SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
TRANSITION REPORT PURSUANT TO SECTION 13 OR
SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER: 000-00000
DSTAGE.COM, INC.
(EXACT NAME OF SMALL BUSINESS REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-2195605
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1600 BROADWAY, SUITE 2400 80202
DENVER, COLORADO (Zip Code)
(Address of principal executive offices)
(303) 542-1802
Registrant's telephone number, including area code
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
(TITLE OF CLASS)
COMMON STOCK, PAR VALUE $0.001
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
As of July 30, 2002, the Registrant had outstanding 15,171,601 shares of Common
Stock, $0.001 par value, including 2,400,000 shares of treasury stock.
1
TABLE OF CONTENTS
FORM 10-QSB QUARTERLY REPORT
QUARTERLY PERIOD ENDED JUNE 30, 2002
DSTAGE.COM, INC.
ITEM PAGE
PART I: FINANCIAL INFORMATION
1. Financial Statements (Unaudited) 3
Balance Sheets at June 30, 2002 and December 31, 2001 3
Statements of Operations for the three and six months ended June 30, 2002
and 2001 and Cumulative During Development Stage 4
Statements of Cash Flows for the for the six months ended June 30, 2002
And 2001 and Cumulative During Development Stage 5
Notes to Financial Statements 6
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
PART II: OTHER INFORMATION
1. Legal Proceedings 19
2. Changes in Securities 19
3. Defaults Upon Senior Securities 19
4. Submission of Matters to a Vote of Securities Holders 19
5. Other Information 19
6. Exhibits and Reports on Form 8-K 19
Signatures 20
THIS REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH
ARE SUBJECT TO THE "SAFE HARBOR" CREATED BY THOSE SECTIONS. THESE
FORWARD-LOOKING STATEMENTS INCLUDE BUT ARE NOT LIMITED TO STATEMENTS CONCERNING
OUR BUSINESS OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY,
REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS; AND STATEMENTS CONCERNING
ASSUMPTIONS MADE OR EXCEPTIONS AS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE
OR OTHER MATTERS WHICH ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED
UNDER THE FEDERAL SECURITIES LAWS. ALL STATEMENTS, OTHER THAN HISTORICAL
FINANCIAL INFORMATION, MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. THE WORDS
"BELIEVES", "PLANS", "ANTICIPATES", "EXPECTS", AND SIMILAR EXPRESSIONS HEREIN
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO RISKS, UNCERTAINTIES, AND OTHER FACTORS, WHICH WOULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS.
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN
"FACTORS THAT MAY AFFECT FUTURE RESULTS," AND ELSEWHERE IN THIS REPORT, AND THE
RISKS DISCUSSED IN THE COMPANY'S OTHER SEC FILINGS.
2
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
DSTAGE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
ASSETS (Unaudited) (Audited)
Current assets:
Cash $ 965 $ 10,624
Prepaid services (Note 3) 67,399 67,616
Prepaid and deposits . 198 18,011
Total current assets 68,562 96,251
3,352 3,716
2,943 3,460
Prepaid services (Note3) . 87,968 238,901
of $709,908 for 2002 and 2001 . 200 200
Licensed Technology . 1,186,500 38,000
Total assets $ 1,349,525 $ 380,528
=============================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 278,407 $ 78,281
Due to stockholders (Note 7) 27,076 15,363
Notes payable . 4,477 9,676
Total current liabilities 309,960 103,320
Stockholders' equity:
12,064,101 at December 31, 2001 15,147 12,064
Additional paid-in capital 5,170,103 4,211,961
(2,400) 0
(3,902,985) (2,896,808)
Deferred Compensation (240,300) (1,050,009)
Total stockholders' equity 1,039,565 277,208
Total liabilities and stockholders' equity $ 1,349,525 $ 380,528
=============================
See accompanying notes to financial statements
3
DSTAGE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE
DURING Three Months Six Months
DEVELOPMENT Ended June 30, Ended June 30,
STAGE 2002 2001 2002 2001
Revenue:
Professional services. . . . . . . . $ 57,808 $ 4,200 $ 45,000 $ 4,200 $ 45,000
Operating expenses:
Cost of services . . . . . . . . . . 57,700 4,200 - 4,200 -
Sales and marketing. . . . . . . . . 46,219 4,283 17,861 6,659 22,861
Research and development . . . . . . 252,142 284 19,317 522 32,571
General and administrative . . . . . 1,676,019 769,789 77,264 998,481 89,405
Impairment of assets . . . . . . . . 1,215,838 - - - -
Impairment of investments in other
companies. . . . . . . . . . . . . 709,908 - - - -
Total operating expenses . . . . . . . 3,957,827 778,555 114,442 1,009,862 144,837
Income (loss) from operations. . . . . (3,900,019) (774,355) (69,442) (1,005,662) (99,837)
Other income (expense), net. . . . . . (2,966) (257) (587) (522) (783)
Net income (loss). . . . . . . . . . . $ (3,902,985) $ (774,613) $ (70,029) $(1,006,184) $ (100,620)
===================================================================
Net income (loss) per share:
Basic and diluted. . . . . . . . . . $ (0.47) $ (0.06) $ (0.01) $ (0.08) $ (0.01)
===================================================================
Weighted average shares used in
computing net income (loss) per share
Basic and diluted. . . . . . . . . . 8,337,311 12,476,271 7,847,824 12,301,793 7,628,023
===================================================================
See accompanying notes to financial statements
4
DSTAGE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
CUMULATIVE
DURING The Six Months
Development Ended June 30,
STAGE 2002 2001
Cash flows from operating activities:
Net (loss) . . . . . . . . . . . . . . . . . $(3,902,985) $(1,006,177) $ (100,620)
Adjustments to reconcile net (loss)
to cash provided (used) by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,556 881 769
Issuance of common stock for services . . . . . . . . . 174,000 - -
Issuance of common stock for expense reimbursement. . . . . . . . 22,051 - 5,617
Issuance of common stock for technology . . . . . . . . . . . . . 19,167 - 19,167
Impairment of investments in other companies . . . . . . . 709,908 - -
Impairment of assets. . . . . . . . . . . . . . . . . . . . . . . 1,215,838 - -
Revenue paid in common stock . . . . . . . . . . . . (108) - -
Prepaid services expensed .. . . . . . . . . . . . 374,537 151,149 10,000
Amortization of deferred compensation . . . . . . . . . . . . . . 1,207,377 870,034 12,000
Expenses paid through notes payable proceeds . . . . . . . 66,490 - 25,320
Change in assets and liabilities:
Increase in other current assets. . . . . . . . . . . . . . . . 1,527 17,813 14,034
Increase in accounts payable and accrued liabilities. . . . . . 55,483 (38,161) 52,344
Increase in notes payable . . . . . . . . . . . . 4,477 (5,199) -
Net cash provided (used) by operating activities. . . . . . . . (48,681) (9,659) 38,631
Cash flows from investing activities:
Acquisition of fixed assets .. . . . . . . . . . . (6,689) - (2,151)
Net cash (used) by investing activities .. . . . . . . (6,689) - (2,151)
Cash flows from financing activities:
Contributed capital . . . . . . . . . . . . . . . . . . . . . . . 25,500 - -
Proceeds from issuance of common stock. . . . . . . . . . . . . . 30,835 - -
Net cash provided by financing activities . . . . . . . . . . . 56,335 - -
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . 965 (9,659) 36,480
Cash, beginning of period . . . . . . . . . . . . . . . . . . . . . . - 10,624 1,627
Cash, end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 965 $ 965 $ 38,107
==========================================
Non-cash transactions
Purchase of property and equipment by issuance of common stock. . . $ 1,153,162 $ - $1,150,000
==========================================
Purchase of licensed technology by issuance of common stock . . . . $ 938,000 $ 900,000 $ -
==========================================
Purchase of treasury stock in exchange for property and technology. $ 2,400 $ 2,400 $ -
==========================================
Purchase of licensed technology by incurring debt to seller . . . . $ 250,000 $ 250,000 $ -
==========================================
Payment of prepaid and other assets by issuance of common stock . . $ 1,726 $ - $ -
==========================================
Prepayment of services for common stock . . . . . . . . . $ 1,954,420 $ 60,325 $ 300,930
==========================================
Investments in other companies. . . . . . . . . . . . . . . . . . . $ 710,000 $ - $ -
==========================================
Conversion of debt to common stock .. . . . . . . . . . $ 35,000 $ - $ -
==========================================
Forgiveness of debt by stockholder. . . . . . . . . . . . . . . . . $ 31,489 $ - $ -
==========================================
See accompanying notes to financial statements
5
DSTAGE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND ORGANIZATION
Dstage.com, Inc., a Delaware corporation (the "Company") was incorporated on
October 12, 1999 to provide support, organization and restructuring services to
development stage companies.
For the period October 12, 1999 (Inception) to June 30, 2002, the Company has
been in the development stage. The Company's activities since inception have
consisted of developing the business plan, raising capital, business plan
implementation, recruiting a management team and entering into new ventures and
alliances with affiliates.
From inception to June 30, 2002, the Company has had minimal revenues, of
$57,808, and has expensed operating costs in the amount of $3,957,827. The
Company has nominal cash resources and has been largely dependent on the direct
financial support from its founding stockholder and revenue to pay for cash
expenditures. In addition, the Company has been dependent on contributed time
from its officers and directors and contributed services from certain key
vendors. A loss of continuing cash investment from its founding stockholder,
contributed time from stockholders and directors and contributed services from
key vendors in the near term would have a detrimental effect on the Company.
Management plans to continue to operate in the near term relying on contributed
cash, time and services and without expending significant amounts of cash or
incurring significant debt. The Company has earned revenue in 2001, and nominal
revenue in 2002, and plans to increase revenues from existing and proposed
contractual relationships in addition to obtaining external financing. There
can be no assurance that such revenues and or financing will be successfully
obtained.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Presentation
The accompanying financial statements have been prepared by management in
accordance with basic rules established by the Securities and Exchange
Commission for Form 10-QSB. Accordingly, not all financial disclosures required
to present the financial position and results of operations in accordance with
generally accepted accounting principles are included herein. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
2001 audited financial statements on Form 10-KSB as filed with the Securities
and Exchange Commission on April 3, 2001. In the opinion of management, all
accruals and adjustments (each of which is of a normal recurring nature)
necessary for a fair presentation of the financial position as of June 30, 2002
and the results of operations for the three and six month periods then ended
have been made. Operating results for the three and six months ended June 30,
2002 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002. Significant accounting policies have been
consistently applied in the interim unaudited financial statements and the
audited financial statements.
6
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements. Substantial estimates have been used regarding lives of assets,
impairment of investments in other companies and impairment of long-lived assets
and prepaid expenses, which may not be realized. Actual results could differ
materially from those estimates.
Prepaid Expenses and Deferred Compensation
The Company has negotiated contracts to grant common stock in exchange for
future (prepaid) services with various other companies and individuals. Where
the other companies are independent or have minimal common stock ownership in
the Company, those prepaid expenses have been presented in the accompanying
balance sheet as an asset. Where the other companies or individuals have
significant stock ownership or are functioning as, or similar to, employees,
officers or directors, such prepaid services have been presented on the balance
sheet as deferred compensation and a reduction to total equity.
It is Company policy to expense those items which have been unused after the
contractual period or after one year, if not used. Other prepaid expenses where
services are being used are amortized over the life of the contract.
Research and Development
The Company expenses costs of research and development until the product or
service under development reaches technological feasibility, after which the
development costs are capitalized. Once the product is placed into service, the
capitalized costs are amortized over the estimated useful life of the product.
Impairment of Long-Lived Assets
The Company adheres to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). The Company reviews the carrying value of its
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable through undiscounted net cash flows. Impairment is
calculated based on fair value of the asset, generally using net discounted cash
flows. Any long-lived assets to be disposed of are reported at the lower of the
carrying amount or fair value less estimated costs to sell. The impairment
policy followed is a critical and significant accounting policy to which the
Company adheres.
Going Concern Uncertainties
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has experienced recurring
operating losses and negative cash flows from operations. The Company's
continued existence is dependent upon its ability to increase operating revenues
and/or obtain additional equity financing. Dstage relies on BulletProof
Business Plans, Inc. to provide cash infusion when necessary and this reliance
will continue in the near future.
7
In view of these matters, the Company is currently in negotiations to obtain
additional equity financing to enable it to achieve its strategic objectives.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Goodwill and Other Intangible Assets
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), establishes accounting and reporting standards
for recording valuing and impairing and other intangible assets. The adoption
of SFAS 142 did not have an impact on the Company's financial condition or
results of operations for the quarter ended June 30, 2002. However, as our
business model is heavily dependent on acquiring intangible assets, we expect
this pronouncement to have a material impact on our financial condition and
results of operations in future quarters.
Reclassifications
Certain reclassifications have been made to prior period amounts in order to
conform to the current period's presentation.
(3) - PREPAID SERVICES
Since inception, the Company entered into various contracts with "Concept
Affiliates" in which vendors agreed to provide future professional services in
exchange for common stock of the Company. Services contracted in 2000 and 2001
included multimedia design, securities filings preparation, promotion,
interactive database technology, training course design and development, project
screening, tax incentive consulting, strategic planning and direct marketing.
Since the second quarter of 2001, all transactions entered into under these
arrangements were recorded using the bid price of the Company's common stock on
the date of issuance as reported by the Over The Counter Bulletin Board (OTCBB).
The total balance of prepaid services as of December 31, 2001 was $306,517,
consisting of $67,616 in current assets and $238,901 in non-current assets.
Based on management estimates and accounting policies, $104,252 of these
services were expensed in the quarter ended June 30, 2002. For the six months
ended June 30, 2002, a total of $151,148 of these services were expensed,
leaving a total balance of prepaid services of $155,368 as of June 30, 2002. No
additions to prepaid services under these arrangements were made in the quarter
ended June 30, 2002.
The shares issued by the Company in connection with these transactions are not
registered under the Securities Act of 1933 and are subject to restrictions on
transferability for a period of at least one year from the date of issuance.
(4) - INVESTMENT IN OTHER COMPANIES
In 2000, the Company exchanged 650,000 shares of its common stock at $1.00 per
share for 1,111,111 shares of GOTO-MD, Inc.'s ("GOTO-MD") outstanding common
shares valued at $0.63 per share. As GOTO-MD was in the development stage, an
adjustment was made to recognize the impairment of the investment to its
estimated fair value. The Company has recorded the investment in GOTO-MD at
$720,800 and has impaired substantially all of that amount to recognize the fair
value of the investment in 2000 and 2001. During 2001, GOTO-MD had no
significant operations. GOTO-MD's primary asset during that period consisted of
the 650,000 shares of the Company's common stock exchanged in the transaction.
In 2000, the Company acquired 1% of Ameribank Card Services, Inc. in exchange
for 10,000 common shares of the Company. The Company recorded the investment in
Ameribank Card Services at $10,000 less an impairment of $9,900, resulting in a
8
net asset value of $100. Ameribank Card Services continues to pursue its
business model in 2002, having grown its portfolio of merchant accounts from 327
merchants at the beginning of 2001 to 412 as merchants as of December 31, 2001.
(5) - LICENSED TECHNOLOGY
In May of 2002, the Company reached a definitive agreement with VedaLabs to
acquire their Media Player and Peer-to-Peer technology. Under the agreement the
Company issued 3,000,000 shares of our common stock along with a commitment to
pay $250,000 in cash within 6 months, pending transfer or sale of the
technology. If transfer or sale of the technology does not occur, the Company
will be obligated to pay VedaLabs in cash or stock. The number of shares will
be determined based on the closing price of the Company's shares and the Company
will be obligated to register such with the SEC. The Company's negotiated price
for this transaction was $2.00 per share; however, the licensed technology was
recorded at $0.30 per share, the bid price for shares issued on the date of the
transaction. In accordance with SFAS 142, "Goodwill and Other Intangible
Assets", the Company is having an independent valuation conducted to assist in
valuing the VedaLabs technology. Should the book value of the VedaLabs
technology be less than its fair value in any future period, the Company will
record an impairment expense equal to the difference in book value and fair
value. The impact or amount of any such impairment, if any are required, is
unknown at this time.
On November 5, 2001, the Company entered into a technology license agreement
with Sunncomm, Inc. ("SunnComm"), to license its Proprietary Copy Management
Technology. Under the terms of the agreement, the Company was to pay Sunncomm a
one-time license fee of $4,000,000 payable in the Company's common stock, with
the amount of shares issued not to exceed 2,000,000. Initially, the Company
hoped to combine the SunnComm technology licensed with what was believed to be a
complementary technology the Company was negotiating to acquire.
Following execution of the license agreement, both parties, the Company and
SunnComm, agreed that it would be beneficial to expand the scope of the
agreement to potentially address market realities more effectively. As a
result, the boards of both parties deferred closing the transaction pending
completion and execution of the expanded agreement. On December 31, 2001, an
expanded agreement was executed and the Company's board approved the issuance of
2,000,000 restricted shares, or approximately 16.69% of the outstanding common
shares of the Company, to SunnComm, Inc. The Company's negotiated price was
$2.00 per share; however, the licensed technology was recorded at a nominal
value of $2,000, since the ownership percentage by SunnComm following
consummation of the transaction made SunnComm a related party. In May of 2002,
this agreement was amended, providing for the return of certain rights to
SunnComm in exchange for 1,500,000 shares of Dstage common stock repurchased as
consideration.
In November of 2001, the Company entered into an agreement with DataStand
Technologies, Inc. ("DataStand") to secure three premium licenses to DataStand's
OTCBB interactive databases for terms of three years in exchange for 270,000
shares of the Company's common stock. The licensed technology was recorded at a
value of $36,000.
(6) - PROPERTY & EQUIPMENT LEASE
In June 2001, the Company entered into a 49-year lease agreement with Bentley
House Furniture Company, Inc., a Philippine company, for an idle manufacturing
facility built in 1998 and located in Davao City, Philippines. The Company
granted a one-time payment of 1,000,000 common shares in lieu of $6,000,000 in
cash for the full lease payment on the property. The Company has the option to
purchase the facility during the lease term for $100,000 should Philippine law
permit a transfer of title to a U.S. Corporation. The lessor agreed to bear all
legal, tax and similar costs related to the transaction. The lease agreement
was negotiated at a value of $6.00 per share; however, for accounting purposes
the Company recorded the transaction at $1.15 per share. The Company has fully
impaired the value of the asset by $1,150,000 for 2001, in accordance with SFAS
144 because expected sublease opportunities did not materialize. The Company
9
believes that there are substantial risks involved with this investment in the
property and equipment lease.
In April of 2002, the Company was informed that Bentley House Furniture Company
had pledged the Company's shares to Weylock Trading Company, Inc., a Philippine
Company, in exchange for a loan. The Company was also informed at that time of
Weylock's interest in selling Dstage back the shares in exchange for Dstage's
interest in the property lease. In May of 2002, the Company reached an
agreement with Weylock Trading Company, Inc. providing for a transfer of its
interest in the property lease in exchange for $500,000, along with 900,000
shares of Dstage common repurchased as consideration. The Company is not
recording any gain or revenue from the $500,000 because its realization is not
assured.
(7) - DUE TO STOCKHOLDERS
In 2001, the Company's founding shareholder, BulletProof Business Plans,
provided a total of $39,333 in cash advances and expenses paid on the Company's
behalf. The advances were all short-term obligations, due on demand and are
non-interest bearing. As of December 31, 2001, the Company had repaid a total
of $33,470 to BulletProof under these obligations, leaving a balance of $5,863,
which was paid in January of 2002. For the six months ended June 30, 2002, the
Company secured a total of $20,575 in new borrowings under this arrangement. Of
these new borrowings, the Company has repaid a total $3,000 as of June 30, 2002.
In the fourth quarter ended December 31, 2001, the Company entered into an
agreement with its largest shareholder, BulletProof Business Plans, Inc. and a
company owned by its CEO, Frank Maresca, Frank Maresca & Associates, to provide
consulting services for a biopharmaceutical company engaged in the development
of generic paclitaxel. The balance of $9,500 in services due under the agreement
is reflected as due to stockholders.
(8) - STOCKHOLDERS' EQUITY
In May of 2002, the Company entered into an agreement with Weylock Trading
Company, Inc. providing for a transfer of our interest in the Philippines
property lease in exchange for $500,000, along with 900,000 shares of our common
repurchased as consideration. These shares were recorded as treasury stock
using the par value method.
In May of 2002, amended its technology license agreement with SunnComm,
providing for the return of certain rights to SunnComm in exchange for 1,500,000
shares of our common stock repurchased as consideration. These shares were
recorded as treasury stock using the par value method.
In the quarter ended March 31, 2002, the Company issued a total of 82,500 shares
of its common stock. Jane Olmstead was appointed as interim CFO until a new CFO
has been retained. In exchange for her services as CFO, the Company issued
50,000 shares of common stock to Jane Olmstead on January 15, 2002. A new
Concept Affiliate, an individual providing marketing services to the Company,
was issued 32,500 shares of our common stock in lieu of cash for services to be
rendered to the Company. Equity or capital transactions transacted for non-cash
consideration are complex and require substantial estimates by management. See
Note 2 "Use of Estimates." The Company received no cash for any of the shares
it issued in the quarters ended March 31, 2002 and June 30, 2002.
In July of 2002, Jane Olmstead extended her term as interim CFO until a new CFO
has been retained. In exchange for her services as CFO, the Company issued
10
25,000 shares of common stock to Jane Olmstead on July 15, 2002.
The shares issued by the Company in connection with the above transactions are
not registered under the Securities Act of 1933 and are subject to restrictions
on transferability for a period of one year from the date of issuance.
(9) - RELATED PARTY TRANSACTIONS
In July of 2002, Jane Olmstead extended her term as interim CFO until a new CFO
has been retained. In exchange for her services as CFO, the Company issued
25,000 shares of common stock to Jane Olmstead on July 15, 2002. Jane Olmstead
has served as a Director and member of the Company's Audit Committee since the
fourth quarter of 2000.
During the six month ended June 30, 2002, the Company's founding shareholder,
BulletProof Business Plans, provided a total of $20,575 in cash advances and
expenses paid on the Company's behalf. The advances were all short-term
obligations, due on demand and non-interest bearing.
In the fourth quarter ended December 31, 2001, the Company entered into an
agreement with its largest shareholder, BulletProof Business Plans, Inc. and a
company owned by its CEO, Frank Maresca, Frank Maresca & Associates, to provide
consulting services for a biopharmaceutical company engaged in the development
of generic paclitaxel. The balance of $9,500 in services due under the agreement
is reflected as due to stockholders.
(10) - SUBSEQUENT EVENTS
In July of 2002, the Company entered into an agreement with Standard and Poor's
Corporate Valuation Consulting. Under the terms of the agreement; Dstage is to
pay $35,000 for valuation services in connection with the VedaLabs technology,
$200,000 to $300,000 to develop a valuation methodology in connection with the
Company's planned VC-IP auction concept, and between $150,000 and $275,000 to
use the customized methodology to evaluate up 50 intellectual property assets.
In July of 2002, the Company entered into an agreement with The Camelot Group,
Inc., whereby the Camelot group would provide investment banking services and
provide the Company with $150,000 in August of 2002. The agreement also called
for The Camelot Group to raise between $500,000 and $1,000,000 on a best efforts
basis. Certain Dstage shareholders compensated The Camelot Group for their
services and the $150,000 cash to be paid to Dstage. This transaction will
result in a liability due to these shareholders of not less than $350,000.
In July of 2002, Jane Olmstead extended her term as interim CFO until a new CFO
has been retained. In exchange for her services as CFO, the Company issued
25,000 shares of common stock to Jane Olmstead on July 15, 2002. Jane Olmstead
has served as a Director and member of the Company's Audit Committee since the
fourth quarter of 2000.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
The matters discussed in this report contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which are subject to the "safe harbor" created by those sections. These
forward-looking statements include but are not limited to statements concerning
our business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; and statements concerning
11
assumptions made or exceptions as to any future events, conditions, performance
or other matters which are "forward-looking statements" as that term is defined
under the Federal Securities Laws. All statements, other than historical
financial information, may be deemed to be forward-looking statements. The words
"believes", "plans", "anticipates", "expects", and similar expressions herein
are intended to identify forward-looking statements. Forward-looking statements
are subject to risks, uncertainties, and other factors, which would cause actual
results to differ materially from those stated in such statements.
Forward-looking statements include, but are not limited to, those discussed in
"Factors That May Affect Future Results," and elsewhere in this report, and the
risks discussed in the Company's other SEC filings.
The Company has defined a critical accounting policy as one that is both
important to the portrayal of the Company's financial condition and results of
operations and requires the management of the Company to make difficult,
subjective or complex judgments. Estimates and assumptions about future events
and their effects cannot be perceived with certainty. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments. These estimates may change as new events occur, as
more experience is acquired, as additional information is obtained and as the
Company's operating environment changes.
The Company believes that the following critical accounting policies affect its
more significant judgements and estimates used in the preparation of financial
statements:
Non-Monetary Transactions - The Company's business model depends on its ability
to successfully enter into non-monetary transactions, where the Company's common
stock is used to acquire a technology or service, or where a technology or
service the Company previously acquired is used to acquire the common stock of
another entity. As a result, the Company must continually address issues of
valuation regarding its common stock, the technology and services acquired, the
value of common stock in other companies received and the value of services and
technologies sold, if any. If value estimates are too high upon entering into a
transaction, earnings in future periods may suffer from large impairment
charges. Similarly, if value estimates are too low upon entering into a
transaction, operating results in future periods may not reflect a proper
matching of income, if any, and expenses.
Prepaid Expenses and Deferred Compensation - The Company has negotiated
contracts to grant common stock in exchange for future (prepaid) services with
various other companies and individuals. Where the other companies are
independent or have minimal common stock ownership in the Company, those prepaid
expenses have been presented in the accompanying balance sheet as an asset.
Where the other companies or individuals have significant stock ownership or are
functioning as, or similar to, employees, officers or directors, such prepaid
services have been presented on the balance sheet as deferred compensation and a
reduction to total equity.
It is Company policy to expense those items that have been unused after the
contractual period or after one year, if not used. Other prepaid expenses where
services are being used are amortized over the life of the contract.
Impairment of Long-Lived Assets
The Company adheres to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). The Company reviews the carrying value of its
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable through undiscounted net cash flows. Impairment is
calculated based on fair value of the asset, generally using net discounted cash
flows. Any long-lived assets to be disposed of are reported at the lower of the
carrying amount or fair value less estimated costs to sell.
12
OVERVIEW
Dstage.com, Inc., a Delaware corporation (the "Company") was incorporated on
October 12, 1999 to provide support, organization and restructuring services to
other development stage companies. In the summer of 1999, our founders agreed
that culminating trends in venture development, venture funding and intellectual
capital creation would result in a precipitous drop in valuations for thousands
of technology driven companies worldwide. This shared perspective caused our
team to devise a new model for venture creation and growth. Our model attempts
to substantially remove cash requirements from the earliest stages of venture
formation and replace it with knowledge, expertise, technology and time
contributed by various parties, applied directly to prospective startups. By
building a universe of service and technology providers across as many
disciplines and domains as achievable, using Dstage.com common stock as payment,
we plan to offer advice and resources to entrepreneurs looking to launch novel
products and ventures worldwide.
Using our common stock as payment, we have attempted to license a critical mass
of intellectual property, knowledge, expertise, software, applications, patents,
content and a host of other resources needed by development stage enterprises
since our inception. We intend to allow certain startup ventures (Concept
Sponsors) screened by our network to request access to appropriate resources we
hold in exchange for interests in their nascent ventures. To the best of our
knowledge, our model is new, risky and unproven. However, we believe it stands
to potentially deliver benefits to entrepreneurs, technology providers,
professional service providers, early stage investors, and later stage investors
in many countries to the degree that the model effectively reduces barriers to
developing new ventures and launching new products. We hope that by pursuing
this model, Dstage.com will become the leading source for expert support,
creation, and restructuring of development stage companies across the globe.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2002 COMPARED TO QUARTER ENDED JUNE 30, 2001
REVENUE
CUMULATIVE
DURING
DEVELOPMENT THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
STAGE 2002 2001 % CHANGE 2002 2001 % CHANGE
Net Revenue $ 57,808 $ 4,200 $ 45,000 (90.67%) $ 4,200 $ 45,000 (90.67%)
We generated minimal revenue of $4,200 for the quarter ended June 30, 2002.
These revenues were the result of cash payments for small consulting projects.
The percentage decrease in revenue, from the three and six months ended June 30,
2001 compared to the three and six months ended June 30, 2002, is substantial.
This is largely due to a single consulting engagement in the second quarter
2001. The total dollar amount of revenue in both periods is comparably low.
During the quarter we also continued to provide services in connection with
projects under the US Consults Strategic alliance executed in January of 2002.
These services are provided on a contingency basis, meaning that no revenue or
13
cash will be realized until certain predetermined outcomes have materialized for
US Consults clients. If such outcomes do materialize, we anticipate substantial
lags between the contingent events occurring and our receipt of cash payments.
Accordingly, there can be no assurances that these services will produce revenue
for us.
The business model we are pursuing anticipates most of our services being paid
for with stock and certain services being paid for with cash. The ultimate
balance we realize between sales settled with cash and sales settled with stock,
if any future sales are realized, will have a material impact on our results of
operations, operating cash flow, and the degree to which our earnings, revenues
and costs fluctuate from period to period. This is due in part to the
complexities of transactions settled in equity. This complexity is increased by
our focus on early stage companies, whose securities are privately held, thinly
traded, or quoted on mediums that make valuation highly subjective.
To address these complexities, our accounting policies may require us to record
services issued in exchange for stock in early stage companies at a nominal
value, or no value at all, since the stock issued generally has no readily
determinable value. As a result, the extent to which we accept stock in
exchange for services and technology we render to privately held, early stage
clients will directly impact our future results. In the remaining quarters of
2002, we intend to pursue opportunities to deliver services to such clients in
exchange for cash, stock and a combination of stock and cash. It is anticipated
that these agreements will typically involve a variety of contracting
methodologies, including, but not limited to, performance based compensation for
services rendered, fixed sum, guaranteed maximum price, and time and materials.
Similarly, it is expected that an hourly rate will be used to track contract
progress. Professional services under all types of agreements except those
involving contingent consideration are recognized as the services are performed.
Another important consideration regarding the balance between services paid for
in cash and services settled in the client's stock is our ability to cover
operating expenses we are required to settle in cash. Our primary business
focus is not on generating immediate revenue. Instead, our focus is on
acquiring equity interests in promising companies we believe will create capital
appreciation for our shareholders. Despite this focus, operating activities
that result in cash revenue play can plan an important role in our ability to
meet cash requirements. This is especially true to the degree that we do not
successfully secure external cash financing to satisfy expenses we cannot
satisfy using our common stock.
COST OF SERVICES
CUMULATIVE
DURING
DEVELOPMENT THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
STAGE 2002 2001 % CHANGE 2002 2001 % CHANGE
Cost of Services $ 57,700 4,200 - NM 4,200 - NM
Our cost of services are comprised principally of consulting services provided
by contract individuals to our customers. We provided minimal services that
generated revenue in the three and six months ended June 30, 2002, and had costs
of services totaling $4,200. To the degree that we generate revenue in future
periods, consulting services provided by Concept Affiliates and officers during
such periods will be matched to revenue associated with such services and
recorded as costs of services. In future periods, we expect the complexity of
our model, which relies heavily on exchanges of our equity and exchanges of our
clients' equities, to result in a lack of predictability and a great deal of
volatility with regard to our Cost of Services and, therefore, our gross margin
percentage.
14
SALES AND MARKETING
CUMULATIVE
DURING
DEVELOPMENT THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
STAGE 2002 2001 % CHANGE 2002 2001 % CHANGE
Sales and Marketing 46,219 4,283 17,861 (76.02%) 6,659 22,861 (70.87%)
Since inception, sales and marketing expenses have consisted of advertising,
promotional materials and public relations expenses. Although the percentage
decrease in sales and marketing expenses, from the three and six months ended
June 30, 2001 compared to the three and six months ended June 30, 2002, is a
substantial percentage, the total dollar amount of sales and marketing expenses
is comparably low in both periods. However, there is a material difference
between the payment terms of sales and marketing expenses of both periods. Of
our total sales and marketing expenses incurred in the six months ended June 30,
2002, 100%, or $4,283, required payment in cash. Of our total sales and
marketing expenses incurred in the six months ended June 30, 2001, 52%, or
$12,000, was initially prepaid for using our common stock, requiring no payment
in cash.
In the remaining quarters of 2002, we hope to substantially increase our sales
and marketing efforts and, therefore expect our sales and marketing expenses to
increase. Whereas our sales and marketing activities in 2001 were directed
primarily at developing our corporate image and communicating key events, we
plan to promote certain professional services we offer in 2002, in addition to
expanding the scope of our image development efforts. While some of our
anticipated sales and marketing requirements can be satisfied using prepaid
services we contracted in exchange for common stock, many will require payment
in cash.
RESEARCH AND DEVELOPMENT
CUMULATIVE
DURING
DEVELOPMENT THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
STAGE 2002 2001 % CHANGE 2002 2001 % CHANGE
Research and $ 252,142 284 19,317 (98.53%) 522 32,571 (98.40%)
Development
15
Since inception, research and development expenses have consisted primarily of
costs related to the acquisition, testing, design, development and enhancement
of certain technologies we hold rights to and which we intend to use in the
future to meet our internal needs or the needs of ventures we may invest these
technologies with. The change in research and development expenses, from the
three and six months ended June 30, 2001 compared to the three and six months
ended June 30, 2002, is largely explained by two items. In the first quarter of
2001 we expended resources in connection with an electronic government
publishing operation in London England. In the second quarter of 2001, we
expensed $19,167 in connection with an exclusive license to an e-commerce system
acquired for stock. In both the first quarter of 2002 and the first quarter of
2001, 100% of our research and development expenses required settlement in cash.
For the three months ended June 30, 2001, approximately 1% of our research and
development expenses required payment in cash, compared to 100% of our research
and development expenses in the three months ended June 30, 2002 requiring
payment in cash. Since inception, the majority, $226,167 or 90% of our research
and development expenses since inception, has related to rights to technologies
we acquired in exchange for our common stock. In future quarters, we anticipate
entering into similar agreements which may cause our research and development
costs to increase substantially.
GENERAL AND ADMINISTRATIVE
CUMULATIVE
DURING
DEVELOPMENT THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
STAGE 2002 2001 % CHANGE 2002 2001 % CHANGE
General and $ 1,676,019 769,789 77,264 896.31% 998,481 89,405 1,116.81%
Administrative
General and administrative expenses consist primarily of professional services,
insurance, telephone, occupancy, travel and compliance related expenses. The
large increase in general and administrative expenses for three and six months
ended June 30, 2002, compared to the three and six months ended June 30, 2001,
is primarily due to expensing deferred compensation for Concept Affiliate
agreements secured in 2001. For the six months ended June 30, 2002, expensing
deferred compensation accrued under these agreements accounted for approximately
71%, or $712,892, of our general and administrative expenses for the period.
Similarly, prepaid Concept Affiliate services expensed during the six months
ended June 30, 2002 accounted for approximately 25%, or $249,091, of our general
and administrative expenses for the six months ended June 30, 2002. The
remaining 4% is composed primarily of compliance related expenses, approximately
2%, or $14,575, insurance expense of approximately $12,685, or approximately 1%,
and all other general and administrative expenses totaling. Compliance related
expenses include legal, accounting and other charges related to filing our
reports with the Securities and Exchange Commission. Of the $998,481 we
expensed under the general and administrative caption for the six months ended
June 30, 2002, 97% or $961,983 were prepaid for using our common stock, $34,843
or 3% require settlement in cash. We plan to utilize more professional services
from our officers, directors and Concept Affiliates in the remaining quarters of
2002.
16
IMPAIRMENT OF LONG-LIVED ASSETS AND IMPAIRMENT OF INVESTMENTS IN OTHER COMPANIES
CUMULATIVE
DURING
DEVELOPMENT THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
STAGE 2002 2001 % CHANGE 2002 2001 % CHANGE
Impairment of . . $ 1,215,838 - - 0% - - 0%
Assets =======================================================================================================
Impairment of $ 709,908 - - 0% - - 0%
Investments In =======================================================================================================
Other Companies
Our impairment policy requires management to review assets and investments for
impairment on an ongoing basis. In the case of investments in other companies,
this analysis combined with our other accounting policies is expected to have a
material impact on our results of operations in future periods. Our accounting
policies generally may require us to record services performed in exchange for
stock in early stage companies at a nominal value, since the stock issued
generally has no readily determinable value. However, when we use our stock to
effect investments in other companies, the bid price for our stock on the date
of issuance is used to value the transaction initially. Subsequently, an
impairment of this value may be required to reduce the carrying amount on our
books to reflect a fair value.
Our financial results since inception are indicative of the extent to which
impairment of investments and assets can impact our operating results. Since
inception, impairment of investments in other companies accounts for
approximately 31% of our $3,960,793 net loss, whereas impairment of long-lived
assets has accounted for approximately 18% of our net loss since inception.
Together, these two expense categories account for 49% of our net loss from
inception and through the six months ended June 30, 2002.
An impairment loss is recorded in the period in which we determine that the
carrying amount is not recoverable. This requires the Company to make long-term
forecasts of its future revenues and costs related to the assets subject to
review. These forecasts may require assumptions about demand for the Company's
products and services, future market conditions and technological developments
in order to support fair value and avoid impairment. Significant and
unanticipated changes to these assumptions could require a provision for
impairment in a future period.
INCOME TAXES
There is no current or deferred tax expense for the period from October 12, 1999
(inception) to June 31, 2002 due to net losses from operations by the Company.
As of June 30, 2002 we had operating loss carryforwards of $3,902,985 compared
to operating loss carryforwards of $2,896,808 as of December 31, 2001. The
operating loss carryforwards expire beginning in 2019.
17
NET LOSS
CUMULATIVE
DURING
DEVELOPMENT THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
STAGE 2002 2001 % CHANGE 2002 2001 % CHANGE
Net income (loss) $ (3,902,985) $ (774,613) $ (70,029) 1,006.13% $ (1,006,184) (100,620) 899.98%
========================================================================================================
Net income (loss)..$ (0.47) $ (0.06) $ (0.01) 595.78% $ (0.08) (0.01) 520.06%
Per Share ========================================================================================================
Weighted . . . 8,337,311 12,476,271 7,847,824 58.98% 12,301,793 7,628,023 61.27%
Average Shares ========================================================================================================
We have incurred net losses from operations in each fiscal year, and each
quarter, since our inception. The overall increase in our loss from
operations, from the six months ended June 30, 2001 compared to the six months
ended June 30, 2002, was approximately 900%, or $905,564. The overall increase
in our quarterly net loss is primarily attributable to a 1,017%, or $909,076
increase in our general and administrative expenses in the first quarter of
2002, along with a 91%, or $40,800 decrease in revenues.
We anticipate that impairments will play a major role in our operating results
in the remaining quarters of 2002 as well as in future periods. Although none
of our impairment losses have consumed cash flow since inception, our ability to
convert the assets, resources and technology we acquire into gains, and
ultimately positive cash flow, will largely determine the viability of our
business model. Similarly, to the degree that we have to issue more shares to
acquire assets and resources that are later impaired and not readily recovered,
such events will be dilutive to our existing shareholders.
..
LIQUIDITY AND CAPITAL RESOURCES
We must successfully secure external cash financing to satisfy expenses we
cannot satisfy using our common stock in the remaining quarters of 2002. In
addition, we must successfully generate sufficient cash revenue to meet our
operating cash requirements in the remaining quarters of 2002. Our working
capital continued to decrease from the December 31, 2001 to June 30, 2002. As
of June 30, 2002 we had negative working capital of ($241,398), compared to
negative working capital of ($7,069) as of December 31, 2001. The change in
working capital reflects growth in current liabilities from $103,320 as of
December 31, 2001 to $309,960 as of June 30, 2002, combined with a decrease in
current assets, from $96,251 as of December 31, 2001 to $68,562 as of June 30,
2002. The increase in current liabilities in the period is primarily
attributable to a $250,000 liability we incurred to the seller in connection
with our purchase of the VedaLabs technology.
In May of 2002, we reached a definitive agreement with VedaLabs to acquire their
Media Player and Peer-to-Peer technology. Under the agreement we issued
3,000,000 shares of our common stock along with a commitment to pay $250,000 in
cash within 6 months, pending transfer or sale of the technology. If transfer
or sale of the technology does not occur, the Company will be obligated to pay
VedaLabs in cash or stock. The number of shares will be determined based on the
closing price of the Company's shares and the Company will be obligated to
register such with the SEC. The Company's negotiated price for this transaction
was $2.00 per share; however, the licensed technology was recorded at $0.30 per
share, the bid price for shares issued on the date of the transaction. In
accordance with SFAS 142, "Goodwill and Other Intangible Assets", the Company is
having an independent valuation conducted to assist in valuing the VedaLabs
technology. Should the book value of the VedaLabs technology be less than its
fair value in any future period, the Company will record an impairment expense
equal to the difference in book value and fair value. The impact or amount of
any such impairment, if any are required, is unknown at this time.
18
The decrease in current assets in the first quarter is primarily attributable to
a decrease in our prepaid expenses and deposits, from $18,011 at December 31,
2001 to $198 at June 30, 2002, accounting for $17,813, or 64% of the decrease in
current assets. In addition, a decrease in cash, from $10,624 at December 31,
2001 to $965 as of June 30, 2002, accounts for $9,659, or 35% of the decrease in
current assets. Both of these changes resulted in an increase in cash outflow.
Our primary source of capital since inception has been; the sale of stock to
our majority shareholder, BulletProof Business Plans, Inc. ("BulletProof"), for
$30,000 in cash, the sale of stock to BulletProof in exchange for expenses paid
on our behalf in the amount of $16,691, the conversion of $25,000 in notes
payable into common stock by BulletProof, and the forgiveness of $30,000 in
notes payable by BulletProof. In addition, BulletProof provided a total of
$39,333 in short-term demand advances and expenses paid on our behalf in 2001,
of which we repaid $33,470 under these obligations, leaving balance due of
$5,863 as of December 31,2001. In the six months ended June 30, 2002, we repaid
$8,863 of short-term advances and borrowed an additional $20,575 from
BulletProof. In addition to this source of cash flow, our revenue in 2001,
while insignificant as a total dollar amount, was a source of cash given the
limited cash requirements of our operations. In total, we received $53,500 in
cash from sales in 2001, along with $9,500 in cash from prepayments for
services, and $25,500 in additional paid-in-capital. In the second quarter of
2002 we received $4,200 in cash from sales. To realize the growth in our
network of professional service providers and licensed technology our business
model calls for, we will require far more cash than that which is required to
meet our minimum needs.
In order to preserve cash, we have prepaid the services of our officers,
directors and Concept Affiliates using our stock. Our ability to continue this
model in the future is critical to our success and our ability to continue as an
ongoing concern. During the six months ended June 30, 2002, our common stock
bid price was quoted at a low of $0.25 to a high of $1.30. However, our board
had approved the issuance of shares to new Concept Affiliates at a negotiated
value of $6.00 per share, although the low bid price would be used to record any
such transactions. As a result of the historical difference between negotiated
and bid prices per share, our ability to negotiate new Concept Affiliate
agreements in future periods may be adversely impacted. To the degree that our
stock price does not increase, we may have difficulty securing new agreements
with service providers, acquiring new technology and executing on our business
model.
ACCOUNTING FOR AFFILIATE COMPANY OWNERSHIP
The various interests that we acquire in our affiliate companies are accounted
for under the following: equity method and cost method. The applicable
accounting method is generally determined based on our voting interest and
control in an affiliate company.
Equity Method. The equity method of accounting is used to account for our
investment in affiliate companies and other investees in which we have a
significant voting interest (at least 20%). Under the equity method of
accounting, the
Company records its equity ownership share of the affiliate's earnings, losses,
and dividends paid.
Cost Method. The cost method of accounting is used to account for our investment
in affiliate companies and other investees in which we do not have significant
voting interest (less than 20% of the voting stock). Under the cost method of
accounting, our share of the earnings or losses of these companies is not
recorded. The investments are recorded at historical cost.
19
FACTORS THAT MAY AFFECT FUTURE RESULTS
We operate in a rapidly changing business environment that involves several
risks, many of which are beyond our control. Factors that could cause actual
results to differ materially from results anticipated in forward-looking
statements include, but are not limited to the following.
Dstage.com was incorporated in October of 1999 and has a limited operating
history from which to base an evaluation of its business and prospects. Since
inception, we have incurred losses and as of June 30, 2002 had an accumulated
deficit of $3,902,985.
Our revenues, operating income or net income in the future are unpredictable. As
a result of our limited operating history and the nature of the industries in
which we compete, we are unable to accurately forecast revenues, operating
income or net income. We anticipate continuing to incur significant operating
expenses in the future. Our business strategy is designed to utilize
professional services paid in our common stock in lieu of cash, which will
permit us to operate under lower cash levels than traditional operations. Our
current expense levels are based largely on the Company's efforts to develop its
business model and pursue initial sales; therefore, current expense levels are
not indicative of future expense levels. We can give no assurance that it will
achieve profitability or be capable of sustaining profitable operations.
Our quarterly results of operations may fluctuate widely. It is anticipated that
future quarterly operating results could fluctuate significantly and that
period-to-period comparisons of our results may not necessarily be meaningful or
indicative of future results. There are many factors that may contribute to
these quarterly fluctuations, some of which are beyond our control. Factors
include, but are not limited to: (i) Charges for impairment of long-lived assets
in future periods; (ii) Market acceptance of our ventures, services, and
products; (iii) Economic conditions specific to the industry in which we
operate; and (iv) General economic conditions. In the event that we are unable
to continue our business model due to a major shift in the economy or some other
unforeseen reason, we may have to adjust our business model to a more
traditional reliance on cash consideration. This event could have an impact on
net operating results by requiring us to obtain various loans to meet
obligations. This could result in interest payments and other debt expenses.
A substantial risk facing us is the issue of valuation of common stock in
negotiating common stock for service. We anticipate having to negotiate the
value of our stock in almost every transaction that we engage in; stock in
Dstage.com, private venture equity, interests in licensed technology, and other
assets, for which market prices are highly subjective. We will be dependent on
the vagaries of negotiation in many transactions. Negotiations may include
subjective assessments of an asset or investment's value; therefore, an initial
over-payment could result in an adverse consequence to our value when impairment
is determined.
We depend on key contractors and the loss of those contractors may harm us. Our
performance is dependent on the continued service and performance of our
executive officers. Our success is dependent on its ability to attract and
retain high quality personnel.
There may be conflicts of interest within our network. Our network of "Concept
Sponsors", "Concept Affiliates", officers and directors may face potential
conflicts of interest with each other and with Dstage.com shareholders. Some of
the our executive officers and directors also serve as officers or directors of
other companies.
We face competition from other investors, which may prevent us from realizing
strategic opportunities. We intend to develop an extensive network of resources
that will position us to acquire or invest in other companies. We expect to face
competition from Internet-related companies, venture capital firms, and large
corporations. Some of our competitors may have greater financial resources than
we do, which may limit our opportunity to acquire interests that could
compliment our business strategy.
We may experience adverse consequences in our efforts to avoid the investment
company status. The Investment Company Act of 1940 provides a set of regulations
for companies engaged in the business of investing, reinvesting, owning, holding
20
or trading securities. Under the Investment Company Act, a company may be deemed
an investment company if it owns investment securities with a value exceeding,
40% of its total assets, subject to certain exclusions and safe harbor
provisions.
We could become subject to regulation under the Investment Company Act if enough
of our future interests in our affiliates are considered investment securities.
Unless an exclusion or safe harbor provision was available to us, we would have
to reduce our investment securities as a percentage of total assets. In order to
avoid these regulations, we may have to take actions that we would not otherwise
choose to take. Regulations applicable to investment companies are inconsistent
with our fundamental business strategy of promoting collaboration among our
affiliates.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGE IN SECURITIES
NONE
ITEM 3. DEFULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - NONE
b. Reports filed during the last quarter covered by this report.
(1) Pursuant to Item 1., "Change In Control" and Item 2., "Acquisition or
Disposition of Assets", we filed a Current Report on Form 8-K dated May 29,
2002.
(2) Pursuant to Item 1., "Change In Control", we filed a Current Report on
Form 8-K dated July 22, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has dully caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dstage.com, Inc.
Dated: August 16, 2002
By:
/s/ Frank R. Maresca, Jr.
Frank R. Maresca, Jr., Chief Executive Officer, Director
/s/Jane Olmstead
Jane Olmstead, Director, Interim Chief Financial Officer, Audit Committee Member
21