest in 50% of such shares on the 90th day following
35
the effective date and 50% on the six month anniversary of the effective date.
The amounts granted under this initial restricted award are as follows:
Murray N. Conradie *100,000 shares
David S. Kincer 100,000 shares
Joseph Harmon 50,000 shares
Jason F. Griffith* 50,000 shares
* Resigned April 1, 2005
(b) Initial Option Award. DSEN shall make an award to the Executive under the
Stock Plan within 90 days of the Effective Date of a nonqualified option to
purchase shares of DSEN's common stock at a per share price equal to the fair
market value of the common stock on the grant date (which will be the Effective
Date) and an exercise period equal to five (5) years (the "Initial Option").
The amounts granted under this initial option award are as follows:
Murray N. Conradie*540,000 shares
David S. Kincer 540,000 shares
Jason F. Griffith* 270,000 shares
Joseph Harmon 135,000 shares
* Resigned April 1, 2005
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
The following table sets forth the options granted in 2004 to each of the
directors and executive officers:
Option/SAR Grants in Last Fiscal Year (Individual Grants):
Number of Percent of total
Securities Options/SARs
Underlying granted to Exercise or
Options/SARS employees in base price Expiration
Name Granted fiscal year ($/Share) date
---------- ------------ ---------------- ---------- ---------
Scott Kincer 540,000 36.4 $0.30 1/1/10
Joseph Harmon 135,000 9.1 $0.30 1/1/10
There were no other options granted or exercised by the directors and executive
officers during the year ended December 31, 2004.
Compensation cost for options granted has not been recognized in the
accompanying financial statements. These options do not vest until January
2005 and at such time, DSEN will recognize a compensation expense for the fair
market value of those options, which is anticipated to be the fair market value
of the common stock minus the exercise price of the respective options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth information as of the date of this
Registration Statement certain information with respect to the beneficial
ownership of the Common Stock of DSEN concerning stock ownership by (i) each
director, (ii) each executive officer, (iii) the directors and officers of DSEN
as a group, (iv) and each person known by DSEN to own beneficially more than
five (5%) of the Common Stock. Unless otherwise indicated, the owners have
sole voting and investment power with respect to their respective shares. The
mailing address for each of the persons indicated is our corporate
headquarters.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission. In general,
36
these rules attribute beneficial ownership of securities to persons who possess
sole or shared voting power and/or investment power with respect to those
securities and includes, among other things, securities that an individual has
the right to acquire within 60 days. Unless otherwise indicated, the
stockholders identified in the following table have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
Class Name and Address of Beneficial Owner (1)Number of Shares Percent Owned (2)
Common David Scott Kincer 2,242,167* (1) 13.0%
Common Joseph Harmon 250,556* (2) 1.45%
----------
Common Directors as a group 2,492,723* 14.46%
Common Murray N. Conradie 3,084,833* (3) 17.90%
Common Edward Dale Tschiggfrie 1,004,962* 5.83%
* Post 10 for 1 split
(1) Includes 540,000 shares underlying options.
(2) Includes 135,000 shares underlying options.
(3) Includes 540,000 shares underlying options.
The percentage ownership calculations listed above are based upon
17,232,290 shares of common stock being outstanding, and no options granted
being exercised as of June 30, 2005.
Persons Sharing Ownership of Control of Shares
Management has no knowledge of the existence of any arrangements or
pledges of DSEN's securities which may result in a change in control of DSEN.
No person, other than those individuals or persons listed above, owns or
shares the power to vote ten percent (10%) or more of DSEN's securities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 2004, DSEN has an outstanding note payable to Murray
Conradie, DSEN's former CEO (resigned April 1, 2005), in the amount of $30,688.
This payable accrues interest at 1% monthly due on the first day of each month.
As of December 31, 2004, DSEN has an outstanding note payable to Scott Kincer,
DSEN's CEO, in the amount of $29,000. This payable accrues interest at 1%
monthly due on the first day of each month.
As of December 31, 2004, DSEN has an outstanding note payable to Jason
Griffith, DSEN's former CFO (resigned April 1, 2005), in the amount of $350.
This payable accrues interest at 1% monthly due on the first day of each month.
Other Material Transactions.
With the exception of the above mentioned transactions, there have been
no material transactions, series of similar transactions or currently proposed
transactions to which DSEN or any officer, director, their immediate families
or other beneficial owner is a party or has a material interest in which the
amount exceeds $50,000.
DESCRIPTION OF SECURITIES
A. Common Stock
Shareholders of Record and Outstanding Shares
37
The authorized capital stock of DSEN consists of 200,000,000 shares of
common stock with a par value of $.001 and 20,000,000 shares of preferred stock
at a par value of $.001.
As of August 30, 2005, DSEN had seventeen million two hundred thirty two
thousand two hundred ninety (17,232,290) shares of its $.001 par value common
voting stock issued and outstanding which are held by seven hundred and
nineteen (719) shareholders of record. There are 506,400 preferred shares
issued and outstanding as of December 31, 2004.
Dividends
DSEN has not paid any dividends to date. In addition, it does not
anticipate paying dividends in the immediate foreseeable future. The Board of
Directors of DSEN will review its dividend policy from time to time to
determine the desirability and feasibility of paying dividends after giving
consideration to DSEN's earnings, financial condition, capital requirements and
such other factors as the board may deem relevant.
Reverse Split
On November 4, 2004, Datascension Inc., announced its board of directors
has authorized a reverse split of DSEN's common stock at a ratio of one-for-
ten.
The reverse split, which was approved by written consent and affirmed by
DSEN's stockholders at the last shareholder meeting, took effect on November 5,
2004. Each ten shares of DSEN's issued and outstanding common stock were
automatically converted into one share of common stock. No fractional shares
were issued. Holders of fractional shares received shares rounded to the
nearest whole share.
The Reverse Stock Split affected all of stockholders uniformly and did
not affect any stockholder's percentage ownership interests in DSEN or
proportionate voting power, except to the extent that the Reverse Stock Split
resulted in any of the stockholders becoming entitled to a fractional share.
(1) Description of Rights and Liabilities of Common Stockholders
i. Dividend Rights - The holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefore at such
times and in such amounts as the board of directors of DSEN may from time to
time determine.
ii. Voting Rights - Each holder of DSEN's common stock are entitled to one vote
for each share held of record on all matters submitted to the vote of
stockholders, including the election of directors. All voting is non-
cumulative, which means that the holder of fifty percent (50%) of the shares
voting for the election of the directors can elect all the directors. The
board of directors may issue shares for consideration of previously authorized
but unissued common stock without future stockholder action.
iii. Liquidation Rights - Upon liquidation, the holders of the common stock are
entitled to receive pro rata all of the assets of available for distribution to
such holders.
iv. Preemptive Rights - Holders of common stock are not entitled to preemptive
rights.
v. Conversion Rights - No shares of common stock are currently subject to
outstanding options, warrants, or other convertible securities.
vi. Redemption rights - no redemption rights exist for shares of common stock.
vii. Sinking Fund Provisions - No sinking fund provisions exist.
viii. Further Liability For Calls - No shares of common stock are subject to
further call or assessment by the issuer. DSEN has not issued stock options as
of the date of this Registration Statement.
(2) Potential Liabilities of Common Stockholders to State and Local Authorities
38
No material potential liabilities are anticipated to be imposed on stockholders
under state statues. Certain Nevada regulations, however, require regulation of
beneficial owners of more than 5% of the voting securities. Stockholders that
fall into this category, therefore, may be subject to fines in circumstances
where non-compliance with these regulations are established.
B. Preferred Stock Series B
The Series B preferred shares pursuant to the certificate of designation
were to be converted two years after issuance. Since this time period has
lapsed, the Datascension Board of Directions decided to convert the preferred
shares into the appropriate number of common shares including unpaid dividends.
The number of common shares to be issued is approximately 1,307,353 shares
which is inclusive of the payment of the unpaid and unaccrued dividends of
$381,000. The issuance was anticipated to occur in the second quarter of 2005
but has been delayed until we either receive or account for all the preferred
series B certificates held by our shareholders.
(1) Description of Rights and Liabilities of Preferred Stockholders
i. Dividend Rights - The holders of outstanding shares of Preferred stock are
entitled to receive dividends out of assets legally available therefore at such
times and in such amounts as the board of directors of DSEN may from time to
time determine. Series B shares have annual dividends of $.15 a share payable
quarterly. All of the shares outstanding were to be redeemed at $1.00 a share
(pre reverse) plus all accrued dividends prior to December 31, 1993. This has
been extended by mutual agreement. Series B shares have annual dividends of
$.15 a share payable quarterly. They are convertible to common shares on a one
for one basis at the holders' option.
ii. Voting Rights - The holders of record of said shares of Series B Preferred
Stock shall be entitled to one vote per share at all meetings of, shareholders
of the Corporation. The holders of record shares of the Series B Preferred
Stock shall vote such shares together with the holders of the Corporation's
Common Stock, and not as a separate class. The board of directors may issue
shares for consideration of previously authorized but unissued preferred stock
without future stockholder action.
iii. Liquidation Rights - In case of the dissolution, liquidation or winding-up
of the Corporation, whether voluntary or involuntary or in any instance, the
holders of record of shares of the Series B Preferred Stock then outstanding
shall be entitled to participate in the distributions, either in cash or in
kind, of the assets of the corporation on a priority basis but only to, the
extent of outstanding shares of Preferred Stock multiplied by its par value per
share. Series B shares have priority over the common shares in the event of a
DSEN liquidation.
iv. Preemptive Rights - The holders of the shares of Series B Preferred Stock
will have no preemptive, redemption or other rights other that as established
by applicable corporate law.
v. Conversion Rights - The Preferred shares can be converted after a holding
period of one year at the rate of 10 shares of Common Stock for each share of
Preferred Stock converted. They are convertible to common shares on a one for
one basis at the holders' option.
vi. Sinking Fund Provisions - No sinking fund provisions exist.
vii. Further Liability For Calls - No shares of Preferred stock are subject to
further call or assessment by the issuer. DSEN has not issued stock options as
of the date of this Registration Statement with the exception of those
disclosed on page 31 of this document..
Treasury stock
There are 958,333 post split shares of treasury stock at December 31, 2004.
WARRANTS AND OPTIONS:
None at December 31, 2004 other than those listed below and those disclosed in
the Employment Agreement section.
Warrants issued November 17, 2004: Five year warrants with an exercise price
of $.30.
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1. Longview Equity Fund, LP - 875,000 shares
2. Longview Fund LP - 1,250,000 shares
3. Longview International Equity Fund, LP - 375,000 shares
4. Alpha Capital Aktiengesellschaft - 625,000 shares
Warrants issued March 31, 2005: Five year warrant with an exercise price of
$.50.
Longview Fund LP - 300,000 shares
PENNY STOCK DISCLOSURE REQUIREMENTS:
See discussion in risk factor section, page 16, with the heading "DSEN's common
stock is subject to the "Penny Stock" rules of the SEC and the trading market
in DSEN's securities is limited, which makes transactions in DSEN's stock
cumbersome and may reduce the value of an investment in DSEN's stock."
SELLING SHAREHOLDERS
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this offering, DSEN has issued 17,232,290 shares of Common
Stock. Sales of a substantial number of shares of DSEN's Common Stock in the
public market following this offering could adversely affect the market price
of the Common Stock. DSEN is registering with this document 13,580,000 shares
of Common Stock for resale, all of which will be freely tradable without
restriction or further registration under the Securities Act. 10,155,000 of
the underlying common shares that are being registered through this document
pertain to a $350,000 Convertible Debenture issued to Alpha Capital
Aktiengesellschaft, a $775,000 Convertible Debenture and a $125,000 debenture
issued to the Longview Fund LP, a $525,000 Convertible Debenture issued to the
Longview Equity Fund, LP, and a $225,000 Convertible Debenture issued to the
Longview International Equity Fund LP.
This statement also includes the registration of 3,125,000 warrants with an
exercise price of $0.30 per share and 300,000 warrants with an exercise price
of $0.50 per share. These shares are related to the convertible debentures
issued above.
The Shares being offered for resale by our Selling Stockholders are issuable in
accordance with {section} 4(2) and Rule 506 under the Securities Act of 1933,
as amended (the "Securities Act"),
RECENT FINANCING
On November 17, 2004, DSEN entered into a subscription agreement for
$1,875,000, whereby we issued Convertible Debentures to the following:
1)$350,000 to Alpha Capital Aktiengesellschaft, 2) $525,000 to the Longview
Equity Fund LP, 3) $775,000 to the Longview Fund LP., and 4) $225,000 to the
Longview International Equity Fund, LP. Interest on these notes shall accrue
at a rate per annum equal to the "prime rate" published in The Wall Street
Journal from time to time, plus three percent (3%). The prime rate shall be
increased or decreased as the case may be for each increase or decrease in the
prime rate in an amount equal to such increase or decrease in the prime rate;
each change to be effective as of the day of the change in such rate. The
interest rate shall not be less than eight percent (8%). Interest shall be
calculated on the basis of a 360 day year
DSEN shall reduce the principal amount of the note by 1/32nd per month starting
120 days after the closing, payable in cash or registered stock as described
below. If such amortization is in cash, the payment will be at 104% of the
monthly principal amortization amount. The note holders and DSEN must convert
the principal amortization and interest payments through common stock if the
market price for the stock at the time of payment is 15% above the fixed
conversion price of $.30 per share.
If the market price of the stock is 1) at or below 15% above the fixed
Conversion Price or 2) below the fixed $.30 fixed conversion price at the time
of payment, then DSEN may elect to pay the principal amortization in stock at a
price equal to 85% of the average of the five (5) lowest closing bid prices of
the stock over the previous twenty (20) trading days.
On March 31, 2005 DSEN entered into a subscription agreement for $125,000,
whereby we issued an additional
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two-year Convertible Debenture to the Longview Fund LP at an interest ate of
12% per annum. This note has a fixed conversion rate of $.50 per share.
Each convertible note holder shall not be entitled to convert that amount of
their note that would result in a number of shares of common stock held which
would be in excess of the sum of the number of shares of common stock
beneficially owned by the note holder and its affiliates on that date of more
than 4.99% of the outstanding shares of common stock of DSEN on that date. For
the purposes of this provision, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3. This limitation shall be calculated as of each
conversion. Aggregate conversions over time shall not be limited to 4.99%.
The note holder may void this conversion share limitation upon 61 days prior
notice to DSEN. The note holder may allocate which of the equity of DSEN is
deemed beneficially owned (see page 31 footnote one for more detailed
explanation) by the note holder thatshall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%. For
example, if the investor beneficially owns equity in the issuer of 6% in
convertible debt and 6% in warrants, and submits a request to convert a portion
of the debt into common shares, the issuer may refuse the conversion saying the
investor has already surpassed the 4.99% threshold on the warrants. The above
wording will allow the investor to allocate the beneficial ownership to the
convertible debt, thus allowing the conversion.
DSEN has the option of prepaying the outstanding principal amount, in whole or
in part, by paying to the note holder a sum of money equal to one hundred
twenty percent (120%) of the principal amount to be redeemed, together with any
accrued interest on that amount
The financing provides the note holders with the following registration rights.
The common stock underlying the convertible notes and the common stock
underlying the warrants will be registered for resale via an SB-2 or other
appropriate registration statement. DSEN use its best efforts to file the
registration within thirty (30) days from the date DSEN was funded and the
convertible notes were issued. DSEN will use its best efforts to cause the
registration statement to become effective within ninety (90) days from the
date the original registration statement was filed. If the registration
statement has not been filed within the above thirty day period and/or the
registration statement has not been declared effective within ninety (90) days
from the date the original registration statement was filed, DSEN will be
liable for liquidated damages enforceable by the note holders. The liquidated
damages will be in the amount of two percent (2%) of the purchase price of the
securities if paid in cash or an amount equal to two hundred percent of such
cash liquidated damages if paid in stock. Such common stock shall be valued
at a per share value equal to 85% of the average of the five (5) lowest closing
bid prices of the DSEN common stock as reported by Bloomberg L.P. for the
twenty (20) trading days preceding the first day of each thirty (30) day or
shorter period for which Liquidated Damages are payable
DSEN has three business days to deliver shares to the note holders upon notice
received that the note holders sold common shares. For failure to deliver
common shares within two days past the three day period, DSEN would be liable
for liquidated damages. These damages would amount to $100 per business day
after the three day period for each $10,000 of the note converted into the
common shares subject to delivery. In any given year, if the days that DSEN
fails to deliver amount in the aggregate to 30 days, the note holders can
require DSEN to redeem the common shares subject to default at a 120% of the
value of the amount of the note converted into these common shares.
In addition, if as a result of DSEN's failure to deliver shares, the note
holder has to purchase common shares in the open market in satisfaction of the
sale (i.e. a buy-in), the note holder is entitled to receive cash from DSEN in
the amount of the difference between the buy-in amount plus 15% interest per
annum on such amount and the amount of the note converted into common shares
that were delivered.
DSEN agrees not to file any registration statements except on behalf on the
convertible note holders, until the sooner of (i) this registration statement
has been effective and available for use for 365 days, in connection to the
public resale of the underlying shares and any warrant shares exercised, (ii)
until all the commons shares being registered have been resold by the note
holders pursuant to this registration statement or Rule 144, without regard to
volume limitations (i.e. 144k), or (iii) the date that the convertible note has
been fully paid.
DSEN also agreed that until the first to occur of (i) the convertible notes
have been fully paid, or (ii) until all the underlying common shares and
exercisable shares underlying the warrants have been resold pursuant to a
registration statement or Rule 144, the Company will not enter into any
acquisition, merger, exchange or sale or other transaction that could have the
effect of delaying the effectiveness of any pending registration statement or
41
causing an already effective registration statement to no longer be effective
or current for a period of fifteen (15) or more days (i.e. a blackout period).
In the case that DSEN is proposing a sale of its common stock or other
securities or debt obligations, except in connection for consideration in a
strategic merger, consolidation or purchase of substantially all the securities
or assets of a corporation or other entity, the convertible note holders shall
be given written notice of such sale not less than seven business days prior to
the proposed sale. Upon receipt of notice, the convertible note holders have
seven business days to purchase such offered common stock or other securities
or debt obligations in accordance with the terns and conditions of the sale in
the proportion that each note holder has in the purchase of the convertible
notes in this funding (i.e. right of first refusal).
SELLING SHAREHOLDER TABLE
The table below sets forth information concerning the resale of shares of
Common Stock by the Selling Stockholder. We will not receive any proceeds from
the resale of the Common Stock by the Selling Stockholders.
Assuming the Selling Stockholder sells all the shares registered below, the
Selling Stockholder will no longer continue to own any shares of our Common
Stock.
The following table also sets forth the name of the person who is offering
shares of common stock by this prospectus, the number of shares of common stock
beneficially owned by such person, the number of shares of common stock that
may be sold in this offering and the number of shares of common stock such
person will own after the offering, assuming he sells all of the shares
offered.
Selling Stockholder Shares Beneficially Owned Shares Offered Shares Beneficially Owned After Offering If All
Prior to the Offering For Sale (6) Offered Shares Are Sold (7)
Number of Percentage Number of Shares Percentage
Shares (5)
Alpha Capital 2,426,666 12.3% 2,426,666 0 0%
Aktiengesellschaft (1)
Longview Fund LP (2) 5,953,334 25.7% 5,953,334 0 0%
Longview Equity Fund, LP (3) 3,640,000 17.4% 3,640,000 0 0%
Longview International Equity 1,560,000 8.3% 1,560,000 0 0%
Fund, LP (4)
* The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares, which the selling stockholder has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the debentures and exercise of the debenture warrants is subject
to adjustment depending on, among other factors, the future market price of the
common stock, and could be materially less or more than the number estimated in
the table.
The above investors do not hold any position or office, nor has had any
material relationship with us or any of our affiliates within the past three
years. The selling shareholders are not a broker-dealers or affiliates of a
broker-dealer.
Notes to Selling Shareholder Table.
(1) Alpha Capital Aktiengesellschaft: In accordance with Rule 13d-3
under the Securities Exchange Act of 1934, Konard Ackerman may be deemed
the control person of the shares owned by such entity. ALPHA Capital AG
is a private investment fund that is owned by all its investors and
managed by Mr. Ackerman. Mr. Ackerman disclaims beneficial ownership of
the shares of common stock being registered hereto.
42
(2) Longview Fund, L.P. is a private investment fund that is in the business
of investing publicly-traded securities for their own accounts and is
structured as a limited liability company whose members are the investors
in the fund. The General Partner of the fund is Viking Asset Management,
LLC, a California limited liability company which manages the operations
of the fund. Peter T. Benz is the managing member of Viking Asset
Management, LLC. As the control person of the shares owned by Longview
Fund, LP, Peter T. Benz may be viewed as the beneficial owner of such
shares pursuant to Rule 13d-3 under the Securities Exchange Act of 1934.
(3) Longview Equity Fund, L.P. is a private investment fund that is in the
business of investing publicly-traded securities for their own accounts
and is structured as a limited liability company whose members are the
investors in the fund. The General Partner of the fund is Viking Asset
Management, LLC, a California limited liability company which manages the
operations of the fund. Peter T. Benz is the managing member of Viking
Asset Management, LLC. As the control person of the shares owned
by Longview Equity Fund, LP, Peter T. Benz may be viewed as the
beneficial owner of such shares pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934.
(4) Longview International Equity Fund, L.P. is a private investment fund
that is in the business of investing publicly-traded securities for their
own accounts and is structured as a limited liability company whose
members are the investors in the fund. The General Partner of the fund
is Viking Asset Management, LLC, a California limited liability company
which manages the operations of the fund. Peter T. Benz is the managing
member of Viking Asset Management, LLC. As the control person of the
shares owned by Longview International Equity Fund, LP, Peter T. Benz may
be viewed as the beneficial owner of such shares pursuant to Rule 13d-3
under the Securities Exchange Act of 1934.
(5) Percentages are based on 17,232,290 shares of our common stock issued as
of April 13, 2005.
(6) This column represents the total number of shares of common stock that
each selling security holder intends to sell based on the current market
price at the time the registration statement was first filed plus the
common share that would be issued upon exercise of the related warrants.
(7) Each convertible note holder shall not be entitled to convert that amount
of their note that would result in a number of shares of common stock
held which would be in excess of the sum of the number of shares of
common stock beneficially owned by the note holder and its affiliates
on that date of more than 4.99% of the outstanding shares of common
stock of DSEN on that date. (see discussion in the recent financing
section above).
PLAN OF DISTRIBUTION
Each selling stockholders will most likely sell their shares on the open
market. Our stock is quoted on the OTCBB under the symbol DSEN.
Therefore, the selling stockholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market, or trading facility
on which the shares are traded or in private transactions. These sales may be
at fixed or negotiated prices. This registration statement does not cover
sales by any of the selling shareholders respective pledges, donees,
transferees and other successors-in-interest. The selling stockholders may use
any one or more of the following methods when selling shares:
-Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
-Block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
-Purchases by a broker-dealer as principal and resale by the
broker-dealer for its own account;
-An exchange distribution following the rules of the applicable
exchange;
-Privately negotiated transactions;
-Short sales that are not violations of the laws and
regulations of any state of the United States;
43
-Broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per share;
-A combination of any such methods of sale any other lawful
method.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under his prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in
-Short selling against the box, which is making a short sale
when the seller already owns the shares.
-Other transactions in our securities or in derivatives of our
securities and the subsequent sale or delivery of shares by the
stockholder.
-Pledging shares to their brokers under the margin provisions
of customer agreements. If a selling stockholder defaults on a
margin loan, the broker may, from time to time, offer to sell the
pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from selling stockholders in amounts to be negotiated.
If any broker-dealer acts as agent for the purchaser of shares, the broker-
dealer may receive commission from the purchaser in amounts to be negotiated.
The selling stockholders do not expect these commissions and discounts to
exceed what is customary in the types of transactions involved.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholders defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
under such act, including, without limitation, Regulation M. These provisions
may restrict certain activities of, and limit the timing of purchases and sales
of any of the shares by, the selling stockholders or any other such person. In
the event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of
securities are prohibited from simultaneously engaging in market making and
certain other activities with respect to such securities for a specified period
of time prior to the commencement of such distributions, subject to specified
exceptions or exemptions. In regards to short sells, the selling stockholder
can only cover its short position with the securities they receive from us upon
conversion. In addition, if such short sale is deemed to be a stabilizing
activity, then the selling stockholder will not be permitted to engage in a
short sale of our common stock. All of these limitations may affect the
marketability of the shares.
The selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be considered to be "underwriters" within the meaning of
the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities
Act.
We are required to pay all fees and expenses incident to the registration of
the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholders and their officers,
directors, employees and agents, and each person who controls any selling
shareholder, in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act. Each selling shareholder has
agreed to indemnify DSEN and its directors and officers in certain
circumstances against certain liabilities, including liabilities arising under
the Securities Act.
If the selling stockholder notifies us that they have a material arrangement
with a broker-dealer for the resale of the
44
common stock, then we would be required to amend the registration statement of
which this prospectus is a part, and file a prospectus supplement to describe
the agreements between the selling stockholder and the broker-dealer.
STANDSTILL AGREEMENT
The directors and officers will be permitted to sell shares of DSEN common
stock during the period referenced below based on the following schedule:
After the investors have converted or received the percentage of note principal
issued. Each director and
officer may sell the corresponding percent of the amount of shares indicated
below
Investors Conversion Director/Officer *
20% 0.5%
30% 0.5%
40% 1%
50% 1%
60% 1%
70% 2%
80% 2%
90% 2%
The period in which the directors and officers may sell DSEN common stock is as
follows: (i) this registration statement has been effective and available for
use for 365 days, in connection to the public resale of the underlying shares
and any warrant shares exercised, (ii) until all the commons shares being
registered have been resold by the note holders pursuant to this registration
statement or Rule 144, without regard to volume limitations (i.e. 144k), or
(iii) the date that the convertible note has been fully paid. The applicable
number of shares is as follows: 1) Murray Conradie, 2,543,500 shares, 2) David
S. Kincer 2,242,167, 3) Jason Griffith, 112,292 shares and 4) Joseph Harmon,
250,556 shares.
* Represents the maximum number shares that each director/officers may sell is
that applicable Percentage of the number of shares converted by the investors
(see the investors conversion column) .
LEGAL PROCEEDINGS
DSEN is from time to time involved in litigation incident to the conduct
of its business. Certain litigation with third parties and present and former
employees of DSEN is routine and incidental, such litigation can result in
large monetary awards for compensatory or punitive damages.
Prior Landlord Lawsuit - 2003: The previous facility leased by Registrant
in Henderson Nevada was leased for the purpose of consolidating all the
operations into one location. A prior tenant of the premises had vacated the
premises leaving fixtures that occupied approximately 50% of the floor space in
the warehouse. The landlord had agreed to have this equipment removed within
90 days. This did not occur and after 14 months, when the equipment had not
been removed from the premises; a decision was made to find alternate premises
and terminate the lease for
cause. This court case went to trial during January of 2004 and the courts
found in favor of the prior landlord for the amount owed to them through the
time necessary to re-let the premises to a new tenant. The Registrant had
recorded this as a contingency and expensed this in 2003. This judgment has
subsequently been settled and released November 2004.
DSEN is not a party to any pending material legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against DSEN. To the knowledge of
management, no director, executive officer or affiliate of DSEN, any owner of
record or beneficially of more than 5% of DSEN's common stock is a party
adverse to DSEN or has a material interest adverse to DSEN in any proceeding.
All litigation DSEN was involved with in 2004 has either been settled,
withdrawn or dismissed.
45
EXPERTS
The financial statements of DSEN at December 31, 2003, appearing in this
Prospectus and Registration Statement have been audited by Gary V. Campbell,
CPA, Ltd., Certified Public Accountants, our independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of DSEN at December 31, 2004, appearing in this
Prospectus and Registration Statement have been audited by Larry O'Donnell,
CPA, P.C., our independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Legal matters concerning the issuance of shares of common stock offered in this
registration statement will be passed upon by Naccarato & Associates, Owen
Naccarato, Esq.
OTHER AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities and Exchange
Commission (the "Commission"). We file periodic reports, proxy statements and
other information with the Commission under the Securities Exchange Act of
1934. We will provide without charge to each person who receives a copy of
this prospectus, upon written or oral request, a copy of any information that
is incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are
themselves specifically incorporated by reference). Requests should be directed
to: David Scott Kincer, Chairmen and Chief Executive Officer
We have filed a registration statement on Form SB-2 under the Securities Act of
1933 Act with the Commission in connection with the securities offered by this
Prospectus. This Prospectus does not contain all of the information that is the
registration statement; you may inspect without charge, and copy our filings,
at the public reference room maintained by the Commission at 450 Fifth Street,
N.W. Washington, D.C. 20549. Copies of this material may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549, at prescribe rates.
Information about the public reference room is available from the commission by
calling 1-800-SEC-0330.
The commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the commission. The address of the site is
www.sec.gov. Visitors to the site may access such information by searching the
EDGAR archives on this web site.
We have not authorized anyone to provide you with any information that is
different.
The selling security holders are offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where such offers and sales are
permitted.
The information contained in this Prospectus is accurate as of the date of this
prospectus. We will keep this prospectus up to date and accurate.
FINANCIAL STATEMENTS
OUR FINANCIAL STATEMENTS BEGIN ON PAGE F-1
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On December 11, 2002, Nutek, Inc. (the Company) determined to change the
Company's independent accountants, and, accordingly, ended the engagement of
Chavez & Koch, CPA's, in that role and retained Gary V. Campbell, CPA, Ltd. as
its independent accountants for the fiscal year ending December 31, 2002. The
Audit Committee of the Board of Directors (the "Audit Committee") and the Board
of Directors of the Company approved the decision to change independent
accountants based on the fact that the Company's current Chief Financial
Officer previously
46
served as a manager at Chavez & Koch, CPA's. Per the requirements under the
recently announced Sarbanes-Oxley Act (the text of which appears below) the
Company is required to switch auditors.
H.R.3763, Sarbanes-Oxley Act of 2002 SEC. 206. CONFLICTS OF INTEREST.
Section 10A of the Securities Exchange Act of 1934 (15 U.S.C.78j-1), as
amended by this Act, is amended by adding at the end the following:
(l) CONFLICTS OF INTEREST- It shall be unlawful for a registered public
accounting firm to perform for an issuer any audit service required by this
title, if a chief executive officer, controller, chief financial officer, chief
accounting officer, or any person serving in an equivalent position for the
issuer, was employed by that registered independent public accounting firm and
participated in any capacity in the audit of that issuer during the 1-year
period preceding the date of the initiation of the audit.
During the period of December 27, 2001, through December 11, 2002, there were
no disagreements with Chavez & Koch, CPA's on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement(s), if not resolved to Chavez & Koch, CPA's
satisfaction, would have caused them to refer to the subject matter of the
disagreement(s) in connection with their report; and there were no "reportable
events" as defined in Item 304 (a)(1)(v) of the Securities and Exchange
Commission's Regulation S-B. Neither of the reports of Chavez & Koch, CPA's
for the period ending December 31, 2001, and the subsequent interim periods
through December 11, 2002, contain an adverse opinion or disclaimer of opinion,
nor was either qualified or modified as to uncertainty, audit scope, or
accounting principles.
(b) Information required by Item 304(a)(2) of Regulation S-B
Effective December 12, 2002, the Company has engaged Gary V. Campbell, CPA,
Ltd. as its independent accountants for the fiscal year ended December 31,
2002. During the most recent two fiscal years and during the portion of 2002
preceding the Board's decision, neither the Company nor anyone engaged on its
behalf has consulted with Gary V. Campbell, CPA, Ltd. regarding: (i) either the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements; or (ii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-B)
or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-B).
On June 15, 2004, Gary V. Campbell, CPA, Ltd. notified the Company that they
were declining to stand for re-election as the Company's independent auditor of
record. The Board of Directors accepted this decision on June 15, 2004. The
Registrant appointed Larry O'Donnell, CPA,, P.C., as the Registrant's
independent accountants for the year ending December 31, 2004. The selection of
accountants was approved by the Registrant's Board of Directors. Larry
O'Donnell, CPA, P.C. was engaged by the Registrant on June 18, 2004. During the
most recent two fiscal years and during the portion of 2004 preceding the
Board's decision, neither the Company nor anyone engaged on its behalf has
consulted with Larry O'Donnell, CPA, P.C. regarding: (i) either the application
of accounting principles to a specified transaction, either completed or
proposed; or the type of audit opinion that might be rendered on the Company's
financial statements; or (ii) any matter that was either the subject of a
disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-B) or a
reportable event (as described in Item 304(a)(1)(v) of Regulation S-B).
The audit reports issued by Gary V. Campbell, CPA, Ltd. with respect to the
Registrant's financial statements for December 31, 2003 and 2002 did not
contain an adverse opinion or disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles. From
December 12, 2002 through June 15, 2004, there were no disagreements between
the Registrant and Gary V. Campbell, CPA, Ltd. on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Gary V.
Campbell, CPA, Ltd., would have caused it to make a reference to the subject
matter of the disagreement in connection with its audit report.
(c) Information required by Item 310(b) of Regulation S-B
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included.
47
DATASCENSION, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
6/30/2005 12/31/2004
------------ ------------
Current Assets:
Cash $ 97,415 $ 556,593
Accounts receivable 1,936,904 1,533,969
Prepaid expenses 75,241 192,185
Investment in Century Innovations 108,469 108,469
------------ ------------
Total current assets $ 2,218,029 $ 2,391,216
Property and Equipment, net of accumulated
depreciation 1,040,431 681,346
Other Assets:
Asset held for sale (see notes) - 1,015,014
Website assets, net of amortization 4,520 4,520
Deposits 21,649 25,399
Goodwill 1,692,782 1,692,782
------------ ------------
Total other assets 1,718,951 2,737,715
------------ ------------
Total Assets $ 4,977,411 $ 5,810,277
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
6/30/2005 12/31/2004
------------ ------------
Current Liabilities:
Accounts payable $ 103,385 $ 135,533
Accrued expenses 1,280,772 1,390,880
Notes payable, related party 38,710 60,038
Short term notes payable 80,119 121,742
Current portion of long-term notes payable 105,264 116,207
------------ ------------
Total current liabilities $ 1,608,250 $ 1,824,400
Long-Term Debt
Convertible debt, net of current portion 2,178,633 1,893,750
Long-term notes payable, net of current portion 340,522 103,548
------------ ------------
Total long-term debt 2,519,155 1,997,298
Total Liabilities 4,127,405 3,821,698
Stockholders' Equity:
Common stock:
Common stock, $0.001 par value, 200,000,000
shares authorized; 17,207,290 and 16,257,290 shares
issued, 17,111,457 and 16,161,457 outstanding at
June 30, 2005 and December 31, 2004, respectively 160,825 159,875
Additional paid-in capital-common stock 13,281,825 12,807,775
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 (485,000) (119,063)
Treasury stock, at cost; 95,833 at December 31, 2004 (134,388) (134,388)
Accumulated deficit (12,455,757) (11,208,120)
------------ ------------
Total stockholders' equity 850,006 1,988,579
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,977,411 $ 5,810,277
============ ============
See accompanying notes to the financial statements
F-1
DATASCENSION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the For the
3 months ended 6 months ended
6/30/2005 6/30/2004 6/30/2005 6/30/2004
--------------------------- ---------------------------
Revenue $ 2,577,701 $ 2,245,000 $ 4,632,725 $ 4,279,455
Cost of Goods Sold 2,075,904 1,724,903 3,725,252 3,427,221
----------- ----------- ------------ -----------
Gross Profit 501,797 520,097 907,473 852,234
Expenses:
Selling, general and administrative $ 368,187 $ 464,453 $ 847,780 $ 642,689
Depreciation 45,731 85,646 86,997 170,487
----------- ----------- ------------ -----------
Total expenses 413,918 550,099 934,777 813,176
----------- ----------- ------------ -----------
Operating Income 87,879 (30,002) (27,304) 39,058
Other Income (Expense):
Interest income 109 62 329 405
Forgiveness of debt - - 2,962 -
Other income 3,382 2,699 3,382 4,884
Interest expense (109,419) (18,049) (223,174) (48,068)
----------- ----------- ------------ -----------
Total other income (105,928) (15,288) (216,501) (42,779)
----------- ----------- ------------ -----------
Net Income (loss) $ (18,049) $ (45,290) $ (243,805) $ (3,721)
=========== =========== ============ ===========
Basic weighted average number
of common shares outstanding 17,207,290 15,341,168* 16,732,290 15,289,102*
=========== =========== ============ ===========
Diluted weighted average number
of common shares outstanding 17,207,290 15,341,168* 16,732,290 15,289,102*
=========== =========== ============ ===========
Basic Net Income Per Share $ (0.00) $ (0.000) $ (0.02) $ (0.000)
=========== =========== ============ ===========
Diluted Net Income Per Share $ (0.00) $ (0.000) $ (0.02) $ (0.000)
=========== =========== ============ ===========
See accompanying notes to the financial statements
* = split adjusted
F-2
DATASCENSION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months
6/30/2005 6/30/2004
----------- ----------
Cash Flows From Operating Activities:
Net income $ (243,805) $ (3,721)
Adjustments to reconcile net income to net
cash provided by operating activities:
Issued for services - 44,000
Depreciation and amortization 86,997 170,486
Forgiveness of debt (2,962) -
(Increase) Decrease in accounts receivable (402,935) (359,064)
Increase in inventory - 1,892
Increase in prepaid expenses 116,944 55,935
Increase in deposits 3,750 23,492
Decrease in accounts payable (32,147) (79,293)
Decrease in accrued expenses (110,108) 55,387
----------- ----------
Net cash used by operating activities $ (584,266) $ (90,886)
Cash Flows From Investing Activities:
(Increase) Decrease in notes receivable - 141,889
Purchase of property and equipment (404,816) (4,386)
----------- ----------
Net cash used by investing activities (404,816) 137,503
Cash Flows From Financing Activities:
Increase in notes payable 184,407 (178,100)
Increase (Decrease) in related party payable (21,328) 10,661
Increase (Decrease) in convertible debt 257,763 -
Increase (Decrease) in stock subscriptions 109,063 -
Issuance of common stock - 75,000
(Decrease) Increase in line of credit - (3,948)
----------- ----------
Net cash provided by financing activities 529,905 (96,387)
----------- ----------
Net Increase in Cash (459,178) (49,770)
Balance, Beginning 556,593 122,891
----------- ----------
Balance, Ending $ 97,415 $ 73,121
=========== ==========
Interest Paid $ 18,049 $ 48,068
=========== ==========
Taxes Paid $ - $ -
=========== ==========
See accompanying notes to the financial statements
F-3
DATASCENSION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - HISTORY AND ORGANIZATION OF THE COMPANY
Datascension, Inc. (formerly known as Nutek, Inc.) was incorporated in August
1991 under the laws of the State of Nevada as Nutek, Inc. (the "Company") and
is engaged in the market research industry.
Datascension International, Inc. and related assets were purchased on September
27, 2001 for $2,200,000 using company shares at fair market value.
Datascension International, Inc. is a premier data solutions company
representing a unique expertise in the collecting, storage, processing, and
interpretation of data. During 2002, Datascension International, Inc. expanded
operations into Costa Rica.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's policy is to prepare the financial statements on the accrual
basis of accounting. The fiscal year end is December 31. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with maturities
of three months or less when purchased.
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.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are made up of the following as of June 30, 2005:
Equipment and machinery $ 472,500
Office equipment 1,068,138
Leasehold improvements 9,959
Accumulated depreciation (510,165)
-------------
$ 1,040,431
The company purchased predictive dialers for a total cost of $125,000 during
the three months ended June 30, 2005.
NOTE 4 - NOTES PAYABLE
During the three months ended June 30, 2005, the Company received $200,000 in
the form of a convertible note. This amount was issued pursuant to the same
terms of the prior funding of November 2004. Interest is accruing on the note
at prime + 3%.
NOTE 5 - STOCKHOLDERS' EQUITY
During the three months ended June 30, 2005, DSEN did not issue or sell any
stock.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of June 30, 2005, the Company has an outstanding note payable to Scott
Kincer, the Company's COO, in the amount of $18,000. This payable accrues
interest at 1% monthly due on the first day of each month.
NOTE 7 - FOREIGN OPERATIONS
The company currently operates out of the United States, Costa Rica and the
Dominican Republic. The future plans of the company involve the slowing growth
at the Dominican Republic facility while focusing on the potential and
available growth in Costa Rica. Management does not feel there is a currency
risk or need to assess a foreign currency translation adjustment or other
comprehensive income item as income and expense items are negotiated in the US
dollar. The Company maintains their accountings records in U.S. dollars and
all payments are made in US dollars. All debts and assets on the books of the
company are valued based on US dollars and are not translated from a foreign
currency amount. The Company currently coordinates all foreign operations, and
supervision activities using part time employees, consultants and contract
labor. Approximately 85% of the company's workforce is outside of the United
States. Currently 100% of the company's clients are US based companies. Any
resulting foreign exchange fluctuations do not affect the payment of employees,
contract labor or off shore operations.
ITEM 7. FINANCIAL STATEMENTS.
DATASCENSION INC.
FINANCIAL STATEMENTS
--------------------
December 31, 2004
December 31, 2003
F-1
TABLE OF CONTENTS
-----------------
PAGE
----
INDEPENDENT AUDITORS' REPORT:
Independent Auditors Report - 2004 F-3
Independent Auditors Report - 2003 F-4
FINANCIAL STATEMENTS:
Balance Sheets F-5
Statements of Operations F-6
Statement of Changes in Stockholders' Equity F-7
Statements of Cash Flows F-8
NOTES TO FINANCIAL STATEMENTS: F-9
F-2
Larry O'Donnell, CPA, P.C.
Telephone (303)745-4545
2228 South Fraser Street
Unit 1
Aurora, Colorado 80014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Datascension, Inc. formerly Nutek, Inc.
Las Vegas, Nevada
I have audited the accompanying balance sheet of Datascension, Inc. formerly
Nutek, Inc., a Nevada corporation, as of December 31, 2004, and the related
statements of loss, changes in stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Datascension, Inc. formerly
Nutek, Inc., as of December 31, 2004, and the results of its operations and
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
Larry O'Donnell, CPA, P.C.
March 24, 2005
F-3
Gary V. Campbell, CPA, Ltd.
Certified Public Accountants
7440 West Sahara
Las Vegas, Nevada, 89117
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Nutek, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Nutek, Inc., (a
Nevada corporation), as of December 31, 2003, and the related consolidated
statement of income, changes in stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nutek, Inc., as of December
31, 2003, and the results of its operations and cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
Gary V. Campbell, CPA, Ltd.
Las Vegas, Nevada
March 30, 2004
F-4
DATASCENSION, INC.
BALANCE SHEETS
AS OF
December 31, 2004 and December 31, 2003
ASSETS
12/31/04 12/31/03
CURRENT ASSETS:
Cash $556,593 $122,891
Accounts receivable 1,533,969 1,087,694
Inventory - 227,997
Accrued income - 11,200
Prepaid expenses 192,185 194,623
Note receivable, related party - 1,250
Investment in Century Innovations 108,469 -
---------- ---------
TOTAL CURRENT ASSETS $2,391,216 $1,645,655
Property and Equipment, net of accumulated
depreciation 681,346 3,310,783
OTHER ASSETS:
Asset held for sale (see notes) 1,015,014 -
Notes receivable, net of current portion - 5,800
Patent rights acquired, net of amortization - 561,262
Long-term investment - 8,000
Website assets, net of amortization 4,520 29,340
Customer lists, net of amortization - 43,611
Patterns/designs, net of amortization - 44,583
Packaging design/artwork, net of amortization - 86,512
Deposits 25,399 51,892
Goodwill 1,692,782 1,692,782
Trademarks - 8,000
Licensing fees - 50,000
---------- ----------
TOTAL OTHER ASSETS 2,737,715 2,581,782
---------- ----------
TOTAL ASSETS $5,810,277 $7,538,220
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $135,533 $278,022
Accrued expenses 1,390,880 182,377
Line of credit - 449,650
Accrued contingent liabilities - 338,461
Notes payable, related party 60,038 328,540
Short term notes payable 121,742 -
Current portion of convertible debt - -
Current portion of long-term notes payable 116,207 102,033
---------- ---------
TOTAL CURRENT LIABILITIES $1,824,400 $1,679,083
LONG-TERM DEBT
Convertible debt, net of current portion 1,893,750 -
Long-term notes payable, net of current portion 103,548 16,565
---------- ---------
TOTAL LONG-TERM DEBT 1,997,298 16,565
TOTAL LIABILITIES 3,821,698 1,695,648
Noncontrolling interest in
subsidiary of Nutek Oil, Inc. - 311,137
STOCKHOLDERS' EQUITY:
Common stock:
Common stock, $0.001 par value, 200,000,000
shares authorized; 16,257,290 shares issued,
15,298,957 outstanding at December 31, 2004 159,875 150,554
Additional paid-in capital-common stock 12,807,775 10,802,058
Preferred stock Series B:
Preferred stock, $0.001 par value, 10,000,000
shares authorized; 506,400 Series B shares
issued and outstanding at December 31, 2004 506 509
Additional paid-in capital-preferred Series B 481,994 507,992
Subscriptions receivable (119,063) (604,804)
Treasury Stock (134,388) (134,388)
Accumulated deficit (11,208,120)(5,190,486)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,988,579 5,531,435
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,810,277 $7,538,220
========== ==========
See accompanying notes to financial statements
F-5
DATASCENSION, INC.
STATEMENT OF OPERATIONS
FOR YEARS ENDED
December 31, 2004 and December 31, 2003
For the For the
Year ended Year ended
12/31/2004 12/31/ 2003
REVENUE $8,672,103 $7,057,087
COST OF GOODS SOLD 7,028,686 4,039,344
--------- ---------
GROSS PROFIT 1,643,417 3,017,743
EXPENSES:
Selling, general and administrative $2,674,427 $2,633,934
Depreciation and amortization 270,893 340,231
Asset impairment 328,492 -
Contingency accrual - 292,500
Lawsuit liability - 45,000
--------- ---------
TOTAL EXPENSES 3,273,812 3,311,665
OPERATING INCOME (1,630,395) (293,922)
OTHER INCOME (EXPENSE):
Interest income 743 1,898
Forgiveness of debt 55,000 99,274
Other income 11,210 17,352
Debt discount conversion feature (1,778,480) -
Interest expense (210,628) (97,728)
Other income - -
Minority interest, Nutek Oil, Inc. - 26,593
----------- ---------
TOTAL OTHER INCOME (1,922,155) 47,389
Net Income (loss) $(3,552,550) $(246,533)
Discontinued Operations $(1,731,001) $-
----------- ---------
Net Income (loss) after
discontinued operations $(5,283,551) $(246,533)
----------- ---------
Basic weighted average number
of common shares outstanding 15,671,867 9,617,251*
Diluted weighted average number
of common shares outstanding 16,594,223 9,617,251*
BASIC NET INCOME PER SHARE $(0.23) $(0.00)
DILUTED NET INCOME PER SHARE $(0.21) $(0.00)
See accompanying notes to financial statements
* = split adjusted
F-6
DATASCENSION Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED
December 31, 2004 and December 31, 2003
Common Common Additional Preferred Preferred Preferred - Preferred
A
Stock Stock Paid-in Stock Stock Add. Paid Stock
Shares Shares
Shares Amount Capital Series A Series A In Capital Series B
Balances at
12/31/02 8,897,391 88,974 7,555,559 559,508 560 3,021,132 508,500
Sale of Stock 363,889 3,639 113,408 - - - -
Issuance for Settlement of Bonds 168,374 1,684 106,507 - - - -
Issuance for Services 550,473 5,505 192,055 - - - -
Accrual of Preferred Dividends - - - - - - -
Preferred purchases / posted - - - (52,000) (52) (136,358) -
Preferred converted 5,075,080 50,751 2,834,530 (507,508) (508) (2,884,774) -
Change in ownership of Nutek Oil - - - - - - -
Allocation of Minority Interest
In Subsidiary Earnings - - - - - - -
Net Profit for Quarter
Ended December 31, 2003 - - - - - - -
Balance at December 31, 2003 15,055,207 150,552 10,802,059 - - (0) 508,500
Prior period adjustment
Sale of Stock 187,500 1,875 73,125 - - - -
Issuance for Services 12,500 125 6,125 - - - -
Settlement of Series B 50,000 500 25,500 - - - (2,600)
Distribution / Sale of Nutek Oil - - - - - - -
Ownership
Issuances for Services 47,500 475 37,275 - - - -
Issuances for Services 12,500 125 6,125 - - - -
Adjustment for Preferred Converted 395,000 3,950 (3,950) - - - -
Additional shares issued related
to prior contract 110,000 1,100 9,400 - - - -
Additional cost for dialers 52,083 521 7,812 - - - -
Prior quarter investment adjustment 22,500 225 - - - - -
Issuances for Services 12,500 125 6,125
Issuances for Services 300,000 300 59,700
Distribution of Century Innovations
Century no longer consolidated
Write down of assets
Convertible debt - Conversion Feature 1,201,740
Warrants issued 576,740
Net Loss for Year - - - - - - -
---------- -------- --------- ---------- ---------- ----------- ----------
Balance at December 31, 2004 16,257,290 159,873 12,807,775 - - (0) 505,900
---------- -------- --------- ---------- ---------- ----------- ----------
Preferred Preferred - Non-Controlling
B
Stock Add. Paid Treasury Subscribed Interest Income Total
Series B In Capital Stock Stock In Subsidiary Deficit Equity
Balances at
12/31/02 509 507,992 (134,388) (153,750) 355,782 (4,943,953) 6,298,416
Sale of Stock - - - - - - 117,046
Issuance for Settlement of Bonds - - - - - - 108,190
Issuance for Services - - - - - - 197,560
Accrual of Preferred Dividends - - - - - - -
Preferred purchases / posted - - - - - - (136,410)
Preferred converted - - - - - - (1)
Change in ownership of Nutek Oil - - - - (18,052) - (18,052)
Allocation of Minority Interest
In Subsidiary Earnings - - - - (26,593) - (26,593)
Net Profit for Quarter
Ended December 31, 2003 - - - - - (246,533) (246,533)
----- -------- --------- ---------- ---------- ----------- ----------
Balance at December 31, 2003 509 507,992 (134,388) (153,750) 311,136 (5,190,486) 6,293,623
----- -------- --------- ---------- ---------- ----------- ----------
Removal of Nutek Oil retained earnings 219,709 219,709
Sale of Stock - - - - - - 75,000
Issuance for Services - - - - - - 6,250
Settlement of Series B (3) (25,997) - - - - -
Distribution / Sale of Nutek Oil - - - - (311,136) (83,708) (394,844)
Ownership
Issuances for Services - - - - - - 37,750
Issuances for Services - - - - - - 6,250
Adjustment for Preferred Converted - - - - - - -
Shares issued for prior contract adjustment - - - - - - 10,500
Additional cost for dialers - - - - - - 8,333
Prior quarter investment adjustment - - - - - - 225
Issuances for Services
Issuances for Services
Distribution of Century Innovations (976,221)
Century no longer consolidated 106,137
Write down of assets 153,750
Move receivable to subscribed stock (119,063)
Convertible Debt - Conversion Feature
Warrants - Conversion Feature
Net Loss for Year - - - - - (5,283,551)(5,283,551)
----- -------- --------- ---------- ---------- ----------- ----------
Balance at December 31, 2004 506 481,994 (134,388) (119,063) 0 (11,208,120)$1,988,579
----- -------- --------- ---------- ---------- ----------- ----------
See accompanying notes to financial statements
F-7
DATASCENSION Inc.
STATEMENT OF CASH FLOWS
FOR YEARS ENDED
December 31, 2004 and December 31, 2003
FOR THE YEAR ENDEDFOR THE YEAR ENDED
CASH FLOWS FROM OPERATING ACTIVITIES: 12/31/04 12/31/03
Net income $(5,283,551) $(246,533)
Adjustments to reconcile net income to net
cash provided by operating activities:
Issued for services 135,333 61,153
Discontinued operations / impairment of assets 1,585,960 -
Impairment of assets 328,492
Noncash expenses associated with convertible debt 1,778,480
Depreciation and amortization 270,893 340,231
Investment in Century Innovations - -
(Decrease) Increase in contingent liabilities (338,461)
Increase in non-controlling interest in subsidiary (311,137) (44,645)
Forgiveness of debt (55,000) (62,217)
(Increase) Decrease in accounts receivable (446,275) 206,027
Increase in inventory 292,067 (5,108)
Decrease in accrued income 11,200 -
Increase in prepaid expenses 132,418 (75,216)
Increase in deposits 26,493 (21,608)
Decrease in accounts payable (142,489) (313,704)
Decrease in accrued expenses 1,208,503 29,024
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES $(807,074) $(132,596)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in notes receivable 5,800 308,402
Purchase of property and equipment (219,996) (90,290)
Purchase of intangible assets - (23,897)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (214,196) 194,215
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 222,899 (175,992)
Increase (Decrease) in related party payable (268,502) -
Increase (Decrease) in convertible debt 1,875,000
Issuance of common stock 75,225 117,043
(Decrease) Increase in line of credit (449,650) 75,850
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,454,972 16,901
---------- ----------
NET INCREASE IN CASH 433,702 78,520
BALANCE, BEGINNING 122,891 44,371
BALANCE, ENDING $556,593 $122,891
========== ==========
INTEREST PAID $ 20,697 $ 23,289
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. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with maturities
of three months or less when purchased.
Investments and Marketable Securities
The Company has adopted FASB No. 115. Equity securities are classified as
available for sale and reported at fair value.
Investments are recorded at the lower of cost or market. Any reductions in
market value below cost are shown as unrealized losses in the consolidated
statement of operations.
Consolidation Policy
The accompanying consolidated financial statements include the accounts of
Datascension, Inc. and Datascension International, Inc. All significant inter-
company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
which affect the reported amounts of assets and liabilities as of the date of
the financial statements and revenues and expenses for the period reported.
Actual results may differ from these estimates.
Comprehensive Income
Statements of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS 130), requires that total comprehensive income be reported in the
financial statements. The Company does not have any items considered to be
other comprehensive income for the year ended December 31, 2004.
Fixed Assets
Fixed assets are stated at cost. Expenditures that materially increase the
life of the assets are capitalized. Ordinary maintenance and repairs are
charged to expense as incurred. When assets are sold or otherwise disposed of,
the cost and the related accumulated depreciation and amortization are removed
from the accounts and any resulting gain or loss is recognized at that time.
F-9
Depreciation is computed primarily on the straight-line method for financial
statement purposes over the following estimated useful lives:
Computer equipment 5 years
Furniture and fixtures 7 years
Office equipment 5 years
Equipment and machinery 20 years
All assets are booked at historical purchase price and there is no variance
between book value and the purchase price.
Revenue Recognition
We recognize revenues when survey data is delivered to the client in accordance
with the terms of our agreements. Research products are delivered within a
short period, generally ranging from a few days to approximately eight weeks.
An appropriate deferral is made for direct costs related to contracts in
process, and no revenue is recognized until delivery of the data has taken
place. Billings rendered in advance of services being performed, as well as
customer deposits received in advance, are recorded as a current liability
included in deferred revenue. We are required to estimate contract losses, if
any, and provide for such losses in the period they are determined and
estimable. We do not believe that there are realistic alternatives to our
revenue recognition policy given the short period of service delivery and the
requirement to deliver completed surveys to our customers. We do not believe
there is significant risk of recognizing revenue prematurely since our
contracts are standardized, the earnings process is short and no single project
accounts for a significant portion of our revenue.
Intangible Assets
The Company has adopted SFAS No. 142, "Goodwill and Other Intangible Assets",
which requires that goodwill and other indefinite lived intangible assets are
no longer amortized, but reviewed annually, or sooner if deemed necessary, for
impairment. Intangible assets with finite lives are amortized over the
useful life. Under guidance from SFAS No. 142,management has determined that
the assets in the subsidiaries determined to be discontinued operations should
be impaired. The respective assets have been written down. See Note 13
Discontinued Operations.
Net Income Per Share
Basic net income per share is computed using the weighted average number of
shares of common stock outstanding for the period end. The net income (loss)
for the period end is divided by the weighted average number of shares
outstanding for that period to arrive at net income per share.
Diluted net income per share reflects the potential dilution that could occur
if the securities or other contracts to issue common stock were exercised or
converted into common stock.
Compensated Absences
The Company has made no accrual for vacation or sick pay because the Company
does not provide for these benefits.
Advertising
Advertising costs are expensed when incurred. Advertising for the year ended
December 31, 2004 amounted to $3,176.
Research and Development
The Company expenses its research and development in the periods incurred.
F-10
Concentrations of Credit Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if counter parties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counter parties when
they have similar economic characteristics that would cause their ability to
meet contractual obligations to be similarly affected by changes in economic or
other conditions described below.
The Company operates in one segment, the market research industry. 100% of the
Company's customers are located within the United States of America.
During the year ended December 31, 2004, the Company had three major clients,
The National Research Group and Roper ASW each account for about 10% of sales
each year and Sandelman & Associates, which accounts for about 25% of sales
each year. Management believes the loss of one of these key clients would
materially affect the operations of the company in the short term.
Recently Issued Accounting Pronouncements
FASB Interpretation 46R "Consolidation of Variable Interest Entities", as
revised (FIN 46R), requires that variable interest entities created before
December 31, 2003 be consolidated during the first interim period beginning
after December 15, 2003. Management does not believe this pronouncement will
have a material effect on the financial statements of the company.
In January, 2004 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 (revised 2003) "Employers' Disclosures
about Pensions and Other Postretirement Benefits", an amendment of FASB
Statements No. 87, 88, and 106. The Statement revises employers' disclosures
about pension plans and other postretirement benefit plans. The statement
retains the disclosure requirements contained in FASB Statement No. 132, which
it replaces, and requires additional annual disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. Statement No.
132R requires us to provide disclosures in interim periods for pensions and
other postretirement benefits. Management does not believe this pronouncement
will have a material effect on the financial statements of the company.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs an
amendment of ARB No. 43, Chapter 4." This Statement clarifies the accounting
for abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials. This Statement is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Management does
not believe this pronouncement will have a material effect on the financial
statements of the company.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67."
This Statement references the financial accounting and reporting guidance for
real estate time-sharing transactions that is provided in AICPA
Statement of Position 04-2, "Accounting for Real Estate Time-Sharing
Transactions." This Statement also states that the guidance for incidental
operations and costs incurred to sell real estate projects does not apply to
real estate time-sharing transactions. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. Management
does not believe this pronouncement will have a material effect on the
financial statements of the company.
F-11
(cont)
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29." This Statement eliminates the
exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement is effective
for onmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The Company does not expect application of SFAS No. 153 to have a
material affect on its financial statements.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances outstanding
after management has used reasonable collection efforts are written off through
a charge to the valuation allowance and a credit to trade accounts receivable.
Changes in the valuation allowance have not been material to the financial
statements.
Stock Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and Related Interpretations, in
accounting for stock options issued to employees. Under APB No. 25, employee
compensation cost is recognized when estimated fair value of the underlying
stock on date of the grant exceeds exercise price of the stock option. For
stock options and warrants issued to non-employees, the Company applies SFAS
No. 123, Accounting for Stock-Based Compensation, which requires the
recognition of compensation cost based upon the fair value of stock options at
the grant date using the Black-Scholes option pricing model.
The following table represents the effect on net loss and loss per share if the
Company had applied the fair value based method and recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation for the year
ended December 31, 2004 and 2003:
2004 2003
Net loss, as reported $(5,283,551) $ (246,533)
Add: Stock-based employee
compensation expense
included in reported loss,
net of related tax effects -- --
Deduct: Total stock-based employee
compensation expense determined
under fair value based methods
for all awards, net of related tax effects (202,991) --
------------- -----------
Pro forma net loss $(5,486,542) $(246,533)
Net loss per common share:
Basic loss per share, as reported $(0.23) $(0.015)
Fully diluted loss per share, as reported $(0.21) $(0.015)
Basic loss per share, pro forma $(0.35) $(0.015)
Fully diluted loss per share, pro forma $(0.33) $(0.015)
F-12
There were no stock options granted for the year ended December 31, 2003. See
Note 5 Warrants and Option. For the options granted in November 2004, the
company used the exercise price of $0.30, the fair market value of $0.40 per
share, a 5 year term, and 25% volatility to determine the value of the options.
The latter options do not vest until January 2005.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are made up of the following as of December 31,
2004:
Equipment and machinery $ 472,500
Office equipment 690,680
Leasehold improvements 9,959
Accumulated depreciation (491,793)
-------------
$ 681,346
NOTE 4 - RECEIVABLE FROM NUTEK OIL - ASSET HELD FOR SALE
On December 31, 2004 the company reviewed any need for impairment of assets per
SFAS 144. A loan is considered impaired if it is probable that the creditor
will be unable to collect all amounts due under the contractual terms of the
loan agreement. In evaluating the impairment of the assets of the company at
year end, the company considered, among other items, (1) materiality of the
asset, (2) previous loss experience, and (3) assets that are not readily
marketable or susceptible to decline in value
After discussions with the Board and with the management of both Datascension,
and Nutek Oil, it was determined to be in the best interest of the Company
and shareholders for the note to be converted to stock and distributed to the
shareholders.
Pursuant to the previous dividends on August 1, 2001 and January 8, 2004, the
company determined it was in the best interest of it's shareholders to convert
the balance of the note into the common stock of Nutek Oil and distribute the
pro rata shares to our shareholders. This coincides with managements plan to
write off any assets which are attributable to the history of the company which
are non-operational in nature, etc.
As of the December 31, 2004, the value of the loan to be converted is
$1,015,014 and is classified on the balance sheet of the Company as an Asset
Held For Sale. It is anticipated that the conversion and distribution will
occur during April 2005.
NOTE 5 - STOCKHOLDERS' EQUITY
During the fiscal year ended December 31, 2004, the Company issued
securities using the exceptions available under the Securities Act of 1933
including unregistered sales made pursuant to Section 4(2) of the Securities
Act of 1933 as follows:
On April 20, 2004, 500,000 pre split shares of restricted common stock
valued at $.05 per share were issued pursuant to a consulting agreement in
connection with which we received certain investor relations services. The
issuance of these securities was effected through a private transaction not
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof.
On April 20, 2004, 2,970,833 pre split shares of restricted common stock
F-13
(cont)
valued at $.03 per share were issued to sophisticated investors who indicated
that they had such knowledge and experience in financial matters that they were
capable of evaluating the merits and risks of the investment. The individuals
took their shares for investment purposes without a view to distribution and
had access to information concerning the Company. The issuance of these
securities was effected through a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
On June 30, 2004, 750,000 pre split shares of restricted common stock
valued at $.03 per share were issued pursuant to a consulting agreement in
connection with which we received certain legal services. The issuance of these
securities was effected through a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
On September 3, 2004, 1,000,000 pre split shares of restricted common
stock valued at $.05 per share were issued to a note holder in satisfaction of
amounts due. The issuance of these securities was effected through a private
transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
On September 30, 2004, 62,269 pre split shares of restricted common stock
valued at $.06 per share were issued to SRC Bondholders in satisfaction of
amounts due to them. The issuance of these securities was effected through a
private transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
On December 31, 2004, the holders of 39,500 shares of our Series A
convertible preferred stock elected to convert such shares into 3,950,000
shares of our common stock. These shares had originally been converted from
common stock to Series A Preferred stock on December 27, 2001 at $5.42 per
share. These conversions were the effected through private transactions not
involving a public offering and were exempt in each case from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
On November 17, 2004, DSEN issued an aggregate of $1,875,000 in
Convertible Debentures, pursuant to a Securities Purchase Agreement (the
"Agreement") to the following: $350,000 Convertible Debenture to Alpha Capital
Aktiengesellschaft, $525,000 Convertible Debenture to the Longview Equity Fund
LP, $775,000 Convertible Debenture to the Longview Fund LP., and $225,000
Convertible Debenture to the Longview International Equity Fund, LP. In
addition, issued common stock purchase warrants to purchase 3,125,000 shares of
DSEN common stock to the above note holders, at an exercise price of $0.30 per
share.
On December 31, 2004, 300,000 post split shares of common stock valued at
$.20 per share were issued to four employees in consideration of terms under
their employment agreements, which granted stock awards of common shares to
certain
F-14
(cont)
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.
Options / Warrants
On December 31, 2004, four employees were given the option to purchase
additional shares of common stock for $0.30. These options do not vest until
January 2005 and at such time, the company will recognize a compensation
expense for the fair market value of those options, which is anticipated to be
the fair market value of the common stock minus the exercise price of the
respective options. See Note 2 Stock Based Compensation, Note 7 Convertible
Notes, and Note 12 Warrants and Options.
NOTE 6 - NOTES PAYABLE
The Company has entered into agreements for long-term notes payable. Long-term
notes payable consists of the following at December 31, 2004:
Note payable to a vendor, no specific repayments terms
and no stated interest rate. Secured by assets. $ 40,000
Note payable to a vendor, monthly payments of $348
inclusive of 7% annual interest through September 2006,
secured by equipment. 6,245
Note payable to a vendor, monthly payments
of $7,375 inclusive of 10.83% annual interest through
December 2006, secured by equipment. 158,510
Note payable to a vendor, monthly payments of $906,
inclusive of 12% annual interest through February 2006.
Secured by equipment. 15,000
---------
219,755
Less current portion (116,207)
----------
$ 103,548
Principal maturities are as follows:
Twelve months ended December 31,
2005 $ 4,125
2006 33,893
2007 65,530
--------
$ 103,548
Additionally, the company has the following short term notes payable as of
December 31, 2004.
Dell Financial Services $ 3,467
Public Relations Contract 60,000
Wells Fargo Credit Card 48,577
Advanta Credit Card 9,698
----------
Total 121,742
F-15
NOTE 7 - CONVERTIBLE NOTES PAYABLE AND DEBENTURES
Convertible debentures consist of the following at December 31, 2004, and
December 31, 2003:
2004 2003
8% convertible subordinated debentures,
due in November 2007, convertible
into shares of common stock at $ 1,893,750 $ -
any time prior to maturity.
Interest is payable quarterly,
and principal is due at maturity.
----------- -----
1,893,750 -
Less: Unamortized Discount (-) (-)
----------- -----
Total debt 1,893,750 -
Less: current portion (0) (-)
----------- -----
Convertible debentures, less current portion $ 1,893,750 $ -
----------- -----
Included in the above values is $18,750 of accrued interest related to the
convertible notes as of December 31, 2004.
The company is relying on both APB 14, "Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants" , EITF 00 -19, "Accounting for
Derivative Financial Instruments Accounting for Derivative Financial
Instruments Indexed to or Potentially Settled in Indexed to or Potentially
Settled in a Company's Own Stock" for treatment of the convertible stock, and
EITF 00-27. They require the company to expense the "Beneficial Conversion
Feature" in the current year.
The company initially determined the relative fair value between the convertible
debt and the detached warrants. Afterallocating a portion of the proceeds to the
detached warrants (based on relative fair values), the convertible debt and the
detached warrants were recorded. The company then evaluated whether the
embedded conversion option within the debt instrument was beneficial (had
an intrinsic value) to the holder. The effective conversion price (that is, the
allocated proceeds divided by the number of shares to be received on conversion)
based on the proceeds was determined. The total debt discount immediately
after the initial accounting was performed, as well as the beneficial conversion
feature were expensed on the income statement.
F-16
(cont)
The fair value of the debt discount associated with the warrants was $576,740
and was taken as an expense, as was the beneficial conversion feature
of $1,201,740.
NOTE 8 - INCOME TAXES
Deferred income taxes result from timing differences in the recognition of
expense for tax and financial statement purposes. Statements of Financial
Accounting Standards No. 109 "Accounting for Income Taxes", (SFAS 109) requires
deferred tax liabilities or assets at the end of each period to be determined
using the tax rate expected to be in effect when taxes are actually paid or
recovered. The sources of those timing differences and the current tax effect
of each were as follows:
Year
Ended
December 31, 2004
Depreciation and amortization $ 7,768
Net operating loss carry forward 6,365
Valuation allowance (14,133)
-------
$ -
The components of the net deferred tax asset at December 31, 2004 under SFAS
109 are as follows:
Depreciation and amortization $ 1,000,531
Net operating loss carryforward (1,288,138)
Valuation allowance 287,607
-----------
$ -
Reconciliations between the actual tax expense and the amount computed by
applying the U.S. Federal Income Tax rate to income before taxes are as
follows:
Year Percent of
Ended Pretax
December 31, 2004 Income
Expected $ 14,133 34%
Valuation allowance (14,133) (34%)
------------- -------
Actual expense $ - 0%
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company has $135,533 in accounts payable and approximately $1,390,880 in
accrued payroll costs for the operations of the California, Nevada, Costa Rica,
and Dominican Republic location as of December 31, 2004.
F-17
NOTE 10 - RELATED PARTY TRANSACTIONS
As of December 31, 2004, the Company has an outstanding note payable to Murray
Conradie, the Company's CEO, in the amount of $30,688. This payable accrues
interest at 1% monthly due on the first day of each month.
As of December 31, 2004, the Company has an outstanding note payable to Scott
Kincer, the Company's COO, in the amount of $29,000. This payable accrues
interest at 1% monthly due on the first day of each month.
As of December 31, 2004, the Company has an outstanding note payable to Jason
Griffith, the Company's CFO, in the amount of $350. This payable accrues
interest at 1% monthly due on the first day of each month.
NOTE 11 - CONTINGENCIES AND COMMITMENTS
Leases
The Company is committed under several non-cancelable lease agreements for
office space with various termination dates through 2011.
At December 31, 2004, aggregate future minimum payments under these leases, are
as follows:
Twelve months ended December 31,
2005 $ 152,141
2006 133,259
2007 105,773
2008 105,773
2009 -
Thereafter -
-----------
Total minimum lease payments $ 496,946
NOTE 12 - WARRANTS AND OPTIONS
The Company has adopted FASB No. 123 and will account for stock issued for
services and stock options under the fair value method.
The following table sets forth the options granted in 2004 to each of the
directors and executive officers:
Option/SAR Grants in Last Fiscal Year (Individual Grants):
Number of Percent of total
Securities Options/SARs
Underlying granted to Exercise or
Options/SARS employees in base price Expiration
Name Granted fiscal year ($/Share) date
---------- ---------- -------------- --------- -----------
Murray N. Conradie 540,000 36.4 $0.30 1/1/10
Scott Kincer 540,000 36.4 $0.30 1/1/10
Jason F. Griffith 270,000 18.8 $0.30 1/1/10
Joey Harmon 135,000 9.1 $0.30 1/1/10
F-18
There were no other options granted or exercised by the directors and executive
officers during the year ended December 31, 2004.
Compensation cost for options granted has not been recognized in the
accompanying financial statements. These options do not vest until January
2005 and at such time, the company will recognize a compensation expense for
the fair market value of those options, which is anticipated to be the fair
market value of the common stock minus the exercise price of the respective
options. See Note 2 Stock Based Compensation for proforma disclosures.
As discussed in Note 7 Convertible Notes, the company issued 3,125,000 warrants
for the purchase of common stock at $0.30 to four (4) different entities
related to a convertible note. The fair market value of these options was
$1,093,750 and this amount was expensed as of December 31, 2004.
The following is a schedule of the activity relating to the Company's stock
options and warrants.
Year Ended Year Ended
December 31, 2003 December 31, 2004
-------------- --------------
Weighted Avg. Weighted Avg.
Shares Exercise Shares Exercise
(x 1,000) Price (x1,000) Price
--------- --------- -------- -----------
Options and warrants
outstanding at
beginning of year - $ - - $ -
Granted:
Options - $ - 1,485 $ 0.30
Warrants - $ - 3,125 $ 0.30
Exercised - $ - - $ -
Expired:
Warrants ( - ) $ - - $ -
---- ----- ---- ----
Options and warrants
outstanding and
exercisable at end
of period - $ - 4,610 $ -
====== ==== ===
Weighted average fair
value of options and
warrants granted during
the year $ - $ -
The following table summarizes information about the Company's stock options
and warrants outstanding at December 31, 2004, all of which are exercisable.
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- --------------- ---------------- ----------------- -----------------
$ 0.30 4,610,000 5 years $ 0.30
F-19
NOTE 13 - DISCONTINUED OPERATIONS
Management has determined it is in the best interest of shareholders to write
off all impaired assets and business which conflict with the core operation of
the company, the market research industry. This write of discontinued
operations includes the assets and activities of SRC International and Kristi &
Company. The assets of Century Innovations have been distributed as well. See
Note 14 Investment in Century Innovations.
As a result of receiving the current funding, the plans to spin off of
Datascension International have been put on hold indefinitely.
With the receipt of funding in November, the decision to remove Century
Innovations and write down the impaired assets in the non operating
subsidiaries, the company effectively made the single focus of the company the
call center operation and with the recently announced changed in management
(See Subsequent Event Note) the company is furthering it's goal as having
Datascension International be the main focus of the company as a whole.
The company has expensed all asset values and costs associated with these
entities as a line item called Discontinued Operations on the income statement.
The company has stated it plans on focusing on Datascension International, the
call center subsidiary. The expansions currently are planned for the Costa
Rica facilities.
NOTE 14 - INVESTMENT IN CENTURY INNOVATIONS
The Company previously distributed a portion of its ownership to Datascension
shareholders. The Company has additionally distributed all but 10% of its
ownership in Century to Century as Treasury Stock on the books of Century. It
will remain as Treasury Stock on the books of Century until the effectiveness
of a Form 10 registration to be filed by Century for the shares. Within sixty
(60) days of the Form 10's effectiveness, Century will work with the Company to
distribute the shares to the then current Datascension shareholders.
NOTE 15 - SUBSEQUENT EVENTS
On March 3, 2005, the Company's Chief Executive Officer and Chairman of the
Board, Murray Conradie, announced his resignation from the Company to focus on
the development of Nutek Oil Inc. This change will take effect on April 1,
2005.
Effective April 1, 2005, Scott Kincer, the Company's current Chief Operating
Officer will be appointed the Chief Executive Officer and Chairman of the
Board. It is not anticipated that Mr. Kincer's employment contract will be
altered or materially affected with this change.
The Company's Chief Financial Officer and member of the Board of Directors,
Jason Griffith, announced his resignation from the Company to focus on the
development of his CPA firm and Nutek Oil Inc. He will be transferring control
of the recordkeeping for the Company to the California office as of April 1,
2005.
Both Mr. Conradie and Mr. Griffith will remain as consultants to the Company.
As of April 1, 2005, the Company's corporate head office are located at 145 S.
State College Blvd, Suite 350, Brea CA 92821. The new company phone number
will be 714-482-9750 and 714-482-9751 (fax). This address and contact
information is the current location for the Datascension International
California office.
F-20
NOTE 16 - FOREIGN OPERATIONS
The company currently operates out of the United States, Costa Rica and the
Dominican Republic. The future plans of the company involve the slowing growth
at the Dominican Republic facility while focusing on the potential and
available growth in Costa Rica. Management does not feel there is a currency
risk or need to assess a foreign currency translation adjustment or other
comprehensive income item as income and expense items are negotiated in the US
dollar. The Company maintains their accountings records in U.S. dollars and
all payments are made in US dollars. All debts and assets on the books of the
company are valued based on US dollars and are not translated from a foreign
currency amount. The Company currently coordinates all foreign operations, and
supervision activities using part time employees, consultants and contract
labor. Approximately 85% of the company's workforce is outside of the United
States. Currently 100% of the company's clients are US based companies. Any
resulting foreign exchange fluctuations do not affect the payment of employees,
contract labor or off shore operations.
F-21
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICER
Article XI of the Articles of Incorporation for DSEN do contain
provisions for indemnification of the officers and directors; in addition,
Section 78.751 of the Nevada General Corporation Laws provides as follows:
78.751 Indemnification of officers, directors, employees and agents; advance of
expenses.
Consistent with the overall scope of Section 78.751 of the Nevada Revised
Statutes, Article VI of DSEN's Bylaws, state in general, that any director or
officer of DSEN who is the subject of or a participant in a threatened, pending
or completed legal action by reason of the fact that such individual is or was
a director or officer shall be indemnified and held harmless by DSEN from and
against the consequences of such action if it is determined that he acted in
good faith and reasonably believed (i) his conduct was in DSEN's best interest,
(ii) in all other cases, that his conduct was not opposed to the best interests
of DSEN, and (iii) with respect to criminal proceedings, that he had no
reasonable cause to believe his conduct was unlawful; provided that if it is
determined that such person is liable to DSEN or is found liable on the basis
that personal benefit was improperly received by such person, the
indemnification is limited to reasonable expenses actually incurred by such
person in connection with the legal action and shall not be made in respect of
any legal action in which such person shall have been found liable for willful
or intentional misconduct in the performance of his duty to DSEN. Any
indemnification (unless ordered by a court of competent jurisdiction) shall be
made by DSEN only upon a determination that indemnification of such person is
proper in the circumstances by virtue of the fact that it shall have been
determined that such person has met the applicable standard of conduct.
The Bylaws also provide that reasonable expenses, including court costs
and attorneys' fees, incurred by officers and directors in connection with a
covered legal action shall be paid by DSEN at reasonable intervals in advance
of the final disposition of such action, upon receipt by DSEN of a written
affirmation by such person of his good faith belief that he has met the
standard of conduct necessary for indemnification, and a written undertaking by
or on behalf of such person to repay the amount paid or reimbursed by DSEN if
it is ultimately determined that he is not entitled to be indemnified.
The Board of Directors of DSEN may also authorize DSEN to indemnify
employees or agents of DSEN, and to advance the reasonable expenses of such
persons, to the same extent, following the same determinations and upon the
same conditions as are required for the indemnification of and advancement of
expenses to directors and officers of DSEN. As of the date of this
Registration Statement, the Board of Directors has not extended indemnification
rights to persons other than directors and officers.
The Bylaws also provide that DSEN has the power and authority to purchase
and maintain insurance or other arrangements on behalf of any director,
officer, employee, or agent of DSEN or any affiliate of DSEN on similar terms
as those described in Section 78.752 of the Nevada Revised Statutes. DSEN's
Articles of Incorporation relieve its directors from liability for monetary
damages to the full extent permitted by Nevada law. Sections 78.751 and
78.752 of the General Corporation Law of the State of Nevada authorize a
corporation to indemnify, among others, any officer or director against certain
liabilities under specified circumstances, and to purchase and maintain
insurance on behalf of its officers and directors.
Commission Policy
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling DSEN. DSEN has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
48
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses related to the securities being registered shall be paid by the
Registrant.
SEC Registration Fee $ 494.13
Printing and Engraving Expenses $ 5,000.00
Legal Fees and Expenses $20,000.00
Accounting Fees and Expenses $15,000.00
Transfer Agent Fees $ 5,000.00
Blue Sky Fees $ 1,000.00
Miscellaneous $ 5,000.00
----------
Total $51,494.13
RECENT SALES OF UNREGISTERED SECURITIES
DSEN made the following sales of stock without registration using the
exceptions available under the Securities Act of 1933, as amended, including
unregistered sales made pursuant to Section 4(2) of the Securities Act of 1933,
as follows:
On February 7, 2002, 850,000 pre split shares of restricted common stock valued
at par value ($.001) were issued to one (1) individual, Pauline Sue Alberti, a
former employee for the settlement of a lawsuit. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the former employee was a sophisticated investor
with enough knowledge and experience in business to evaluate the risks and
merits of the investment.
On March 11, 2002, 60,902 pre split shares of restricted common stock valued at
$.025 per share were issued to two (2) individual creditors Mr. Armstrong and
Mr. Booker in satisfaction of amounts owed for services. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On March 21, 2002, 500,000 pre split shares of restricted common stock valued
at $.03 per share were issued to one (1) individual, James Stock pursuant to a
consulting agreement in connection with which we received certain investor
relations services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933 as a sale
of securities not involving a public offering. We made a determination that
the consultant was a sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On March 29, 2002, 36,812 pre split shares of restricted common stock valued at
$.025 per share were issued to one (1) individual creditor Specialty Mud in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On April 4, 2002, 40,000 pre split shares of restricted common stock valued at
$.025 per share were issued to one (1) individual creditor Clipper Operating
Company in satisfaction of amounts owed for services. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On April 15, 2002, 4,375 pre split shares of restricted common stock valued at
$.025 per share were issued to one (1) individual creditor Hanzik Hydraulics in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On April 16, 2002, 2,887 pre split shares of restricted common stock valued at
$.025 per share were issued to one
49
(1) individual creditor L.R. Pruitt in satisfaction of amounts owed for
services. The issuance of these securities was
in a transaction deemed to be exempt under Section 4(2) of the Securities Act
of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On April 24, 2002, 20,775 pre split shares of restricted common stock valued at
$.025 per share were issued to one (1) individual creditor Progress Drilling in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On April 30, 2002, 32,535 pre split shares of restricted common stock valued at
$.025 per share were issued to three (3) individual creditors Clipper
Operating, L. Bannert and Mr. Harrison in satisfaction of amounts owed for
services. The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
not involving a public offering. We made a determination that the creditors
were sophisticated investors with enough knowledge and experience in business
to evaluate the risks and merits of the investment.
On May 13, 2002, 49,567 pre split shares of restricted common stock valued at
$.025 per share were issued to one (1) individual creditor C&S Well Service in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On May 24, 2002, 13,517,240 pre split shares of common stock valued at $.0725
per share were issued to one (1) individual, Jorge Montero Pochet for the
purchase of Sin Fronteras, Inc. The issuance of these securities was effected
through a private transaction not involving a public offering and was exempt
from the registration provisions of the Securities Act pursuant to Section 4(2)
thereof and/or Rule 506 of Regulation D promulgated thereunder.
On May 30, 2002, 10,000 pre split shares of restricted common stock valued at
$.025 per share were issued to one (1) individual creditor Clipper Operating
Company in satisfaction of amounts owed for services. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On August 20, 2002, 1,650,000 pre split shares of restricted common stock
valued at $.042 per share were issued to one (1) individual sophisticated
investor B. Beaulieu who indicated that he had such knowledge and experience in
financial matters that they were capable of evaluating the merits and risks of
the investment. The individual took their shares for investment purposes
without a view to distribution and had access to information concerning the
Company. The issuance of these securities was effected through a private
transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
On November 14, 2002, 299,152 pre split shares of restricted common stock
valued at par ($.001) per share were issued to one (1) individual, Randle
Merriman to make up an error in a prior issuance to sophisticated investors who
indicated that they had such knowledge and experience in financial matters that
they were capable of evaluating the merits and risks of the investment. All
individuals took their shares for investment purposes without a view to
distribution and had access to information concerning the Company. The
issuance of these securities was effected through a private transaction not
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof.
On November 14, 2002, 297,915 pre split shares of restricted common stock
valued at $.045 per share were issued to two (2) individual employees Kimberly
Hunter and Jason Griffith in consideration for employment services previously
rendered. The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
not involving a public offering. We made a determination that the former
employees were sophisticated investors with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
On November 20, 2002, 209,215 pre split shares of restricted common stock
valued at $.025 per share were issued
50
to five (5) individual creditors Clipper Operating, K. Moore, K. Sydnor, P.
Horick and Deagan Services in satisfaction of amounts owed for services. The
issuance of these securities was in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933 as a sale of securities not
involving a public offering. We made a determination that the creditors were
sophisticated investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On February 12, 2003, 500,000 pre split shares of restricted common stock
valued at $.05 per share were issued to one (1) individual, James Stock a
sophisticated investor who indicated that they had such knowledge and
experience in financial matters that they were capable of evaluating the merits
and risks of the investment. The individuals took their shares for investment
purposes without a view to distribution and had access to information
concerning the Company. The issuance of these securities was effected through
a private transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
On February 12, 2003, 1,500,000 pre split shares of restricted common stock
valued at $.03 per share were issued to two (2) individual sophisticated
investors Bill Tannaz and Jim Stock who indicated that they had such knowledge
and experience in financial matters that they were capable of evaluating the
merits and risks of the investment. The individuals took their shares for
investment purposes without a view to distribution and had access to
information concerning the Company. The issuance of these securities was
effected through a private transaction not involving a public offering and was
exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
On February 19, 2003, 500,000 pre split shares of restricted common stock
valued at $.05 per share were issued one (1) individual, Jim Stock pursuant to
a consulting agreement in connection with which we received certain investor
relations services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933 as a sale
of securities not involving a public offering. We made a determination that
the consultant was a sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On May 20, 2003, 200,000 pre split shares of restricted common stock valued at
par ($.001) per share were issued to one (1) individual, David Shutvet to make
up an error in a prior issuance to sophisticated investors who indicated that
they had such knowledge and experience in financial matters that they were
capable of evaluating the merits and risks of the investment. All individuals
took their shares for investment purposes without a view to distribution and
had access to information concerning the Company. The issuance of these
securities was effected through a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
On May 20, 2003, 27,401 pre split shares of restricted common stock valued at
$.049 per share were issued to one (1) individual creditor Clipper Operating
Company in satisfaction of amounts owed for services. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On May 20, 2003, 1,290,000 pre split shares of restricted common stock valued
at $.03 per share were issued pursuant to one (1) individual entity, Redwood
Public Relations pursuant to a consulting agreement in connection with which we
received certain investor relations services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the consultant was a sophisticated investor with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On June 5, 2003, 500,000 pre split shares of restricted common stock valued at
$.03 per share were issued to one (1) individual sophisticated investor Bill
Tannaz who indicated that they had such knowledge and experience in financial
matters that they were capable of evaluating the merits and risks of the
investment. The individual took their shares for investment purposes without a
view to distribution and had access to information concerning the Company. The
issuance of these securities was effected through a private transaction not
involving a public offering and was exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof.
On June 5, 2003, 87,333 pre split shares of restricted common stock valued at
$.03 per share were issued to one (1) individual creditor B. Willis in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not
51
involving a public offering. We made a determination that the creditors were
sophisticated investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On June 14, 2003, 500,000 pre split shares of restricted common stock valued at
$.05 per share were issued to one (1) individual creditor Ian Burr & Company in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On June 30, 2003, 175,000 pre split shares of restricted common stock valued at
$.06 per share were issued to one (1) individual creditor Accentuate, Inc in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On July 28, 2003, 642,889 pre split shares of restricted common stock valued at
$.03 per share were issued to two (2) individual sophisticated investors Edward
D. Tschiggfrie and B. Willis who indicated that they had such knowledge and
experience in financial matters that they were capable of evaluating the merits
and risks of the investment. The individuals took their shares for investment
purposes without a view to distribution and had access to information
concerning the Company. The issuance of these securities was effected through
a private transaction not involving a public offering and was exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
On September 5, 2003, 1,683,741 pre split shares of restricted common stock
valued at $.06 per share were issued to ten (10) individual SRC Bondholders
James and Joann Foster, Lillian and James M. Chudnow, Leo van Cleve, Irma
Player Hall, Elizabeth and George Parry, Delphyne L. Georgeson, William R.
Schoen, Paul R. Mathis, Luis P. Zonta, Blanche M. Jones in satisfaction of
amounts due to them. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933 as a sale
of securities not involving a public offering. We made a determination that
the SRC Bondholders were sophisticated investors with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On December 31, 2003, 35,000 pre split shares of restricted common stock valued
at $.12 per share were issued to one (1) individual creditor B. Willis in
satisfaction of amounts owed for services. The issuance of these securities
was in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933 as a sale of securities not involving a public offering. We made a
determination that the creditors were sophisticated investors with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On December 31, 2003, three (3) individual holders of 505,758 shares of our
Series A convertible preferred stock Murray Conradie, Kristi Conradie and Scott
Kincer elected to convert such shares into 50,575,800 shares of our common
stock. These shares had originally been converted from common stock to Series A
Preferred stock on December 27, 2001 at $5.42 per share. These conversions
were the effected through private transactions not involving a public offering
and were exempt in each case from the registration provisions of the Securities
Act pursuant to Section 4(2) thereof.
On December 31, 2003, 1,512,662 pre split shares of common stock valued at $.06
per share were issued to two employees Murray Conradie and Jason Griffith in
consideration for employment services previously rendered. The issuance of
these securities was in a transaction deemed to be exempt under Section 4(2) of
the Securities Act of 1933 as a sale of securities not involving a public
offering. We made a determination that the two employees were sophisticated
investors with enough knowledge and experience in business to evaluate the
risks and merits of the investment.
On December 31, 2003, 140,000 pre split shares of restricted common stock
valued at $.06 per share were issued to one (1) individual creditor Accentuate,
Inc in satisfaction of amounts owed for services. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On December 31, 2003, one (1) individual holder of 26,000 shares of our Series
B convertible preferred stock Dan Moeleker elected to convert such shares into
500,000 shares of our common stock. These conversions were the
52
effected through private transactions not involving a public offering and were
exempt in each case from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof.
On April 20, 2004, 500,000 pre split shares of restricted common stock valued
at $.05 per share were issued to one (1) individual, James Stock pursuant to a
consulting agreement in connection with which we received certain investor
relations services. The issuance of these securities was in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933 as a sale
of securities not involving a public offering. We made a determination that
the consultant was a sophisticated investors with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On April 20, 2004, 2,970,833 pre split shares of restricted common stock valued
at $.03 per share were issued to two (2) individual sophisticated investors
Edward D. Tschiggfrie and B. Willis who indicated that they had such knowledge
and experience in financial matters that they were capable of evaluating the
merits and risks of the investment. The individuals took their shares for
investment purposes without a view to distribution and had access to
information concerning the Company. The issuance of these securities was
effected through a private transaction not involving a public offering and was
exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof.
On June 30, 2004, 750,000 pre split shares of restricted common stock valued at
$.03 per share were issued pursuant to a consulting agreement to one (1)
individual, Michael Morrison in connection with which we received certain legal
services. The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
not involving a public offering. We made a determination that the consultant
was a sophisticated investor with enough knowledge and experience in business
to evaluate the risks and merits of the investment.
On September 3, 2004, 1,000,000 pre split shares of restricted common stock
valued at $.05 per share were issued to one (1) individual note holder J. Frank
in satisfaction of amounts due. The issuance of these securities was in a
transaction deemed to be exempt under Section 4(2) of the Securities Act of
1933 as a sale of securities not involving a public offering. We made a
determination that the hold holder was a sophisticated investor with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
On September 30, 2004, 62,269 pre split shares of restricted common stock
valued at $.06 per share were issued to one (1) individual SRC Bondholder
Gertrude Madich in satisfaction of amounts due to them. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the creditors were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On November 17, 2004, DSEN issued an aggregate of $1,875,000 in Convertible
Debentures, pursuant to a Securities Purchase Agreement (the "Agreement") to
the following four (4) individual entities: $350,000 Convertible Debenture to
Alpha Capital Aktiengesellschaft, $525,000 Convertible Debenture to the
Longview Equity Fund LP, $775,000 Convertible Debenture to the Longview Fund
LP., and $225,000 Convertible Debenture to the Longview International Equity
Fund, LP. In addition, DSEN issued common stock purchase warrants to purchase
3,125,000 post reverse shares of DSEN common stock at an exercise price of $.30
per share. The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
not involving a public offering. We made a determination that the investors
were sophisticated investors with enough knowledge and experience in business
to evaluate the risks and merits of the investment as well as accredited
investors.
On December 31, 2004, two (2) individual holders of 39,500 shares of our Series
A convertible preferred stock Murray Conradie and Scott Kincer elected to
convert such shares into 395,000 post reverse shares of our common stock. These
shares had originally been converted from common stock to Series A Preferred
stock on December 27, 2001 at $5.42 per share. The issuance of these
securities was in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933 as a sale of securities not involving a public offering.
We made a determination that the preferred stock holders were sophisticated
investors with enough knowledge and experience in business to evaluate the
risks and merits of the investment.
On December 31, 2004, 300,000 post split shares of common stock valued at $.02
per share were issued to four (4) individual employees, Murray Conradie, Scott
Kincer, Joseph Harmon and Jason Griffith in consideration of terms under their
employment agreements, which granted stock awards of common shares to certain
employees. The
53
issuance of these securities was in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933 as a sale of securities not
involving a public offering. We made a determination that the former employees
were sophisticated investors with enough knowledge and experience in business
to evaluate the risks and merits of the investment.
On March 31, 2005, DSEN issued a $125,000 Convertible Debenture, pursuant to a
Securities Purchase Agreement (the "Agreement") to one (1) entity the Longview
Fund LP. In addition, DSEN issued a common stock purchase warrant to purchase
300,000 post reverse shares of DSEN common stock at an exercise price of $.50
per share. The issuance of these securities was in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
not involving a public offering. We made a determination that the investors
were sophisticated investors with enough knowledge and experience in business
to evaluate the risks and merits of the investment as well as accredited
investors.
54
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following documents are included or incorporated by reference as exhibits
to this report:
(2) a) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession.
2.1 Plan and Articles of Merger, filed 8/23/91(1)
2.2 Plan of Reorganization and Agreement, dated 9/20/97(1)
(3) Articles of Incorporation & By-Laws
3.1 Articles of Incorporation of the Company Filed August 23, 1991(1)
3.2 Articles of Amendment filed on April 10, 1992(1)
3.3 Certificate of Amendment of Articles of Incorporation filed on
3/3/95(1)
3.4 By-Laws of the Company adopted August 24, 1991(1)
3.5 Certificate of Amendment of Articles of Incorporation filed on 2/19/01
3.6 Articles of Incorporation - Nutek Oil, Inc. (Subsidiary)
3.7 Articles of Incorporation - Kristi and Co, Inc. (Subsidiary)
3.8 Articles of Incorporation - SRC International, Inc. (Subsidiary)
3.9 Articles of Incorporation - Century Innovations, Inc. (Subsidiary)
3.10 Articles of Incorporation - Datascension International, Inc.
(Subsidiary)
3.11 Certificate of Amendment of Articles of Incorporation filed on
1/26/04
(4) Instruments Defining the Rights of Security Holders
4.1 Those included in exhibit 3, and sample of Stock Certificate (1)
4.2 Preferred Stock (1)
5.1 Legal Opinion *
(10) Material Contracts
10.1 Purchase Agreement - Kristi and Co dated 1/6/00 (1)
10.2 Agreement for Promotion and Revenue Sharing Plan, dated 9/2/99 (1)
10.3 Purchase Agreement - Elite Fitness, dated 10/4/99 (1)
10.4 Purchase Agreement - Patent #5833350, dated 9/15/99 (1)
10.5 Purchase Agreement - Clock Mold, dated 4/30/99 (1)
10.6 Plan of Purchase and Agreement, dated 11/30/97 (1)
10.7 Transitional Employer Agreement (1)
10.8 Lease, dated October 15, 1999 (1)
10.9 Letter of Intent - Mineral Acres, dated 11/1/99 (1)
10.10 Compensation Plan (1)
10.11 Key Employees Incentive Stock Option Plan (1)
10.12 Purchase Agreement - Kristi & Company (2)
10.13 Blank
10.14 Purchase Agreement - Printing Equipment (3)
10.15 Blank
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)
55
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.*
10.31 Service Agreement - Towne, Inc.*
10.32 Service Agreement - Sandelman & Associates*
10.33 Service Agreement - Knowledge Networks, Inc.*
* Included with this filing
Exhibit 21. Subsidiaries of the small business issuer
Exhibit 23. Consent of Experts and Counsel
23.1 Consent of Counsel, Owen Naccarato (included in Exhibit 5.1)
23.2 Consent of Independent Auditor Larry O'Donnell, CPA, P.C.
23.3 Consent of Gary V. Campbell, Certified Public Accountants.
* Included with this filing
(1) Previously filed as an exhibit to the Company's Form 10-SB, filed January
24, 2000.
(2) Previously filed as an exhibit to the Company's Number 1 Amendment to Form
10-SB, filed May 22, 2000.
(3) Previously filed as an exhibit to the company's quarterly report for the
period ended March 31, 2003
(4) Previously filed as an exhibit to the company's quarterly report for the
period ended June 30, 2003
(5) Previously filed as an exhibit to the company's quarterly report for the
period ended September 30, 2003
(6) Previously filed on Form 8-K November 23, 2004, File No. 000-29087
(7) Previously filed as an exhibit to the Company's Form SB2/A, filed April 27,
2005
(b) Reports on Form 8-K
The Company's report on Form 8-K dated March 26, 2003
On March 26, 2003, Registrant filed a Current Report on Form 8-K, relating to
the Company, along with a number of individual shareholders, filing a federal
lawsuit on March 21, 2003 in the United States District Court, District of
Nevada, against Ameritrade Holding Corp., E*Trade Group Inc., Fidelity
Brokerage Services LLC, Maxim Group LLC and Charles Schwab & Company Inc., for
securities fraud, breach of contract, and negligence, among other claims. The
plaintiff group is also demanding declaratory and injunctive relief, including
asking for general, special and punitive financial damages; and that the matter
be taken up for jury trial in the jurisdiction of the United States District
Court's Nevada District.
The Company's report on Form 8-K dated October 20, 2003
On October 20, 2003, Registrant filed a Current Report on Form 8-K, related to
the announcement of the placement of the patented TekPlate product and various
related licenses, marketing agreements, etc., into a subsidiary corporation
that will be spun off from the parent Nutek as a wholly owned subsidiary and
has declared a stock dividend in that company. The dividend will take the form
of a dividend certificate representing common stock, which will be distributed
to the Company's beneficial stockholders of record as of the record date. The
stock dividend will be distributed to owners of the Company's common stock as
of the record date in a ratio of one share of dividend stock in the subsidiary
to be spun off, for every 300 shares of common stock owned in Nutek Inc.
The Company's report on Form 8-K dated October 29, 2003
On October 29, 2003, Registrant filed a Current Report on Form 8-K, relating to
the decision by the Board of Directors to extend the record date of the
dividend of its subsidiary. The new record date will be Friday, November 7,
2003. The reason for the extension was to allow for time to fully explain and
provide the NASD, transfer agent, and shareholders information related to the
dividend.
56
The Company's report on Form 8-K dated October 31, 2003
On October 31, 2003, Registrant filed a Current Report on Form 8-K, updating
shareholders on the lawsuit against the securities firms. The plaintiffs
filed an amended complaint alleging securities fraud; common law fraud;
conversion; negligence; breach of contract; breach of covenant of good
faith and fair dealing; negligence based on knowledge of specific
problems in the securities industry; bad faith conduct; deceptive trade
practice; racketeering; interference with contracts; interference with
prospective economic advantages; conversion; conspiracy; declaratory relief and
injunctive relief. The amended complaint also added (a) fifteen (15)
additional plaintiffs, bringing the total number of plaintiffs to twenty-five
(25), and (b) thirty (30) additional defendants, including twenty two
(22) named individuals from the securities industry.
The Company's report on Form 8-K dated December 24, 2003
On December 24, 2003, Registrant filed a Current Report on Form 8-K, relating
to the December 8th, 2003 press release announcing the Company would be
distributing its ownership interest in Nutek Oil, Inc. to shareholders.
Nutek Oil Inc. is a majority owned subsidiary which is traded under the stock
symbol NUTO. The dividend will take the form of a dividend certificate
representing restricted common stock, which will be distributed to the
Company's beneficial stockholders of record as of the record date, which is
January 8, 2004. The stock dividend will be distributed to owners of the
Company's common stock as of the record date in a ratio of one share of
dividend stock in the subsidiary to be spun off, for every 500 shares of
common stock owned in Nutek Inc.
DSEN's report on Form 8-K dated January 26, 2004
On January 26, 2004, Registrant filed a Current Report on Form 8-K
relating to the press release issued announcing the corporation name change
from Nutek Inc. to Datascension Inc. and require a mandatory share exchange.
The Amended Bylaws of the Corporation additionally require all shares include
the name of the beneficial owner of the shares.
DSEN's report on Form 8-K dated February 19, 2004
On February 19, 2004, Registrant filed a Current Report on Form 8-K,
relating to a press release issued by the Registrant's subsidiary, Datascension
International, announcing the receipt of a contract from Sandelman & Associates
for $3.5 million.
DSEN's report on Form 8-K dated March 24, 2004
On March 24, 2004, Registrant filed a Current Report on Form 8-K, stating
that DSEN had received confirmation from the NASD that the "V" would be removed
from the Registrant's stock symbol, effective March 25, 2004. All trades
conducted while the "V" was present, that is "trading as when issued", will be
expected to clear and settle by March 30, 2004. The Company's stock symbol
will be DTSN and will be changed back to T+3 status effective March 25, 2004.
DSEN's report on Form 8-K dated June 21, 2004
On June 21, 2004, Registrant filed a Current Report on Form 8-K, stating
that DSEN had appointed Larry O'Donnell, CPA, P.C., as the Registrant's
independent accountants for the year ending December 31, 2004. The selection
of accountants was approved by the Registrant's Board of Directors. Larry
O'Donnell, CPA, P.C. was engaged by the Registrant on June 18, 2004.
DSEN's report on Form 8-K dated October 22, 2004
On October 22, 2004, Registrant filed a Current Report on Form 8-K,
stating that pursuant to N.R.S. 78.060, 78.120, the Company's Board of
Directors of Datascension, Inc., unanimously voted to amend the corporate
bylaws to no longer require the issuance of the Registrant's common stock in
beneficial holder name.
This amendment to the bylaws will allow shares to be issued in the name of CEDE
& Co. and be traded
57
through the Depository Trust & Clearing Corporation (DTC). The reason for the
bylaw change is the Company has been in discussions with several funding
sources to obtain financing for additional expansion and growth of operations;
however, these sources have indicated they are unwilling to provide financing
to the company until such time as the company's shares trade and clear through
the depository trust.
DSEN's report on Form 8-K dated November 4, 2004
On November 4, 2004, Registrant filed a Current Report on Form 8-K,
stating that in accordance with the
previous vote by shareholders, the Board of Directors has instituted new
employment contracts with the Registrants officers and directors.
Attached to the Form 8-K are the employment contracts for Murray Conradie
(its CEO), Scott Kincer (its COO), Jason Griffith (its CFO), and Joseph Harmon
(its Vice President).
The Board structured the employment contracts based on industry standard.
Inclusive in the above signed agreements are an executive compensation plan
which includes options, which become exercisable upon the reaching of certain
milestones by the company.
DSEN's report on Form 8-K dated November 23, 2004
On November 23, 2004, Registrant filed a Current Report on Form 8-K, stating
that the Registrant received funding from institutional and accredited
investors with Gross proceeds of $1,875,000, with net proceeds to the
Company of $1,657,500. This will be considered a debt on the company's books.
DSEN's report on Form 8-K dated November 23, 2004
On November 23, 2004, Registrant filed a Current Report on Form 8-K relating to
the press release issued announcing Robert L. Sandelman., to the board of
Datascension International, Inc.
DSEN's report on Form 8-K dated January 6, 2005
On January 6, 2005, Registrant filed a Current Report on Form 8-K relating to
the press release issued announcing the focus and direction of the company.
DSEN's report on Form 8-K dated March 3, 2005
On March 3, 2005, Registrant filed a Current Report on Form 8-K relating to the
press release issued announcing changes to the board of directors Century
Innovations a subsidiary of DSEN.
DSEN's report on Form 8-K dated March 8, 2005
On March 8, 2005, Registrant filed a Current Report on Form 8-K relating to the
press release issued announcing the resignation of Murray Conradie as CEO and
Chairman of the Board of Directors to focus on the development of Nutek Oil
Inc.
DSEN's report on Form 8-K dated April 14, 2005
On April 14, 2005, Registrant filed a Current Report on Form 8-K relating to
the press release issued announcing
the Company has converted the South Texas Oil Company asset held for sale to
shares in South Texas Oil Company (formerly known as Nutek Oil) and will be
distributing its ownership interest in South Texas Oil Company to
shareholders of Datascension, Inc.
DSEN's report on Form 8-K dated April 15, 2005
On April 15, 2005, Registrant filed a Current Report on Form 8-K relating to
the press release issued announcing the issued a news release announcing the
filing of the Annual 10KSB Report for 2004.
58
DSEN's report on Form 8-K dated April 28, 2005
On April 28, 2005, Registrant filed a Current Report on Form 8-K relating to
the press release issued announcing the announced the time and place for the
upcoming Datascension Shareholders Meeting. The definitive date for the
shareholder meeting was June 22, 2005.
DSEN's report on Form 8-K dated May 3, 2005
On May 3, 2005, Registrant filed a Current Report on Form 8-K relating to the
press release issued announcing that
Mr. Robert Sandelman who is currently a board member of Datascension
International, the subsidiary of Datascension, was nominated by the board and
accepted the position as a Director of Datascension, Inc.
UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
(a) The registrant hereby undertakes:
(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 of 1933;
(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 forgoing, 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 prospects filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume
and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of 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.
(b) 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.
(c) 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.
59
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: October 7, 2005
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)
/s/ Joseph Harmon
_______________________
Joseph Harmon, Vice President, Director
Date: October 7, 2005
60