<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended - March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 0-25881
NetStaff, Inc.
(Name of Small Business Issuer in its charter)
Indiana 35-2065470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
168 South Park Street, San Francisco, California 94107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 908-1000
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 par value per share
(Title or class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the securities Exchange Act
of 1934 during the preceding 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 March 31, 2000, the Registrant has outstanding 13,500,000 shares of
Common Stock.
Traditional Small Business Disclosure Format (Check one):
Yes [X] No [ ]
<PAGE> 2
Netstaff, Inc.
(A Development Stage Company)
Balance Sheet
31-Mar-00
<TABLE>
ASSETS
<S> <C>
(unaudited)
Current assets:
Cash $ 788,418
Loans to officer 45,751
Prepaid expenses 33,585
-----------
Total current assets 867,754
Property and equipment - net of accumulated depreciation 222,445
Trademarks-net of accumulated amortization 14,598
-----------
$ 1,104,797
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 206,335
Accrued interest 21,417
Short term notes payable 22,600
-----------
Total current liabilities 250,352
-----------
Stockholders' equity
Preferred stock, $0.001 par value,
20,000,000 shares authorized, no shares issued
or outstanding -
Common stock, $0.001 par value,
100,000,000 shares authorized,
13,500,000 shares issued and outstanding 13,500
Additional paid in capital 2,917,756
Deficit accumulated during the
development stage (1,576,811)
-----------
1,354,445
Stock subscription receivable (500,000)
-----------
Total stockholders' equity 854,445
-----------
$ 1,104,797
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 3
Netstaff, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
June 21, 1996
(inception)
3 Months Ended 3 Months Ended Through
March 31 March 31 March 31
2000 1999 2000
------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenue $ - $ - $ 16,100
Costs and expenses:
General and administrative 519,984 21,793 1,662,290
Depreciation and Amortization 2,912 2,730 23,114
------------ ------------ ------------
(Loss) from operations (522,896) (24,523) (1,669,304)
------------ ------------ ------------
Other income (expense):
Office sub-lease income - 10,690 92,513
------------ ------------ ------------
Net (loss) $ (522,896) $ (13,833) $ (1,576,791)
============ ============ ==========
Per share information:
Weighted average number
of common shares outstanding - basic and diluted 13,500,000 7,385,436 7,236,134
============ ============ ==========
Net (loss) per common share - basic and diluted $ (0.04) $ (0.00) $ (0.23)
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 4
Netstaff, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
June 21, 1996
(inception)
3 Months Ended 3 Months Ended Through
March 31 March 31 March 31
2000 1999 2000
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (522,896) $ (13,833) $(1,576,791)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 2,912 2,730 23,227
Write off of Organizational Costs - - (45)
Loan forgiveness - - (5,000)
(Increase) decrease in prepaid expenses (26,043) - (33,743)
Increase in accounts payable 30,161 9,553 272,843
----------- ----------- -----------
Net cash (used in) operating activities (515,866) (1,550) (1,319,689)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (44,471) - (243,795)
Purchase of trademarks - - (16,269)
----------- ----------- -----------
Net cash (used in) investing activities (44,471) - (260,064)
----------- ----------- -----------
Cash flows from financing activities:
Loans made to officers 4,600 - (45,751)
Increase (decrease) in notes payable (84,500) 2,770 283,600
Issuance of preferred stock - - 35,000
Proceeds from the sale of common stock 500,000 - 2,095,322
----------- ----------- -----------
Net cash provided by financing activities 420,100 2,770 2,368,171
----------- ----------- -----------
Net increase in cash (140,237) 1,220 788,418
Beginning cash 928,655 45 -
----------- ----------- -----------
Ending cash $ 788,418 $ 1,265 $ 788,418
=========== =========== ===========
Supplemental cash flow information:
Non-cash investing and financing transactions:
Common stock issued in conversion of loans $ - $ - $ 161,000
Common stock issued in consideration for services
rendered $ - $ - $ 40,000
Cash paid for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 5
Netstaff, Inc.
(A Development Stage Company)
Notes to the Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on June 21, 1996 in the State of Delaware. The
Company is in the development stage and is in the business of providing an
Internet-based multiple listing service for the professional staffing and
recruiting industry.
On September 15, 1999, Netstaff, Inc. entered into a stock exchange agreement
with MAS Acquisition VIII Corp. (MAS), an Indiana Corporation, whose assets
consisted of intangibles of $45, whereby Netstaff agreed to merge into MAS,
pursuant to a tax-free reorganization. MAS became the surviving corporation.
Pursuant to the terms of the agreement, as of December 17, 1999 each common
share of Netstaff was exchanged for 5.0943 common shares of the MAS. A total of
1,669,505 shares of common stock of Netstaff were exchanged for 8,505,000 common
shares of MAS.
Software and website development costs
Product and website development costs incurred in developing the Company's
website are accounted for in accordance with SOP 98-1. Product and website
development costs include amounts incurred by the Company to develop, enhance,
manage, monitor and operate the Company's website. The Company has capitalized
software development costs totaling $148,452. The Company will start to amortize
these costs once operation has commenced.
Use of estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
NOTE 2. STOCK SUBSCRIPTION RECEIVABLE
The Company entered into a License Agreement, dated September 21, 1999, with
Commodore Sales Corporation ("Commodore") an unaffiliated third party. Pursuant
to the license agreement the Company granted Commodore a nontransferable, ten
year limited license for the purpose of exploiting the Company's multiple
listing service (MLS) within South Africa. Pursuant to the terms of the license
agreement, the Company is to receive a gross license fee of $2,000,000 (less
agreed upon expenses) payable in installments. On December 31, 1999, the
Company received $1,000,000 representing the first installment of the license
fee. The balance of the license fee is dependant upon milestones achieved by
the Company in terms of staffing companies or corporations registering with the
MLS
<PAGE> 6
Netstaff, Inc.
(A Development Stage Company)
Notes to the Financial Statements
service. In March 2000, the Company received the second installment of $500,000
and in May, 2000 the Company received another installment of $350,000. The
Company has been advised that in December 1999, Commodore purchased
approximately 1,000,000 shares of the Company's common stock from unaffiliated
shareholders of the Company at a nominal price and sold the shares to unrelated
third parties.
The Company has received documentation that Commodore has placed proceeds from
such sales of shares in trust with Clark, Wilson, a Canadian law firm in which
David J. Cowan, a director of the Company, is a partner. The Company has been
further advised that Commodore is using the proceeds to pay the above described
license fees. The Company has characterized the $2,000,000 fee as equity,
because management has concluded that the use of proceeds resulting from
transactions in shares of the Company are most appropriately reflected as equity
despite the execution of a license agreement.
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Company, one of its officers and one of its directors have been named as
defendants in a breach of contract action, seeking $21,000 plus punitive
damages. The Company and the individual defendants have answered the complaint
and made cross-claims against the plaintiff. A default judgement has been
entered against the individual defendants who intend to seek a court order to
set aside the default.
<PAGE> 7
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the quarter
ended March 31, 2000, are not necessarily indicative of the results that can be
expected for the year ending December 31, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE FINANCIAL STATEMENTS AND
THE NOTES TO THOSE STATEMENTS, APPEARING ELSEWHERE IN THIS REPORT.
Organization - Reverse Merger Treatment
NetStaff, Inc. was incorporated in Indiana on October 7, 1996, as
MAS Acquisition VIII Corp. ("MAS"). MAS acquired NetStaff, Inc., a Delaware
corporation ("NetStaff Delaware"), which was incorporated June 21, 1996, and the
entities were combined, pursuant to a Stock Exchange Agreement dated September
15, 1999 (the Stock Exchange Agreement), that provided for the merger of
NetStaff Delaware with and into MAS as the surviving entity, pursuant to a
tax-free reorganization in accordance with Sections 354 and 368 of the Internal
Revenue Code, as amended. Under the terms of the Stock Exchange Agreement, one
share of the common stock of NetStaff Delaware was to be converted into 5.0943
shares of common stock, par value $0.001 per share (the "Common Stock") of MAS.
In September 1999, in anticipation of the transactions set forth
in the Stock Exchange Agreement, MAS had increased the number of authorized
shares of Common Stock from 80 million to 100 million, effected an 11 for 1
forward split of its Common Stock and accepted the return of, and canceled,
88,722,800 shares of Common Stock from the sole director and officer of MAS.
In addition, in September 1999, coincident with the signing of
the Stock Exchange Agreement, and in furtherance of the transactions
contemplated therein, MAS changed its name to NetStaff, Inc. and also changed
its fiscal year end from March 31 to December 31. Further, pursuant to the terms
of the Stock Exchange Agreement, the sole director and officer of MAS resigned,
and the management of NetStaff Delaware filled the vacancies, thereby effecting
a change in control.
The closing of the Stock Exchange Agreement was effected, and the
reverse merger was completed pursuant to the statutory requirements of Indiana
and Delaware, on December 17, 1999, at which time, among other things, 1,669,505
shares of common stock of NetStaff Delaware, representing all the issued and
outstanding shares of NetStaff Delaware, were exchanged for 8,505,000 shares of
Common Stock of the Company. The 8,505,000 shares of Common Stock issued by the
Company in the exchange were not registered under the Securities Act of 1933, as
amended (the "Securities Act"), are "restricted securities" as defined therein
and are subject to the limitations of Rule 144 promulgated thereunder. After the
issuance of the 8,505,000 shares of Common Stock, the Company had a total of
13,500,000 shares of Common Stock issued and outstanding. Of the 13,500,000
shares of Common Stock that remained outstanding as of March 30, 2000,
approximately 2,842,750 shares of Common Stock were freely tradeable without
restriction in the public market unless the shares are held by affiliates.
Prior to the merger with NetStaff Delaware, the Company had no
significant operations and had never commenced any operational activities. Upon
the closing of the Stock Exchange Agreement, the Company acquired and assumed
the properties, intellectual property rights, operations, assets, liabilities
<PAGE> 8
and obligations of NetStaff Delaware. In conformance with generally accepted
accounting principles, the merger has been accounted for as a "reverse merger"
and the accounting survivor is the Company, an Indiana corporation, formerly
known as MAS.
Operating History
The Company is in the business of providing an Internet-based
multiple listing service for the professional staffing industry - the NetStaff
MLS. The NetStaff MLS brings together the resources of the staffing industry
with the needs of the corporate human resources community, primarily by offering
an aggregated database of pre-qualified screened candidates from staffing
companies that register with the MLS to employers and hiring companies that have
access to the Company's staffing industry Web portal at WWW.NETSTAFF.COM.
Employers and hiring companies do not pay a fee to review candidates in the MLS.
The Company earns a fee from staffing companies upon the successful placement of
a candidate through the NetStaff MLS.
The design and development of the NetStaff MLS commenced in 1997.
This design and development of the database technology and supporting
distribution systems were strengthened with feedback received from staffing
companies at the major staffing industry conventions in 1997. Fine tuning of
this database and distribution system occurred throughout 1998 and beta testing
began on the system at that time. The technologies and systems employed by the
Company were refined to provide for the diverse needs of not only multi-national
staffing firms, but also the small independent staffing firms that comprise the
majority of the fragmented staffing industry. Efforts throughout the years 1998
and 1999 were devoted to the pilot programs launched with several regional
staffing companies throughout the US. Upon the successful completion of the
pilot programs, the year end of 1999 and first quarter of 2000 was focused on
creating an effective marketing and sales rollout campaign for the Company, as
well as implementing necessary business and technology systems to allow the
Company to expand.
The Company now employs 14 full-time employees and plans to increase
employment to between 20 and 30 employees by year-end 2000. The additional
employees will be primarily in sales, customer service, and systems support.
Substantially all of the Company's technology systems development and support is
currently provided to the Company by a third-party consulting firm. The Company
anticipates that the additional costs incurred with the hiring of additional
systems personnel will be partially offset by a reduction in the services
provided by the consulting company.
The Company seeks to continually improve the systems handling and
supporting its MLS. This development effort is primarily focused on the software
used in running the systems and in the Company's computer hardware. During the
first six months of 2000, the Company anticipates spending between $250,000 and
$300,000 for the systems improvements. The equipment portion of the total
expenditures for systems improvements described above is estimated to be
approximately $150,000. No other significant capital additions are planned.
Liquidity and Capital Resources
The Company has incurred significant net losses and negative cash flows
from its inception as a development stage company, as a result of the
development and initial testing of its business model and operations. The
Company has funded these losses primarily from cash investments by the Company's
founders with repayment by the issuance of common stock to the Company's
founders and loans by third parties.
In the fourth quarter 1999, the Company entered into a limited license
agreement, granting territorial rights for the multiple listing service of the
Company's services in a foreign country, pursuant to which the licensee pays an
up-front, one-time license fee of $2 million, in three installments. The Company
received its first installment of the license fee in the amount of $1,000,000,
on December 31, 1999. In March 2000, the Company received an additional
$500,000, and in May 2000, the Company received an additional $350,000. The
<PAGE> 9
Company anticipates receiving the balance of the license fee, less agreed upon
expenses, in the second quarter of fiscal 2000.
Management is reporting this license fee as equity, as opposed to
revenue or income, because it has been advised that the licensee is paying the
license fee with proceeds from the licensee's purchase and sale of shares of the
Common Stock of the Company, substantially all of which occurred in the December
1999 time frame. Since the fee is being paid with such proceeds, the Company
believes it is appropriate to record and recognize such amounts as equity.
The Company believes that the estimated aggregate $2 million it will
receive will allow the Company to continue operations through September 2000. At
that time, the Company will need to raise capital by debt or equity on a private
basis or through a public offering. The Company believes that it will be
dependent in the foreseeable future on raising capital on a debt or equity basis
to meet its operating expenses and propel its strategic sales and marketing
plans. The Company anticipates that it will be able to continue to obtain
working capital through the proceeds of equity or debt financing on a private
basis, and may also consider exploring the availability of equity financing
through a public offering.
Operations.
Total expenses for the three months ended March 31, 2000 came to
$522,896, as compared to $21,793 incurred during the comparable time frame in
1999 (see the Statement of Operations in the accompanying financial statements).
The major increase in expenses is mainly attributable to increases in employee
wages and related costs($267,297 increase)professional fees ($111,815 increase),
advertising/promotional ($20,717 increase), and office expense ($42,344
increase). The Company went from no paid employees in the same period of 1999 to
an average employment of about 10 for the first three months of 2000. The
increased expenses of the Company for professional fees resulted primarily from
employment of third party professionals and independent contractors to meet the
company's development, technical and financial demands on a timely basis, as
well as associated costs relating to the launch and initial implementation of
its sales and marketing strategies.
PART II
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. See 8-K/A filed May 4, 2000 regarding change in auditors.
SIGNATURE
In accordance with the regiments of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated this 15th day of May, 2000
NETSTAFF, INC.
By: /s/ Patrick Rylec
Authorized Signator
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 788,418
<SECURITIES> 0
<RECEIVABLES> 45,751
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 867,754
<PP&E> 201,095
<DEPRECIATION> 21,350
<TOTAL-ASSETS> 1,104,797
<CURRENT-LIABILITIES> 250,352
<BONDS> 0
0
0
<COMMON> 2,431,301
<OTHER-SE> (1,576,811)
<TOTAL-LIABILITY-AND-EQUITY> 1,104,797
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 522,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (522,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (522,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (522,896)
<EPS-BASIC> (.04)
<EPS-DILUTED> 0
</TABLE>
