UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2008
or
[ ] 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. 000-16534
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 [ ] No [ X ]
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.)
Yes [ ] No [ X ]
Number of shares of common stock outstanding: 4,343,262 Shares of Common
Stock, par value $.01 per share, were outstanding as of October 29, 2008.
-1-
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
March 31,
2008 December 31,
(Unaudited) 2007
--------- ----
(Restated) (Restated)
ASSETS
Current assets
Cash and cash equivalents $ 577,957 $ 70
--------- ---------
Total current assets 577,957 70
Investments (Note 4) -- --
--------- ---------
Total assets $ 577,957 $ 70
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities
Accounts payable - related parties $ 4,964 $ 50,202
Accounts payable 62,567 112,699
Accrued expenses 27,398 296,571
Notes payable, related parties (Note 2) 3,153,765 3,062,152
Notes payable, other (Note 3) 625,481 607,312
--------- ---------
Total current liabilities 3,874,175 4,128,936
--------- ---------
Stockholders' (deficiency)
Preferred stock, $.01 par value,
10,000,000 shares authorized,
0 shares issued and outstanding -- --
Common stock, $.01 par value,
20,000,000 shares authorized,
4,343,262 shares issued and
outstanding at December 31, 2007
and March 31, 2008 43,433 43,433
Additional paid-in capital 2,378,981 2,378,981
(Deficit) accumulated prior to the
development stage (5,142,516) (5,142,516)
(Deficit) accumulated during the
development stage (576,116) (1,408,764)
--------- ---------
Total stockholders' (deficiency) (3,296,218) (4,128,866)
--------- ---------
Total liabilities and stockholders'
(deficiency) $ 577,957 $ 70
========= =========
The accompanying notes are an integral part
of these condensed financial statements.
-2-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months Cumulative Period
Ended Ended January 1, 2004
March 31, March 31, to
2008 2007 March 31, 2008
---- ---- --------------
(Restated) (Restated) (Restated)
Revenue $ -- $ -- $ --
------- ------- ---------
Operating expenses
Rent 316 316 5,364
Accounting -- -- 3,765
Management fees 18,440 2,494 73,844
General and administrative 375 69 3,348
------- ------- ---------
Total operating expenses 19,131 2,879 86,321
------- ------- ---------
Income (loss) from operations (19,131) (2,879) (86,321)
------- ------- ---------
Other income (expense), net
Interest (expense) - related party (91,613) (82,023) (1,210,250)
Interest (expense) - other (18,536) (16,630) (241,473)
Gain on forgiveness of liabilities 20,235 -- 20,235
Gain on sale of investment 941,693 -- 941,693
------- ------- ---------
Total other income (expense), net 851,779 (98,653) (489,795)
------- ------- ---------
Income (loss) before taxes 832,648 (101,532) (576,116)
Provision for income taxes -- -- --
------- ------- ---------
Net income (loss) $832,648 $(101,532) $(576,116)
======= ======= =========
Net income (loss) per share, basic and diluted $.19 $(.02)
=== ===
Weighted average number of common shares
outstanding, basic and diluted 4,343,262 4,343,262
========= =========
The accompanying notes are an integral part
of these condensed financial statements.
-3-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' (DEFICIENCY)
Period from January 1, 2004 to March 31, 2008
(Unaudited)
(Deficit) (Deficit)
Accumulated Accumulated
Common Stock Additional Prior to the During the
-------------------- Paid-in Development Development
Shares Amount Capital Stage Stage Total
--------- ------ --------- --------- --------- ---------
Balances, January 1, 2004 4,343,262 $43,433 $2,378,981 $(5,142,516) $ (--) $(2,720,102)
Net (loss) (--) (--) (--) (--) (297,435) (297,435)
--------- ------ --------- --------- --------- ---------
Balances, December 31, 2004 4,343,262 43,433 2,378,981 (5,142,516) (297,435) (3,017,537)
Net (loss) (--) (--) (--) (--) (331,762) (331,762)
--------- ------ --------- --------- --------- ---------
Balances, December 31, 2005 4,343,262 43,433 2,378,981 (5,142,516) (629,197) (3,349,299)
Net (loss) (restated) (--) (--) (--) (--) (368,776) (368,776)
--------- ------ --------- --------- --------- ---------
Balances, December 31, 2006 4,343,262 43,433 2,378,981 (5,142,516) (997,973) (3,718,075)
Net (loss) (restated) (--) (--) (--) (--) (410,791) (410,791)
--------- ------ --------- --------- --------- ---------
Balances, December 31, 2007 4,343,262 43,433 2,378,981 (5,142,516) (1,408,764) (4,128,866)
Net income (restated) (--) (--) (--) (--) 832,648 832,648
--------- ------ --------- --------- --------- ---------
Balances, March 31, 2008 4,343,262 $43,433 $2,378,981 $(5,142,516) $(576,116) $(3,296,218)
========= ====== ========= ========= ========= =========
The accompanying notes are an integral part
of these condensed financial statements.
-4-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months Cumulative Period
Ended Ended January 1, 2004
March 31, March 31, to
2008 2007 March 31, 2008
---- ---- --------------
(Restated) (Restated) (Restated)
Cash flows from operating activities:
Net income (loss) $832,648 $(101,532) $(576,116)
Adjustments to reconcile net income (loss)
to cash provided (used) by operating
activities:
Gain on sale of investment (941,693) -- (941,693)
Change in operating liabilities:
Increase (decrease) in accounts
payable, related parties (45,238) 316 (44,491)
(Decrease) in accounts payable (50,132) (4,586) (48,377)
Increase in accrued interest 109,782 98,653 1,449,147
Increase (decrease) in accrued expenses (269,173) 2,495 (238,774)
------- ------- ---------
Net cash provided (used) by operating
activities (363,806) (4,654) (400,304)
------- ------- ---------
Cash flows from investing activities:
Proceeds from sale of investment 941,693 -- 941,693
------- ------- -------
Net cash provided by investing
activities 941,693 -- 941,693
------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable-related parties -- 4,600 36,450
------- ------- -------
Net cash provided by financing
activities -- 4,600 36,450
------- ------- -------
Net increase (decrease) in cash 577,887 (54) 577,839
Cash, beginning of period 70 133 118
------- ------- -------
Cash, end of period $577,957 $ 79 $577,957
======= ======= =======
Supplemental disclosure of non-cash investing
and financing activities:
Interest paid $(--) $(--) $2,209
== == =====
The accompanying notes are an integral part
of these condensed financial statements.
-5-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The financial statements of Digital Fuel, Inc. (the "Company") included
in this Form 10-Q/A 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
included in the Company's Annual Report on Form 10-KSB/A for the fiscal
year ended December 31, 2007.
In the opinion of management, all adjustments, including normal
recurring adjustments, necessary for a fair presentation of the results
of operations for the three-month periods ended March 31, 2008 and 2007
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.
There has not been any change in the significant accounting policies of
the Company for the periods presented.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (revised 2007) ("SFAS No. 141R"), Business
Combinations, which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree in a business combination. SFAS
No. 141R also establishes principles around how goodwill acquired in a
business combination or a gain from a bargain purchase should be
recognized and measured, as well as provides guidelines on the
disclosure requirements on the nature and financial impact of the
business combination. SFAS No. 141R is effective for fiscal years
beginning after December 15, 2008. The Company is evaluating the
potential effect that the adoption of SFAS No. 141R will have on our
financial statements.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160 ("SFAS No. 160"), Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which
changes the accounting and reporting for minority interests. Minority
interests will be recharacterized as noncontrolling interests and will
be reported as a component of equity separate from the parent's equity,
and purchases or sales of equity interests that do not result in a
change in control will be accounted for as equity transactions. In
addition, net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement
and, upon a loss of control, the interest sold, as well as any interest
-6-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company is evaluating the
potential effect that the adoption of SFAS No. 160 will have on our
financial statements.
We have reviewed all other recently issued, but not yet effective,
accounting pronouncements and do not believe the future adoption of any
such pronouncements may be expected to cause a material impact on our
financial condition or the results of our operations.
Going Concern Considerations
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred
net operating losses in 2008 and 2007, and has a working capital
deficiency of $3,296,218 and a stockholders' deficiency of $3,296,218 at
March 31, 2008. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the
outcome of these uncertainties. Management's plans in regard to these
matters include:
a. Continued financing of certain operating transactions through the
use of related party debt (Note 2).
b. Seeking additional working capital through debt and/or equity
offerings, which will be used to further market and develop its
licensing agreements and/or other potential investment
opportunities.
-7-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 2. Notes Payable, Related Parties
As of March 31, 2008 and December 31, 2007, the Company has the
following Notes Payable arrangements with related parties:
March 31, December 31,
2008 2007
---- ----
Farley Family Partnership, 12%, unsecured,
due 12/31/2000 $ 200,000 $ 200,000
Forrest L. Metz, 12%, unsecured,
due 12/31/2000 150,000 150,000
Metz Trust multiple advance promissory note,
maximum borrowings of $150,000, 12%,
unsecured, due 12/31/2000 180,275 180,275
Grant Papanikolas multiple advance promissory
note, maximum borrowings of $100,000,
12%, unsecured, due 12/31/2000 85,000 85,000
Michael Farley multiple advance promissory note,
maximum borrowings of $100,000, 12%,
unsecured, due 12/31/2000 65,650 65,650
Farley & Associates multiple advance promissory
note, maximum borrowings of $800,000,
12%, unsecured, due 12/31/2000 588,920 588,920
Interest accrued to note balances 1,883,920 1,792,307
--------- ---------
$3,153,765 $3,062,152
========= =========
During the three months ended March 31, 2008 and 2007, the Company
accrued and charged to interest expense $91,613 and $82,023,
respectively. During the three months ended March 31, 2008 and 2007,
the Company was advanced $0 and $4,600, respectively, by Michael
Farley under his multiple advance promissory note.
-8-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 3. Notes Payable, Other
As of March 31, 2008 and December 31, 2007, the Company has the
following Notes Payable, other:
March 31, December 31,
2008 2007
---- ----
Townsdin, 12%, unsecured, due 12/31/2000 $200,000 $200,000
Torrance, 12%, unsecured, due 12/31/2000 50,000 50,000
Interest Accrued to note balances 375,481 357,312
------- -------
$625,481 $607,312
======= =======
During the three months ended March 31, 2008 and 2007, the Company
accrued and charged to interest expense $18,536 and $16,630,
respectively. There were no advances under the notes during the three
months ended March 31, 2008 and 2007.
Note 4. Investments
Effective September 1, 1999, the new management completed an agreement
with Farley & Associates, Inc., an Arizona corporation ("F&A"), wholly
owned by Michael R. Farley who is also chief executive officer, a
director and a majority stockholder of Digital Fuel, whereby Digital
Fuel acquired from F&A an option to purchase 516,667 shares of Series A
Preferred Stock of SiteScape, Inc. ("SiteScape"). SiteScape is a
provider of open collaboration software, including teaming plus
conferencing products and they acquired AltaVista FORUM from Compaq
Computer in April 1999. AltaVista FORUM is collaboration software that
provides ways to communicate, share resources and collaborate with
groups of people within a company or across organizations.
We acquired this option to purchase shares of SiteScape in exchange for
a $200,000 draw on a multiple advance promissory note extended to us by
F&A of up to $800,000, bearing interest at 9% and due on demand (the
"F&A Note"). The option to purchase the SiteScape Series A Convertible
Preferred Stock was originally agreed to through negotiations between
F&A and SiteScape and allows F&A (or its designee) to purchase 516,667
shares of SiteScape Preferred Stock at an exercise price of $1.9354 per
share.
Prior to September 1999, F&A provided $400,000 to SiteScape as a deposit
on the option to purchase the Series A Convertible Preferred Stock. On
September 1, 1999, we acquired F&A's rights to this deposit in exchange
for a $400,000 draw on the F&A Note.
Effective November 5, 1999, we exercised one-half of the SiteScape
option shares and purchased 258,334 shares of Series A Convertible
Preferred Stock at a total cost of $500,000. We paid $100,000 cash
directly to SiteScape and applied the $400,000 SiteScape deposit
-9-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
described above. In February 2000, we exercised the remaining one-half
of the SiteScape option shares and purchased 258,333 shares of Series A
Convertible Preferred Stock for $500,000. At that point, we owned
approximately 20% of the voting stock of SiteScape.
On June 30, 2001, SiteScape issued to us options to purchase 103,338
shares of its common stock at $1.93 per share. Based on the SAIC Venture
Capital Corporation ("SAIC") investment described below, the common
shares of SiteScape had a value substantially less than the option
price.
In October of 2001, SiteScape received a term sheet from SAIC to
purchase up to $2.5 million of its Series B Convertible Preferred Stock.
On March 12, 2002 the first transaction was closed. The Series B
Convertible Preferred Stock sold to the new investors was senior to our
Series A Convertible Preferred Stock in both payment of dividends and
distribution. Each share of Series B Convertible Preferred Stock was
sold for $.4164 per share and could be redeemed for $0.6246 per share or
1.5 times the original investment.
As part of the investment agreement, the domicile of SiteScape was
changed to Delaware and the Series A Convertible Preferred Stock was
split 5 for 1. We then owned 2,583,335 shares of Series A Convertible
Preferred Stock. Prior to January 1, 2004, this investment in SiteScape
was deemed impaired, thus, the investment was written off as a loss.
SiteScape was acquired then by Novell pursuant to an Agreement and Plan
of Merger dated February 13, 2008 for approximately $18.5 million in
cash and SiteScape became a fully owned subsidiary of Novell. As a
result of the acquisition, all holders of outstanding shares of
SiteScape were given the right to receive a cash payment in exchange for
their stock. As a holder of 6.5% of SiteScape's stock, on a fully
diluted basis, we received a cash payment of $941,693 in February 2008,
which is included in other income (expense). A portion of the purchase
price, $181,142, was placed in an escrow account which will be released
to us in increments within eighteen months (18) after the closing of the
SiteScape Merger, in the event that Novell does not seek indemnification
for inaccuracies contained in the representations and warranties of
SiteScape in the merger agreement.
-10-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5. Income Taxes
At March 31, 2008, the Company had a net operating loss carryforward of
approximately $4,000,600, which is available to offset future taxable
income, if any, through 2021. Based on statutory rates, the Company's
expected tax benefit arising from the net operating loss carryforward
would be approximately $1,360,200. 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
carryforward 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.
The reduction in the deferred tax assets is attributable to the
application of the tax net operating loss carryforward to fully offset
income for the first quarter of 2008.
Note 6. Related Party Activity
During the three months ended March 31, 2008 and 2007, the Company
accrued and charged to interest expense for the notes payable to
related parties $91,613 and $82,023, respectively. During the three
months ended March 31, 2008 and 2007, the Company was advanced $0 and
$4,600, respectively, by Michael Farley under his multiple advance
promissory note. The notes payable to related parties and accrued
interest balances at March 31, 2008 and December 31, 2007 were
$3,153,765 and $3,062,152, respectively.
As of March 31, 2008, the Company owed $4,648 to officers of the Company
for unpaid management fees. Additionally, the Company owed $316 to
officers of the Company for expenses incurred on the Company's behalf at
March 31, 2008.
Note 7. Restatement of Financial Statements
We amended our Company's Quarterly Report for the period ended March 31,
2008 to restate the interest expense accrued on related party notes
payable as of March 31, 2008 and 2007, as well as prior periods. Other
miscellaneous accruals were also adjusted. Reclassifications were made
to properly disclose related party balances. In addition, as part of the
amendment, we have reclassified the portion of the accumulated deficit
incurred prior to our classification as a development stage enterprise
as a separate component of stockholders' deficiency.
The following tables set forth the effects of the restatement on
previously reported financial statements as of, and for the period ended
March 31, 2008:
-11-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
As Previously
Reported Restated
March 31, March 31,
2008 2008
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 577,957 $ 577,957
--------- ---------
Total current assets 577,957 577,957
Investments (Note 4) 181,142 --
--------- ---------
Total assets $ 759,099 $ 577,957
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICENCY)
Current liabilities
Accounts payable - related parties $ -- $ 4,964
Accounts payable 245,181 62,567
Accrued expenses 911,225 27,398
Notes payable, related parties (Note 2) 1,269,845 3,153,765
Notes payable, other (Note 3) 250,000 625,481
--------- ---------
Total current liabilities 2,676,251 3,874,175
--------- ---------
Stockholders' (deficiency)
Preferred stock, $.01 par value -- --
Common stock, $.01 par value 43,433 43,433
Additional paid-in capital 2,370,312 2,378,981
(Deficit) accumulated (4,330,897) --
(Deficit) accumulated prior to the
development stage -- (5,142,516)
(Deficit) accumulated during the
development stage -- (576,116)
--------- ---------
Total stockholders' (deficiency) (1,917,152) (3,296,218)
--------- ---------
Total liabilities and stockholders'
(deficiency) $ 759,099 $ 577,957
========= =========
-12-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
As Previously
Reported Restated Cumulative Period
Three Months Three Months January 1, 2004
Ended Ended to
March 31, 2008 March 31, 2008 March 31, 2008
-------------- -------------- --------------
Revenue $1,122,835 $ -- $ --
--------- -------- ---------
Operating expenses
Rent -- 316 5,364
Accounting -- -- 3,765
Management fees -- 18,440 73,844
General and administrative 16,481 375 3,348
--------- -------- ---------
Total operating expenses 16,481 19,131 86,321
--------- -------- ---------
Income (loss) from operations 1,106,354 (19,131) (86,321)
--------- -------- ---------
Other income (expense), net
Interest (expense) - related party (28,511) (91,613) (1,210,250)
Interest (expense) - other (5,992) (18,536) (241,473)
Gain on forgiveness of liabilities 20,235 20,235 20,235
Gain on sale of investment -- 941,693 941,693
--------- -------- ---------
Total other income (expense), net (14,268) 851,779 (489,795)
--------- -------- ---------
Income (loss) before taxes 1,092,086 832,648 (576,116)
Provision for income taxes -- -- --
--------- -------- ---------
Net income (loss) $1,092,086 $832,648 $(576,116)
========= ======== =========
Net income (loss) per share, basic and diluted $.25 $.19
=== ===
Weighted average number of common shares
outstanding, basic and diluted 4,343,262 4,343,262
========= =========
-13-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
As Previously
Reported Restated Cumulative Period
Three Months Three Months January 1, 2004
Ended Ended to
March 31, 2008 March 31, 2008 March 31, 2008
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $1,092,086 $832,648 $(576,116)
Adjustments to reconcile net income (loss)
to cash provided (used) by operating
activities:
Gain on sale of investment -- (941,693) (941,693)
Change in operating liabilities:
(Decrease) in accounts payable,
payable, related parties (45,554) (45,238) (44,491)
(Decrease) in accounts payable (50,339) (50,132) (48,377)
Increase in accrued interest 34,503 109,782 1,449,147
(Decrease) in accrued expenses (271,667) (269,173) (238,774)
------- ------- -------
Net cash provided (used) by operating
activities 759,029 (363,806) (400,304)
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of investment -- 941,693 941,693
Holdback from sale of interest in SiteScape (181,142) -- --
------- ------- -------
Net cash provided (used) by investing
activities (181,142) 941,693 941,693
------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable-related
parties -- -- 36,450
------- ------- -------
Net cash provided by financing activities -- -- 36,450
------- ------- -------
Net increase (decrease) in cash 577,887 577,887 577,839
Cash, beginning of period 70 70 118
------- ------- -------
Cash, end of period $577,957 $577,957 $577,957
======= ======= =======
Supplemental disclosure of non-cash investing
and financing activities:
Interest paid $(--) $(--) $2,209
== == ====
-14-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The following tables set forth the effects of the restatement on
previously reported financial statements as of, and for the period ended
December 31, 2007:
As Previously
Reported Restated
December 31, December 31,
2007 2007
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 70 $ 70
--------- ---------
Total current assets 70 70
Investments (Note 4) -- --
--------- ---------
Total assets $ 70 $ 70
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities
Accounts payable - related parties $ 45,554 $ 50,202
Accounts payable 289,528 112,699
Accrued expenses 271,667 296,571
Notes payable, related parties (Note 2) 2,152,559 3,062,152
Notes payable, other (Note 3) 250,000 607,312
--------- ---------
Total current liabilities 3,009,308 4,128,936
--------- ---------
Stockholders' (deficiency)
Preferred stock, $.01 par value -- --
Common stock, $.01 par value 43,433 43,433
Additional paid-in capital 2,370,312 2,378,981
(Deficit) accumulated (5,422,983) --
(Deficit) accumulated prior to the
development stage -- (5,142,516)
(Deficit) accumulated during the
development stage -- (1,408,764)
--------- ---------
Total stockholders' (deficiency) (3,009,238) (4,128,866)
--------- ---------
Total liabilities and stockholders'
(deficiency) $ 70 $ 70
========= =========
-15-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
As Previously
Reported Restated Cumulative Period
Three Months Three Months January 1, 2004
Ended Ended to
March 31, 2007 March 31, 2007 March 31, 2007
-------------- -------------- --------------
Revenue $ -- $ -- $ --
------- ------- ---------
Operating expenses
Rent -- 316 4,102
Accounting -- -- 3,290
Management fees -- 2,494 44,047
General and administrative 69 69 2,473
------- ------- ---------
Total operating expenses 69 2,879 53,912
------- ------- ---------
Income (loss) from operations (69) (2,879) (53,912)
------- ------- ---------
Other income (expense), net
Interest (expense) - related party (28,265) (82,023) (872,566)
Interest (expense) - other (5,988) (16,630) (173,027)
------- ------- ---------
Total other income (expense), net (34,253) (98,653) (1,045,593)
------- ------- ---------
Income (loss) before taxes (34,322) (101,532) (1,099,505)
Provision for income taxes -- -- --
------- ------- ---------
Net income (loss) $(34,322) $(101,532) $(1,099,505)
======= ======= =========
Net income (loss) per share, basic and diluted $(.008) $(.02)
==== ===
Weighted average number of common shares
outstanding, basic and diluted 4,343,262 4,343,262
========= =========
-16-
DIGITAL FUEL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
As Previously
Reported Restated Cumulative Period
Three Months Three Months January 1, 2004
Ended Ended to
March 31, 2007 March 31, 2007 March 31, 2007
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $(34,322) $(101,532) $(1,099,505)
Change in operating liabilities:
Increase (decrease) in accounts
payable, related parties (4,585) 316 (4,074)
Decrease in accounts payable -- (4,586) (683)
Increase in accrued interest 34,253 98,653 1,044,856
Increase in accrued expenses -- 2,495 22,917
------- ------- ---------
Net cash (used) by operating activities (4,654) (4,654) (36,489)
------- ------- ---------
Cash flows from financing activities:
Proceeds from notes payable-related
parties 4,600 4,600 36,450
------- ------- ---------
Net cash provided by financing activities 4,600 4,600 36,450
------- ------- ---------
Net increase (decrease) in cash (54) (54) (39)
Cash, beginning of period 133 133 118
------- ------- ---------
Cash, end of period $ 79 $ 79 $ 79
======= ======= =========
Supplemental disclosure of non-cash investing
and financing activities:
Interest paid $(--) $(--) $2,209
== == =====
-17-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Notes Regarding the Forward Looking Statements
This report contains forward-looking statements that are based on our current
expectations, assumptions, beliefs, estimates and projections about our
company, our industry and other related industries. The forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from those described in the forward-
looking statements. Generally, these forward-looking statements can be
identified by the use of forward-looking terminology such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "project," "should" and
variations of such words or similar expressions. 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 those discussed under Item 1A, "Risk
Factors."
We caution you that reliance on any forward-looking statement involves risks
and uncertainties, and that although we believe that the assumptions on which
our forward-looking statements are based are reasonable, any of those
assumptions could prove to be inaccurate, and, as a result, the forward-
looking statements based on those assumptions could be incorrect. In light of
these and other uncertainties, you should not conclude that we will
necessarily achieve any plans and objectives or projected financial results
referred to in any of the forward-looking statements. We do not undertake to
release the results of any revisions of these forward-looking statements to
reflect future events or circumstances.
Effecting a Business Combination
We are currently in the process of identifying and evaluating targets for an
initial transaction. We have not entered into any definitive business
combination agreements. We have virtually unrestricted flexibility in
identifying and selecting a prospective acquisition candidate. Accordingly,
there is no basis for investors to evaluate the possible merits or risks of
the target business with which we may ultimately complete a business
combination. Although our management will endeavor to evaluate the risks
inherent in a particular target business, we cannot assure you that we will
properly ascertain or assess all significant risk factors.
Investment in Preferred Stock Shares of SiteScape, Inc.
Effective September 1, 1999, the new management completed an agreement with
Farley & Associates, Inc., an Arizona corporation ("F&A"), wholly owned by
Michael R. Farley who is also chief executive officer, a director and a
majority stockholder of Digital Fuel, whereby Digital Fuel acquired from F&A
an option to purchase 516,667 shares of Series A Preferred Stock of
SiteScape, Inc. ("SiteScape"). SiteScape is a provider of open collaboration
software, including teaming plus conferencing products and they acquired
AltaVista FORUM from Compaq Computer in April 1999. AltaVista FORUM is
collaboration software that provides ways to communicate, share resources and
collaborate with groups of people within a company or across organizations.
-18-
We acquired this option to purchase shares of SiteScape in exchange for a
$200,000 draw on a multiple advance promissory note extended to us by F&A of
up to $800,000, bearing interest at 9% and due on demand (the "F&A Note").
The option to purchase the SiteScape Series A Convertible Preferred Stock was
originally agreed to through negotiations between F&A and SiteScape and
allows F&A (or its designee) to purchase 516,667 shares of SiteScape
Preferred Stock at an exercise price of $1.9354 per share.
Prior to September 1999, F&A provided $400,000 to SiteScape as a deposit on
the option to purchase the Series A Convertible Preferred Stock. On September
1, 1999, we acquired F&A's rights to this deposit in exchange for a $400,000
draw on the F&A Note.
Effective November 5, 1999, we exercised one-half of the SiteScape option
shares and purchased 258,334 shares of Series A Convertible Preferred Stock
at a total cost of $500,000. We paid $100,000 cash directly to SiteScape and
applied the $400,000 SiteScape deposit described above. In February 2000, we
exercised the remaining one-half of the SiteScape option shares and purchased
258,333 shares of Series A Convertible Preferred Stock for $500,000. At that
point, we owned approximately 20% of the voting stock of SiteScape.
On June 30, 2001, SiteScape issued to us options to purchase 103,338 shares
of its common stock at $1.93 per share. Based on the SAIC Venture Capital
Corporation ("SAIC") investment described below, the common shares of
SiteScape had a value substantially less than the option price.
In October of 2001, SiteScape received a term sheet from SAIC to purchase up
to $2.5 million of its Series B Convertible Preferred Stock. On March 12,
2002 the first transaction was closed. The Series B Convertible Preferred
Stock sold to the new investors was senior to our Series A Convertible
Preferred Stock in both payment of dividends and distribution. Each share of
Series B Convertible Preferred Stock was sold for $.4164 per share and will
be redeemed for $0.6246 per share or 1.5 times the original investment.
As part of the investment agreement, the domicile of SiteScape was changed to
Delaware and the Series A Convertible Preferred Stock was split 5 for 1. We
then owned 2,583,335 shares of Series A Convertible Preferred Stock which
had, among other rights, the right to vote on general matters and the
election of one member to the seven member Board of Directors of SiteScape,
the ability of a one for one conversion into the common stock of SiteScape
and dividend participation with common shares. We then owned approximately
6.5% of SiteScape on a fully diluted basis.
In addition, both the Series A and Series B Convertible Preferred Stock were
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 were due only if the tangible net worth of SiteScape exceeds $25
million and if declared by the Board of Directors of SiteScape. As of
December 31, 2007, no dividends were declared by SiteScape. The Series A
dividends are junior to the Series B Convertible Preferred Stock dividends,
but senior to the common stock dividends.
-19-
SiteScape Acquisition by Novell, Inc.
Pursuant to an Agreement and Plan of Merger dated February 13, 2008, Novell,
Inc. acquired SiteScape, for approximately $18.5 million in cash and
SiteScape became a fully owned subsidiary of Novell (the "SiteScape Merger").
As a result of the acquisition, all holders of outstanding shares of
SiteScape were given the right to receive a cash payment in exchange for
their stock. As a holder of 6.5% of SiteScape's stock, on a fully diluted
basis, we received a cash payment of $941,693 in February 2008. A portion of
the purchase price, $181,142, was placed in an escrow account which will be
released to us in increments within eighteen months (18) after the closing of
the SiteScape Merger, in the event that Novell does not seek indemnification
for inaccuracies contained in the representations and warranties of SiteScape
in the merger agreement.
Results of Operations
Analysis of three months ended March 31, 2008 and 2007:
We have neither engaged in any operation nor generated any revenue since
reverting to the development stage on January 1, 2004. Our entire activity
since January 1, 2004 has been to identify and investigate targets for a
potential business combination. We will not generate any operating revenue
until consummation of a business combination. During the three months ended
March 31, 2008 and 2007, we incurred $19,131 and $2,879, respectively, in
total operating expenses.
We incurred interest expense for the three months ended March 31, 2008 and
2007 of $110,149 and $98,653, respectively, in connection with our
outstanding debt. As of March 31, 2008, entities controlled by Mr. Farley and
Mr. Farley personally have loans outstanding to us totaling $854,570 for
certain investment transactions and our ongoing cash needs. As of March 31,
2008, an entity controlled by Mr. Metz and Mr. Metz personally have loans
outstanding to us totaling $330,275 for certain investment transactions and
our ongoing cash needs.
Liquidity and Capital Resources
As of March 31, 2008, the Company had assets equal to $577,957, comprised
exclusively of cash and cash equivalents. The Company's current liabilities
as of March 31, 2008 totaled $3,874,175 comprised of $4,964 of accounts
payable to related parties, $62,567 of accounts payable, $27,398 of accrued
expenses, $3,153,765 of notes payable and accrued interest due to related
parties, and $625,481 of other notes payable and accrued interest.
-20-
The following is a summary of the Company's cash flows provided by (used in)
operating, investing and financing activities:
Cumulative
Three Months Three Months Period From
Ended Ended January 1, 2004
March 31, March 31, to March 31,
2008 2007 2008
---- ---- ----
Net cash provided (used) by
operating activities $(363,806) $(4,654) $(400,304)
Net cash provided by investing
activities $941,693 -- $941,693
Net cash provided by financing
activities -- $4,600 $36,450
Net increase (decrease) in cash $577,887 $(54) $577,839
The Company has nominal assets and has generated no revenues since re-
entering the development stage on January 1, 2004. The Company is also
dependent upon the receipt of capital investment or other financing to fund
its ongoing operations and to execute its business plan of seeking a
combination with a private operating company. In addition, the Company is
dependent upon certain related parties to provide continued funding and
capital resources. If continued funding and capital resources are unavailable
at reasonable terms, the Company may not be able to implement its plan of
operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports filed or submitted by the
Company under the Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the SEC. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports filed under the Exchange Act is
accumulated and communicated to the Company's management, including its
officers, as appropriate, to allow timely decisions regarding required
disclosure.
The Company carried out an evaluation, under the supervision and with
the participation of its officers, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of the end
of the period covered by this report. Based upon and as of the date of that
evaluation, the Company's officers concluded that the Company's disclosure
controls and procedures are not effective to ensure that information required
to be disclosed in the reports the Company files and submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
-21-
(b) Management's Annual Report on Internal Control over Financial
Reporting
Our officers are responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Internal control over financial reporting
refers to the process designed by, or under the supervision of, our officers,
and affected by our Board of Directors, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.
The Company is not in compliance with Section 404 of the Sarbanes-Oxley
Act of 2002, and as of March 31, 2008 cannot state whether or not our
internal controls over financial reporting are effective as we did not
document such controls nor test such controls.
(c) Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal controls over
financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the
Exchange Act during the three months ended March 31, 2008, that materially
affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In August 2002, we entered into an agreement with Gelfond Hochstadt Pangburn,
PC, a company that previously provided accounting services to us. We were
required in the terms of the agreement to make monthly payments to Gelfond
Hochstadt Pangburn to pay down the outstanding bills. In July 2005, we were
unable to continue such payments, and as a result, a judgment was filed with
the District Court in Denver County, Colorado against Digital Fuel, Inc. in
the amount of $19,592.74. We were required to pay that balance plus 8% in
interest from June 30, 2006 until such time as the obligation has been paid
in full. On April 7, 2008 we agreed to settle all outstanding obligations
with Gelfond Hochstadt Pangburn for $15,000.
Item 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed
in the Company's Annual Report on Form 10-KSB/A for the fiscal year ended
December 31, 2007.
Item 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
-22-
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
(a) Exhibit Description:
31.1 -- Certification of Michael R. Farley pursuant to Exchange Act
Rule 13a-14(a)/15d-14(a).
32.1 -- Certification of Michael R. Farley pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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.
By: /s/ Michael R. Farley
-------------------------
Michael R. Farley
Chief Executive Officer
Date: October 29, 2008
-23-