U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT UNDER SECTION 12 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _______.
Commission file number 0-27453
LOGIO, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 84-1370590
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
405 East 12450 South, Suite B,
Draper, Utah 84020
(Address of Principal Executive Offices) (Zip Code)
801.816.9904
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No __
As of October 31, 2000 18,425,830 shares of registrant's Common Stock, par
value $0.001 per share, were outstanding.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements Required by Form 10-Q
The accompanying unaudited consolidated financial statements of Logio,
Inc., formerly WordCruncher Internet Technologies, Inc. (the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to the rules and regulations of the
Securities and Exchange Commission. They do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These financial statements should be read
in conjunction with the notes herein and the consolidated financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1999, which are incorporated herein by reference. The
accompanying financial statements have not been examined by independent
accountants in accordance with generally accepted auditing standards, but in
the opinion of management, all adjustments (consisting of normal recurring
entries) necessary for the fair presentation of the Company's results of
operations, financial position and changes therein for the periods presented
have been included. The results of operations for the quarter and nine months
ended September 30, 2000 may not be indicative of the results that may be
expected for the year ending December 31, 2000.
<PAGE>
Logio, Inc.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
------------- -------------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 171,226 $ 1,055,371
Short term investments - 1,462,147
Accounts receivable, net of allowance for
doubtful accounts of $6,000
as of September 30, 2000
(none as of December 31, 1999) 28,815 736
Interest receivable - 1,983
Note receivable - 1,955
Prepaid assets 68,748 311,199
------------- -------------
Total current assets 268,789 2,833,391
------------- -------------
PROPERTY & EQUIPMENT, net 1,480,493 1,930,335
OTHER ASSETS 5,811 6,011
------------- -------------
$ 1,755,093 $ 4,769,737
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term capital
lease obligations $ 312,880 $ 299,983
Accounts payable (Note 2) 99,866 306,349
Accrued expenses 57,091 86,319
Note payable (Note 2) 96,116 659,682
------------- -------------
Total current liabilities 565,953 1,352,333
CAPITAL LEASE OBLIGATIONS, less current maturities 38,582 253,350
COMMITMENTS AND CONTINGENCY (Notes 2, 6 and 7) - -
STOCKHOLDERS' EQUITY (Notes 3, 4, 5 and 6)
6% preferred stock, par value $0.01; liquidation
preference $1,000; authorized 15,000 shares;
issued and outstanding none as of September 30,
2000 and 6,300 as of December 30, 1999 - 63
Common stock, par value $0.001; authorized
60,000,000 shares; issued and outstanding
17,270,830 as of September 30, 2000 and
11,891,002 as of December 31, 1999 17,271 11,891
Additional paid-in capital 18,371,258 15,362,028
Accumulated other comprehensive income - 7,940
Deficit accumulated during the development stage (17,237,971) (12,217,868)
------------- -------------
Total stockholders' equity 1,150,558 3,164,054
------------- -------------
$ 1,755,092 $ 4,769,737
============= =============
The accompanying notes are an integral part of these financial statements
<PAGE>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
amounts Three months ended Nine months ended
since September 30, September 30,
inception 2000 1999 2000 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Advertising $ 2,180 $ 646 $ - $ 2,180 $ -
Product 130,517 - 1,213 - 15,285
------------- ------------- ------------- ------------- -------------
132,697 646 1,213 2,180 15,285
Cost of sales 472,648 140,161 231 440,907 4,330
------------- ------------- ------------- ------------- -------------
Gross profit (loss) (339,951) (139,515) 982 (438,727) 10,955
------------- ------------- ------------- ------------- -------------
Research and development 3,263,488 113,264 266,379 1,672,316 596,395
Selling and marketing
expenses 1,651,787 28,417 357,046 658,034 534,000
General and
administrative 2,740,861 326,393 252,989 976,183 780,651
Depreciation and
amortization 802,134 205,137 42,288 606,141 80,949
Compensation expense
for stock options 2,083,853 50,400 430,801 631,242 1,135,988
------------- ------------- ------------- ------------- -------------
Total operating
expenses 10,542,123 723,611 1,349,503 4,543,916 3,127,983
------------- ------------- ------------- ------------- -------------
Loss from operations (10,882,074) (863,126) (1,348,521) (4,982,643) (3,117,028)
Other income (expense)
Interest income 261,665 20,167 61,181 55,002 158,428
Financing charges
(Note 3) (133,703) (133,703) - (133,703) -
Interest expense (151,661) (33,431) (652) (96,422) (3,561)
Loss on disposal of
equipment (2,215) (2,215) - (2,215) -
------------- ------------- ------------- ------------- -------------
(25,914) (149,182) 60,529 (177,338) 154,867
------------- ------------- ------------- ------------- -------------
Loss before
extraordinary item (10,907,988) (1,012,308) (1,287,992) (5,159,981) (2,962,161)
Extraordinary gain
(Notes 2 and 3) 204,238 204,238 - 204,238 -
------------- ------------- ------------- ------------- -------------
NET LOSS (10,703,750) (808,070) (1,287,992) (4,955,743) (2,962,161)
Deduction for dividends
and accretion (6,534,221) - (1,519,113) (64,360) (6,239,007)
Net loss attributable to
common stockholders $(17,237,971) $ (808,070) $ (2,807,105) $ (5,020,103) $ (9,201,168)
============= ============= ============= ============= =============
Net loss per common
share - basic and
diluted (Note 4):
Before extraordinary
item and deduction
for dividends and
accretion $ (1.39) $ (0.06) $ (0.11) $ (0.38) $ (0.25)
Extraordinary gain 0.03 0.01 - 0.02 -
Deduction for dividends
and accretion (0.83) - (0.13) (0.01) (0.52)
------------- ------------- ------------- ------------- -------------
Net loss per common
share attributable
to common
stockholders $ (2.19) $ (0.05) $ (0.24) $ (0.37) $ (0.77)
============= ============= ============= ============= =============
Weighted-average number
of shares outstanding-
basic and diluted 7,839,426 16,644,408 11,881,611 13,509,126 11,879,881
============= ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 2000 (unaudited)
and years ended December 31, 1999, 1998, 1997,
and period from November 5, 1996 (inception) to December 31, 1996
Deficit
Accumulated accumulated
Additional other during the
Price per Preferred Stock Common Stock paid-in comprehensive development
Date share Shares Amount Shares Amount capital income stage
------ --------- -------- -------- ----------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at November 5,
1996 - $ - - $ - - $ - $ - $ - $ -
Net loss - - - - - - - - -
-------- -------- ----------- ------- ------------ ------------ ------------
Balances at December 31,
1996 - - - - - - - - -
Issuance of stock for
cash to organizers Jan-97 0.001 - - 622,500 623 52 - -
Issuance of stock for
cash Feb-97 0.001 - - 67,500 67 8 - -
Issuance of stock for
licence agreement Feb-97 - - - 110,742 111 (111) - -
Issuance of stock to
employees for
services Sep-97 0.333 - - 252,450 252 83,898 - -
Issuance of stock for
services Aug-97 1.092 - - 37,875 38 41,337 - -
Net loss for the year - - - - - - - - (335,218)
-------- -------- ----------- ------- ------------ ------------ ------------
Balances at December 31,
1997 - - - - 1,091,067 1,091 125,184 - (335,218)
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Nine months ended September 30, 2000 (unaudited)
and years ended December 31, 1999, 1998, 1997,
and period from November 5, 1996 (inception) to December 31, 1996
Deficit
Accumulated accumulated
Additional other during the
Price per Preferred Stock Common Stock paid-in comprehensive development
Date share Shares Amount Shares Amount capital income stage
------ --------- -------- -------- ----------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock
for cash Jul-98 4.17 - - 120,000 120 499,880 - -
Reverse acquisition and
reorganization
adjustment Jul-98 - - - 9,885,435 9,886 (8,550) - -
Issuance of stock
for cash Jul-98 0.725 - - 690,000 690 499,310 - -
Issuance of stock for
debt conversion Jul-98 0.96 - - 13,500 13 12,987 - -
Issuance of stock for
services Oct-98 1.90 - - 39,000 39 70,161 - -
Issuance of stock for
software technology Oct-98 1.80 - - 13,000 13 23,387 - -
Issuance of stock for
insurance coverage Nov-98 1.00 - - 25,000 25 24,975 - -
Net loss for the year - - - - - - - - (482,909)
------ --------- -------- -------- ----------- ------- ------------ ------------ ------------
Balances at December 31,
1998 - - - - 11,877,002 11,877 1,247,334 - (818,127)
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Nine months ended September 30, 2000 (unaudited)
and years ended December 31, 1999, 1998, 1997,
and period from November 5, 1996 (inception) to December 31, 1996
Deficit
Accumulated accumulated
Additional other during the
Price per Preferred Stock Common Stock paid-in comprehensive development
Date share Shares Amount Shares Amount capital income stage
------ --------- -------- -------- ----------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of warrants for
consulting services Jan-99 - - - - - 258,000 - -
Issuance of preferred
stock for cash, net of
offering costs Feb-99 1,000 6,100 61 - - 5,719,839 - -
Issuance of preferred
stock for cash, net of
offering costs Mar-99 1,000 200 2 - - 187,998 - -
Issuance of common stock
for exercise of options Jun-99 0.11 - - 2,000 2 21,998 - -
Issuance of common stock
for exercise of options Aug-99 0.10 - - 4,000 4 396 - -
Issuance of common stock
for conversion of debt Dec-99 3.25 - - 8,000 8 25,992 - -
Issuance of stock
options to employees Jan-
for compensation Dec 99 - - - - - 1,430,610 - -
Accretion of intrinsic
value of preferred Feb-
stock Dec 99 - - - - - 6,131,944 - (6,131,944)
Dividends on preferred Feb-
stock Dec 99 - - - - - 337,917 - (337,917)
Unrealized gain on
short-term investments - - - - - - - 7,940 -
Net Loss for the year - - - - - - - - (4,929,880)
-------- -------- ----------- ------- ------------ ------------ ------------
Balances at December 31,
1999 - - 6,300 63 11,891,002 11,891 15,362,028 7,940 (12,217,868)
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Nine months ended September 30, 2000 (unaudited)
and years ended December 31, 1999, 1998, 1997,
and period from November 5, 1996 (inception) to December 31, 1996
Deficit
Accumulated accumulated
Additional other during the
Price per Preferred Stock Common Stock paid-in comprehensive development
Date share Shares Amount Shares Amount capital income stage
------ --------- -------- -------- ----------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for exercise of options Jan 00 0.10 - - 2,000 2 198 - -
Issuance of common stock
for exercise of warrants Jan 00 5.00 - - 100,000 100 499,900 - -
Conversion of preferred
stock to common stock Feb 00 - (2,500) (25) 248,016 248 (223) - -
Issuance of common stock
for exercise of options Mar 00 0.10 - - 12,000 12 1,188 - -
Issuance of common stock
for exercise of warrants Mar 00 7.00 - - 58,000 58 405,942 - -
Conversion of preferred
stock to common stock Mar 00 - (3,800) (38) 376,984 377 (339) - -
Issuance of common stock
for reset shares Mar 00 - - - 727,756 728 (728) - -
Dividends on preferred Jan-
stock Mar 00 - - - - - 64,360 - (64,360)
Issuance of common stock
for preferred dividends
paid Mar-00 - - - 61,650 62 (62) - -
Issuance of common stock
for exercise of options Apr-00 0.10 - - 2,000 2 198 - -
Issuance of stock for
conversion of notes 0.20-
payable (Note 3) Sep-00 0.2510 - - 3,165,000 3,165 806,514 - -
Issuance of stock for
conversion of notes
payable to shareholders 0.81-
(Notes 2 and 3) Sep-00 0.82 - - 626,422 626 511,040 - -
Issuance of warrants
for consulting May -
services Sep 00 - - - - - 90,000 - -
Issuance of stock options
to employees for Jan -
compensation Sep 00 - - - - - 631,242 - -
Unrealized gain on Jan-
marketable securities Sep 00 - - - - - - 6,071 -
Net realized gain on Jan-
marketable securities Jun 00 - - - - - - (14,011) -
Net loss for the interim
period ended September
30, 2000 - - - - - - - - (4,955,743)
-------- -------- ----------- ------- ------------ ------------ ------------
Balances at September 30,
2000 - - - $ - 17,270,830 $17,271 $18,371,258 $ - $(17,237,971)
======== ======== =========== ======= ============ ============ ============
The accompanying notes are an integral part of this financial statement
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
amounts Nine months
since ended September 30,
inception 2000 1999
------------- ------------- -------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $(10,703,750) $ (4,955,743) $ (2,962,161)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation & amortization 802,134 606,141 80,949
Loss on disposal of equipment 2,215 2,215 -
Bad debt expense 6,000 6,000 -
Financing charge for stock conversion 133,703 133,703 -
Issuance of common stock and options
for compensation and other expenses 2,083,853 631,242 1,135,988
Issuance of warrants for consulting services 348,000 90,000 171,552
Extraordinary gain (204,238) (204,238) -
Changes in assets and liabilities
Accounts receivable (34,815) (34,079) (1,485)
Interest receivable - 1,983 (3,840)
Prepaid expenses and other assets (68,748) 242,451 15,294
Accounts payable 99,866 (77,336) 56,428
Accrued expenses 57,091 (14,586) 7,607
------------- ------------- -------------
Total adjustments 3,225,061 1,383,496 1,462,493
------------- ------------- -------------
Net cash used in operating activities (7,478,689) (3,572,247) (1,499,668)
------------- ------------- -------------
Cash flows from investing activities
Purchases of property and equipment (1,387,428) (92,829) (751,981)
(Increase) decrease in short-term investments - 1,454,207 (3,065,648)
Repayment of notes receivable from related
parties 117,700 1,955 -
Notes receivable issued to related parties (117,700) - 97,531
(Increase) decrease in other assets (5,811) 200 (5,076)
------------- ------------- -------------
Net cash provided by (used in)
investing activities (1,393,239) 1,363,533 (3,725,174)
------------- ------------- -------------
Cash flows from financing activities
Proceeds from issuance of common stock 2,292,762 907,600 22,400
Proceeds form issuance of preferred stock 6,300,000 - 6,300,000
Cash paid for fees associated with preferred
stock issuance (392,100) - (392,100)
Proceeds from issuance of notes payable
to related parties 1,423,000 1,423,000 -
Principal payments of notes payable to
related parties (250,000) (250,000) -
Principal payments under capital lease
obligations (532,401) (267,556) (16,006)
Proceeds from issuance of long term
obligations and notes payable 998,682 - -
Principal payments of long-term obligations
and notes payable (796,789) (488,475) (120,000)
------------- ------------- -------------
Net cash provided by financing activities 9,043,154 1,324,569 5,794,294
------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents 171,226 (884,145) 569,452
Cash and cash equivalents at beginning of period - 1,055,371 425,702
------------- ------------- -------------
Cash and cash equivalents at end of period $ 171,226 $ 171,226 $ 995,154
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 147,679 $ 98,551 $ 3,673
Cash paid during the period for income taxes - - -
</TABLE>
<PAGE>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
Non-cash financing activities:
During the nine months ended September 30, 2000 and 1999, the Company
purchased $65,685 and $3,594, respectively, in property and equipment
through capital lease obligations.
Also during the nine months ended September 30, 2000, a total of 6,300
shares of the Company's convertible preferred stock were converted into
625,000 shares of the Company's common stock. Convertible preferred
shareholders were also issued 727,756 and 61,650 shares of the Company's
common stock during the nine months ended September 30, 2000 for reset
provisions and cumulative dividends, respectively (Note 3).
During the nine months ended September 30, 2000, the Company settled
$244,670 in vendor payables for $51,225 in cash and $70,000 in stock.
These settlements resulted in $123,445 of forgiven debt and
extraordinary gain.
During the nine months ended September 30, 2000, the Company settled
$290,793 in notes payable and accrued interest for $210,000 in cash.
This settlement resulted in $80,793 of forgiven debt and extraordinary
gain.
During the nine months ended September 30, 2000, the Company converted a
total of $676,246 in debt and interest to 3,165,000 shares of the
Company's common stock at prices ranging from $0.2012 to $0.2510 per
share. The conversions resulted in a financing charge of $133,703
representing those conversions with price differences between fair
market values of the common stock on the dates of conversion and the
conversion prices.
During the nine months ended September 30, 2000, the Company converted a
total of $500,000 in notes payable to shareholders and interest of
$11,666 into 626,422 shares of the Company's common stock at prices
ranging from $0.81 to $0.82 per share. The conversions resulted in
an extraordinary gain of $315,909 representing those conversions with
price differences between fair market values of the common stock on the
dates of conversion and the conversion prices.
The accompanying notes are an integral part of these financial statements
<PAGE>
Logio, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
Logio, Inc., formerly WordCruncher Internet Technologies, Inc., (the Company)
is a development stage company engaged in the development and marketing of a
focused Internet directory and search engine which serves the needs of the
business professional.
The Company commenced planned principal operations on March 19, 2000 of its
Internet portal and directory, but has not produced any significant revenues.
On September 29, 2000, the Company changed its focus from its business
Internet portal to its continuing developmental efforts on the Logio business
directory.
The Company was incorporated on November 5, 1996 in the State of Utah under
the name of Redstone Publishing, Inc. During July 1998, the Company merged
with Dunamis, Inc. a public Company organized in the State of California. The
merger was recorded as a reverse acquisition, therefore WordCruncher is the
accounting survivor.
In connection with the merger, Dunamis, the legal survivor, changed its name
to WordCruncher Internet Technologies, Inc. and changed its domicile to the
State of Nevada. The Company's headquarters are in Draper, Utah.
On April 18, 2000, the Board of Directors approved the change of the Company's
name to Logio, Inc. The change was approved by the Company's stockholders in
June 2000. The Company also amended its articles of incorporation and filed
the appropriate documents with the state of Nevada in June 2000 when the
Company officially changed its name to Logio, Inc.
The Company conducts its business within one industry segment.
The accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, which, in the opinion
of management, are necessary for a fair presentation of the results for the
periods shown. Certain prior period balances have been reclassified to conform
with current period presentation.
NOTE 2 - SETTLEMENT OF LIABILITIES
During the nine months ended September 30, 2000, the Company settled $244,670
of vendor payables for $51,225 in cash and $70,000 in stock. These
settlements resulted in $123,445 of forgiven debt and extraordinary gain.
Also during the nine months ended September 30, 2000, the Company settled
$290,793 in notes payable and accrued interest for $210,000 in cash. This
settlement resulted in $80,793 of forgiven debt and extraordinary gain.
<PAGE>
Logio, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
NOTE 2 - SETTLEMENT OF LIABILITIES (Continued)
In June 2000, the Company was loaned $500,000 from three principal
shareholders and officers of the Company in exchange for notes payable bearing
interest of 8% annually. Principal and interest were due in full on July 1,
2001. The notes were not collateralized. On September 26, 2000 the Company
converted the notes and $11,666 of accrued interest into 626,422 of the
Company's common stock at $0.81 to $0.82 per share, which represents prices in
excess of the fair market value ($0.3125) of the common shares on the date of
conversion.
The Company was also released from approximately $406,000 of other long-term
commitments with certain of its vendors that would have expired through April
2002 by obtaining releases and giving consideration through settlements as
discussed above.
NOTE 3 - SHAREHOLDERS' EQUITY
Preferred stock conversion
--------------------------
In February and March 2000, holders of the Company's convertible preferred
stock converted 6,300 preferred shares into 625,000 common shares. The
preferred stockholders also received 727,756 shares of the Company's common
stock in conjunction with the "reset" provisions of the preferred stock
agreement. Common stock totaling 61,650 shares were also issued to preferred
shareholders representing a six percent cumulative dividend.
Stock purchase agreement
------------------------
On July 6, 2000, the Company signed a purchase agreement with five investors
for the sale of two million shares of its common stock for a total purchase
price of $1.4 million. The terms of the agreement required the deposit of
$1.4 million into an escrow account before July 31, 2000. The monies were
agreed to be released to the Company upon the effective registration of the
shares with the Securities and Exchange Commission on or before October 31,
2000. In September 2000, the Securities and Exchange Commission declared the
registration effective. As of September 30, 2000, the investors have not
released the funds and are in default of the agreement.
Conversion of notes payable to equity
-------------------------------------
In September 2000, the Company was advanced a total of $603,000 from various
parties to fund the settlement of liabilities in the form of notes payable.
Also in September 2000 the Company then converted the notes payable and $2,976
of accrued interest into 2,815,000 of the Company's common stock at prices
ranging from $0.2012 to $0.251 per share. The conversion prices did not
represent the fair market value of the common shares on the date of
conversion. As such, the Company incurred $88,576 in financing charges.
<PAGE>
Logio, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
NOTE 3 - SHAREHOLDERS' EQUITY (Continued)
Conversion of notes payable to equity - continued
-------------------------------------------------
In September 2000, a corporation assumed $130,045 in liability from one of the
Company's vendors. Also in September 2000, the Company converted $70,000 of
this liability into 350,000 shares of the Company's common stock and was
forgiven of $60,045 in liability by the assuming creditor (as discussed
above). The liability was converted at $0.20 per share, which did not
represent the fair market value of the Company's common shares on the date of
conversion. As such, the Company incurred $45,127 in financing charges.
As discussed in Note 2, in September 2000, the Company converted $511,666 of
notes payable and interest to shareholders to 626,422 shares of its common
stock. The fair market value of the shares on the date of conversion was
$0.3125 and the conversion prices ranged from $0.81 to $0.82 per share.
NOTE 4 - NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Cumulative
amounts Three months ended Nine months ended
since September 30, September 30,
inception 2000 1999 2000 1999
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Common shares
outstanding during
the entire period - 13,479,408 11,879,002 11,891,002 11,879,002
Weighted-average
common shares issued
during the period 7,839,426 3,165,000 2,609 1,618,124 879
------------ ------------ ------------- ------------- ------------
Weighted-average
common shares used
in basic EPS 7,839,426 16,644,408 11,881,611 13,509,126 11,879,881
Dilutive effects of
potential common
shares - - - - -
------------ ------------ ------------- ------------- ------------
Weighted-average
number of common
shares and dilutive
potential common
stock used in
diluted EPS 7,839,426 16,644,408 11,881,611 13,509,126 11,879,881
============ ============ ============= ============= ============
</TABLE>
The computation of net loss per common share is based on the weighted-average
number of shares outstanding during each period presented. Diluted loss per
common share would include the dilutive potential effects of options,
warrants, and convertible and reset features of series A preferred stock, but
were not included in the calculation of diluted net loss per common share
because their effects were anti-dilutive.
<PAGE>
Logio, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
NOTE 5 - EQUITY INCENTIVE PLAN
On April 18, 2000, the Board of Directors adopted the Logio, Inc. 2000 Equity
Incentive Plan (the Plan). The Plan allows for the granting of awards in the
form of stock options, stock appreciation rights or restricted shares to
employees, independent directors and certain consultants. The Company may
grant awards representing up to 2,500,000 shares of the Company's common stock
under the Plan. This includes 1,450,116 options, each to purchase one share
of the Company's common stock, outstanding as of September 30, 2000. The Plan
was approved by the Company's stockholders in June of 2000.
During the nine months ended September 30, 2000, the Company granted 1,283,000
options, each to purchase one share of the Company's common stock to
employees, directors and certain consultants at exercise prices ranging from
$0.625 to $7.7813 per share. Approximately 886,834 of these options were
forfeited during the nine months ended September 30, 2000.
Common stock issued in relation to the exercise of warrants and options during
the nine months ended September 30, 2000 totaled 174,000 shares.
On May 15, 2000, the Company entered into an agreement with a consultant to
provide investor relations, public relations, and fulfillment services related
to financing in exchange for warrants. A total of 200,000 warrants were
issued at an exercise price of $3.00 per share and an additional 200,000
warrants were issued at an exercise price of $4.00 per share under the terms
of this agreement. Vesting of the warrants commenced as follows: 25% on
agreement date (May 15, 2000), 25% on June 30, 2000, and 50% on September 30,
2000. Consulting charges related to this agreement total $90,000 representing
the fair market value of the services performed through
September 30, 2000. The agreement terminates on January 15, 2001 when the
services are completed. The vested warrants expire on May 15, 2005.
NOTE 6 - LETTER OF INTENT
On September 29, 2000, the Company entered into a letter of intent with
Pacific WebWorks, Inc. (Pweb). The letter outlines, among other things,
Pweb's intent to acquire Logio, Inc. for an estimated ratio of one Pweb common
share for every 6.6 shares of Logio, Inc., which is estimated to total
2,700,000 Pweb shares. Logio, Inc. and Pweb underwent a 30-day due diligence
period to evaluate and conclude the acquisition.
NOTE 7 - CONTINGENCY
The Company is currently in dispute with one of its vendors for services that
were not performed adequately, not received or not requested. The vendor is
currently reviewing approximately $130,000 of billings that the Company claims
are erroneous. The Company intends to rigorously defend itself against any
portion of the over-billings that may be re-submitted by the vendor.
NOTE 8 - SUBSEQUENT EVENTS
Conversion of note payable to equity
------------------------------------
In October 2000, the Company was advanced $169,300 from a related party to
fund the Company through the possible acquisition discussed in Note 6. The
Company converted this note into 1,150,000 shares of its common stock. The
conversion price did not represent the fair market value of the common shares
on the date of conversion. As such, the Company incurred $83,700 in financing
charges.
Issuance of stock for exercise of options
-----------------------------------------
In October 2000, the Company issued 5,000 shares of its common stock to an
employee who exercised stock options.
Agreement and plan of reorganization
------------------------------------
On October 31, 2000, the Company entered into an Agreement and Plan of
Reorganization (Plan) with Pweb. The Plan includes the transfer of 18,425,830
shares of the Company's common stock in exchange for 2,800,000 shares of
Pweb's common stock subject to the provisions of the Plan. Pweb has also
committed to file a registration statement with the Securities Exchange
Commission to cover the 2,800,000 shares issued pursuant to the Plan. Upon
approval of the Plan by the Company's stockholders, the Company will be a
wholly owned subsidiary of Pweb.
<PAGE>
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations.
The purpose of this section is to discuss and analyze the Company's
financial condition, liquidity and capital resources and the results of
operations. This analysis should be read in conjunction with the unaudited
interim financial statements and related footnotes contained herein and with
the Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
Overview
Logio, Inc., formerly WordCruncher Internet Technologies, Inc., is a
development stage company engaged in the development and marketing of a
focused Internet directory and search engine which serves the needs of the
business professional. From November 5, 1996 (inception) to September 30,
2000, the Company's activities related primarily to attracting employees,
raising capital, purchasing assets, developing WordCruncher software, the
Logio site, search engine, and directory and implementing sales and marketing
programs. As such, the reported financial information is not necessarily
indicative of the Company's future operating results or of its future
financial condition.
Content and services found at the Company's web site, logio.com, became
available on March 19, 2000, and was tailored to provide, under one roof, a
broad spectrum of the information and services that are required by business
people in their daily work activities. Information resources included a
unique, readily accessible "drill down" directory that organizes thousands of
business-oriented web sites and pages according to specific professional
discipline and function. The directory is augmented by an advanced search
technology that can search either the abstracts or the full text of all sites
listed in the directory, and then displays the search results in a
"hits-in-context" format. The Company intends to expand the delivery of
this full service concept into other forms of commerce such as online
business-to-business purchasing, and private labeling of the Company's
directory product.
In June 2000, the board of directors, due in part to changing market
conditions and ongoing operating losses, named Kenneth W. Bell as the new
chief executive officer of the Company. Mr. Bell undertook an immediate
evaluation of all aspects of the Company's operations, including product
development, sales and marketing approaches, product positioning, employees
and management, contracts and agreements, and significant costs incurred by
the Company. As a result of Mr. Bell's recommendations, the Company
repositioned its strategic direction, reduced headcount, re-negotiated and
settled contracts, and aggressively pursued new financing sources.
Budgets were established for sales and costs related to Logio products and
operations. Executive management continually monitored progress related to
the Company's sales and cost reduction goals in order to reduce losses and
achieve sales growth and profitability. Sales of the Company's directory did
not meet budgeted expectations and, despite the measures taken to reduce
costs, the Company continued to suffer losses, although at a reduced rate. As
a result of these ongoing losses and the continuing decline in the market
price for the Company's common stock, the Company's agreed upon funding was
withdrawn and other traditional financing sources became unavailable at
acceptable terms.
Due to the continuing negative trends in the Internet industry and
markets, the trading price of the Company's stock continued to decline
throughout third quarter 2000. Because of these conditions and the resulting
lack of funding, the Company's board of directors approved the pursuit of
merger, acquirer, strategic partnership, joint partnership or other forms of
continuation that could potentially provide value to the stockholders of the
Company. In September 2000, the Company entered into a letter of intent with
Pacific WebWorks, Inc. The letter includes Pacific WebWorks' intent to
acquire Logio, Inc. for an estimated ratio of one Pacific WebWorks, Inc.
common share in exchange for every 6.6 Logio, Inc. shares, which is estimated
to total 2,700,000 Pacific WebWorks, Inc. shares. Logio, Inc. and Pacific
WebWorks, Inc. underwent a 30-day due diligence period to evaluate and
conclude the acquisition. In conjunction with the proposed sale of Logio, Inc.
to Pacific WebWorks, Inc., Logio has temporarily discontinued its development
activities and preliminary operations related to the Logio business directory.
<PAGE>
On October 31, 2000, the Company entered into an Agreement and Plan of
Reorganization (Plan) with Pacific WebWorks, Inc. The Plan includes the
transfer of 18,425,830 shares of the Company's common stock in exchange for
2,800,000 shares of Pacific WebWorks, Inc. common stock subject to the
provision of the Plan. Pacific WebWorks, Inc. has also committed to file a
registration statement with the Securities Exchange Commission to cover the
2,800,000 shares issued pursuant to the Plan. Upon approval of the Plan by the
Company's stockholders, the Company will be a wholly owned subsidiary of
Pacific WebWorks, Inc.
The proposed sale of Logio, Inc. to Pacific WebWorks, Inc. is subject to
the approval of the stockholders of Logio and may not be completed. In such
case Logio would not have any current operations and its assets would consist
of approximately $1,755,000 in total assets, which includes cash, net accounts
receivable, net property and equipment and other assets. Liabilities would
consist of approximately $605,000 based on its unaudited September 30, 2000
financial statements. If the sale is not completed, Logio would most likely
seek to merge with another entity, sell its operations or net assets, or seek
to acquire another business or operations but it may not be able to do so in
the near term, if at all, with the resources available.
The Company's initial revenue related to the Logio directory has been derived
from sales of advertising on the site in second and third quarters 2000.
Traffic to the site ultimately drives the ability to generate such revenue.
As the Company is in its development stage, it has not yet recognized
significant advertising or sponsorship revenues. The Company's current
business model pending the sale of the Company to Pacific WebWorks, Inc. is
directed towards the generation of revenues from set-up and maintenance fees
resulting from the sale of its directory in private label form to certain
Internet sites and corporate intranets. The Company is uncertain as to when it
will emerge from the development stage.
Cost of sales consist primarily of fees paid to third party service
providers for use of their content and services, certain costs related to site
operations, and costs related to the insertion of banner and other
advertisements.
Research and development expenses consist primarily of compensation to
employees for site development, consulting services and other third party
service providers.
Selling and marketing expenses relate primarily to compensation to
employees for strategic marketing, content, public relations and for other
consultants and third party services.
The Company has incurred and expects to continue to incur substantial
losses and negative cash flows both on an annual basis and for interim
periods. In particular, depending on the availability of funding, the
Company intends to increase its focus and spending on brand development, sales
and marketing, further product development, website content and strategic
relationships. The Company has an extremely limited operating history, and
its prospects are subject to the risks, costs and difficulties frequently
experienced by companies in the new and rapidly changing markets for Internet
products and services. To address these risks, the Company must, among other
things, continue to respond to competitive forces, recruit, retain and
motivate valuable and qualified employees, develop, implement and successfully
execute its sales strategies, develop and market additional products and
services, upgrade and maintain its technologies, and further market products
and services using such technologies. There can be no assurance that the
Company will successfully address these risks. As of September 30, 2000, the
Company had an accumulated deficit of $17,237,971 that included the effects of
dividends and accretion of the beneficial conversion feature of Series A
Preferred stock approximating $6,534,221. The extremely limited operating
history of the Company makes the prediction of future results of operations
difficult and, therefore, the recently reported operations should not be
considered indicative of future operating results. Depending on availability
of funding or completion of an acquisition of the Company, the Company expects
to significantly increase its operating expenses to expand its sales and
marketing strategies of its private label product, to fund further site
development as well as planned improvements and enhancements to the directory.
The Company's operating results may fluctuate significantly in the future
as a result of several factors, many of which are not within the Company's
control. These factors include, but are not limited to, product demand,
product acceptance, Internet usage, intranet usage, seasonal trends in
advertising placements and Internet usage, Internet advertisement demand,
advertisement budgeting cycles of Internet advertisers, need for capital
expenditures and costs relating to Company expansion, introduction of new
services or products to the directory, competitive forces, price changes in
the industry, technical difficulties to the site, general and industry-wide
economic conditions, and the availability of service providers. As a result
of changes to the competitive Internet environment, the Company may make
certain service changes or acquisitions, including a possible acquisition of
the Company by another entity, that could materially affect the Company's
business, operations, and financial condition. The Company also expects
certain seasonal effects, as it relates to advertising revenues, due to lower
<PAGE>
usage during the vacation periods and holidays. Due to all of the
aforementioned factors, in some future interim periods, the Company's
operating results may be adversely affected and fall below the expectations of
analysts and investors. The Company also may never emerge from the
development stage. In such case, the trading price of the Company's common
stock would likely be materially and adversely affected.
Early in October 2000, the Company temporarily discontinued substantial
development and operations of its directory and search engine products,
including a reduction in its headcount, due to funding constraints and its
possible acquisition by Pacific WebWorks, Inc. The Company expects, that if
acquisition of Logio, Inc. by Pacific WebWorks, Inc. is successful, its
development and operational efforts will recommence.
Results of Operations
Comparison of Three Month Periods. Following is a comparison of the
Company's operating results for the three months and ended September 30, 2000
with the three months ended September 30, 1999:
Revenues. The Company's revenue of $646 for the three months ended
September 30, 2000 represents advertising revenues derived from its logio.com
site and decreased $567 from revenues of $1,213 for the three months ended
September 30, 1999. This decrease is due to the change in focus from the
sales of the Company's PC-based product ("WordCruncher") to focus on the
development and operations of its logio.com site and the related Logio
directory, which has only recently become available on the marketplace.
Cumulative revenues since inception total $132,697 and consist primarily of
the sales of the Company's WordCruncher product and related royalties.
Cost of Sales. The Company's cost of revenues of $140,161 for the
three months ended September 30, 2000 includes the cost of Logio services,
hosting, support and monitoring related to the logio.com site. Cost of
revenues for the three months ended September 30, 1999 totaled $231 and
related to license fees to a university for technology re-sold in the
Company's WordCruncher product. The Company has recently shifted its focus on
the development and operations of its logio.com site and the related Logio
directory, which has only recently become available on the marketplace.
Cumulative cost of revenues since inception total $472,648 and consist
primarily of the costs of hosting, support and monitoring related to the
operations of Logio products and services.
Research and Development. Research and development expenses
decreased 57.5% to $113,264 for the three months ended September 30, 2000, a
decrease of $153,115 from the $266,379 for the three months ended September
30, 1999. The decrease in research and development expenses is due primarily
to development consulting contracts that were in effect during the three
months ended September 30, 1999 that were completed or terminated by the three
month period ended September 30, 2000 and the reduction of development
headcount in the second and third quarters 2000. Cumulative research and
development costs incurred since inception total $3,263,488 and relate
primarily to development efforts associated with the Company's recent release
of the Logio site and directory to the marketplace.
Selling and Marketing. Selling and marketing expenses decreased 92%
to $28,417 for the three months ended September 30, 2000, a decrease of
$328,629 from the $357,046 for the three months ended September 30, 1999. The
decrease in selling and marketing expenses is due, primarily, to a reduction
in sales and marketing efforts in third quarter 2000 in order to cut costs.
This decrease also includes the abandonment of branding efforts as a direct
result of a change in the Company's business model to a private label
approach, and a reduction in headcount from the discontinuation of sales and
marketing personnel in Los Angeles, California, both occurring in second and
third quarters 2000. The Company has terminated the use of certain consulting
services related to branding, the planning of sales strategies, public
relations, and the providing of advertising to its logio.com site in the
second and third quarters 2000. Cumulative selling and marketing expenses
since inception total $1,651,787 and are comprised mostly of consulting
services for the planning of marketing and sales strategies, public relations,
and employee salaries related to marketing and sales.
General and Administrative. General and administrative expenses
<PAGE>
increased 29% to $326,393 for the three months ended September 30, 2000, an
increase of $73,404 from $252,989 for the three months ended September 30,
1999. The increase in general and administrative expenses is primarily due to
accounting and legal professional fees related to the Company's public
filings, the addition of one employee to the Company's administration efforts,
an increase in its leased building space in second quarter 2000, and obtaining
additional insurance. Cumulative general and administrative charges since
inception total $2,740,861 and relate primarily to professional fees,
compensation for management, finance and investor relations employees and
other office and leasing charges.
Depreciation and Amortization. Depreciation and amortization
increased $162,849 to $205,137 for the three months ended September 30, 2000
from $42,288 for the three months ended September 30, 1999. The increase in
depreciation and amortization is due to the purchase of computer equipment and
software technology required to release and maintain the Logio site and
related Logio directory, mostly acquired in November and December 1999, and
the related depreciation charge for the three months ended September 30, 2000.
Cumulative depreciation and amortization expenses incurred since inception
total $802,134.
Compensation Expense for Stock Options. Compensation expense for
stock options decreased 88.3% to $50,400 for the three months ended September
30, 2000, a decrease of $380,401 from $430,801 for the three months ended
September 30, 1999. These charges reflect the intrinsic value of stock options
granted to employees and directors recorded as earned by the employee or
director over each period. The decrease represents the forfeiture of
approximately 886,834 options, management's efforts to discontinue the
granting of options at exercise prices less than fair market value in second
and third quarters of 2000, and the completion of vesting periods for certain
employee options.
Total Operating Expenses. The Company's operating expenses decreased
46.4% to $723,611 during the three months ended September 30, 2000 a decrease
of $625,892 from $1,349,503 for the three months ended September 30, 1999.
This decrease is due primarily to the adjustment of the Logio business plan to
a private label or syndication approach to distribution of its business
directory. This adjustment resulted in the discontinued use of certain
consulting services related to branding, the planning of sales strategies,
public relations, and the providing of advertising to the Company's logio.com
site in the second and third quarters 2000, as well as reductions in sales and
marketing personnel. The Company has also reduced development costs as certain
consulting contracts that were in effect during the three months ended
September 30, 1999 were completed or terminated by the three month period
ended September 30, 2000 and through reductions in development headcount in
second and third quarters 2000.
Interest Income. Interest income decreased 67% to $20,167 for the
three months ended September 30, 2000, a decrease of $41,014 from $61,181 for
the three months ended September 30, 1999. The decrease reflects the
continued use of cash balances and liquidation of short-term investments over
the three months ended September 30, 2000 to fund operations.
Interest Expense and Financing Charges. Interest expense totaled
$33,431 for the three months ended September 30, 2000 an increase of $32,779
from $652 for the three months ended September 30, 1999. The increase is due
primarily to capital leases entered into subsequent to the three months ended
September 30, 1999 and other notes payable to vendors and shareholders.
Financing charges of $133,703 for the three months ended September 30, 2000
represent the intrinsic value of debt and accrued interest converted to the
Company's common stock. In these transactions $1,187,642 of notes payable to
shareholders and related accrued interest were converted to approximately
3,165,000 of the Company's common stock at prices ranging from $0.20 to
$0.3122 per share. Several of these shares were issued at prices less than
the fair market value of the common stock on the dates of conversion and,
consequently, financing charges of $133,703 were incurred as an adjustment for
the differences in price.
Extraordinary Gain. During the three months ended September 30,
2000, the Company settled $244,670 of vendor payables for $51,225 in cash and
$70,000 in stock. Also during the three months ended September 30, 2000, the
Company settled $290,793 in notes payable to vendors for $210,000 in cash.
The forgiven debt from these transactions resulted in $204,238 in
extraordinary gain.
<PAGE>
Net Loss. Net loss decreased 37.3% to $808,070 for the three months
ended September 30, 2000 a decrease of $479,922 compared to a net loss of
$1,287,992 for the three months ended September 30, 1999. The decrease in net
loss is a result of completed sales and marketing consulting contracts, the
completion of certain development efforts, concerted efforts to reduce
compensation charges from the granting of stock options at a discount to
market price, and extraordinary gains from forgiveness of debt achieved
through the settlement of certain payables.
Net Loss Attributable to Common Stockholders. The accretion of the
beneficial conversion feature of the Series A Preferred Stock was fully
recognized by fiscal year end 1999. As such, net loss attributable to common
shareholders is equivalent to net loss and totaled $808,070 for the three
months ended September 30, 2000. Net loss attributable to common stockholders
for the three months ended September 30, 1999 totals $2,807,105 after giving
effect to the dividends and accretion of the beneficial conversion feature of
Series A Preferred Stock recognized for the three months ended September 30,
1999 totaling $1,519,113. This resulted in an increase to additional paid-in
capital and a corresponding increase in accumulated deficit during that
quarter.
Comparison of Nine Month Periods. Following is a comparison of the
Company's operating results for the nine months ended September 30, 2000 with
the nine months ended September 30, 1999:
Revenues. The Company's revenue of $2,180 for the nine months ended
September 30, 2000 represents advertising revenues derived from its logio.com
site and decreased $13,105 from revenues of $15,285 for the nine months ended
September 30, 1999. This decrease is due to the change in focus from the
sales of its PC-based product ("WordCruncher") to focus on the development
and operations of its logio.com site and the related Logio directory, which
has only recently become available on the marketplace.
Cost of Sales. The Company's cost of revenues of $440,907 for the
nine months ended September 30, 2000 include the cost of Logio services,
hosting, support and monitoring related to the logio.com site. Cost of
revenues for the nine months ended September 30, 1999 totaled $4,330 and
related to license fees to a university for technology re-sold in the
Company's WordCruncher product.
Research and Development. Research and development expenses
increased 180.4% to $1,672,316 for the nine months ended September 30, 2000,
an increase of $1,075,921 from the $596,395 for the nine months ended
September 30, 1999. The increase in research and development expenses is due
primarily to the significant increase in the number of employees and
consultants engaged in continued site and directory development and
enhancement, and for the retention of other third party service providers
related to other site content in first and second quarters 2000. This
increase relates to the recent release of the Logio site and the related Logio
directory to the marketplace. The Company began reducing headcount and
overhead early in the second quarter 2000. By late third quarter 2000, the
Company again reduced development headcount significantly due to the recent
lack of $1.4 funding that was previously committed by certain investors and
subsequently withdrawn.
Selling and Marketing. Selling and marketing expenses increased
23.33% to $658,034 for the nine months ended September 30, 2000, an increase
of $124,034 from the $534,000 for the nine months ended September 30, 1999.
The increase in selling and marketing expenses is due primarily to
compensation to employees and consultants related to significant planning of
the sales strategies, public relations, and advertising and branding
campaigns, mostly, in the first quarter of 2000 related to the release of the
Logio site to the marketplace. In August and September 2000, the Company
reduced selling and marketing headcount significantly in the Los Angeles,
California area due to ineffective sales efforts and the recent lack of $1.4
funding previously committed by certain investors and subsequently withdrawn.
General and Administrative. General and administrative expenses
increased 25% to $976,183 for the nine months ended September 30, 2000, an
increase of $195,532 from the $780,651 for the nine months ended September 30,
1999. The increase in general and administrative expenses is primarily due to
accounting and legal professional fees related to contracts, employee equity
incentive plan and the Company's public filings, the addition of one employee
to its finance department subsequent to third quarter 1999, increasing its
leased building space, and obtaining additional insurance.
<PAGE>
Depreciation and Amortization. Depreciation and amortization
increased $525,192 to $606,141 for the nine months ended September 30, 2000
from $80,949 for the nine months ended September 30, 1999. The increase in
depreciation and amortization is due to the purchase of computer equipment and
software technology required to release and maintain the Logio site and
related Logio directory, subsequent to third quarter 1999, and the related
depreciation charges for the nine months ended September 30, 2000.
Compensation Expense for Stock Options. Compensation expense for
stock options decreased 44.4% to $631,242 for the nine months ended September
30, 2000, a decrease of $504,746 from $1,135,988 for the nine months ended
September 30, 1999. These charges reflect the intrinsic value of stock options
granted to employees and directors recorded as earned by the employee or
director over each period. The decrease represents the forfeiture of
approximately 886,834 options, management's efforts to discontinue granting of
options at an exercise price less than fair market value in second quarter of
2000, and the completion of vesting periods for certain employee options.
Total Operating Expenses. The Company's operating expenses increased
45.3% during the nine months ended September 30, 2000 over the nine months
ended September 30, 1999. This is due primarily to the continued efforts to
develop the infrastructure of the logio.com site and the Logio directory,
bring existing products and services to the marketplace and to develop new and
innovative ideas for implementation on the site and directory.
Interest Income. Interest income decreased 65.3% to $55,002 for the
nine months ended September 30, 2000, a decrease of $103,426 from $158,428 for
the nine months ended September 30, 1999. The decrease reflects the continued
use of cash balances and liquidation of short-term investments over the nine
months ended September 30, 2000 to fund operations.
Interest Expense and Financing Charges. Interest expense totaled
$96,422 for the nine months ended September 30, 2000 an increase of $92,861
from $3,561 for the nine months ended September 30, 1999. The increase is due
primarily to capital leases entered into subsequent to the three months ended
September 30, 1999 and other notes payable to vendors and shareholders.
Financing charges of $133,703 incurred during September 2000 represent the
intrinsic value of debt and accrued interest converted to the Company's common
stock. In these transactions $1,187,642 of notes payable to shareholders and
related accrued interest were converted to approximately 3,165,000 of the
Company's common stock at prices ranging from $0.20 to $0.3122 per share.
These shares were issued at prices less than the fair market value of the
common stock on the dates of conversion and, consequently, financing charges
of $133,703 were incurred for the intrinsic values.
Extraordinary Gain. During September 2000, the Company settled
$244,670 of vendor payables for $51,225 in cash and $70,000 in stock. Also
during September 2000, the Company settled $290,793 in notes payable to
vendors for $210,000 in cash. The forgiven debt from these transactions
resulted in $204,238 in extraordinary gain.
Net Loss. Net loss increased 67.3% to $4,955,743 for the nine months
ended September 30, 2000 an increase of $1,993,582 compared to a net loss of
$2,962,161 for the nine months ended September 30, 1999. The increase in net
loss is a result of the Company's increased costs and expenses associated
with the continued research, development, marketing and implementation of
the Logio website and related directory and their operations.
Net Loss Attributable to Common Stockholders. The accretion of the
beneficial conversion feature of Series A Preferred Stock was fully
recognized by fiscal year end 1999. The remaining cumulative 6% dividend to
each of the Series A Preferred stockholders was recognized in the first
quarter 2000, totaling $64,360. As such, net loss attributable to common
shareholders totaled $5,020,103 for the nine months ended September 30, 2000.
Net loss attributable to common stockholders for the nine months ended
September 30, 1999 totaled $9,201,168 after giving affect to the dividends and
accretion of the beneficial conversion feature of Series A Preferred Stock
recognized during the first nine months of 1999, totaling $6,239,007. This
transaction resulted in an increase to additional paid-in capital and a
corresponding increase in accumulated deficit during the quarters.
<PAGE>
Liquidity and Capital Resources
As a development stage company, the Company has been unable to fund its
cash requirements through operations. Since its inception, the Company has
funded its cash requirements primarily through debt and equity financings.
The Company has used the proceeds of those transactions to fund its investment
in the development of its Logio business information site and business
directory, to provide working capital and for other general corporate
purposes.
As of September 30, 2000, the Company had $171,226 in cash, $1,755,093
in total assets and total liabilities of $604,535. As of September 30, 2000,
the Company had negative working capital of $297,164, an accumulated deficit
of $17,237,971 (a significant portion of which is due to dividends and
accretion of the beneficial conversion feature of the Series A Preferred
Stock) and total stockholders' equity of $1,l50,558.
The Company used $3,572,247 in cash for operations during the nine months
ended September 30, 2000 that relates mostly to consulting fees, salaries and
other operating transactions.
Cash totaling $92,829 was used in investing related activities for
purchases of property and equipment during the nine months ended September 30,
2000. Short-term investments were liquidated for cash totaling $1,454,207
during the nine months ended September 30, 2000 in order to fund cash
requirements.
Cash provided by financing activities during the nine months ended
September 30, 2000 includes $907,600 from the exercise of options and
warrants. The Company acquired $65,685 of equipment during the nine months
ended September 30, 2000 by entering into capital lease agreements. Cash used
to pay financing activities for capital leases, notes payable and other
long-term obligations totals $1,006,031 during the nine months ended September
30, 2000. The Company paid a cumulative stock dividend of 6% to the Series A
Preferred stockholders during the first quarter of 2000 by issuing 61,650
shares of its common stock.
As of September 30, 2000, the Company had no material commitments for
capital expenditures for the remainder of fiscal year 2000. Its remaining
capital lease obligations totaling $351,462 are due through February 2002 and
notes payable of $96,116 are currently due to a software company.
In June 2000, the Company received $500,000 in cash from three of its major
shareholders and officers in exchange for 8% notes payable, which were
originally due in July 2001. In September 2000, these notes and accrued
interest of $11,666 were converted into 626,422 shares of the Company's common
stock.
On July 6, 2000, the Company signed a purchase agreement with five
investors for the sale of two million shares of its common stock for a total
purchase price of $1.4 million. The terms of the agreement required the
deposit of $1.4 million into an escrow account before July 31, 2000. The
monies were agreed to be released to the Company upon the effective
registration of the shares with the Securities and Exchange Commission on or
before October 31, 2000. In September 2000, the Securities and Exchange
Commission declared the registration effective. As of September 30, 2000, the
investors have not released the funds and are in default of the agreement.
The Company expects to continue to generate negative cash flows for at
least the next several quarters. The Company anticipates that its principal
liquidity needs over the next twelve months will be met with proceeds
generated from private offerings of its securities, if available. There can
be no assurance that the offerings will take place or that the proceeds of
such offerings will be adequate to meet the Company's needs. The Company's
need to raise external capital in the future will depend on many factors,
including, but not limited to, the rate of sales growth and market acceptance
of its products and services, the amount and timing of its necessary and
continuing research and development expenditures, the amount and timing of its
expenditures to sufficiently market and promote is Logio directory and the
Logio brand name and the timing of any new product introductions.
The Company currently estimates that it will require between $15 and $20
million to continue to develop its products and operate in accordance with its
business plan through fiscal 2002. The actual costs will depend on a number
of factors, including:
<PAGE>
* its ability to negotiate favorable prices for purchases of necessary
directory components
* the number of its customers (traffic) and advertisers
* the services for which they subscribe
* the nature and success of the services which it offers
* regulatory changes, and
* changes in technology.
In addition, the Company's actual costs and revenues could vary from the
amounts it expects or budgets, possibly materially, and those variations are
likely to affect how much additional financing the Company will need for its
operations. Accordingly, there can be no assurance that the Company's actual
financial needs will not exceed the amounts available to it.
Expected future uses of cash include continued expansion, development and
enhancements of the Logio site, strategic sales and marketing related to
private label sales of the Logio directory to corporate intranets and Internet
companies, and maintaining the Company's current level of administration and
operations. This is expected to be achieved by obtaining additional staffing
in the sales and marketing and development departments, and by engaging
certain professional services firms.
To the extent that the Company acquires the amounts necessary to fund its
business plan through the issuance of equity securities or sale of its
operations to a potential acquirer, its then-current stockholders may
experience dilution in the value per share of their equity securities. The
acquisition of funding through the issuance of debt could result in a
substantial portion of the Company's cash flows from operations being
dedicated to the payment of principal and interest on that indebtedness, and
could render it more vulnerable to competitive and economic downturns.
Special Note Regarding Forward-Looking Statements
Certain statements contained in "Management's Discussion and Analysis"
constitute forward-looking statements concerning the Company's operations,
economic performance and financial condition. Because those statements
involve risks and uncertainties, actual results may differ materially from
those expressed or implied by those forward-looking statements.
In addition, any statements that express or involve discussions as to
expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward-looking and,
accordingly, those statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those expressed in
the forward-looking statements. Accordingly, those types of statements are
qualified in their entirety by reference to, and are accompanied by, the
factors discussed throughout this report. Among the key factors that have a
direct bearing on the Company's results of operations are the potential risk
of delay in implementing the Company's business plan; the economic and legal
aspects of the markets in which the Company operates; competition; and the
Company's need for additional substantial financing. The Company has no
control over these factors.
The factors described in this report could cause the Company's actual
operating results to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Persons reviewing this report, therefore, should not place undue reliance on
those forward-looking statements. Further, to the extent this report contains
forward-looking statements, they speak only as of the date of this report, and
the Company undertakes no obligation to update any forward-looking statement
or statements to reflect the occurrence of unanticipated events. New factors
may emerge from time to time, and it is not possible for management to predict
all of such factors. Further, management cannot assess the impact of each
such factor on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
<PAGE>
The Company is not a party to any proceeding or threatened proceeding as
of the date of this quarterly report.
Item 2. Changes in Securities
In September 2000, the Company issued 3,165,000 shares of its common
stock in exchange for relief of certain notes and vendor payables totaling
$675,976. Also in September 2000, the Company issued 626,422 shares of its
common stock in exchange for relief of notes payable and interest to
shareholders totaling $511,666. On October 23, 2000, the Company converted a
note payable, obtained in October 2000, totaling $169,300 into 1,150,000
shares of the Company's common stock. The Company is relying on an exemption
on the issuance of said shares from registration from the Securities Act of
1933 by reason of Section 4(2) as a private transaction not involving a public
distribution.
Item 3. Defaults upon Senior Securities
None.
Item 4. Matters Submitted to a Vote of the Company's Stockholders
None.
Item 5. Other Information
In September 2000, Edward Sullivan resigned from the Company's Board of
Directors to pursue other interests.
Item 6. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K
On September 29, 2000, the Company filed a Current Report of Form
8-K, relating to the Company's execution of a letter of intent to become the
wholly-owned subsidiary of Pacific Webworks, Inc., a Nevada corporation.
<PAGE>
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.
LOGIO, INC.
Date: October 31, 2000 By:
/s/ Kenneth W. Bell
----------------------------
Kenneth W. Bell,
President and Chief Executive Officer
/s/ Thomas R. Eldredge
-----------------------------
Thomas R. Eldredge,
Sr. Vice President, CFO and
Secretary
