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 quarter ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission File No. 0-12374
Digital Fuel, Inc.
------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 45-0375367
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6601 East Grant Road, Suite 101, Tucson, Arizona 85715
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
(520) 886-5354
--------------
(Registrant's telephone number including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares of common stock outstanding: 4,343,262 Shares of Common
Stock, par value $.01 per share, were outstanding as of November 13, 2001.
DIGITAL FUEL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Digital Fuel, Inc.
We have reviewed the accompanying condensed balance sheet of Digital Fuel,
Inc. as of September 30, 2001, and the related condensed statements of
operations and statement of cash flows for the nine-month period then ended.
These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
WATSON & WATSON CPAs, P.C.
Tempe, Arizona
November 12, 2001
F-2
DIGITAL FUEL, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 2001
(Unaudited)
ASSETS
Current assets:
Cash $89
--
Total current assets 89
--
Investments (Note 4):
Preferred Stock, SiteScape -0-
---
$89
===
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Notes payable:
Related parties (Note 2) $1,188,966
Other (Note 3) 250,000
Accounts payable:
Related parties 64,296
Other 145,094
Accrued management fees (Note 7) 256,667
Accrued interest expense, related parties (Note 2) 183,526
-------
Total current liabilities 2,088,549
---------
Shareholders' equity deficiency:
Preferred stock, $.01 par value; authorized
10,000,000 shares; issued -0- shares
Common stock, $.01 par value; authorized
20,000,000 shares; issued 4,343,262 shares 43,433
Capital in excess of par value 2,370,312
Accumulated deficit (4,502,205)
(2,088,460)
---------
$89
===
See Notes to Condensed Financial Statements
F-3
DIGITAL FUEL, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
Expenses:
General and administrative $ 2,995 $ 118,115
----- -------
Operating loss (2,995) (118,115)
----- -------
Interest expense:
Related parties (Note 2) 26,916 26,573
Other (Note 3) 5,625 5,892
------ ------
32,541 32,465
------ ------
Loss before extraordinary item (35,536) (150,580)
Other item:
Gain on extinguishment of debt (Note 6) 8,692
------ -----
Net loss $ (35,536) $ (141,888)
====== =======
Basic and diluted loss per common share: $* $(.11)
Weighted average no. of shares outstanding 4,343,262 1,237,323
========= =========
* less than $.01 per share
See Notes To Condensed Financial Statements
F-4
DIGITAL FUEL, INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
Expenses:
Research and development (Note 4) $ $ 94,050
Marketing and advertising (Note 4) 610,950
General and administrative 12,788 383,410
------ -------
Operating loss (12,788) (1,088,410)
------ ---------
Interest expense:
Related parties (Note 2) 80,055 74,174
Other (Note 3) 16,875 15,243
------ ------
96,930 89,417
------ ------
Loss before extraordinary item (109,718) (1,177,827)
Other item:
Gain on extinguishment of debt (Note 6) 35,870
------ ------
Net loss $ (109,718) $(1,141,957)
======= =========
Basic and diluted loss per common share:
Loss before extraordinary item $(.02) $(2.09)
Extraordinary item .06
--- ----
Net Loss $(.02) $(2.03)
=== ====
Weighted average no. of shares outstanding 4,343,262 562,009
========= =======
See Notes To Condensed Financial Statements
F-5
DIGITAL FUEL, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net loss $(109,718) $(1,141,957)
------- ---------
Adjustments to reconcile net loss
to net cash used in operations:
Non-cash expense in connection with
SiteScape investment (Note 4) 705,000
Change in operating liabilities:
Increase in accounts payable, related parties 5,640 38,747
Increase in accounts payable 1,433 23,045
Increase in accrued salaries (2,211) 182,893
Increase in accrued interest 16,875
Increase in accrued interest, related parties 80,054 68,677
------ ------
Total adjustments 101,791 1,018,362
------- ---------
Net cash used in operating activities (7,927) (123,595)
----- -------
Cash flows from financing activities:
Proceeds from notes payable-related parties (Note 2) 700 362,300
Repayments of notes payable-related parties (7,031)
Proceeds from notes payable, other (Note 3) 250,000
--- -------
Net cash provided by financing activities 700 605,269
--- -------
Cash flows from investing activities:
SiteScape stock purchase (Note 4) (500,000)
--- -------
Net cash used in investing activities (500,000)
--- -------
Increase (decrease) in cash (7,227) (18,326)
Cash, beginning 7,316 20,022
----- ------
Cash, ending $89 $1,696
== =====
During the nine months ended September 30, 2001, $-0- was paid for interest.
F-6
DIGITAL FUEL, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
1. Basis of presentation:
The financial statements of Digital Fuel, Inc. (The "Company") included
in this Form 10-QSB have been prepared without audit in accordance with
the rules and regulations of the Securities and Exchange Commission.
Although certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, the Company
believes that the disclosures are adequate to make the information
presented not misleading. The accompanying financial statements should
be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2000.
In the opinion of management, all adjustments, including normal recurring
adjustments, necessary for a fair presentation of the results of
operations for the three and nine-month periods ended September 30, 2001
and 2000 have been included. The results of operations for the interim
periods presented are not necessarily indicative of the results to be
expected for the full year.
On June 1, 2000, Deucalion held a Special Meeting of its stockholders to
consider and vote upon the reincorporation, recapitalization, and merger
of Deucalion with and into its wholly owned Delaware subsidiary, Digital
Fuel, Inc., as described in the Schedule 14C Information Statement filed
with the Securities and Exchange Commission on May 9, 2000 and
incorporated herein by reference. The effect of the transaction approved
at the Special Meeting includes: changing the name of the Company from
Deucalion Research, Inc. to Digital Fuel, Inc., effecting a one-for-6,800
reverse stock split, reducing the authorized capital of the Company from
1,500,000,000 shares to 30,000,000 shares, increasing the par value of
the Company's common stock from $.0001 to $.01 per share, and authorizing
the Board of Directors to issue up to 10,000,000 shares of blank check
preferred stock. All share and per share amounts in the accompanying
financial statements reflect the reverse stock split.
There has not been any change in the significant accounting policies of
the Company for the periods presented.
F-7
DIGITAL FUEL, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2. Notes payable, related parties:
Short-term:
Farley Family Partnership, 9%, unsecured, due on demand $200,000
Multiple advance promissory note, Metz Trust, maximum
borrowings of $150,000, 9%, unsecured, due on demand 107,700
Multiple advance promissory note, Grant Papanikolas, maximum
borrowings of $100,000, 9%, unsecured, due on demand 85,000
Multiple advance promissory note, Michael R. Farley, maximum
borrowings of $100,000, 9%, unsecured, due on demand 57,346
Multiple advance promissory note Farley & Associates, Inc.,
maximum borrowings of $800,000, 9%, unsecured,
due on demand 738,920
-------
$1,188,966
=========
Under the terms of the short-term notes, upon completion of the
recapitalization, the Company issued to Farley & Associates 100,000
shares, Farley Family Partnership 200,000 shares and Metz Trust 100,000
shares at par value of the Company's post recapitalization common stock.
Management believes that these shares have nominal market value based on
various factors including the Company's financial position and the fact
that there is no current market for the Company's stock.
The Farley Family Partnership note, entered into on September 30, 1999,
provided the Company with working capital. The Farley & Associates, Inc.
(F&A) note was entered into in connection with the Company's investment
activities. Farley Family Partnership and F&A are entities controlled by
Michael R. Farley, who is also an officer, director and major shareholder
of the Company. The Metz Trust note, entered into on October 28, 1999,
provided the Company working capital. The Metz Trust is an entity
controlled by Forrest L. Metz, who is also a member of the board of
directors and a major shareholder of the Company. The Papanikolas note,
entered into on February 22, 2000, provided the company with working
capital. Papanikolas is an officer of the Company. The Farley note,
entered into on April 28, 2000, provided the company with working
capital. Farley is an officer of the Company.
F-8
DIGITAL FUEL, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
3. Notes payable, other:
Short-term:
Townsdin, 9%, unsecured, due on demand $200,000
Torrance, 9%, unsecured, due on demand 50,000
------
$250,000
=======
The short-term notes were entered into during the three months ended
March 31, 2000, and provided the Company with working capital.
Under the terms of the short-term notes, upon completion of the
recapitalization, the Company issued to Torrance 50,000 shares at par
value of the Company's post recapitalization common stock. Management
believes that these shares have nominal market value based on various
factors including the Company's financial position and the fact that
there is no current market for the Company's stock. Additionally,
Townsdin and Torrance may convert through December 31, 2000, all or part
of any outstanding principal to post recapitalization Units at the rate
of $1.00 per Unit. Each Unit is to consist of one share of common stock
and one share of 8% preferred stock.
4. Option to purchase shares of SiteScape:
In February 2000, the Company exercised the remaining one-half of its
SiteScape option shares and purchased 258,333 shares of Preferred Stock
for $500,000. At the completion of the above-described transactions, the
Company owns 516,667 shares of SiteScape, Inc.'s Series A Convertible
Preferred Stock (the "Preferred Stock"), which represents approximately
20% of the voting stock of SiteScape.
The Preferred Stock has, among other rights, the right to vote on general
matters, the ability of a 1:1 conversion into Class A Voting Common Stock
of SiteScape, dividend participation with common shares, and the right to
elect two members to the Board of Directors of SiteScape. The Preferred
Stock is to be automatically converted to common stock if SiteScape
completes an initial public offering and realizes at least $20,000,000.
The Preferred stock is also entitled to receive dividends if, and when
declared by SiteScape's board of directors, at the cumulative rate of 8%
per year compounded annually. Dividends are due only if declared by the
board of directors and the tangible net worth of SiteScape exceeds $25
million. SiteScape is an Internet based start up company that acquired
AltaVista FORUM from Compaq Computer in April 1999. FORUM is a
F-9
DIGITAL FUEL, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
4. Option to purchase shares of SiteScape (continued):
collaboration software, which provides ways to communicate, share
resources, and collaborate with groups of people within a company or
across organizations. SiteScape is currently engaged in research and
development and marketing and advertising efforts to expand and grow
their customer base. The Company has and will continue to regularly
review the assumptions underlying the operation performance and cash flow
forecasts of SiteScape to assess the investment's recoverability.
Although SiteScape has revenues, it has operated at a loss. There are no
assurances that SiteScape will achieve profitability or that its existing
cash balances and cash flows from future operations will be sufficient to
meet its working capital requirements. SiteScape continues to consume
cash as it executes its business plan. During the second quarter of
2000, these circumstances had indicated that the Company should charge a
portion of SiteScape's research and development and marketing and
advertising expenses against the carrying value of its investment.
Therefore, during the three-month period ending June 30, 2000, the
Company recorded a charge of $57,420 for research and development
expenses and a charge of $203,580 for marketing and advertising expenses.
Relating to the six months ended June 30, 2000, the Company recorded a
charge of $94,050 for research and development expenses and a charge of
$610,950 for marketing and advertising expenses. As of June 30, 2000,
these charges have reduced the carry value of the Company's investment to
zero. During the nine months ending September 30, 2001, SiteScape has
continued to operate at a loss.
5. Stock Purchase Agreement:
Per the terms of the Stock Purchase Agreement, certain liabilities of
Deucalion were settled including $38,836 owed for legal fees and $93,412
owed for management service fees. These liabilities were settled through
the issuance of common stock equal to 1/2% or 10,538 shares and 1% or
21,076 shares, respectively, after completion of the reincorporation,
recapitalization, and merger. Effective August 31, 1999, the Stock
Purchase Agreement between the Company and Michael Farley and Forrest
Metz was closed. Under the agreement, Farley and Metz purchased
2,002,226 shares of common stock for $110,000. Effective August 31,
1999, the Company issued 147,766 shares in exchange for $100,000 and
after the reincorporation, recapitalization, and merger, the purchasers
were issued 1,855,460 additional shares of the Company's common stock in
exchange for the $10,000 in debt due to them.
6. Extraordinary Income:
From 1992 until July 1999 the Company was inactive. The current
management has embarked on settling certain outstanding payables that
have been on the books from 1992 to present. During the three months
ended March 31, 2000 and the three months ended September 30, 2000, the
F-10
DIGITAL FUEL, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
6. Extraordinary Income (continued):
company settled accounts payable with a carrying value of $42,370 for
$6,500, resulting in extraordinary income from the extinguishment of debt
of $35,870. The Company's net tax loss carryforward will be reduced by
this $35,870 gain.
In December 2000, the Company entered into an agreement with the original
license holders from whom we purchased the license agreements in late
1999. Because the Company has been unable to successfully use this
technology, the licenses were returned to the original owners and the
$45,000 financed by the original owners was forgiven. In addition, the
$205,000 due to the licensor, M2Direct, Inc., for services that were
never provided but charged on the Company's books as an expense in 1999,
has been reversed, resulting in recognition of $205,000 of income in
2000. The $45,000 due the original licensees is also recorded as income
in 2000. The Company has an agreement with the current licensees that
should the legal problems surrounding the licenses ever be resolved, the
Company would have the option to re-purchase the licenses under new terms
and conditions.
7. Accrued salaries:
For the year ending December 31, 2000, $165,000.00 of salary has been
accrued for Mr. Farley and $91,666.63 of salary has been accrued for Mr.
Papanikolas.
8. Income taxes:
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $4,000,000 which are available to offset future taxable
income, if any, through 2019. Based on statutory rates, the Company's
expected tax benefit arising from the net operating loss carryforward
would be approximately $700,000. A valuation allowance has been provided
to reduce the deferred tax asset, as realization of the asset is not
assured. In addition, the Company's net operating loss carryforwards may
be subject to annual limitations which could reduce or defer the
utilization of the losses due to the Company's ownership changes that
occurred in 1999.
F-11
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
FORWARD LOOKING STATEMENTS
This report may contain certain "forward-looking" statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 or by the
Securities and Exchange Commission in its rules, regulations and releases,
which represent our expectations or beliefs, including but not limited to,
statements concerning our operations, economic performance, financial
condition, growth and acquisition strategies, investments, and future
operational plans. For this purpose, any statements contained herein that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "will," "expect," "believe," "anticipate," "intent," "could,"
"estimate," "might," or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond our control, and actual results
may differ materially depending on a variety of important factors, including
uncertainty related to the registrant's operations, mergers or acquisitions,
governmental regulations, the value of the registrant's assets and any other
factors discussed in this and other registrant filings with the Securities
and Exchange commission.
Management's Discussion and Analysis and Plan of Operation.
Plan of Operation
As a result of the bankruptcy of M2Direct, Inc. and the possible elimination
of the license agreements as discussed in this report under the heading
"Licensed Software," management has decided to change the focus of the
business. During the next twelve-month period, we will actively seek to
acquire companies involved in the software development business and/or
Internet business. Because of the difficulty in raising working capital,
management believes there are a number of small companies seeking an
opportunity to expand their ability to raise capital by becoming part of
Digital Fuel.
The Company has entered into an agreement with an investment banking firm
that is actively seeking companies that fit Digital Fuel's requirement, and
several possibilities are under discussion.
Change in Control and Restructure of Deucalion
On July 29,1999 and effective August 31, 1999, the Stock Purchase Agreement
between the Company and Michael R. Farley and Forrest L. Metz was closed.
Effective August 31, 1999, we completed a transaction whereby we sold
approximately 95% of our post transaction voting common stock (2,002,226
shares) for an aggregate purchase price of $110,000. Also, effective August
31, 1999, the former directors and officers of Deucalion resigned and the
12
purchasers were elected as directors and officers of the Company. Pursuant
to the terms of the transaction, the purchasers paid us $100,000, in August
1999, of the purchase price in exchange 147,766 shares of the Company's
common stock. After the reincorporation, recapitalization, and merger, the
purchasers were issued 1,855,460 additional shares of the Company's common
stock in exchange for $10,000 in debt due to them.
Per the terms of the Stock Purchase Agreement, certain liabilities of
Deucalion were settled including $38,836 owed for legal fees and $93,412 owed
for management service fees. These liabilities were settled through the
issuance of common stock equal to 1/2% or 10,538 shares and 1% or 21,076
shares, respectively, after completion of the reincorporation,
recapitalization and merger. After the reincorporation, recapitalization and
merger, the purchasers were issued 1,855,460 additional shares of the
Company's common stock in exchange for $10,000 in debt due to them, which
resulted in the purchasers owning 95% of the Company.
As a result of a special meeting of the Shareholders on June 1, 2000, and
effective June 22, 2000, the domicile of the Company was changed from the
State of North Dakota to the State of Delaware by merging Deucalion with and
into its recently formed and wholly owned Delaware subsidiary Digital Fuel,
Inc. The merger also effected the following additional objectives: a 1-for-
6,800 reverse stock split, with fractional shares being rounded up to the
nearest whole share: a reduction in the authorized capital stock from
1,500,000,000 shares to 30,000,000; an increase in the par value of capital
stock from $.0001 to $.01 per share and the authorization of the Board of
Directors to issue up to 10,000,000 shares of blank check preferred stock.
Licensed Software
The Company received a letter on May 5, 2000 (dated May 3, 2000) informing us
that M2Direct had filed for protection under Chapter 11 on April 25, 2000 in
the Bankruptcy Court of the Northern District of Georgia, Atlanta Division.
As a result of receiving this notification, we have contacted a bankruptcy
attorney and will pursue the protection of our rights under these licenses.
We have been informed that there is an intellectual properties doctrine and
legal precedents that can be interpreted to provide us with the rights to the
software, if our licenses do not survive the impending bankruptcy
proceedings. All costs related to the Company's acquisition of the M2Direct
license rights were previously expensed in 1999.
Management has ceased all activity regarding the licenses as a result of the
bankruptcy filing by M2Direct, Inc., the licensor, and has turned over the
pursuit of all legal proceedings to the original licensees. Management has
retained an option to re-acquire the licenses if the appropriate source code
can be obtained by the original licensees. Management feels that it is an
opportunity worth pursuing.
SiteScape, Inc. Investment
SiteScape is an Internet based start up company that acquired AltaVista FORUM
from Compaq Computer in April 1999. FORUM is collaboration software that
provides ways to communicate, share resources, and collaborate with groups of
people within a company or across organizations.
13
In February 2000, the Company exercised the remaining one-half of its
SiteScape option shares and purchased 258,333 shares of Preferred Stock for
$500,000. At the completion of the above-described transactions, the Company
owns 516,667 shares of SiteScape, Inc.'s Series A Convertible Preferred Stock
(the "Preferred Stock"), which represents approximately 20% of the voting
stock of SiteScape.
The Preferred Stock has, among other rights, the right to vote on general
matters, the ability of a 5:1 conversion into Class A Voting Common Stock of
SiteScape, dividend participation with common shares and the right to elect
one member to the Board of Directors of SiteScape. The Preferred Stock is to
be automatically converted to common stock if SiteScape completes an initial
public offering and realizes at least $20,000,000. The preferred stock is
also entitled to receive dividends if, and when declared by SiteScape's board
of directors, at the cumulative rate of 8% per year compounded annually.
Dividends are due only if declared by the board of directors and the tangible
net worth of SiteScape exceeds $25 million.
Rainbow Investment
Consistent with our business strategy, our management identified this early
stage company and provided Rainbow Country, Inc. (Rainbow) with advances of
$25,245 in 1999. These funds were part of Rainbow's seed capital to continue
exploring the feasibility of delivering potable water to Tucson, Arizona.
This feasibility study included but was not limited to determining the costs
associated with securing the water rights, plus designing and building a
delivery system. In addition, some work was done to quantify the demand and
price point for deliverable water to Tucson.
The results of this effort has been the determination that the scope of this
project is beyond our technical and capital resources. Therefore, the
Company charged off the entire advance of $25,245 as expense in 1999. A
Settlement Agreement had been successfully negotiated providing the Company
with a promissory note in the amount of $25,245, due and payable not later
than December 1, 2000. However, the Settlement Agreement collapsed and the
Company has ceased all activity with Rainbow Country, Inc.
Management's Discussion and Analysis for the nine months ended
September 30, 2001
Results of Operations
From September 1992 until July 1999, the Company had no operations and
activities primarily consisted of maintaining the corporation's status as a
corporation in good standing with the state of North Dakota and negotiating
the Asset Purchase Agreement. From July 29, 1999 through September 30, 2001,
activities primarily consisted of bringing the Company's filings under the
Securities and Exchange Act of 1934 current, closing the Asset Purchase
Agreement, beginning the process to effect a reverse stock split, name change
and reincorporation into Delaware, seeking business opportunities in the
software and Internet businesses specifically the M2Direct licensing
agreements, the SiteScape investment and the Rainbow investment, and
accounting for these transactions. During the nine months ended September
30, 2001, the Company incurred general and administrative expenses of $12,788
related to these activities.
14
SiteScape is currently engaged in research and development and marketing and
advertising efforts to expand and grow their customer base. The Company has
and will continue to regularly review the assumptions underlying the
operation performance and cash flow forecasts of SiteScape to assess the
investment's recoverability. Although SiteScape has revenues, it has
operated at a loss. There are no assurances that SiteScape will achieve
profitability or that its existing cash balances and cash flows from future
operations will be sufficient to meet its working capital requirements.
SiteScape continues to consume cash as it executes its business plan. During
the second quarter of 2000, the Company did charge a portion of SiteScape's
research and development and marketing and advertising expenses against the
carrying value of its investment, which reduced the investment to zero on its
Balance Sheet. During the nine months ending September 30, 2001, SiteScape
has continued to operate at a loss.
The Company also incurred interest expense for the nine months ended
September 30, 2001 of approximately $96,930 in connection with the various
loans as described in the notes to the financial statements. Through
September 30, 2001, entities controlled by Mr. Farley and Mr. Farley himself
have made loans to the Company totaling $996,266 for certain investment
transactions and the ongoing cash needs of the Company.
Liquidity and Capital Resources
The independent auditors' report on the Company's financial statements as of
December 31, 2000, and for each of the years in the two-year period ended
December 31, 2000, includes a "going concern" paragraph that describes
substantial doubt about the Company's ability to continue as a going concern.
As of September 30, 2001, the Company had a working capital deficiency of
$2,090,707.
The Company anticipates a significantly increased need for working capital
during the remainder of 2001 to maintain the required filings under the
Securities and Exchange Act of 1934 in a timely fashion. The Company is
seeking additional working capital through debt and/or equity offerings,
which will be used for the above-described purposes and to market and further
develop the M2Direct technology once the bankruptcy proceedings have been
resolved.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Effective June 22, 2000, Deucalion Research, Inc.
("Deucalion") was merged into its wholly owned Delaware
subsidiary in a reincorporation/recapitalization merger which,
effected a one-for-6,800 reverse stock split, reduced the
authorized capital of the Company from 1,500,000,000 shares to
30,000,000 shares, increased the par value of the Company's
common stock from $.0001 to $.01 per share, and authorized the
Board of Directors to issue up to 10,000,000 shares of blank
check preferred stock.
15
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On June 1, 2000, Deucalion held a special meeting of its
stockholders to consider and vote upon the
reincorporation/recapitalization merger of Deucalion with and
into its wholly owned Delaware subsidiary, Digital Fuel, Inc.
("Special Meeting"), as described in the Schedule 14C
Information Statement filed with the Securities and Exchange
Commission on May 9, 2000 and incorporated herein by
reference. 998,000,000 shares were voted in favor of the
reincorporation/ recapitalization merger representing
approximately 66.9% of the shares of common stock entitled to
vote at the meeting. Because the principal stockholders of
the Company controlled enough shares to approve the
transaction, no other votes were solicited and there were no
votes against the proposal, no votes withheld, no broker non-
votes and no abstentions. The effect of the transaction
approved at the Special Meeting includes: changing the name of
the Company from Deucalion Research, Inc. to Digital Fuel,
Inc., effecting a one-for-6,800 reverse stock split, reducing
the authorized capital of the Company from 1,500,000,000
shares to 30,000,000 shares, increasing the par value of the
Company's common stock from $.0001 to $.01 per share, and
authorizing the Board of Directors to issue up to 10,000,000
shares of blank check preferred stock.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Description:
15 Letter on unaudited interim financial information
(See Independent Accountants' Report included
herein).
(b) The Company filed no reports on Form 8-K during the quarter
covered by this report.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DIGITAL FUEL, INC.
(Registrant)
By: /s/Michael R. Farley By: /s/Forrest L. Metz
Michael R. Farley Forrest L. Metz
Chief Executive Officer President and Chief
Financial Officer
Date: November 13, 2001
17