<PAGE>
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, 1999
( ) 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
Deucalion Research, Inc.
----------------------------------
(Exact Name of Registrant as Specified in its Charter)
North Dakota 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
-----
Number of shares of common stock outstanding: 1,499,610,127 Shares of Common
Stock, par value $.0001 per share, were outstanding as of March 13, 1999.
<PAGE>
DEUCALION RESEARCH, INC.
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DEUCALION RESEARCH, INC.
BALANCE SHEET
SEPTEMBER 30, 1999
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 191,171
Deposit $ 400,000
-----------
Total current assets 591,171
-----------
$ 591,171
===========
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Notes payable, related parties (Notes 3 and 4) $ 728,400
Accounts payable:
Related parties 2,774
Other 79,670
Accrued management service fees, former president and CEO 92,400
-----------
Total liabilities (all current) $ 903,244
-----------
Commitments (Note 4)
Shareholders' equity deficiency:
Common stock, $.0001 par value; authorized 1,500,000,000
shares; issued 1,499,610,127 shares 149,961
Capital in excess of par value 2,130,216
Accumulated deficit (2,592,250)
-----------
(312,073)
-----------
$ 591,171
===========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
DEUCALION RESEARCH, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Expenses:
General and administrative $ 243,541 $ 40
----------- -----------
Operating loss (243,541) (40)
----------- -----------
Interest expense, related parties 3,911
----------- -----------
Net loss $ (247,452) $ (40)
=========== ===========
Basic and diluted loss per common share $ * $ *
=========== ===========
Weighted average number of shares outstanding 990,613,429 501,610,127
</TABLE>
*Less than $.01 per share
See Notes to Financial Statements
F-3
<PAGE>
DEUCALION RESEARCH, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
Expenses:
General and administrative $ 245,214 $ 1,119
---------- -----------
Operating loss (245,214) (1,119)
---------- -----------
Interest expense 3,911
---------- -----------
Net loss $ (249,125) $ (1,119)
========== ===========
Basic and diluted loss per common share $ * $ *
========== ===========
Weighted average number of shares outstanding 666,402,449 501,610,127
</TABLE>
*Less than $.01 per share
See Notes to Financial Statements
F-4
<PAGE>
DEUCALION RESEARCH, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Capital in
Common stock excess Accumulated Treasury stock
----------------------- ----------------------
Shares Amount of par deficit Shares Amount Total
------------ --------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1999 517,859,353 $ 51,786 $2,384,509 $ (2,343,125) 16,249,226 $ (256,118) $(162,948)
Retirement of treasury shares (16,249,226) (1,625) (254,493) (16,249,226) 256,118
Issuance of common shares 998,000,000 99,800 200 100,000
Net loss (249,125) (249,125)
------------ --------- ---------- ------------ ----------- ---------- ---------
Balances, September 30, 1999 1,499,610,127 $ 149,961 $2,130,216 $ (2,592,250) $(312,073)
============= ========= ========== ============ =========== ========== =========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
DEUCALION RESEARCH, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (249,125) $ (1,119)
------------- ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash expense in connection with Site-
Scape option (Note 4) 600,000
Change in operating liabilities:
Decrease in prepaid expense 4,500
Increase in deposits (400,000)
Increase in accounts payable and accrued
expenses 1,881 964
------------- ------------
Total adjustments 206,381 964
------------- ------------
Net cash used in operating activities (42,744) (155)
------------- ------------
Net cash provided by financing activities:
Proceeds from notes payable, related parties
(Note 3) 200,000
Repayments of notes payable, related parties
(Note 3) (71,600)
Proceeds from the issuance of common stock 100,000
------------- ------------
Net cash provided by financing activities 228,400
------------- ------------
Increase (decrease) in cash 185,656 (155)
Cash, beginning 5,515 5,722
------------- ------------
Cash, ending $ 191,171 $ 5,567
============= ============
</TABLE>
During the nine months ended September 30, 1999, $3,911 was paid for interest.
See Notes to Financial Statements
F-6
<PAGE>
DEUCALION RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1. Basis of presentation:
The financial statements of Deucalion Research, 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, 1998.
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, 1999
and 1998 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.
2. Stock purchase agreement:
Effective August 31, 1999, the Company completed a transaction whereby the
Company sold approximately 67% of the post transaction voting common stock
for an aggregate purchase price of $110,000. Also, effective August 31,
1999 ("the Initial Closing Date"), the directors and officers of the
Company resigned and the purchasers were elected as directors and officers
of the Company.
Pursuant to the terms of the transaction, the purchasers paid the Company
$100,000 of the purchase price in exchange for 998,000,000 of shares of the
Company's common stock. Upon obtaining shareholder approval, the Company
will effect a recapitalization of the Company, which may include a reverse
stock split. After the reverse stock split and recapitalization, the
purchasers have agreed to pay the remaining $10,000 purchase price in
exchange for shares of the Company's common stock which will result in the
purchasers owning 95% of the Company.
F-7
<PAGE>
DEUCALION RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
2. Stock purchase agreement (continued):
The stock purchase agreement also provided for the settlement of certain
Company liabilities, including $38,836 owed for legal fees and $93,412 owed
for management service fees. The Company intends to settle these
liabilities through the issuance of common stock equal to 1/2% and 1%,
respectively, of the total outstanding common stock of the Company after
completion of the proposed transaction.
3. Notes payable, related parties:
Farley Family Partnership, 9%, due on demand $ 200,000
Farley & Associates, Inc. 9%, due on demand 528,400
-----------
$ 728,400
===========
The Farley Family Partnership note arose on September 30, 1999 and provided
the Company with $200,000 for cash needs of the Company. Farley Family
Partnership is a limited partnership controlled by the immediate family of
Michael R. Farley, who is also the president and CEO of the Company. The
Farley & Associates, Inc. ("F & A") notes arose on September 1, 1999 and
are described further in Note 4.
4. Option to purchase shares of SiteScape:
Effective September 1, 1999, the Company completed an agreement with F & A,
an Arizona corporation (which is wholly owned by Michael R. Farley, who is
also President and CEO of the Company and the majority shareholder of the
Company) whereby the Company acquired from F & A an option to purchase
516,667 shares of SiteScape, Inc.'s (SiteScape) Series A Preferred Stock
(the "Preferred Stock"). The Company acquired this option in exchange for a
$200,000 note payable, bearing interest at 9% and due on demand. The option
to purchase the SiteScape 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. The $200,000 represents reimbursement of travel
and other direct expenses incurred by F & A in connection with their
negotiations with SiteScape and also a fee for F & A's services. The
$200,000 has been recorded as general and administrative expense in the
accompanying statement of operations.
Prior to September 1999, F & A provided $400,000 to SiteScape as a deposit
on the option to purchase the Preferred Stock. On September 1, 1999, the
Company acquired F & A's rights to this deposit in exchange for a $400,000
note bearing interest at 9% and due on demand. This results in a total
notes payable to F & A of $600,000 through September 30, 1999. Payments of
$71,600 have been made on these notes.
F-8
<PAGE>
DEUCALION RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
4. Option to purchase shares of SiteScape (Continued):
Effective November 5, 1999, the Company exercised one-half of the SiteScape
option shares and purchased 258,334 shares of Preferred Stock at a total
cost of $500,000. The Company paid $100,000 cash directly to SiteScape, and
applied the $400,000 SiteScape deposit described above. In February 2000,
the Company exercised the remaining one-half of the 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
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 voting on the
election of the Board of Directors of SiteScape.
In addition, the preferred stock shall also be entitled to receive dividends
if, and which 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 collaboration software which
provides ways to communicate, share resources, and collaborate with groups
of people within a company or across organizations.
F-9
<PAGE>
Part 1. 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 THE REGISTRANT'S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED
TO, STATEMENTS CONCERNING THE REGISTRANT'S 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 THE REGISTRANT'S 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
REGULATION, 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
Stock Purchase Agreement
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. All
of the officers and directors tendered their resignations and Messrs. Farley
and Metz were elected to the Board of Directors. Mr. Metz was appointed
Chairman of the Board, and Mr. Farley was appointed Chief Executive Officer.
In August, the Company hired Grant S. Papanikolas as Chief Operating Officer.
The new management is preparing the necessary documents to cause the Company
to have a special shareholders meeting for the following purposes: 1) effect
a recapitalization of the Company which will include a reverse stock split
with a magnitude not yet determined; 2) change the name of the Company to
Digital Fuel, Inc.; 3) appoint independent accountants; and 4) change the
domicile of the Company to Delaware. As per the Stock Purchase Agreement, at
the completion of the reverse stock split and recapitalization, Messrs.
Farley and Metz will purchase additional shares of the common stock of the
Company and will end up owning 95% of the common stock of the Company.
F-10
<PAGE>
SiteScape, Inc. Investment
Effective September 1, 1999, the Company completed an agreement with Farley &
Associates, Inc. (F & A), an Arizona corporation (which is wholly owned by
Michael R. Farley, who is also President and CEO of the Company and the
majority shareholder of the Company) whereby the Company acquired from F & A
an option to purchase 516,667 shares of SiteScape, Inc.'s (SiteScape) Series
A Preferred Stock (the "Preferred Stock"). The Company acquired this option
in exchange for a $200,000 note payable, bearing interest at 9% and due on
demand. The option to purchase the SiteScape 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. The $200,000 represents reimbursement
of travel and other direct expenses incurred by F & A in connection with
their negotiations with SiteScape and also a fee for F & A's services. The
$200,000 has been recorded as general and administrative expense in the
accompanying statement of operations.
Prior to September 1999, F & A provided $400,000 to SiteScape as a deposit
on the option to purchase the Preferred Stock. On September 1, 1999, the
Company acquired F & A's rights to this deposit in exchange for a $400,000
note bearing interest at 9% and due on demand. This results in a total notes
payable to F & A of $600,000 through September 30, 1999. Payments of $71,600
have been made on these notes.
Effective November 5, 1999, the Company exercised one-half of the SiteScape
option shares and purchased 258,334 shares of Preferred Stock at a total cost
of $500,000. The Company paid $100,000 cash directly to SiteScape and applied
the $400,000 SiteScape deposit described above. In February 2000, the Company
exercised the remaining one-half of the SiteScape option shares and purchased
258,333 shares of Preferred Stock for $500,000.
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 voting on the
election of the Board of Directors of SiteScape.
In addition, the preferred stock shall also be entitled to receive dividends
at the cumulative rate of 8% per year compounded annually. Dividends are due
only if and when declared by the board of directors and the tangible net
worth of SiteScape exceeds $25 million.
SiteScape acquired AltaVista FORUM from Compaq Computer in April 1999, just
prior to CMGI's acquisition of the popular AltaVista search engine. FORUM was
conceived and developed by the Digital AltaVista team at a cost of tens of
millions of dollars in product development. The transaction provides value to
SiteScape in four areas.
1. A product with five years of rich technical development and broad
industry wide use.
2. All intellectual property and technical resources, including the
development team's senior engineering personnel.
3. An estimated global installed base of over 1,200 customers, the best of
the Fortune 1000.
4. The rights to use AltaVista Search engine, which is embedded in the
product.
F-11
<PAGE>
Originally, AltaVista created FORUM to fulfill a variety of "team
collaboration" or "groupware" needs. Today, the product leverages the
Internet for organizations that seek to enhance the functionality of existing
application investments. In the near future, FORUM will be used to extend
existing enterprise applications into the supply chain, the field and the
front office. Because of its open source and platform independence, FORUM
could become the standard web nervous system that provides the platform for
web-based applications.
Licensing Agreements
In 1999, the Company purchased, through loans made to the Company, various
software licensing agreements for $135,000. The software allows companies to
send secure digital information via the internet to prospective customers,
which can purchase the information by credit card.
Management's Discussion and Analysis for the three and nine months ended
September 30, 1999 and 1998
Results of Operations
During September 1992, the Company ceased active operations. Since that time
and through July 29, 1999, the Company's activities have primarily consisted
of maintaining the corporation's status as a corporation in good standing
with the state of North Dakota and accounting for its investment in
SiteScape. During the three and nine months ended September 30, 1999 the
Company incurred $200,000 of expense related to the SiteScape option (as
described above) and legal and accounting expense of approximately $23,500.
The Company also incurred interest expense of $3,911, in connection with a
related party loan of $600,000. In September 1999, entities controlled by Mr.
Farley made loans of $800,000 to the Company for certain investment
transactions and the ongoing cash needs of the Company of which $71,600 was
repaid prior to September 30, 1999.
Liquidity and Capital Resources
The independent auditors' report on the Company's financial statements as of
December 31, 1998, and for each of the years in the two-year period ended
December 31, 1998, includes a "going concern" paragraph that describes
substantial doubt about the Company's ability to continue as a going concern.
In 1999, the Company received $100,000 for the sale of a majority of its
common stock as described in Note 2 to the financial statements. The Company
also received $800,000 of loans from related parties as described in Notes 3
and 4 to the financial statements, of which $71,600 was repaid prior to
September 30, 1999.
As of September 30, 1999, the Company had a working capital deficiency of
$312,073. As described in Note 2 to the financial statements, the Company has
agreed to settle approximately $142,000 of current liabilities in exchange
for one and one-half percent of the Company's post reverse stock split common
stock as described in Note 2 to the financial statements.
The Company anticipates a significantly increased need for working capital
during the remainder of 1999 and 2000 as it brings its required filings under
the Securities and Exchange Act of 1934 current and finalizes the items in
the special shareholders meeting mentioned above. The Company also purchased
software-licensing agreements through the issuance of notes as described
above. The
F-12
<PAGE>
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 licensing agreement.
No capital expenditures have been made by the Company since December 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibit 27 - Financial data schedule
(b) The Company filed no reports on Form 8-K during the quarter
covered by this report
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.
DEUCALION RESEARCH, INC.
(Registrant)
By /s/ Michael R. Farley
--------------------------------------------
Michael R. Farley, Chief Executive Officer
By /s/ Forrest L. Metz
---------------------------------------------
Forrest L. Metz, President and Chief
Financial Officer
Date: March 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 591,171
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 591,171
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 591,171
<CURRENT-LIABILITIES> 903,244
<BONDS> 0
0
0
<COMMON> 149,961
<OTHER-SE> (462,034)
<TOTAL-LIABILITY-AND-EQUITY> 591,171
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 245,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,911
<INCOME-PRETAX> (249,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (249,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (249,125)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
