As filed with the Securities and Exchange Commission on July 28, 2000
Registration No. ________
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LOGIO, INC.
(Name of issuer in its charter)
---------------
Nevada 7379 84-1370590
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
405 East 12450 South, Suite B
Draper, Utah 84020
(801) 816-9904
(Address and telephone number of registrant's principal executive offices
and principal place of business)
----------------
Kenneth W. Bell
405 East 12450 South, Suite B
Draper, Utah 84020
(801) 816-9904
(Name, address and telephone number of agent for service)
-------------
---
Copies to:
Scott R. Carpenter, Esq.
Michael J. Ziouras, Esq.
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
(801) 532-1234
Approximate date of commencement of proposed sale to the public:
From time to time following the effectiveness of this registration statement.
If the securities being registered on this Form are being offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the following box. [ X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following boxes and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following boxes and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================= ===================== ====================== ===================== =====================
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered Share (1) Price (1) Registration Fee
----------------------------- --------------------- ---------------------- --------------------- ---------------------
Common Stock 2,900,000 $1.43 $4,147,000 $1,098
============================= ===================== ====================== ===================== =====================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933 based on the last
trade price of common shares as reported on the OTC Bulletin Board on July 25,
2000.
We hereby amend this registration statement on such a date or dates as may be
necessary to delay its effective date until we shall file a further amendment
which specifically states that this registration statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until the registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 28, 2000
--------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. The
seller's stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and the selling stockholders
are not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
LOGIO, INC.
a Nevada corporation
2,900,000 shares of common stock
$0.001 per share
This prospectus relates to the public offering, which is not being
underwritten, of 2,900,000 shares of the common stock of Logio, Inc., formerly
known as WordCruncher Internet Technologies, Inc. by certain of our stockholders
who are identified in this prospectus. All of the shares being offered will be
sold by the selling stockholders. The selling stockholders may sell the shares
at prices determined by the prevailing market price for the share or in
negotiated transactions. The selling stockholders may also sell the shares to or
with the assistance of broker-dealers, who may receive compensation in excess of
their customary commissions. We will not receive any of the proceeds from the
sale of the shares. However, we will receive proceeds from the exercise of
warrants which can be exercised by certain of the selling stockholders. Our
common stock is currently traded over the counter on the OTC Bulletin Board
under the symbol "LGIO." The last reported sales price of the common stock on
that market on July 25, 2000 was $1.43 per share.
-------------------------
Investing in the shares involves certain risks. See "Risk Factors"
beginning on page 9.
-------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different. This
prospectus may only be used where it is legal to sell these securities. The
information in this prospectus is accurate as of the date on the front cover.
You should not assume that the information contained in this prospectus is
accurate as of any other date.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------------
July 28, 2000
<PAGE>
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The selling stockholders are offering and
selling the shares only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of the delivery of the prospectus or any
sale of the shares.
Table of Contents
Page
Summary................................................................... 3
Risk Factors.............................................................. 7
Transactions Effected in Connection With the Offering.................... 11
Use of Proceeds.......................................................... 11
Price Range of Common Stock and Shares Eligible for Future Sale....... .. 12
Capitalization........................................................... 14
Dividend Policy.......................................................... 14
Selected Financial Data.................................................. 14
Management's Discussion and Analysis of Financial Condition and Results of
Operation ............................................................... 16
Business................................................................. 23
Management............................................................... 32
Summary Compensation Table.......................................... 35
Option Grants in Last Fiscal Year................................... 37
Aggregated Option Exercises in Last Fiscal Year..................... 38
Principal and Selling Stockholders....................................... 38
Certain Relationships and Related Transactions........................... 40
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.............................................................. 40
Interest of Named Experts and Counsel.................................... 41
Plan of Distribution..................................................... 41
Description of Capital Stock............................................. 42
Commission's Position on Indemnification for Securities Act Liabilities.. 47
Index to Financial Statements........................................... F-1
-------------------------
We own or have the rights to trademarks or trade names that we use in
connection with the licensing and marketing of our products and services,
including the "Logio" trademark. While we have secured rights to the "Logio"
trademark within the United States, we have not completed securing our
international rights to this trademark. See "Risk Factors" beginning on page 7.
This prospectus may also include references to trademarks of other companies.
<PAGE>
--------------------------------------------------------------------------------
SUMMARY
Because this is only a summary of the information contained in this
prospectus, it does not contain all of the information that may be important to
you in your investment decision to acquire the shares. You should read this
entire prospectus carefully, especially the section entitled "Risk Factors" and
the financial statements and notes, before deciding to invest in the shares.
Our Business
Our company is a development stage company. We developed, and launched
in March 2000, a next-generation focused Internet site for business
professionals under the tradename "Logio." Our site serves as a showcase for our
directory structure and search capability which we license to business content
providers in order to allow their users to find pertinent, quality content and
information included in our database. We intend to focus our Logio promotional
efforts on information providers for the online business researcher and
professional user segments of the Internet and private data networks, or
intranets, through syndication of our products and services.
Our Market
We believe that our products and services can be used for data
searching, retrieval and indexing on both private data networks, including
intranets, and the Internet. We intend to market Logio initially to the
information providers of online business users, which include business
researchers and professionals, and then to private data networks and their
users.
The Internet is an interactive worldwide network of computers and data
systems that allows users to retrieve data, purchase products, send and receive
communications and purchase or provide services. The Internet is based on a
technology platform that allows computers in various locations and of various
makes to communicate with one another. The Internet's use has grown
substantially since it was first commercially introduced in the early 1990s.
International Data Corporation estimates that the number of Internet users has
grown from approximately 35 million in 1996 to approximately 196 million in
1999, and will reach 502 million in 2003. The amount of information available on
the Internet is likewise increasing at exponential rates. Estimates for 2000
place the number of web pages at more than 1.2 billion and between 5 and 7
million web sites worldwide.
The use of intranets has also dramatically increased in recent years.
Corporations, universities and other large organizations have recently begun to
create large networks of interconnected computer networks to allow employees,
researchers and other parties access to private data. Many of these networks, or
intranets, have adopted or use Internet standards, which allow their users to
obtain data and information from the Internet as well as from the organization's
private data cache. A July 1996 survey of fifty Fortune 1000 companies reported
that 64% of the entities responding to the survey were currently using
intranets, and that another 32% were building them.
We believe the rapid growth of the Internet and private data networks
and, especially, the proliferation of Internet sites, has made it increasingly
challenging for consumers, content providers and advertisers to effectively
reach one another. Consumers are generally challenged to quickly find the most
relevant information, products and services related to a particular interest or
topic. Content providers are typically challenged to differentiate their
services in an increasingly crowded medium and to improve the visibility of
their sites. Advertisers are challenged to more effectively deliver their
messages to both general audiences and target groups.
<PAGE>
--------------------------------------------------------------------------------
Many of our competitors have developed products, including portals,
which they believe make the task of finding relevant data, information,
advertising or products on the Internet or private data networks easier and less
time consuming. These portals generally return a list of web sites, based on
search parameters, that contain limited extracts or descriptions of the web
sites. They can answer search inquires with lists of potential documents that
contain several thousand results, with little or no input as to which results
are relevant. As a result, Internet and private data network users generally
spend substantial time searching through the list of the web sites presented to
find out which web sites are relevant to their particular inquiry. This
generally requires the user to call up the referenced page and either visually
scan it or conduct another page search to find the specific information in
question.
Our focus is on the business-to-business market, including company
intranets. Our products and services can be used for data searching, retrieval
and indexing on both the Internet and intranets. Our research indicates that 35
million business professionals in the U.S. are currently connected to the
Internet, through business or home computers, or over wireless devices such as
handheld computers and cell phones. We intend to market Logio products and
services to reach business information providers and their users through company
intranets, through other information and service providers and through our own
Logio Internet business portal. From a U.S. foundation, we eventually intend to
make Logio products and services available worldwide.
The Company's Solution
Logio is a business-to-business information and resources company.
Logio gathers, evaluates, categorizes, and delivers relevant information and
resources for business professionals, serving as an aggregator and syndicator of
business-relevant content. We believe this places us squarely in the center of
the important business-to-business Internet industry. The Internet will serve as
a primary conduit for delivering Logio-based information to its users, but we
have begun to explore additional media through which we expect to be able to
deliver our services.
Logio offers a functional business directory and search engine which is
designed to provide fast and focused information for business people. Our
directory is designed for business professionals, and is organized by area of
professional occupation, within the context of a typical corporate organization
structure. Tens of thousands of business-to-business Internet sites, or URLs,
containing information, resources, and services for business users have been
categorized within our service. Each URL is assigned to one or more business
directory categories, and is further identified by geographical location when
appropriate, and by whether it is an information resource, a professional or
educational organization, or a company. In addition, each URL entry contains a
written abstract that tells the user where the entity is located, what the
company or organization does, and what the user can find or do at the site. We
believe that this level of information is unique, and allows a user to know
whether a site is likely to be useful before he or she clicks on the link.
A search engine is associated with the directory and database,
providing flexible database query and retrieval capabilities. In addition to
simple queries (e.g., "Internet" or "retail"), the search engine can handle
complex queries using Boolean operators, locate words that are not adjacent but
are in close proximity to each other, and predict the level of relevance of
returned documents to the user's needs. Search results also show hits in
context, with the requested term(s) displayed with surrounding text from the
document.
Logio takes search result data and organizes it in terms that are
familiar to the average person - such as a modified table of contents or an
index. Logio can also sort, analyze, and manipulate search results to make it
easier to find what the user is looking for. This conceptual "bridge building"
is especially useful for new Internet users who are not generally familiar with
the limitations of existing portals. Logio assists users in quickly zeroing in
on sites and pages that contain needed, relevant information by allowing users
to analyze the context of the search term in the document. This function also
allows users to construct a search request that avoids getting too many
responses to a search that was ambiguously phrased.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
The Offering
Total number of shares of common stock to be offered by the
selling stockholders..............................................2,900,000
Common stock outstanding after the offering...........................15,979,408
Common stock owned by the selling
stockholders after the offering...................................4,917,214
Use of proceeds........... We will not receive any proceeds from the sale of
the shares. See "Use of Proceeds."
Our calculation of the number of shares of common stock issued and
outstanding is based on 13,479,408 shares of common stock outstanding as of July
11, 2000, but excludes 1,889,116 shares of common stock subject to outstanding
options granted under employee stock options, of which 728,666 were exercisable
as of July 11, 2000, and excludes any exercised warrants to acquire 249,449
shares of common stock at exercise prices ranging from $7 to $8.40 per share.
The information set forth above also includes the sale of 2,000,000 shares of
common stock to be issued upon the effectiveness of the registration statement
of which this prospectus is a part pursuant to the terms of a private placement
we completed on July 6, 2000, and the exercise of warrants to acquire 500,000
shares of common stock at prices ranging from $3 to $5 per share. See
"Description of Capital Stock-Preferred Shares."
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary and Operating Data
(a Development Stage Company)
Six Months Ended June 30 Year Ended December 31,
------------------------ -----------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................................ $ 1,534 $ 14,072 $ 23,355 $ 82,678 $ 24,484
Cost of sales & royalties............... 300,746 4,099 15,071 15,864 806
------------- ----------- --------------- ------------- -------------
Gross profit (loss) (299,212) 9,973 8,284 66,814 23,678
Operating expenses:
Research & development............... 1,558,834 330,068 1,198,546 266,563 126,281
Sales & marketing.................... 629,834 176,955 953,708 34,554 5,274
General & administrative............. 649,790 527,662 1,340,486 217,318 206,874
Depreciation & amortization.......... 401,003 38,660 179,169 10,406 6,419
Compensation expense for common
stock, options and warrants 580,843 705,187 1,452,610 - -
----------- ----------- ------------- ------------- -------------
Total operating expense................. 3,820,304 1,778,532 5,124,519 528,841 344,848
---------- ---------- ------------- -------------- -------------
Operating loss.......................... (4,119,516) (1,768,559) (5,116,235) (462,027) (321,170)
Other income and (expense), net......... (28,156) 94,338 186,355 (20,882) (14,048)
------------- ------------ ------------- ------------- -------------
Net loss................................ (4,147,672) (1,674,221) (4,929,880) 482,909) (335,218)
Deduction for dividends and accretion... (64,360) (4,719,894) (6,469,861) - -
------------ ----------- ------------- ------------- -------------
Net loss attributable to common $(4,212,032) $(6,394,115) $(11,399,741) $ (482,909) $ (335,218)
stockholders ============ ============ ============= ============ ============
Basic and diluted loss per common share: $ (0.32) $ (0.54) $ (0.96) $ (0.08) $ (0.61)
Weighted average outstanding shares
(basis and diluted)................. 13,035,217 11,877,002 11,879,919 6,100,679 545,535
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1999 June 30, 2000 June 30,2000
Actual Actual As Adjusted1
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $1,055,371 $ 333,488 $ 3,300,000
Total assets..................................... 4,769,737 2,556,116 5,856,116
Long term liabilities, including current portion. 553,333 925,395 925,395
Common Stock..................................... 11,891 13,480 15,980
Additional Paid-in Capital....................... 15,362,028 16,943,305 20,240,805
Deficit accumulated during development stage..... (12,217,868) (16,429,900) (16,427,900)
Total stockholders' equity....................... 3,164,054 540,365 3,840,365
--------------------------------------------------- --------------------------- -------------------------- ------------------------
</TABLE>
(1 Assumes the issuances of 2,000,000 shares of common stock for $.70
per share and the exercise of 500,000 warrants at $3 to $5 per share.)
<PAGE>
RISK FACTORS
We have a limited operating history and little historical information
by which to value the shares. Although we anticipate our operating revenue will
increase in the future, we cannot guarantee that our revenues will exceed our
operating expenses. We incorporated in 1996 and purchased the license to develop
and market the basic Logio technology in February 1997. We have completed our
beta testing of Logio on our web site and on March 19, 2000 launched our
products and services at logio.com. We may encounter financial, managerial,
technological or other difficulties as a result of our lack of operating
history.
We have consistently incurred losses since our formation and may never
be profitable. During the six months ended June 30, 2000, we incurred a net loss
of $4,147,672. During the years ended December 31, 1999, 1998 and 1997, we
incurred net losses of $4,929,880, $482,909, and $335,218, respectively. We have
not been profitable and expect to continue to incur losses for the foreseeable
future. We have financed our operations and business through the sale of our
common stock and Series A Preferred Stock and through the issuance of notes. We
have not been able to fund our business through revenue sources and there can be
no assurance that we will be able to do so in the near future.
Our quarterly results could fluctuate and are difficult to forecast in
valuing the shares. We have consistently incurred losses since our formation.
Our quarterly operating results in the future may vary significantly, depending
on factors such as revenue from syndication fees, advertising sales and software
license fees, market acceptance of new and enhanced versions of Logio and
related products and services, if any, changes in our operating expenses,
changes in our business strategy, and general economic factors. We have limited
or no control over many of these factors. Our quarterly revenues will also be
difficult to forecast because the markets for our products and services are
evolving and our revenues in any period could be significantly affected by new
product announcements and product launches by our competitors, as well as by
alternative technologies. We believe period-to-period comparisons of our results
of operations will not necessarily be meaningful for the foreseeable future.
Our industry is subject to rapid technological change, and we may not
be able to keep up. Internet industries change rapidly. Our operating results
will depend to a significant extent on our ability to successfully introduce our
products and improve Logio. Accordingly, our ability to compete successfully in
our markets will depend on a number of factors, including our ability to
identify emerging target markets, identify emerging technological trends within
those markets, develop and maintain competitive products, enhance our products
by adding innovative features that differentiate them from our competitor's
products, bring products to market on a timely basis at competitive prices and
respond effectively to new technological changes or new product announcements by
others. We believe we will need to make continuing significant expenditures for
research and development in the future. We may not be able to successfully
develop new products or, if we do, those products may not be accepted by the
market.
We are subject to intense competition and our competitors may have
significant advantages over us. The development and marketing of search engines,
content and Internet portals is extremely competitive. Many of our competitors
have competitive advantages, including established positions in the market,
brand name recognition, greater financial, technical, marketing and managerial
resources, and established strategic alliances. Further, our competitors may
succeed in developing products or technologies that are more effective than
ours, or that make our products and technologies obsolete.
We are controlled by our executive officers and directors and our other
shareholders may not have great influence over our business. Our executive
officers and directors beneficially own approximately one third of the
outstanding common stock. As a result they will have substantial influence over
our operations and on the outcome of matters submitted to our stockholders for
approval. In addition, their ownership of such a large portion of the common
stock could discourage the purchase of our common stock by potential investors,
and could have an anti-takeover effect, possibly depressing the trading price of
our stock.
<PAGE>
We depend on patents and proprietary rights which are not always secure
and the loss of which may significantly harm us. Our ability to compete
effectively in our markets will depend, in part, on our ability to protect the
proprietary nature of the Logio technology through a combination of patents,
licenses and trade secrets. At this time, we have secured rights to the "Logio"
trademark within the United States, but have not completed securing
international rights to this trademark. In addition, competition in our markets
is intense and our competitors may independently develop or obtain patents on
technologies that are substantially equivalent or superior to Logio. We could
incur substantial costs in defending patent infringement lawsuits brought by
others and in prosecuting patent infringement lawsuits against third parties.
A portion of our initial search technology was based on an exclusive,
worldwide license to a patent that was issued to a university. Our reliance on
that patent has significantly diminished as we have developed our own search
technology, and as we have licensed additional search technology from other
parties. Intellectual property rights, by their nature, are uncertain and
involve complex legal and factual questions. We may unknowingly infringe on the
proprietary rights of others and may be liable for our infringement, which could
cost us significant amounts. We are not aware of any third party intellectual
property rights which would prevent our use of Logio, although rights of that
type may exist. If we infringe on the intellectual property of another party, we
could be forced to seek a license to those intellectual property rights or alter
our products or processes so they no longer infringe on the rights of the third
party. If we are required to obtain a license to another party's proprietary
rights, that license could be expensive, if we could obtain it at all.
We also rely on trade secrets and other unpatented proprietary
information in our product development activities. To the extent we rely on
confidential information to maintain our competitive position, other parties may
independently develop the same or similar information. We attempt to protect our
trade secrets and proprietary knowledge in part through confidentiality
agreements with our employees and collaborators. These agreements may not
effectively prevent disclosure of our confidential information and may not
provide us with an adequate remedy in the event of unauthorized disclosure of
that information. If employees or collaborators develop products independently
that may be applicable to our products under development, disputes may arise
about ownership of proprietary rights to those products. Those products will not
necessarily become our property, but may remain the property of those persons.
Protracted and costly litigation could be necessary to enforce and determine the
scope of our proprietary rights. Our failure to obtain or maintain patent and
trade secret protection, for any reason, could have a material adverse effect on
our business, financial position and results of operations.
We will need significant additional capital, which we may not be able
to obtain, to fund our business. Based on our current expenditure rate, we
believe we will need additional financing by the end of August of 2000, and that
we will need a total of between $15 million and $20 million in new capital by
the end of 2001 to conduct Logio operations and continue sales to the market.
Even though we have launched Logio, and anticipate that we will begin generating
revenues from its operations, we do not believe those revenues will be
sufficient to finance capital and operational expenditures. Therefore, the
success of our business strategy will be dependent on our ability to access
equity capital markets and borrow on terms that are financially advantageous to
us. We recently completed a series of financing transactions that provided us
with approximately $500,000 in debt financing, and completed a private placement
of shares of common stock (which will close upon the effectiveness of a
registration for those shares) for $1.4 million. The amounts from those
financings, together with our current capital, will fund our operations through
the end of 2000. We have no other committed external sources of
financing for any funds we may need in the future. We may not be able to obtain
funds on acceptable terms. If we fail to obtain funds on acceptable terms, we
may be forced to delay or abandon some or all of our business plans, which could
have a material adverse effect on operations and financial results. If we are
unable to obtain additional capital, we also may not have sufficient working
capital to finance acquisitions, pursue business opportunities, develop products
or continue our business operations. If we borrow money, we could be forced to
use a large portion of our cash reserves to repay it, including interest. If we
issue our securities for capital, your interest and the interests of the other
then-current shareholders could be diluted.
<PAGE>
Our products are complex and may contain errors which may discourage
their use. Logio is complex and may contain errors, defects and "bugs." We have
detected those kinds of errors, defects and bugs in the past and have corrected
them as quickly as possible. Correcting any defects or bugs we discover in the
future may require us to make significant expenditures of capital and other
resources. Even though we extensively tested Logio prior to its launch, users
may find errors or defects in Logio which could cause additional development
costs or result in delays in, or loss of, Logio's market acceptance.
Our stock price may be volatile. In recent years the stock market in
general, and the market for shares of high technology companies in particular,
have experienced extreme price fluctuations. In many cases these fluctuations
have been unrelated to the operating performance of the affected companies. The
trading price of our common stock has been and may be subject to extreme
fluctuations in response to business-related issues such as quarterly variations
in operating results, or announcements of our new products or those of our
competitors. In addition, the trading price of our common stock has been and may
be subject to fluctuations in response to stock market-related influences such
as changes in analysts' estimates, the presence or absence of short-selling of
our common stock and events affecting other companies that the market deems to
be comparable to us.
This prospectus contains forward-looking statements which may in the
future prove to be wrong. The information contained in this prospectus includes
information based on trends or other forward-looking statements that involve a
number of assumptions, risks and uncertainties. The actual results of our
operations could differ materially from our historical results of operations and
those discussed in the forward-looking statements. The forward-looking
statements are based on our management's beliefs, as well as assumptions they
have made based on currently available information. Words such as "anticipate,"
"believe," "estimate," "plan," "expect," "intend" and words or phrases of
similar import, as they relate to us or our management, are intended to identify
forward-looking statements. The forward-looking statements should be read in
light of these factors and the factors identified elsewhere in this prospectus.
The future sale of our common stock could pose investment risks,
including dilution of the shares. The market price of our common stock could
drop as a result of sales of the common stock, including the shares, in the
market after this offering, or the perception that such sales could occur. These
factors could also make it more difficult for us to raise funds through future
offerings of our common stock. There will be a total of 15,979,408 shares of
common stock outstanding immediately after this offering, assuming no exercise
of outstanding options or warrants other than the warrants issued in connection
with the Series A Preferred Stock. The shares registered hereunder will be
freely transferable without restriction or further registration under the
Securities Act of 1933, except for any shares held by our officers, directors
and shareholders owning 10% or more of our common shares. We also have
approximately 7.9 million shares of common stock outstanding that are freely
transferrable without registration under the Securities Act (including shares
which are subject to a "shelf" registration statement which has been declared
effective by the SEC, the sale of which is not restricted), except for any of
those shares purchased by our officers, directors, and shareholders owning 10%
or more of our common shares. Of the remaining shares of common stock,
approximately 5.6 million shares are securities which have restrictions on their
transfer, but which may be sold without further registration under the
Securities Act to the extent such sales are permitted by Rule 144. The balance
of our outstanding shares of common stock are restricted securities which are
not yet able to be sold under, and subject to the limitations of, Rule 144, but
which may be sold or otherwise transferred under other exemptions under the
federal securities laws. See "Price Range of Common Stock and Shares Eligible
for Future Sale" and "Plan of Distribution."
We have a short market history and there is little historical
information by which to value the shares. There has not been a large public
market for our equity securities, although our common stock has traded on the
over-the-counter market since July 1998. See the section entitled "Price Range
of Common Stock and Shares Eligible for Future Sales," which describes the high
and low actual sales prices of our common stock during certain periods. Our
shareholders and potential investors are limited to effecting market transfers
of our stock on the over-the-counter market. We do not know the extent to which
investor interest in our stock will lead to the development of a more
substantial and active trading market or how liquid that market might be. The
offering price for the shares is determined by the selling stockholders. You may
not be able to resell your shares at or above the price you pay for your shares.
<PAGE>
We have an unproven product and we operate in a developing market which
may not accept our products. Logio is based on search engine fundamentals, which
have been used for over 10 years. However, if Logio does not achieve significant
market acceptance and usage, our business, results of operations and financial
condition could be materially and adversely affected. We have refined the basic
Logio technology by adding additional functions and recently launched it as an
operating site. Our success will depend largely on our ability to refine and
continue to develop Logio and other products. See "Business - Logio Markets."
The primary markets for Logio have only recently begun to develop and
are rapidly evolving. As is typical of new and rapidly evolving industries,
demand for, and market acceptance of, products and services that have been
released recently or that are planned for future release are subject to a high
level of uncertainty. If the markets for Logio fail to develop, develop more
slowly than we expect, or become saturated with products of other competitors,
or if Logio does not achieve market acceptance, our business, results of
operations and financial condition could suffer.
Our markets are highly dependent on the use of the Internet. A number
of critical issues concerning the commercial use of the Internet, including
security, reliability, capacity, costs, ease of use, access, quality of service
and acceptance of advertising remain unresolved and may retard the growth of the
Internet for commercial applications.
We are dependent on the continued adoption of private data networks,
the failure of which may harm our business. In addition to providing services
over the Internet, we intend to provide or license Logio for use on private data
networks systems. Therefore, we will be dependent on the development of those
systems. Those systems may not be adopted by large numbers of organizations, and
the organizations adopting them may not want users to communicate over those
systems. Our products may not appeal to organizations that use private data
networks.
We will need to carefully manage our growth, but may not be able to do
so effectively. We hope and expect to grow rapidly, both in the rate of our
sales and operations and the number and complexity of our products, product
distribution channels, and product development activities. Several members of
our key management team only recently joined us. See "Management." Our growth,
coupled with the rapid evolution of our markets, has placed, and is likely to
continue to place, significant strains on our administrative, operational,
technical and financial resources and increase demands on our internal
management systems, procedures and controls. If we are unable to manage future
growth effectively, our business, results of operations and financial condition
could be materially adversely affected.
We will be dependent upon value added links, but may not be able to
obtain them. We intend to establish value added links with leading Internet
content providers to allow their users to use Logio without leaving the content
provider's web site. We expect to derive revenue from these value added links
and to increase Logio brand recognition among users through such relationships.
Our success in establishing Logio as a recognized brand name and achieving its
acceptance in the market will depend in part on our ability to establish and
maintain value added links. See "Business."
We may be subject to capacity constraints and system failures, which
may discourage our customers' use of Logio. A key element of our marketing
strategy is to make Logio available at no cost to users of the Internet through
our own web site. Accordingly, Logio's performance will be critical to our
ability to establish the Logio brand name. Increases in the volume of searches
conducted using Logio could strain our system capacity, which could lead to
slower response times or complete system failures. In addition, if the number of
Internet users increases, Logio may not be able to be scaled appropriately. We
will likely be required to make certain performance and support commitments in
our value added link agreements and if we fail to meet the commitments, those
agreements could be terminated or we could be liable for damages. We will also
be dependent on hardware suppliers for prompt delivery, installation and service
of servers and other equipment that we use to operate our web site and for
Internet access. The servers and other hardware equipment will be vulnerable to
damages from fire, earthquake, power loss, telecommunications failures and
similar events. Our business operations may also be vulnerable to computer
viruses, break-ins and similar disruptive problems. See "Business."
<PAGE>
We may be subject to increased regulations and we may have liability
for information retrieved from the Internet. Other than laws and regulations
applicable to businesses generally, there are currently few laws and regulations
expressly applicable to access and commerce on the Internet. Due to the
increased popularity and use of the Internet, however, it is possible that new
laws and regulations may be adopted with respect to the Internet relating to the
issues such as user privacy, pricing and characteristics, and content and
quality of products and services. For example, we may be subject to the
provisions of the Communications Decency Act, which if found to be
constitutional, could expose us to substantial liability. The adoption of any
such laws or regulations could retard the growth or the use of the Internet,
which could adversely affect the demand for our products and services. Those
laws or regulations could also result in significant additional costs and
technological challenges for us in complying with any mandatory requirements.
Further, several states have attempted to tax online retailers and service
providers even when they have no physical presence in the state. There is
currently a three-year moratorium on taxing Internet commerce which was imposed
by the federal government. We cannot predict what effect the lapse of the
moratorium period will have on our business operations. In addition, plaintiffs
have brought claims, and sometimes obtained judgments, against online services
for defamation, negligence, copyright or trademark infringement or under other
theories with respect to materials disseminated through those services. We will
maintain a web site to which users can upload materials, so we may be subject to
similar claims.
We may be subject to risks associated with global operations, which we
may not be adequately protected against. Our Logio software has multi-language
capability. In the past year we have not concentrated on developing that
function, but we believe we could do so in the future. As a result, we could
derive substantial portions of our revenues from customers outside the United
States. Our ability to expand products and services internationally would be
limited by the general acceptance of the Internet and intranets in other
countries. In addition, international operations are subject to a number of
risks, including costs of localizing products and services for international
markets, dependence on independent resellers, multiple and conflicting
regulations regarding communications, restrictions on use of data and internet
access, longer payment cycles, unexpected changes in regulatory environments,
import and export restrictions and tariffs, difficulties in staffing and
managing international operations, greater difficulty or delay in accounts
receivable collection, potentially adverse tax consequences, the burden of
complying with a variety of laws outside the United States, the impact of
possible recessionary environments and economies outside the United States and
political and economic instability. Furthermore, we expect that our export sales
would be denominated predominately in United States dollars. Therefore, an
increase in the value of the United States dollar relative to other currencies
could make our products and services more expensive and potentially less
competitive in international markets.
None of our common shareholders is subject to a lock-up and they may
immediately sell their stock, which may depress our stock price. Our current
common stockholders have not entered into any agreements which restrict their
ability to sell or otherwise dispose of their common stock. As a result, our
stockholders, including those stockholders whose shares are being registered
under this registration statement, will be able to sell any and all of their
shares of common stock, subject only to applicable federal securities laws.
Sales and distributions of substantial amounts of common stock in the public
market, whether by reason of this prospectus or by the same or other
shareholders, could adversely affect the prevailing market prices for our
securities. See "Price Range of Common Stock and Shares Eligible for Future
Sale."
An investment in the shares is very risky. You should carefully
consider the preceding risks in addition to the information contained in the
remainder of this prospectus before purchasing the shares. This prospectus
contains forward-looking statements that involve risks and uncertainties. Many
factors, including those described above, may cause actual results to differ
materially from anticipated results.
TRANSACTIONS EFFECTED IN CONNECTION WITH THE OFFERING
In July 2000, we concluded a private placement with four accredited
investors of 2,000,000 shares of our common stock. The purchase price for the
common stock was $.70 per share, for an aggregate purchase price of $1.4
million. The closing of the transaction will occur as soon as practicable after
the Securities and Exchange Commission declares the registration statement of
which this prospectus is a part effective. The investors' obligation to close is
conditioned only on our representations and warranties being accurate and the
effectiveness of the registration statement. The 2,000,000 shares are part of
the shares the public sale of which is being registered hereunder.
<PAGE>
USE OF PROCEEDS
We registered the shares for the benefit of the selling stockholders
who will sell the shares from time to time under this prospectus. Other than the
exercise price certain of the selling stockholders pay to exercise warrants to
buy common shares, we will not receive any of the proceeds from the sale of the
shares registered hereunder. Those selling stockholders are not obligated to
exercise their warrants , and there can be no assurance they will exercise all
or any of them. We intend to use any proceeds from any exercise of the warrants
for working capital needs and general corporate purposes. We will pay all of the
costs of this offering, with the exception of the costs incurred by the selling
stockholders for their legal counsel and the costs they incur for brokerage
commissions on the sale of their shares.
PRICE RANGE OF COMMON STOCK AND SHARES ELIGIBLE FOR FUTURE SALE
Between July 1998 and July 12, 2000, our common stock traded
over-the-counter and was quoted on the OTC Electronic Bulletin Board under the
symbol "WCTI," and since then, under the symbol "LGIO." We filed an application
requesting our securities to be listed on the NASDAQ Small Cap market which was
denied on February 14, 2000 due to the fact that our product, Logio.com, was not
then available and, as a result, we were not generating operating revenues. We
believe that, with the launch of Logio.com, and with the expected sales of our
products and services, we will meet NASDAQ's operating revenue requirements. At
that time, we intend to reapply for listing on NASDAQ. We cannot guarantee,
however, that we will ever generate the operating revenues required to obtain
listing on the NASDAQ Small Cap market, or meet its other listing requirements.
There were approximately 161 holders of record of our common stock as
of July 11, 2000. Standard Registrar and Transfer Company, Inc. of Salt Lake
City, Utah, currently acts as transfer agent and registrar for the common stock.
The following table presents the range of the high and low bid prices of our
common stock as reported by the NASDAQ Trading and Market Services for the
fourth fiscal quarter of 1998, the first through fourth fiscal quarters of 1999,
and the first and second quarters of 2000. The quotations shown below represent
prices between dealers, which may not include retail markups, markdowns, or
commissions and may not necessarily represent actual transactions:
Year Quarter High Low
1998 Fourth Quarter $ 6.81 $ 2.00
1999 First Quarter $36.25 $ 4.78
Second Quarter $ 7.81 $ 3.56
Third Quarter $ 6.13 $ 3.63
Fourth Quarter $ 5.75 $ 3.19
2000 First Quarter $14.00 $5.75
Second Quarter $7.00 $1.06
Upon completion of the offering, we will have outstanding an aggregate
of 15,479,408 shares of common stock. In addition, we reserved for issuance
1,189,166 shares issuable upon exercise of outstanding options, of which 728,666
were exercisable as of July 11, 2000, and up to an additional 500,000 shares of
common stock under warrants we are issuing to a third party for services, of
which 300,000 were exercisable as of July 11, 2000. The shares offered hereby
will be freely transferable without restriction or further registration under
the Securities Act, except for shares which may be acquired by our "affiliates"
as that term is defined in Rule 144 under the Securities Act. We also have
approximately 7.9 million shares of common stock that are currently freely
tradable (including shares which are subject to a "shelf" registration statement
declared effective by the Securities and Exchange Commission, the sale of which
is not restricted), except for such of those shares as may be acquired by our
affiliates. The remaining shares of common stock held by existing shareholders
are "restricted securities" as that term is defined in Rule 144. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for exemption from registration under Rules 144 or 701 under the
Securities Act or otherwise. Of the restricted shares held by our existing
shareholders, approximately 5.6 million shares are eligible for immediate sale
in the public market under Rule 144.
<PAGE>
In general, under Rule 144, as currently in effect, a person, or
persons whose shares are aggregated, including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock or the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale and certain other limitations and
restrictions. In addition, a person who is not deemed to have been our affiliate
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume, manner of sale and
other limitations described above.
An employee or consultant of ours who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits non-affiliates to sell their Rule
701 shares without having to comply with the public information, holding-period,
volume-limitation or notice provisions of Rule 144, and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus.
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000
and as adjusted to give effect to the offering and the sale of the Series A
Preferred Stock in February and March 1999, as more particularly described in
the section entitled "Transactions Effected In Connection with the Offering."
June 30, 2000
-----------------------------------------
Actual Pro Forma
------ ---------
(as adjusted)
<S> <C> <C>
Long term liabilities, including current portion $925,395 $925,395
Stockholders' equity: 13,480 15,980
Common stock, par value $0.001; 13,479,408
shares issued and outstanding, actual;
15,979,408 shares issued and outstanding,
proforma (as adjusted)
Series A Convertible Preferred stock, par value
$0.01; no shares issued and outstanding,
actual; no shares issued and outstanding,
proforma (as adjusted)
Additional paid-in capital 16,943,305 20,240,805
Accumulated other comprehensive income 13,480 13,480
Deficit accumulated during the development stage (16,429,900) (16,429,900)
----------- ------------
Total stockholders' equity 540,365 3,840,365
------- ---------
Total capitalization $1,465,760 $4,765,760
========= =========
</TABLE>
*The information set forth above assumes the issuance of 2,000,000 shares of
common stock upon the effectiveness of the registration statement of which this
prospectus is a part, the exercise of warrants to acquire 500,000 shares of
common stock (at prices ranging from $3 to $5 per share) but assumes no exercise
of any other outstanding options or warrants.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We do not intend to pay any cash dividends on our common stock for the
foreseeable future.
SELECTED FINANCIAL DATA
The financial information set forth below with respect to our
statements of operations for the six months ended June 30, 2000 and 1999 is
unaudited. This financial information, in the opinion of management, includes
all adjustments consisting of normal recurring entries necessary for the fair
presentations of such data. The results of operations for the six months ended
June 30, 2000, are not necessarily indicative of results to be expected for any
subsequent period. The financial information set forth below with respect to our
statements of operations for each of the years ended December 31, and with
respect to our balance sheets at December 31, 1999, 1998 and 1997 is derived
from financial statements that have been audited by independent certified public
accountants, and is qualified by reference to their reports and notes related
thereto. The following selected financial data should be read in conjunction
with our financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Result of Operations."
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
2000 1999
---- ----
Statements of Operations Data: (Unaudited) (Unaudited) 1999 1998 1997
------------------------------ ----------- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales...................... $ - $ 14,072 $ 15,289 $ 32,884 $16,034
Advertising sales.................. 1,534 - - - -
Contract research revenues,
royalties and license fees........... - - 8,066 49,794 8,450
---------- ---------- ---------- ---------- ----------
Total revenues 1,534 14,072 23,355 82,678 24,484
---------- ---------- ---------- ---------- ----------
Cost of sales & royalties.......... 300,746 4,099 15,071 15,864 806
---------- ---------- ---------- ---------- ----------
Gross profit (loss) (299,212) 9,973 8,284 66,814 23,678
Operating expenses:
Research & development............. 1,558,834 330,068 1,198,546 266,563 126,281
Sales & marketing.................. 629,834 176,955 953,708 34,554 5,274
General & administrative........... 649,790 527,662 1,340,486 217,318 206,874
Depreciation & amortization........ 401,003 38,660 179,169 10,406 6,419
Compensation expense for common
stock, options and warrants..... 580,843 705,187 1,452,610 - -
---------- ---------- ---------- ---------- ----------
Total operating expense........ 3,820,304 1,778,532 5,124,519 528,841 344,848
---------- ---------- ---------- ---------- ----------
Operating loss....................... (4,119,516) (1,768,559) (5,116,235) (462,027) (321,170)
Other income and (expense)
Interest income and other, net..... 34,835 97,247 196,310 7,276 3,077
Interest expense................... (62,991) (2,909) (9,955) (28,158) (17,125)
---------- ---------- ---------- ---------- ----------
Total other income and
(expense), .......................... (28,156) 94,338 186,355 (20,882) (14,048)
---------- ---------- ---------- ---------- ----------
Net loss............................. (4,147,672) (1,674,221) (4,929,880) (482,909) (335,218)
Deduction for dividends and
accretion..................... (64,360) (4,719,894) (6,469,861) - -
---------- ------------ ------------ ---------- ---------
Net loss attributable to common
stockholders.................... $(4,212,032) $(6,394,115) $(11,399,741) $(482,909) $(335,218)
============ ============ ============= ========== ==========
Basic and diluted loss per common
share........................... $ (0.32) $ (0.54) $ (0.96) $ (0.08) $ (0.61)
Weighted average outstanding shares
(basic and diluted).................. 13,035,217 11,877,002 11,879,919 6,100,679 545,535
========== ========== ========== ========= =======
June 30 December 31
-------------------- -----------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and cash equivalents............ $333,488 $5,238,834 $1,055,371 $ 425,702 $ 10,369
Total assets......................... 2,556,116 5,628,598 4,769,737 623,617 139,928
Long term liabilities, including
current portion................ 925,395 19,270 553,333 147,620 342,272
Deficit accumulated during the
development stage............... (16,429,900) (6,791,439) (12,217,868) (818,127) (335,218)
Total stockholders' equity........... 540,365 5,509,001 3,164,054 441,084 (208,943)
</TABLE>
See Notes to Financial Statements for information concerning the computation of
per share amounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of a number of
factors, including those factors set forth under the section entitled "Risk
Factors" and those included elsewhere in this prospectus.
Overview. We are a development stage company and our initial product,
Logio.com, has only recently been available for use in the marketplace. We are
continuing to develop and market Logio.com for the business professional.
We have devoted most of our resources since our inception in November
1996 to the research and development of Logio, and we are now beginning to
expend additional resources on the development of brand awareness of "Logio." As
of June 30, 2000, we had an accumulated earnings deficit of $16,429,900. We
expect our operating losses to continue until we develop a sufficient customer
and advertising base to cover our operating expenses.
Reverse Acquisition Treatment. Our predecessor in interest was
incorporated in the state of California on May 2, 1997, as Dunamis, Inc. Dunamis
was formed for the purpose of publishing and marketing books and audio and video
tapes. On June 25, 1998, Dunamis completed a merger with a Nevada corporation
that had been created for the sole purpose of changing Dunamis' domicile from
California to Nevada. On July 14, 1998, the surviving entity in that transaction
completed a merger with WordCruncher Publishing Technologies, Inc., formerly
"Redstone Publishing, Inc.", a Utah corporation that was formed in November,
1996. The Nevada corporation was the surviving entity in that transaction and,
as part of the transaction, changed its name to "WordCruncher Internet
Technologies, Inc.". At the time of the merger, WordCruncher Publishing
Technologies held the rights to a significant portion of the intellectual
property upon which our site was initially designed. As a result of the merger,
the former shareholders of WordCruncher Publishing Technologies, Inc. also
obtained a majority of the voting power of the combined companies. Accordingly,
in conformance with generally accepted accounting principles, the merger has
been accounted for as a "reverse acquisition." Consistent with reverse
acquisition accounting treatment, our accounting statements are the financial
statements of WordCruncher Publishing Technologies, Inc. and differ from the
financial statements of Dunamis, Inc.
Stock Split and Change in Par Value. In July 1998, we authorized a 3
for 1 forward stock split. We have retroactively restated our financial
statements to reflect that stock split. In connection with the reverse merger
with Dunamis, we also changed the par value of our common stock to $.001. That
change has also been retroactively applied in our financial statements. Unless
otherwise noted in this prospectus, all share amounts reflect the forward stock
split.
Results of Operations. The following summarizes the results of our
operations for the six months ended June 30, 2000 and 1999 (unaudited) and for
the years ended December 31, 1999 and 1998 and 1997:
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
2000 1999 1999 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> >
Revenues $1,534 $14,072 $23,355 $82,678 $24,484
Cost of sales 300,746 4,099 15,071 15,864 806
------------ ----------- ------------ ------------ -----------
Gross profit (loss) (299,212) 9,973 8,284 66,814 23,678
Operating expenses:
Research & development 1,558,834 330,068 1,198,546 266,563 126,281
Sales & marketing 629,834 176,955 953,708 34,554 5,274
General & administrative 649,790 527,662 1,340,486 217,318 206,874
Depreciation &
amortization 401,003 38,660 179,169 10,406 6,419
Compensation expense for
common stock, options,
and warrants 580,843 705,187 1,452,610 - -
------------ ------------ ----------- ---------- ---------
Total operating expenses 3,820,304 1,778,532 5,124,519 528,841 344,848
------------ ------------ ---------- ---------- ----------
Operating loss (4,119,516) (1,768,559) (5,116,235) (462,027) (321,170)
----------- ----------- ----------- ---------- -----------
Other income and expense
Interest and other income 34,835 97,247 196,310 7,276 3,077
Interest expense (62,991) (2,909) (9,955) (28,158) (17,125)
---------- ----------- ----------- ---------- ----------
Total other income (expense) (28,156) 94,330 186,355 (20,882) (14,048)
---------- ----------- ----------- ---------- ----------
Net loss $(4,147,672) $(1,674,221) $(4,929,880) $(482,909) $ (335,218)
============ ============ ============ ========== ===========
</TABLE>
Our expenses have exceeded our revenues for each fiscal period since
our inception. The revenues we have generated to date have been nominal and
almost exclusively related to product sales and licensing fees for our personal
computer based version of our WordCruncher software. Those sources of revenue
will continue to decrease as we have focused our development and marketing
emphasis to our Internet site, Logio.com and its related products and services.
Accordingly, we believe a comparison of the results of our operations on a
period-by-period basis is of limited benefit. We expect that, as we continue to
implement our business plan, our revenues will grow, along with the burdens
generally associated with larger revenues, including increased burdens on our
managerial, accounting and technical personnel.
Comparison of First Six Month Periods. Following is a comparison of our
operating results for the six months ended June 30, 2000 with the six months
ended June 30, 1999:
Revenues. The Company's revenue of $1,534 for the six months
ended June 30, 2000 represents advertising revenues derived from our logio.com
site and decreased $12,538 from revenues of $14,072 for the six months ended
June 30, 1999. This decrease is due to the discontinuation of the sales of our
PC-based product ("WordCruncher") to focus on the development and operations of
our logio.com site and the related Logio directory, which has only recently
become available on the marketplace.
Cost of Revenues. The Company's cost of revenues of $300,746
for the six months ended June 30, 2000 includes the cost of Logio services,
hosting, support and monitoring related to the logio.com site. Cost of revenues
for the six months ended June 30, 1999 totals $4,099 and relates to license fees
to a university for technology re-sold in our WordCruncher product. This product
has been discontinued in order to focus on the development and operations of our
logio.com site and the related Logio directory, which has only recently become
available on the marketplace.
<PAGE>
Research and Development. Research and development expenses
increased 372% to $1,558,834 for the six months ended June 30, 2000, an increase
of $1,228,766 from the $330,068 for the six months ended June 30, 1999. The
increase in research and development expenses is due primarily to a 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. This increase relates to
the recent release of the Logio site and the related Logio directory to the
marketplace.
Selling and Marketing. Sales and marketing expenses increased
256% to $629,834 for the six months ended June 30, 2000, an increase of $452,880
from the $176,955 for the six months ended June 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 in the first quarter of 2000
related to the release of the Logio site to the marketplace
General and Administrative. General and administrative
expenses increased 23% to $649,790 for the six months ended June 30, 2000, an
increase of $122,128 from the $527,662 for the six months ended June 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 our public filings, the addition of one employee to our
finance department subsequent to second quarter 1999, increasing our leased
building space, and obtaining additional insurance.
Depreciation and Amortization. Depreciation and amortization
increased 937% to $401,003 for the six months ended June 30, 2000, an increase
of $362,343 from $38,660 for the six months ended June 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 in first quarter 1999, and the related depreciation
charge for the six months ended June 30, 2000.
Total Operating Expenses. Our operating expenses increased
significantly during the six months ended June 30, 2000 over the six months
ended June 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. We believe that planned expansion
of Logio products, further improvements and enhancement of the site and
directory, and establishing brand recognition in the professional business arena
are all elements of its future success.
Compensation Expense for Common Stock, Options and Warrants.
Compensation expense for stock options and warrants decreased 18% to $580,843
for the six months ended June 30, 2000, a decrease of $124,344 from $705,187 for
the six months ended June 30, 1999. These charges reflect both the intrinsic
value of stock options granted to employees and directors recorded as earned by
the employee or director over each period and the fair market value of services
provided by consultants. The decrease represents the forfeiture of approximately
588,334 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.
Interest Income. Interest income decreased 64% to $34,835 for
the six months ended June 30, 2000, a decrease of $62,412 from $97,247 for the
six months ended June 30, 1999. The decrease reflects the continued use of cash
balances and short-term investments over the six months ended June 30, 2000 to
fund operations.
Interest Expense. Interest expense totaled $62,991 for the six
months ended June 30, 2000 an increase of $60,082 from $2,909 for the six months
ended June 30, 1999. The increase is due primarily to capital leases entered
into subsequent to the six months ended June 30, 1999.
<PAGE>
Net Loss. Net loss increased 148% to $4,147,672 for the six
months ended June 30, 2000 an increase of $2,473,451 compared to a net loss of
$1,674,221 for the six months ended June 30, 1999. The increase in net loss is a
result of our 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 totals
$4,212,032 for the six months ended June 30, 2000. Net loss attributable to
common stockholders for the six months ended June, 1999 totals $6,394,115 after
giving affect to the dividends and accretion of the beneficial conversion
feature of Series A Preferred Stock recognized during the first six months of
1999 totaling $4,719,894. This resulted in an increase to additional paid-in
capital and a corresponding increase in accumulated deficit during the quarters.
Comparison of Year End Periods. Following is a comparison of our
operating results for the year ended December 31, 1999 with the year ended
December 31, 1998:
Revenue. Revenues decreased $59,323, from $82,678 for the year
ended December 31, 1998, to $23,355 for the year ended December 31, 1999. This
72% decrease was due to the discontinuation of our PC-based product and our
focus on the development of our Logio.com site, which only recently became
available for use in the marketplace.
Costs of Revenues. Cost of revenues remained relatively flat
with 1998 cost of sales amounting to $15,864 and 1999 amounting to $15,071. This
decrease in cost of sales in the face of significant declines in revenue is
attributed to the added cost of discontinuing our PC based lines.
Research & Development. Research and development expense
increased nearly 450% from $266,563 in 1998 to $1,198,546 in 1999. This was due
primarily to the significant level of expenditure involved in the development of
our Logio.com site over the past 12 months.
Sales and Marketing. Sales and marketing expenses also
increased significantly, from $34,554 in 1998 to $953,708 in 1999, an increase
of nearly 2700%, as we prepared to and initiated our sales efforts in connection
with the launch of our Logio.com site. Nearly 50% of these monies were spent in
connection with our advertising and branding campaign, and a majority of the
balance was devoted to salaries and the cost of hiring marketing personnel.
General and Administrative Expense. General and administrative
expense increased significantly in 1999, as we increased staff in preparation
for commercial operations. During 1999, as compared to 1998, our general and
administrative expenses increased 517% to $1,340,486 from $217,318.
Depreciation and Amortization. Depreciation and amortization
expense increased from $10,406 in 1998 to $179,169 in 1999 primarily due to the
additional property, equipment and software that we acquired in 1999 to support
our website development operations.
Total Operating Expenses. Total operating expenses increased
$4,595,678, from $528,841 in 1998 to $5,124,519 in 1999. This 969% increase in
operating expenses resulted in an operating loss for 1999 of $5,116,235, an
increased loss of $4,654,208 over the 1998 loss of $462,027.
Other Income. Other income increased from $7,276 in 1998 to
$196,310 in 1999, a 2700% increase, as interest and dividends on invested cash
increased significantly due to the cash proceeds received from the Series A
Preferred Share offering into secure liquid investments prior to their use in
our development process.
Interest Expense. As a result of decreased borrowing, our
interest expense decreased from $28,158 in 1998 to $9,955 in 1999.
<PAGE>
Net Loss. Our net loss for 1999 grew $4,446,971 to $4,929,880,
compared to a loss of $482,909 for 1998, as a result of our increased costs and
expenses related to the research, development and implementation of our
Logio.com website operations.
Net Loss Attributable to Common Shareholders. Giving effect to
the beneficial conversion feature of our Series A Preferred Share offering, our
total loss attributable to common shareholders was $11,399,741 in 1999. This
resulted in an increase to additional paid in capital and a corresponding
accumulated increase in deficit. This was the first year that the beneficial
conversion feature was in existence.
Comparison of Year End Periods. Following is a comparison of our
operating results for the year ended December 31, 1998 with the year ended
December 31, 1997:
Revenue. Revenues increased $58,194 from $24,484 for the year
ended December 31,1997, to $82,678 for the year ended December 31, 1998. This
increase was due largely to a specific project we did for an unaffiliated
company using our search engine technology.
Costs of Revenues. Cost of revenues increased even more
significantly, from $806 in 1997 to $15,864 in 1998, due to more accurate
allocation of costs related to sales.
Research & Development. Research and development expense
increased during 1998 to $266,563, up from $126,281 in 1997. This was due to
our increased level of operations.
Sales and Marketing. Sales and marketing expenses also
increased from $5,274 in 1997 to $34,554 in 1998 due to the increased level of
our operations.
General and Administrative Expense. General and administrative
expense increased in 1998, as we geared up our commercial operations. During
1998, as compared to 1997, our general and administrative expenses increased
from $206,874 to $217,318.
Depreciation and Amortization. Depreciation and amortization
expense increased from $6,419 in 1997 to $10,406 in 1998 due to the additional
property and equipment and software technology that we acquired in 1998.
Total Operating Expenses. Total operating expenses increased
$183,993 from $344,848 in 1997 to $528,841 in 1998. This resulted in an
operating loss for 1998 of $462,027, an increased loss of $140,857 over the 1997
loss of $321,170.
Interest Expense. As a result of heavier borrowing, our
interest expense grew $11,033 from $17,125 in 1997 to $28,158 in 1998.
Correspondingly, interest income more than doubled from $3,077 in 1997 to $7,276
in 1998 due to larger invested balances during the last 60 days of 1998.
Net Loss. Our net loss for 1998 grew $147,691 to ($482,909),
compared to a loss of ($335,218) for 1997 as a result of our increased costs and
expenses, primarily from our year ago for commercial operations.
We had no operations for the period ended December 31, 1996, so an item
by item comparison of the results of our operations for the periods ended
December 31, 1996 and December 31, 1997 would reflect an increase in the amount
of each of those line items to the extent of those line items in 1997. The
changes in the line items are directly attributable to the fact that we
initiated our operations during 1997.
Quarterly Trends We do not anticipate significant "seasonal" changes in
our operations. We expect our revenues to grow consistently over the next five
years, but we believe they should grow reasonably even from quarter to quarter.
We believe revenues will initially come from advertising sales at our site. We
believe we will generate additional revenues through our partnership
arrangements with other sites that use Logio in other commerce-related areas
over the Internet, and through the sale of information through the Logio site.
<PAGE>
Liquidity and Capital Resources. Since our inception, we have funded
our cash requirements through debt and equity financings. We have used the funds
from those transactions to fund our investment in the development of our
Logio.com business information site, provide working capital and for general
corporate purposes. As of the year ended December 31, 1997, we had total assets
of $139,928, and total liabilities of approximately $348,872, resulting in a
negative net worth of $208,943. Our operating losses totaled $335,218. These
losses were funded primarily by related party loans, which were backed by a
revolving bank line of credit. In connection with the merger between
WordCruncher Publishing Technologies, Inc. and Dunamis, Inc. in July 1998, we
obtained a significant new source of operating capital. At the time of the
merger, Dunamis, Inc. held cash reserves of approximately $1 million, and had no
liabilities. As a result of that transaction, our total assets for the year
ended December 31, 1998 were $623,617, including cash or cash equivalents of
$425,702. Our liabilities totaled $182,533, resulting in a stockholders equity
of $441,084, including an operating loss of $482,909 for the year ending
December 31, 1998.
In February, 1999, we received the first cash portions, $6.1 million,
from our sale of our Series A Preferred Stock to eight investors. In March,
1999, we received the last of the proceeds from the sale of those shares in the
amount of $200,000. Our expenses for the offering totaled $392,100, resulting in
net proceeds to us of $5,907,900. As a result, as of December 31, 1999, we had
total assets of $4,769,737. Our total liabilities as of that date were
$1,605,683 and our stockholders' equity was $3,164,054. This includes an
increase to accumulated deficit of $6,469,861 and a corresponding increase to
paid-in capital in recognition of the beneficial conversion feature of our
convertible preferred shares issued during the period. Our cash, cash
equivalents and short term investments at December 31, 1999 totaled $2,517,518.
As of June 30, 2000, we had $688,005 in cash and short-term
investments, $2,556,116 in total assets and total liabilities of $2,015,751. As
of June 30, 2000, we have negative working capital of $532,625, an accumulated
deficit of $16,429,900 (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 totals $540,365.
We used $2,704,241 in cash for operations during the six months ended
June 30, 2000.
Cash totaling $91,547 was used in investing related activities for
purchases of property and equipment during the six months ended June 30, 2000.
Short-term investments were sold for cash totaling $1,113,170 during the six
months ended June 30, 2000.
Cash provided by financing activities during the six months ended June
30, 2000 includes $907,600 from the exercise of options and warrants. We
purchased $65,686 of equipment during the six months ended June 30, 2000 by
entering into capital lease agreements. Cash used to pay financing activities
for capital leases and other long-term obligations totals $448,196 during the
six months ended June 30, 2000. We paid a cumulative stock dividend of 6% to the
Series A Preferred stockholders during the first quarter of 2000 totaling 61,650
shares of our common stock.
As of June 30, 2000, we had no material commitments for capital
expenditures for the remainder of fiscal year 2000. Our capital lease
obligations totaling $425,395 are due through February, 2002.
In June 2000, we received $500,000 in cash from three of our major
shareholders and officers in exchange for an 8% note, which is due in July 2001.
In July 2000, we completed the private placement of 2,000,000 shares of our
common stock for a purchase price of $1.4 million. The closing for that
transaction will occur as soon as practicable after the Securities and Exchange
Commission declares the registration statement of which this prospectus is a
part effective.
A summary of our unaudited balance sheets for the six months ended June
30, 2000 and 1999, and a summary of our audited balance sheets for the years
ended December 31, 1999, 1998 and 1997 are as follows:
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
-------------- -----------
2000 1999
--------------- --------------- ------------- ------------ ----------------
(Unaudited) (Unaudited) 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents and
short term investments $688,005 $5,238,832 $2,517,518 $425,702 $10,369
Current assets 863,674 5,249,707 2,833,391 425,702 15,369
Total assets 2,556,116 5,628,598 4,769,737 623,617 139,928
Current liabilities 1,396,299 100,328 1,352,333 170,919 321,307
Total liabilities 2,015,751 119,598 1,605,683 182,533 348,871
Total stockholders' equity 540,365 5,509,001 3,164,054 441,084 (208,943)
Total liabilities & stockholders'
equity 2,556,116 5,628,598 4,769,737 623,617 139,928
</TABLE>
Assuming the closing of the private placement of the 2,000,000 shares
we completed in July 2000, and our receipt of the $1.4 million purchase price
for those shares, we have the resources to continue our product development
efforts, commence commercial operations and to initiate our sales, marketing and
promotional activities for Logio through the end of 2000, based upon
our current estimates of projected expenditures during the period. We operate in
a very competitive industry that requires continued large amounts of capital to
develop and promote products. Many of our competitors have significantly greater
capital resources. We believe it will be essential to continue to raise
additional capital, both internally and externally to continue our operations
and compete in this industry.
Our need to raise external capital in the future will depend upon many
factors, including, but not limited to, the rate of sales growth and market
acceptance of our Logio products, the amount and timing of our necessary
research and development expenditures, the amount and timing of our expenditures
to sufficiently market and promote our products and the amount and timing of any
accessory new product introductions. In addition to accessing the public equity
markets, we will pursue bank credit lines and equipment lease lines for certain
capital expenditures. There can be no assurance, however, that we will be able
to access the capital we need or at rates acceptable to us.
We currently estimate that we will require between $15 and $20 million
to develop our products and launch our operations in accordance with our
business plan through 2001. The actual costs will depend on a number of factors,
including
o our ability to negotiate favorable prices for purchases of necessary
portal components;
o the number of our customers and advertisers;
o the services for which they subscribe;
o the nature and success of the services that we offer;
o regulatory changes; and
o changes in technology.
In addition, our actual costs and revenues could vary from the amounts
we expect or budget, possibly materially, and those variations are likely to
affect how much additional financing we will need for our operations.
Accordingly, there can be no assurance our actual financial needs will not
exceed the amounts available to us.
<PAGE>
To the extent that we acquire the amounts necessary to fund our
business plan through the issuance of equity securities, our then-current
shareholders 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 our cash flows from operations being dedicated to
the payment of principal and interest on that indebtedness, and could render us
more vulnerable to competitive and economic downturns.
Recent Accounting Pronouncements.
During first quarter 2000, the Financial Accounting Standards Board
issued FIN 44, an Interpretation of APB Opinion 25 on accounting for employee
stock compensation. The statement provides clarification on, among other things,
the definition of an employee, on a fixed stock option or award and variable
accounting for stock options and awards. FIN 44 was effective on July 1, 2000.
We believe that the impact of the adoption of this Interpretation will not have
a significant effect on our financial statements.
The SEC staff issued SAB 101, "Revenue Recognition in Financial
Statements," in December 1999. The SAB provides registrants with the staff's
positions on revenue recognition requirements and related disclosures under
generally accepted accounting principles. SAB 101 was to be effective no later
than the second fiscal quarter of the fiscal year beginning after December 15,
1999. SAB 101 has since been amended and is effective no later than the fourth
fiscal quarter of the fiscal year beginning after December 31, 1999. We believe
that, as we achieve significant levels of revenue, we will adopt SAB 101 in the
recognition of such revenue and that this statement will then be reflected in
our financial statements.
BUSINESS
The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. This section
contains certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
discussed in the forward-looking statements as a result of certain of the risk
factors set forth below and elsewhere in this prospectus.
Introduction. We are a development stage company engaged in the
development of business information and resources to be delivered via several
channels over the Internet. These channels include our own Internet portal site
(www.logio.com), other Internet business sites to which we may supply our
directory and other products and services, and company intranets to which we may
supply our directory and other products and services. All of these channels are
designed and targeted to serve the needs of the business professional.
The content and services of our website, which we launched on March 19,
2000, are tailored to provide, in a single location, a broad spectrum of the
information and services that we believe business professionals will find useful
in performing their daily work activities. The information resources at the
Logio website include a unique, readily accessible "drill down" directory that
organizes tens of thousands of business-oriented web sites according to the
user's specific job functions. The directory is augmented by an advanced search
technology that can search either the site abstracts written by the Logio
editorial staff, or text within the sites themselves. It then displays the
search results in a "hits in context" format, ranked according to estimated
relevance. We couple this information with the services that many business
professionals use daily, including business and other news, weather, e-mail,
calendaring, task tracking, travel arrangements, travel maps, and financial and
stock information, including portfolio tracking. In addition, we have entered
into agreements with certain third-party suppliers to offer their products and
services on the site as well.
We also offer our directory, search capabilities, and certain
third-party services and supplies in private label form to other public Internet
sites and company intranets. Under a private label, customers may provide a
customized link to our directory and selected third-party products and services,
to be displayed within the context of their own sites, in exchange for a setup
fee and monthly support and maintenance fees. We intend to expand the delivery
of this full-service concept to other electronic means of connection, including
cell phones, pagers, personal digital assistants, and set top boxes. All these
services will be marketed under the brand name "Logio."
<PAGE>
Although the Internet offers a great deal of free information,
publishers still own valuable content that is either not available on the
Internet or is difficult to find. This information can be very useful to
business people. Examples include research reports, market analyses,
industry-specific newsletters and commentary, and similar information that is
routinely sold in print form to the business community. We believe that the sale
and delivery of these kinds of content through the Internet is a logical step in
the development of information distribution channels, and we are positioning
Logio to take a leading role in this trend. Forrester Research estimated in
January 2000 that the market for business information sold over the Internet
will reach $11 billion by 2004. We are developing methods whereby this type of
business-oriented content can be offered, sold, and delivered as part of the
Logio product mix.
We believe that Logio products will be used by business professionals
for a number of activities in a wide range of situations. Whether they use the
Logio Internet business portal itself, or Logio products within the context of
other public sites or company portals, our objective is to have users keep Logio
open ("on the desktop") all day long, and when they are away from their desks,
to access Logio-delivered information and services using whatever device is
practical.
The rapid growth of the Internet and the proliferation of Internet
sites have increasingly challenged users, site owners, and advertisers to reach
one another effectively. Users need to find quickly the most relevant
information, products and services related to a particular topic or interest.
Site owners need to become visible to their potential users, and to
differentiate themselves from competitors in an increasingly crowded medium.
Advertisers need to deliver their advertising messages more effectively to
interested audiences and target groups. In some ways, the Internet is now
mirroring the development of print media. For example, over the past thirty
years, the number of newspapers and magazines devoted to specialized subjects
and interests has mushroomed, while the number of general interest publications
is declining.
Logio has chosen to create a site, and site content for license to
others, that targets business professionals and addresses some of the more
common functional problems that confront them when they use the Internet. For
example, most search engines do not differentiate between the types of sites
they search. A business user searching on a general portal site for "lawyer,"
for example, will receive information sites about lawyers, opinion sites against
lawyers, sites with lawyer jokes, lists of divorce and accident litigation
lawyers, and a myriad of other non-business-related sites - all mixed together
with the business law sites he or she is looking for. Further, the user
generally receives little guidance about which sites are actually
business-focused, resulting in much trial and error before finding what is
wanted.
A similar search within the Logio directory produces a list of law
sites and firms that deal with business law. Additionally, Logio shows its hits
in context, so a user can determine which sites or firms are most likely to be
useful before clicking on a site link. The result is a faster, more targeted
search and much more productive use of a user's time and efforts. While the
display of hits in context is not the sole method by which Logio differentiates
its offerings from others in the market, it is indicative of the attention we
have paid to refining the Internet experience for the benefit of our users.
Logio markets. We believe business professionals will use Logio
products and services in a wide range of venues. The magnitude of the
business-to-business market is estimated by several respected research firms to
be between $1 and $3 trillion by 2004. This provides Logio with unique
opportunities to focus on the professional duties of business people, regardless
of industry. While most business-to-business sites focus on very tight
"vertical" markets (such as steel, waste water treatment, or chemicals), Logio
has focused on what people do when they go to work every day, regardless of what
business their business is in. We believe that this unique "horizontal" focus on
business will create opportunities for client and partner relationships, even
among the vertical business-to-business sites. We also believe that our
horizontal focus will also make Logio a natural choice for supplying Internet
content to corporate intranet sites, since the directory structure closely
matches the organizational structures of most companies.
Our solution. Business professionals use the Internet for may reasons -
to acquire needed information, to make business connections, to obtain business
tools and to make purchases. All these resources are currently available, but
scattered about in traditional places and on the Internet. Our goal is to bring
these solutions together at the Logio business information service. The
Logio.com business portal has the resources to help business professionals
quickly find information they seek:
<PAGE>
o A focused, targeted directory of comprehensive information, organized
by business profession or occupation.
o A powerful, superior search function that handles both simple and
complex queries and returns results in context
o News and current events, updated regularly. We anticipate that the
directory categories will contain relevant news stories along with
other information and resources, rather than being relegated solely to
a single part of the website.
The Logio site also adds the tools and services business professionals
generally need to be efficient:
o E-mail
o Calendaring and scheduling
o Task tracking
o Travel services, including transportation and lodging reservations
o Maps and directions
o Stock and financial information, including portfolio tracking
o Weather information
o Financial calculators
Finally, the Logio site offers these partnered services to provide
additional efficiency to its users:
o Business and related equipment
o Office and janitorial supplies
o Reverse-auction bidding for telephone and connectivity services,
including local and long distance, high speed Internet service, and
other services.
The Logio Internet business portal is a powerful, comprehensive set of
business tools. Perhaps even more importantly, it serves as an example of how
the Logio directory and partnered services can be used within the context of a
public site or corporate portal to provide the information, resources, and
services that business people need.
The guiding strategy that we use to achieve our objectives and
differentiate ourselves from our competitors rests on a commitment to timely
relevance, to providing today's business professionals with what they need, when
they need it. We intend to achieve the objective by constantly identifying and
then consolidating in one place the content and services that business people
use. Current components of Logio product and strategy include:
<PAGE>
Robust, Proprietary Business Directory. One of the most valuable
resources Logio provides, both to its own Internet site and to others, is the
Logio Directory. Its organizational structure is simple but unique: sites are
organized along broad professional discipline lines, not along vertical business
lines. A user can scan the directory for the appropriate professional
discipline, "drill down" through the directory's subcategories to find the right
subject, and there find appropriate news, information and resources for the task
or inquiry at hand. At mid-year 2000, the Logio Directory contained
approximately 25,000 URLs and 60,000 links into directory categories, making it
one of the largest focused business-to-business directories available. Each URL
has been individually reviewed and categorized by resource type and company
location (where appropriate), with a concise abstract of the information or
resources to be found at the site.
Logio is in the process of integrating its news feeds into the fabric
of the Logio Directory, so that stories and articles about a particular
professional subject are available alongside related information and resources,
rather than being consigned to a separate news section. By providing news at the
point of interest, we give an additional level of convenience in using the
directory.
"Hits in Context" Search Results. We believe the Logio search engine
overcomes one of the most tedious and time-consuming aspects of searching the
Internet. When a user does a search with a traditional search engine, he or she
is then forced to follow each hyperlink to see if the results are relevant to
what was wanted. With the Logio Directory and search engine, the results are
returned within a context of surrounding words to help the user determine
instantly if the URL contains the desired information. This "hits in context"
approach can cut down search time and efforts dramatically.
Relevant Products and Services. Business professionals need more than
just information to do their jobs well. As a result, Logio has contracted with
certain third-party suppliers to provide computers, office equipment,
maintenance equipment and janitorial supplies, other selected business services,
and reverse-auction bidding on telephone and connectivity services. We
anticipate that these products and services will be integrated into the Logio
Directory in appropriate categories in order to be available to users at the
point of need, and with a single Logio login to activate the user's purchasing
accounts with all partnered products and services.
Personalization. To make things even easier for our site's users, we
have designed our website to be personalized to individual needs and interests.
A user can choose to see exactly what services, directory categories, and news
subjects he or she wishes - with the rest of the Logio content available as
well. We expect to make this customization functionality available to our
commercial and intranet clients as well.
Multi-lingual and concept-based search capabilities. We are developing
technology that is expected to enable users to search for a word or concept in
multiple languages, using single-language search entries. The technology is
expected to analyze the search query to determine the concepts underlying it,
build a query of related concepts, and then translate those concepts into
desired languages. It can then become a meta-search tool if desired, querying
multiple search engines (including Logio's and those in corporate intranets) to
return documents containing those concepts in the specified languages. Thus,
searching for "car" would translate into concepts including "automobile,"
"vehicle," "SUV," and so forth, and these concepts would be translated into the
target languages for search and retrieval.
I-Commerce. We have explored several opportunities for "brokering"
pay-per-view information from a wide variety of publications, training,
coursework and other resources, and expect to begin to make such information
available to our users and clients in the future. We have also begun to research
technologies to make such transactions possible, while protecting both the
publisher's interests and the user's desire for smooth transactions and ease of
use.
Desktop pop-up applet. We have begun to develop applications that will
put our directory and related services permanently on a PC desktop, in the form
of a pop-up applet, similar in function to the pop-up instant messaging
services. Clicking on the task tray icon would display a window with direct
connections into Logio Directory categories, into the search engine or
multi-lingual search tool, and into Logio-partnered services and other options.
Selecting an option would open the browser and take the user directly to that
option, without the distraction of going through a home page. Users then become
focused on Logio-delivered information and services. The pop-up applet paradigm
could also be carried over into the wireless format, so that users work with a
single interface, regardless of device.
<PAGE>
Internationalization. With its multi-lingual technologies anticipating
the growth of Internet usage among many non-English-speaking populations, and
with its ability to provide needed directory services to multi-national
corporations, our site is being developed to provide services in many languages
and among diverse international cultures.
Non-Browser Content Platforms. We are aggressively tracking
developments in non-browser delivery of content and services, including wireless
and broadband devices, and even in non-Internet delivery using such media as
satellite broadcast, satellite narrowcast, and interactive TV and have entered
into discussions with industry leaders in these areas.
Partnering. We have already created several long-term, mutually
beneficial partnerships with several entities that we see as being keys to our
long-term strategies. We intend to pursue those partnerships where we believe
the potential partners share our vision, lend credibility to the Logio brand, or
can support and benefit our strategies.
Our Business Objectives and Strategy. Our objective is to make Logio
and our contemplated suite of products and services an indispensable service for
business professionals competing in today's marketplace. We intend to provide
popular services and valuable content to our customers and their users making
our Logio brand a leading brand for business professionals seeking
business-related information and resources. We will continue to pursue a
convergent media strategy so that we can give business professionals instant
access, anywhere and anytime, to information and services. We believe that by
supplying them with cutting edge, comprehensive content, combined with useful
features and powerful tools that can be personalized to meet their individual
needs, Logio will offer today's connected business professional a competitive
edge.
Our research shows that business people typically fall into a highly
desirable demographic profile. They are often well-educated, and possess both
disposable income and business budget dollars to spend on personal and business
purchases. As such, they represent a target market that advertisers and
marketers have historically been willing to pay a premium to reach. We will
capitalize on that both directly, through the sale of advertising on our own
Internet business portal, and indirectly as we help to bring this target
audience to the public sites of our clients. According to Forrester research,
the large general portal sites will control only 20 percent of the total
Internet traffic by 2002. ZDNet.com estimates that much of the traffic will
shift to specialty portals and to corporate intranet portals. Zona Research
predicts that advertising on focused portals and directories will increase from
10 percent of total Internet advertising dollars to 80 percent over the next
five years.
We also believe that, as business people become increasingly familiar
with, and dependent upon, the Internet for information, the market for
pay-per-view content will continue to accelerate. We intend to position
ourselves, from both a technological and a strategic relationship standpoint, to
capitalize on this trend.
We intend to achieve our business objectives through the following
means:
o Position Logio as the premier content provider and syndicator for
the information and resources business professionals depend upon.
The Logio Directory, with its uniquely designed structure and
strict business-to-business focus, has been designed to be the
directory our clients can depend upon to provide the information
and resources business professionals need, organized in a way that
mirrors their job duties and resource requirements. We are also
developing partnerships and other relationships with companies and
organizations that can support and augment this position.
o Increase Logio brand recognition. The objective of branding and
marketing campaigns will be to achieve recognition of the Logio
brand as a business-to-business-focused brand, and to build
confidence in the ability of Logio to deliver content and related
services in a way that supports and enhances the objectives of our
customers and users. Such campaigns may use Internet banner
advertising, targeted e-mail, permission marketing, and
traditional direct mail methods to achieve the desired results.
Audience targets will be decision makers in companies with which
we wish to do business, as well as users at the Logio Internet
business portal who have chosen to customize their site
experience, thereby also choosing to provide us with important
demographic information, and for whom we may develop special
campaigns and offers.
<PAGE>
o Provide a good user and client experience through responsive
customer support and services. The Logio Directory and related
services should be readily available in order to meet client
expectations. We maintain a team of skilled network professionals
to monitor and maintain the site to meet those expectations, and
contractually obligate our content partners to do the same.
Competition. The market in which Logio participates is new,
competitive, and subject to rapid technological and content change. As the trend
towards specialty portals, business-to-business sites, and company intranets
increases, we expect that competition in all three areas to likewise increase
and intensify.
Portal competition. Many companies are now participating in the
development and operation of portals, which we have divided into the following
categories:
<TABLE>
<CAPTION>
----------------- -------------------------- --------------------------- ---------------------------
Mega Portals General Portals Business Portals
<S> <C> <C> <C>
----------------- -------------------------- --------------------------- ---------------------------
Examples AOL Lycos Dowjones.com
Yahoo! GO BizProLink
MSN Snap VerticalNet
Excite Brint.com
Office.com
----------------- -------------------------- --------------------------- ---------------------------
</TABLE>
The Mega Portals attempt to satisfy the search and browsing needs of
every Internet user. They are large, well-funded and established companies that
have millions of daily users.
The General Portals compete with the Mega Portals for a share of the
consumer market. The difference between the two groups is largely related to
market prominence, with the General Portals attracting only a fraction of the
visitors of the Mega Portals. This translates directly into profitability, and
has necessitated significant changes in some cases. For example, GO (owned by
Disney) has spent more than a year trying to grow the number of unique visitors
to the site. In the spring of 2000, Disney announced that the portal would focus
on providing primarily entertainment and recreational activities. This shift
away from a general portal, we believe, is a good indicator of the trend towards
specialization on the Internet.
Business Portals can be broken down into three groups. The first group,
represented by sites like Dowjones.com, represents the Internet presence of an
established print publication. The second group, represented by sites like
VerticalNet, specializes in delivering information to highly specialized
vertical markets. The third group is focused on meeting the needs of small
businesses.
Several of the participants in each of these market sectors have
established web presence and brands, and have been offering their services for a
number of years. The increased use and visibility of Logio will depend, in large
part, on our ability to continue adding content and services to our site,
maintain operational performance levels, and effectively market our product. We
also believe it will be essential for us to develop long-term business alliances
with parties with which we can enter into strategic relationships. We believe we
will need to make significant investments in research and development in order
to keep up with the technological and operational demands imposed by the
anticipated ongoing developments in the Internet.
At the present time, we have not identified any other companies that
are using precisely the same approach as Logio, or are targeting the horizontal
market as we are. Nonetheless, there is always the potential that other, larger
interests will choose to enter the market we are developing, or that a new
market may emerge. We may not be able to compete effectively with current and
future competitors.
<PAGE>
Product Development.
The existing Logio site, and the infrastructure from which other sites
will be served, represents an investment of approximately $5.4 million in
equipment, software, interface design, underlying application development
software, and general costs. Our technology selection process for the site is
governed by several fundamental principles:
o Internet users want sites to be reliable, and fast. We choose
our hardware and write our code accordingly.
o The site must be easily and quickly expanded or modified without
adversely affecting performance.
o We obtain our equipment and software from manufacturers with
proven track records and a commitment to timely and effective
support.
o The solution must be cost effective.
We elected to use Sun Microsystems Enterprise computers for our core
hardware. These systems have been proven in Internet applications. They are also
readily available should we need to either grow the system quickly, or if a
system should fail. All systems are built using standard components, so that all
hard drives in all systems are the same. This means we have a consolidated
inventory list for field service, and it enables us to reuse or re-purpose
individual systems or components as the need demands.
In addition to our proprietary application software, the Logio site
uses iPlanet's (formerly the Sun/Netscape Alliance) Application and Enterprise
Servers, Oracle's 8I Parallel Database Server, the Veritas Volume Management
System, and Dataware's InQuery Search and Retrieval engine.
Our initial target platform for distribution of business relevant
information and services is the Internet. We intend to aggressively develop
distribution capabilities for other digital-enabled devices. These may include
intranet, personal digital assistants, pagers, cellular and smart phones,
electronic books, global positioning systems, set top boxes and traditional
broadcast channels.
Our ability to successfully develop and release new products and
enhancements to Logio products in a timely manner will be subject to a variety
of factors, including our ability to solve technical problems and test products,
the availability of financial, sales and management resources, and other
factors, some of which we may not be able to control. We may experience
difficulties that could delay or prevent our successful development,
introduction or marketing of new products and enhancements.
Material Contracts. We are a party to the following material contracts
and arrangements:
b2bstores.com Agreement. On May 9, 2000, we entered into an agreement
with b2bstores.com to provide us with a private label link to our
business-related products retail e-commerce site. In conjunction with this
agreement, b2bstores.com is allowed access to the Logio Directory for private
labeling on its site. The arrangement is a barter transaction wherein each party
exchanges equivalent private label services in lieu of any cash payment.
Telcobid.com Agreement. We entered into an agreement on May 9, 2000
with Telcobid.com, a reverse auctioneer for telecommunication services, to
provide the Company with a private label link to these services on the Logio
site. Auctioned services provided by Telcobid.com include long distance,
cellular phones and accessories, paging, high speed Internet lines and local
phone services. Telcobid.com will remit to the Company 40% of total commissions
earned by Telcobid.com from the providers of the services listed when customers
sign up for the services on the Logio site. Additionally, we will receive $15
for each subscriber that signs up for Telcobid.com services on the Logio site.
<PAGE>
Brigham Young University License. On February 14, 1997 we signed a
master license agreement with BYU, under which we obtained the exclusive
worldwide rights to use, develop, manufacture, market, and modify the Logio
technology. BYU retained the ownership rights to any improvements to the Logio
technology that we develop. We issued BYU (and certain individuals who developed
the licensed technology while they were employed by BYU) 544,761 shares of
common stock for this license (pre stock split).
The term of this license is for as long as allowed by law, but it may
be terminated if we materially breach the license. We are required to pay BYU a
royalty of 3% of our adjusted gross sales. Annual minimum royalties began in
January 1999, and $20,000 will be due for 2000. The minimum royalty payments
increase annually and, in 2002, will be capped at $150,000. In addition, when we
acquired the License, BYU had already sublicensed the technology to several
other parties for royalty payments ranging from 3% to 8% of the sublicensee's
gross sales. Under the term of the license, we are required to pass through to
BYU 50% of the royalty payments we receive from these sublicenses.
We have commenced development of our own technology and our reliance on
the BYU license has diminished significantly. As such, we are currently in
negotiations with BYU to terminate the agreement as of December 31, 1999.
Minimum royalty payments outstanding under the agreement would approximate
$25,000 at July 11, 2000, granted the license agreement is deemed to be in
effect through that date.
Dataware License. In July 1999 we signed a three year source code
software license agreement with Dataware Technologies, Inc. granting us access
to code for Dataware's proprietary search engine technology. We intend to blend
this technology with our search technologies as we continue to develop our
overall product line. The license has a two year renewal option and cost us
$350,000. In connection with this agreement, we also signed a Consulting
Agreement with Acsiom Inc., an affiliate of Dataware, to provide consulting
services relating to the integration of the Dataware search engine into our
existing technology, including our business professional portal site. This
agreement requires us to pay hourly developer consulting fees ranging from $100
- $150 per hour.
Purchase Agreement. In February and March 1999, we sold 6,300 shares of
our newly designated Series A Preferred Stock to eight investors under the terms
of a purchase agreement. We received a total of $6.3 million in the transaction.
After we paid the expenses of the placement agent ($377,100) and our other
expenses for the transaction ($15,000), we received proceeds of $5,907,900 from
the sale. In connection with the transaction, we also issued warrants to both
the purchasers and the placement agent and granted those parties certain
registration rights for the shares of common stock they can acquire by
converting the Series A Preferred Stock and exercising the warrants. In February
and March of 2000, holders of Series A Preferred Stock converted their preferred
shares, totaling 6,300 shares, into 625,000 shares of our common stock. The
Series A Preferred stockholders also received a total of 727,756 shares of our
common stock in satisfaction of the reset provisions of the Purchase Agreement
and they received 61,650 shares of our common stock for payment of cumulative
preferred dividends.
Columbia Financial Group Services Agreement. In January 1999, we
entered into a services agreement with Columbia Financial Group. Columbia
provides investor relations services for a number of public companies,
particularly those companies that are involved in the Internet business. Under
the agreement, we agreed to grant Columbia warrants to purchase for five years
up to 200,000 shares of our common stock for $5 per share. As of July 11, 2000,
100,000 warrants have been exercised and 100,000 warrants are exercisable. In
May, 2000, we entered into a new agreement with Columbia Financial Group and
have granted Columbia warrants to acquire up to an additional 200,000 shares of
our common stock at $4 per share, and 200,000 shares of our common stock at $3
per share. As of July 11, 2000, 300,000 warrants are exercisable into common
shares.
Sierra Systems Consulting and Development Agreement. In September 1999,
we entered into a consulting and development contract agreement with Sierra
Systems Consultants, Inc. Under the terms of the agreement, Sierra provides web
site development support services for launching our web site, including the
development, delivery, testing and debugging of our web site technology. We were
required to pay a fixed price of $500,000 in exchange for these services, which
has been paid in full. We are also committed to pay Sierra approximately
$205,000 for services performed outside the contract.
<PAGE>
Netscape Software Financial Agreement. In November 1999, we entered
into a software purchase agreement with Netscape. Under the terms of the
agreement, we are purchasing software products, including maintenance services,
for the delivery of our web site. The purchase price for the software products
and maintenance services is $268,069, which must be paid in full by November
2000.
Oracle Software Agreement. In November 1999, we entered into a software
license agreement with Oracle Corporation. Under the terms of the agreement, we
have a non-exclusive license to use certain Oracle software products which
manage our database. The purchase price under the license agreement is
approximately $257,000, which is paid in four quarterly payments after an
initial payment, and includes support services for one year. The term of the
agreement is for two years, with a November 2001 expiration date.
Sun Microsystems License Agreements. In December 1999, and March and
April 2000 we entered into capital lease agreements with Sun Microsystems
Finance. Under the agreements, we lease the server equipment necessary to host
our web site. The terms of the leases are for two years each, and expire through
January 2002. The monthly payments under these agreements approximate $28,000
per month, for the two year period.
Qwest Dedicated Internet Access Service Agreement. In January 2000, we
entered into an Internet access agreement with Qwest Internet Solutions, Inc.
Under the terms of the agreement, Qwest hosts our site, provides internet access
to our web site, and provides other services for monthly fees approximating
$5,000. Additionally, we incur variable charges based on usage of our site. The
term of the agreement is for two years, expiring in January 2002, but
automatically renews for successive two year terms unless either party gives 60
days notice prior to the expiration date.
Netdotworks Consulting and Support Agreement. In February 2000, we
entered into a consulting and support agreement with Netdotworks, Corporation.
Under the agreement, Netdotworks provides web site administration and management
consulting and support services for our web site. We were required to pay
$90,000 per month for the initial 120 day term. Upon expiration of the initial
120 day term, we renegotiated the terms of the agreement to pay $70,000 for
consulting and support services for development and operations of our site.
DoubleClick, Inc. DART Service Agreement. In February 2000, we entered
into an agreement with DoubleClick Inc. Under the terms of the agreement,
DoubleClick provides advertisement delivery services for our web site. We are
required to pay monthly service fees based on the number of banner impressions
that are delivered to our web site through the service. The agreement expires in
December 2000, after which we would have to renegotiate a new agreement with
DoubleClick if we wished to continue receiving the services.
Stock Purchase Agreement. On July 6, 2000, we closed the private
placement of 2,000,000 shares of our common stock to four investors under the
terms of a stock purchase agreement. Upon the effective date of the registration
statement of which this prospectus is a part, we will receive proceeds of $1.4
million in the transaction. Under the terms of the agreement, we are required to
cause the effectiveness of the registration statement to which this prospectus
is a part no later than September 30, 2000 or be liable for liquidated damages
of 5% of the purchase price for each 30 days hereafter that the registration
statement is not effective, payable in cash or stock (at our selection). If the
registration statement is not declared effective by October 31, 2000, the
investors can terminate the agreement at any time.
Corporate Development. Our predecessor in interest was incorporated in the
State of California on May 2, 1997, as Dunamis, Inc. Dunamis, Inc. was formed
for the purpose of publishing and marketing books and audio and video tapes. On
June 25, 1998, Dunamis, Inc. completed a merger with a Nevada corporation that
had been created for the sole purpose for changing Dunamis, Inc.'s domicile from
California to Nevada. On July 14, 1998, the surviving entity in that transaction
completed a merger with WordCruncher Publishing Technologies, Inc., formerly
known as Redstone Publishing, Inc., a Utah corporation. The Nevada corporation
was the surviving entity in that transaction and, as part of the transaction,
changed its name to "WordCruncher Internet Technologies, Inc."
Patents, Licenses and Intellectual Property. Our success will depend,
in part, on our ability to obtain and protect patents, maintain trade secrets
and operate without infringing on the proprietary rights of others in the Untied
States and other countries. We have secured rights to the "Logio" trademark
within the United States, and we are in the process of securing international
rights to this trademark. We intend to file patent applications relating to our
technology, products and processes as the need arises. However, any of these
patents or patent applications could be challenged, invalidated or circumvented
by our competitors.
<PAGE>
If we were to become involved in a dispute regarding our intellectual
property, we may have to participate in interference proceedings before the
United States Patent and Trademark Office to determine who has the first claim
to the rights involved. We could also be forced to seek a judicial determination
concerning the rights in question. These types of proceedings can be costly and
time consuming, even if we eventually prevail. If we did not prevail, we could
be forced to pay significant damages, obtain a license to the technology in
question, or stop commercializing a certain product.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property rights. These other parties may not comply with the terms
of their agreements with us, and we may not be able to adequately enforce our
rights against those parties.
We have adopted a policy of requiring our employees and collaborators
to execute confidentiality agreements when they commence employment or
consulting relationships with us. These agreements generally provide that all
confidential information developed or made known to the individual during the
course of his or her relationship with us is to be kept confidential and not
disclosed to third parties, except under certain specific circumstances. In the
case of employees, the agreements also provide that all inventions conceived by
the individual in the course of his or her employment will be our exclusive
property.
Employees. As of July 11, 2000, we had 29 employees, 8 of whom are
independent contractors. Approximately 16 of our employees are engaged in
product development and site operations activities, 6 are engaged in
administrative and finance functions, and 4 are engaged in sales or marketing.
Our employees are not presently covered by any collective bargaining agreement.
We believe our relations with our employees are good, and we have not
experienced any work stoppages.
Properties. On December 31, 1999, we leased 3,600 square feet of
administrative, office and developmental space at the Town Square Professional
Plaza in Draper, Utah 84020. On March 21, 2000, we amended the lease to include
an additional 1,800 square feet of administration and development space, and the
term of the lease is from March 15, 1999 until March 31, 2002. Beginning on
April 1, 2000, the rental for the space increased to $7,727 per month, which we
believe is typical for similar premises in the area. We believe that our current
office space is adequate for our needs.
Legal Proceedings. We are not a party to any proceeding or threatened
proceeding as of the date of this prospectus.
MANAGEMENT
Our directors, executive officers and key employees, as of the date
hereof, and their respective ages and positions with us are set forth below.
Biographical information for each of those persons is also presented below. Our
executive officers are chosen by our Board of Directors and serve at its
discretion. There are no existing family relationships between or among any of
our directors or executive officers.
Name Age Position Held
Kenneth W. Bell 50 President, Chief Executive Officer, Director
M. Daniel Lunt 46 Executive Vice President, Director
James W. Johnston 47 Chairman of the Board, Executive Vice President,
Director
Thomas R. Eldredge 32 Senior Vice President, Chief Financial Officer,
Secretary
William Barnett 42 Vice President
Edward Sullivan 47 Director
David R. Grow 43 Director
Michael D. Fowler 56 Director
<PAGE>
Kenneth W. Bell: Mr. Bell joined us as our Senior Vice President, Chief
Financial Officer, Secretary and Treasurer and Director in February 1997.
Between April 1990 and December 1996, he served as President and Chief Financial
Officer of Kelmarc Corporation, a financial and management advisory company. He
has twenty-five years experience in a variety of finance and management
positions, including employment in the commercial banking area for fifteen years
in Utah and California. Mr. Bell received his B.S. from BYU in 1972. On April
18, 2000, the Board of Directors released Mr. Bell from his responsibilities as
Secretary. On June 2, 2000, the Board of Directors appointed Mr. Bell as Chief
Executive Officer and President of the Company, releasing him from his
responsibilities as Senior Vice President and Chief Financial Officer.
M. Daniel Lunt: Mr. Lunt was a co-founder of WordCruncher Publishing
and served as our President, Chief Executive Officer and Director since November
1996. Mr. Lunt has over 20 years experience in the computer software industry.
Between 1983 and 1993, he was employed by WordPerfect Corporation, most recently
as Vice President of Worldwide Marketing. In that capacity, he was responsible
for the development and implementation of WordPerfect's marketing, sales and
support divisions. After leaving WordPerfect in 1993, Mr. Lunt became the
president of a residential real estate development company. Mr. Lunt attended
Brigham Young University. On June 2, 2000, the Board of Directors appointed Mr.
Lunt as Executive Vice President of the Company, releasing him from his
responsibilities as President and Chief Executive Officer.
James W. Johnston: Mr. Johnston was a co-founder WordCruncher
Publishing and has served as our Director, Chairman of the Board and Executive
Vice President since November 1996. From December 1990 to November 1996, he was
president of Johnston & Company, which published virtual works using Logio
technology, including the Constitution Papers (CD ROM). Mr. Johnston has 15
years of expertise in developing and marketing products involving content
presentation, analysis software and virtual publishing.
Thomas R. Eldredge: In April of 2000, Mr. Eldredge joined us as our
Vice President of Finance and Corporate Secretary. Mr. Eldredge is a CPA and has
over ten years of experience in accounting, audit and information technology. He
spent over six years with Grant Thornton LLP, one of the nation's ten largest
public accounting firms. Most recently he was a manager in the assurance
department at Grant Thornton. Mr. Eldredge is an adjunct professor at the
University of Utah in the accounting and information technology departments at
the graduate and undergraduate levels and has instructed students for over four
years at the University, Grant Thornton's National training center and Utah
Valley State College. He received both his Bachelor of Science and Master of
Professional Accountancy from the University of Utah. Mr. Eldredge is the
President of the Utah Association of Certified Public Accountants' - Southern
Chapter. On April 18, 2000, our Board of Directors appointed Mr. Eldredge as
Corporate Secretary. On June 2, 2000, our Board of Directors appointed Mr.
Eldredge as Senior Vice President and Chief Financial Officer of the Company.
William Barnett: Mr. Barnett joined our sales department in December
1999, and was promoted to Vice President in April 2000. He is a senior sales
executive and entrepreneur with more than 20 years of professional experience in
sales, advertising and marketing. As Vice President for Logio, Mr. Barnett is
responsible for business development and sales. Early in his career, Mr. Barnett
co-founded Barnett-Robbins Enterprises, a radio syndication and production
company. Following the sale of Barnett-Robbins to MCA in 1986, Mr. Barnett
served as vice president of MCA Radio Network. He went on to produce and
co-develop television shows for major studios such as NBC/Universal and Prime
Network. Mr. Barnett's recent professional accomplishments include creating
Children's Satellite network, the first ever children's radio network, in 1991.
Also previous to joining Logio, Mr. Barnett worked with Goldbar
Entertainment/Goldbar International, a company that developed, produced and
financed feature films for domestic and international distribution to film and
television buyers including Disney, Columbia, Warner Brothers HBO and Showtime.
Mr. Barnett is a graduate of the University of Southern California with a
Bachelor of Science in Communications and Public Relations and a minor in
Business.
<PAGE>
Edward Sullivan: Mr. Sullivan joined us as one of our directors in
February 2000. Since 1989, he served as President and Chief Executive Officer of
Pittard Sullivan, a brand and marketing communications company. Mr. Sullivan has
twenty years of experience in advertising, marketing and media management, with
over 250 channel launches around the world. Mr. Sullivan was educated at the
University of Cincinnati and Central Academy of Commercial Arts. He has also
attended Harvard Business School's Accelerated Business Administration Program
as well as Carnegie Mellon's Oral Communications Program
David R. Grow: Mr. Grow joined us as one of our Directors on February
1, 2000. Since 1995, Mr. Grow has served as Executive Vice President, Chief
Operating Officer and Chief Financial Officer for Daw Technologies, Inc. Prior
to joining Daw Technologies, Mr. Grow was employed by Novell, Inc. from 1992 to
1995, most recently as director of operations for Novell's $500 million software
applications division. Mr. Grow also served as Corporate Controller for
WordPerfect Corporation from 1992 to 1994 where he was responsible for the
accounting, financial analysis and reporting for the $700 million,
multi-national software publishing company. He was employed by Price Waterhouse
as a Senior Audit Manager for the years 1982 to 1992. Mr. Grow obtained a
Bachelor of Science degree in Accounting from the University of Utah.
Michael D. Fowler: Mr. Fowler joined us as a Director on February 1,
2000. Mr. Fowler recently co-founded Asphalt Exchange.com, a
business-to-business web site that provides buyers and sellers of asphalt
materials, products, equipment and services with a secure and neutral exchange
venue on which to transact business. Between 1997 and 2000, Mr. Fowler served as
the Vice President, Chief Financial Officer of Howa Construction, Inc. During
the period of 1995 through 1997, Mr. Fowler was a small business consultant to
companies involved in medical services, microbrewery/restaurants,
telecommunications and employee leasing. From 1990 to 1995, Mr. Fowler served as
Vice President, Treasurer and a director of Grand Valley Gas Company, where he
was responsible for the company's accounting, treasury, risk management, legal
affairs and investor relations. Mr. Fowler obtained both his Bachelor of Science
in electrical engineering and his MBA from the University of Utah.
Board of Directors. Our Board of Directors is comprised of six persons.
The number of directors can be increased as provided in our by-laws, which allow
either our board of directors or our stockholders to approve the change. Our
directors serve for terms of one year.
Board of Directors Committees. Our Board of Directors has established
three committees, the audit committee, the compensation committee and the
executive committee. Each of these committees is responsible to the full Board
of Directors, and, in general, its activities will be subject to the approval of
the full Board of Directors.
The audit committee is primarily charged with the review of
professional services provided by our independent auditors, the determination of
the independence of those auditors, our annual financial statements, and our
system of internal accounting controls. The audit committee also reviews such
other matters with respect to our accounting, auditing and financial reporting
practices and procedures as it finds appropriate or as is brought to its
attention, including our selection and retention of independent accountants. As
of June 2, 2000, our audit committee is comprised of Messrs. Grow and Fowler.
The compensation committee is charged with the responsibility of
reviewing executive salaries, administering bonuses, incentive compensation and
our stock option plans and approving our other executive officer benefits. The
compensation committee also consults with our management regarding pension and
other benefit plans, and our compensation policies and practices in general. Our
compensation committee is currently comprised of Messrs. Lunt, Johnston and
Sullivan.
The executive committee is charged with the performance of the duties
of the Board of Directors between regularly scheduled meetings of our Board, and
with the functions of the full Board of Directors with regard to matters
addressed by it. The executive committee is currently comprised of Messrs. Lunt,
Johnston and Bell.
<PAGE>
Compensation of Directors. We do not have any standard arrangement for
compensating our directors for the services they provide to us in their capacity
as directors, including services for committee participation or for special
assignments. We have, however, approved a stock option package for the year 2000
under which our independent directors, Messrs. Grow, Fowler and Sullivan, have
earned options on 10,000 shares of our common stock with an exercise price of
$5.88 a share.
Employment Agreements. We have adopted a policy of entering into
employment agreements with our senior management, and have entered into such
agreements with Messrs. Lunt, Bell, Johnston, Barnett and Eldredge. The terms of
the employment agreements for Messrs. Lunt, Bell and Johnston began on September
1, 1998 and have initial terms of three years. Under the agreements, each is
entitled to receive a base annual salary of $102,000 during the first year of
the agreements. The salary will be increased annually, effective in September of
each year, by an amount equal to the greater of 8% or an amount determined by
the Board of Directors. In addition to the base salary amounts, each of Messrs.
Lunt, Bell and Johnston will receive incentive bonuses, as determined by our
Board of Directors, standard benefits such as health and life insurance,
disability payments and reimbursement of reasonable business expenses.
We have also entered into an employment agreement with each of Messrs.
Barnett and Eldredge. The initial term of each agreement is two years and each
provides for base salaries ranging from $85,000 to $100,000. The agreements also
provide for standard health and medical insurance, incentive bonuses, disability
coverage and reimbursement for reasonable business expenses. In addition, Mr.
Barnett has received 200,000 options (50,000 at an exercise price of $5.54,
100,000 at an exercise price of $2.77 and 50,000 at an exercise price of $1.44
per share) and Mr. Eldredge has received 130,000 options (80,000 at an exercise
price of $4.79 and 50,000 at an exercise price at $1.44 per share).
We may terminate the employment contracts for cause, as defined in the
agreements, or without cause. If the contract is terminated without cause or as
a result of a "change of control", as defined in the agreements, the employee is
generally entitled to receive severance pay. In the event of a change of
control, Messrs. Lunt, Bell and Johnston will each receive a payment equal to
five times the sum of his average annual salary, bonus and profit sharing, based
on a per year average over the five preceding years. The term "change of
control" is defined in their agreements as:
o any tender offer, stock exchange offer or other take-over device
in which any person becomes the beneficial owner of 30% or more
of the total voting power of our outstanding securities;
o any realignment of the Board of Directors or change in officers
due to shareholder action;
o our sale of 30% or more of our assets; or
o any merger or reorganization where we are not the surviving
entity or our shareholders fail to retain substantially the same
direct or indirect ownership in us immediately after the merger
or reorganization.
If either Messrs. Barnett or Eldredge are terminated for cause under
his agreement, he will not be entitled to receive any severance compensation. If
the termination is without cause, we are obligated to pay him a severance
payment equal to 90 days' of base salary, payable in three equal monthly
installments, and if the termination is because of a change of control, he is
entitled to receive a severance payment equal to his annual salary, payable in
three installments. A change of control is defined in his agreement as any sale
or other disposition by us of all or substantially all of our assets, any merger
or consolidation with another corporation in which our shareholders as a group
do not hold at least 50% of the voting power of the surviving corporation, or
any person becomes the beneficial owner of 50% or more of our voting power.
In April 2000, we terminated Peter Stoop's employment, who until that
time served as our Vice President of Sales and Marketing. At the time of
termination, Mr. Stoop had vested in 103,333 options, each to purchase one share
of our common stock at an exercise price of $0.10 per share. Options totaling
198,333 were accelerated under Mr. Stoop's employment agreement and he may
exercise the total of 301,666 options through June 2001. We have committed to
pay Mr. Stoop $25,000 as severance for his termination in equal installments
over 90 days from his signing of certain documents.
<PAGE>
In May 2000, Mr. Cryer resigned from his position as our Vice President
of Product Development. At the time of resignation, Mr. Cryer had vested in
20,000 options, each to purchase one share of our common stock at an exercise
price of $0.10 per share through May 2000, Mr. Cryer exercised 10,000 options
and the remaining 10,000 options have been terminated.
Section 16(a) of the Securities Exchange Act of 1934. Section 16(a) of
the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who own more than ten percent of a registered class of
our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Executive officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file. Based solely on our
review of the copies of such forms received by us, or written representations
from certain reporting persons, we believe that during fiscal 1999 all filing
requirements applicable to our executive officers and directors and greater than
10% shareholders were complied with, except that Messrs. Lunt, Johnston and Bell
each filed one report on Form 4 late.
Compensation. The following table summarizes the compensation paid to
or earned by our chief executive officer and our four most highly-compensated
executive officers whose total salary and bonus exceed $100,000 during each of
the past two fiscal years and through July 11, 2000:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards
---------------- ---------------- ------------------ ------------------------
Other Annual Securities Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options / SARs (#)
-------- ---------------- ---------------- ------------------ ------------------------
<S> <C> <C> <C> <C> <C>
Kenneth W. Bell 2000 55,333 - - 125,000
President, CEO, Director 1999 120,000 - - -
1998 102,000 - - -
------------------------------- -------- ---------------- ---------------- ------------------ ------------------------
M. Daniel Lunt 2000 55,333 - - 125,000
Executive V.P., Director 1999 120,000 - - -
1998 102,000 - - -
------------------------------- -------- ---------------- ---------------- ------------------ ------------------------
James W. Johnston 2000 55,333 - - 125,000
Executive V.P., Chairman 1999 120,000 - - -
1998 102,000 - - -
------------------------------- -------- ---------------- ---------------- ------------------ ------------------------
Peter Stoop 2000 32,083 - - 500,000
V.P. Sales and Marketing 1999 100,000 - - -
1998 66,200 -
------------------------------- -------- ---------------- ---------------- ------------------ ------------------------
Martin Cryer 2000 42,250 19,000 - 300,000
V.P. Product Development 1999 100,000 - - -
1998 - - - -
------------------------------- -------- ---------------- ---------------- ------------------ ------------------------
Thomas R. Eldredge 2000 21,250 - - 130,000
Senior V.P., CFO, 1999 - - - -
Secretary 1998 - - - -
------------------------------- -------- ---------------- ---------------- ------------------ ------------------------
William Barnett 2000 53,472 15,000 - 200,000
V.P. 1999 - - - -
1998 - - - -
------------------------------- -------- ---------------- ---------------- ------------------ ------------------------
</TABLE>
The amounts set forth in the table above for the year 2000 are through
July 11, 2000. Messrs. Bell, Lunt and Johnston are expected to receive salaries
of $97,333 in fiscal 2000. Mr. Eldredge is eligible to receive $85,000 in fiscal
2000 under his employment contract and Mr. Barnett is eligible to receive
$100,000 under his employment contract. Messrs. Stoop and Cryer have been
terminated and resigned, respectively, during fiscal 2000. We have committed to
pay Mr. Stoop $25,000 in three equal installments as a severance payment.
Performance bonuses have been extended to Mr. Cryer and Mr. Barnett for
$19,000 and $15,000, respectively through July 11, 2000. We are unable to
estimate total bonuses for 2000 proforma amounts.
The following table presents additional information concerning the
option awards made during fiscal year 1999 to each of our named executive
officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
----------------------------- --------------------------------- --------------------- --------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
----------------------------- --------------------------------- --------------------- --------------------------------
Percent
of total
Options Market
Number of Granted Price
Securities to EMP Exercise on
Underlying in of Base Grant
Options Fiscal Price Date Expiration
Name Granted(#) Year ($ / Sh) ($/ Sh) Date 5% ($) 10% ($)
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Bell - - - - - - -
President, CEO, Director
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
James W. Johnston - - - - - - -
Executive V.P., Chairman
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
M. Daniel Lunt - - - - - - -
Executive V.P., Director
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
Peter Stoop 50,000 4.6% 0.10 2.375 3/21/02 135,905 160,959
V.P. Sales and Marketing 250,000 23.2% 0.10 3.562 11/18/02 1,031,637 1,219,518
200,000 18.5% 2.72 3.625 6/23/03 316,260 469,224
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
Martin Cryer 50,000 4.6% 0.10 8.875 9/22/02 521,538 615,162
V.P. Product Development 250,000 23.2% 2.72 3.625 6/23/03 395,325 586,530
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
Thomas R. Eldredge - - - - - - -
Senior V.P., CFO,
Secretary
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
William Barnett 50,000 33% 5.54 3.69 6/20/07 - 118,492
V.P. 100,000 67% 2.77 3.69 6/20/06 242,220 442,077
----------------------------- ------------ --------- ---------- --------- ----------- ---------------- ---------------
</TABLE>
The intrinsic value of each respective grant to Mr. Stoop as of the
date of such grant was $113,750, $865,500, and $181,000 respectively. The
intrinsic value of each respective grant to Mr. Cryer as of the date of such
grant was $438,750 and $226,250 respectively. The intrinsic value of each
respective grant to Mr. Barnett as of the date of such grant was $0 and $92,000,
respectively.
In April 2000, we terminated Mr. Stoop's employment. We have committed
to accelerate vesting of the 198,333 options that would have vested throughout
the term of his employment agreement. Mr. Stoop had vested in 103,333 options
through July 11, 2000. He forfeited 198,333 options upon termination in April
2000.
In May 2000, Mr. Cryer resigned his position with us and forfeited
290,000 options.
In April 2000, Mr. Eldredge was granted 80,000 options at an exercise
price of $4.79. The market price on the date of grant was $6.39. The options
expire in October 2003 and Mr. Eldredge vested in 5,000 of these options through
July 11, 2000. In June 2000, Mr. Eldredge was granted an additional 50,000
options at an exercise price of $1.44 which represented the fair market value of
our common stock on the date of grant. The options expire in June 2003.
<PAGE>
In June 2000, we granted Mr. Barnett an additional 50,000 options at an
exercise price of $1.44 which represented the fair market value of our common
stock on the date of grant. The options expire in June 2003.
In June 2000, we granted Messrs. Lunt, Bell and Johnston each 125,000
options at an exercise price of $1.25, which represented the fair market value
of our common stock on the date of grant. The options vested immediately and
expire in June 2005.
The following table summarizes the exercise of stock options during
fiscal year 1999 by each of our named executive officers, and the fiscal
year-end value of unexercised stock options held by each of them:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
------------------------------- -------------- ------------- --------------------------------- ----------------------
Number of Securities Underlying Value of Unexercised
Shares Value Unexercised Options at Fiscal In-The-Money Options
Acquired on Realized ($) Year-End (#) at Fiscal Year-End
Name Exercise (#) Exercisable / Unexercisable ($)
------------------------------- -------------- ------------- --------------------------------- ----------------------
<S> <C> <C> <C> <C>
Kenneth W. Bell - - - -
President, CEO, Director
------------------------------- -------------- ------------- --------------------------------- ----------------------
James W. Johnston - - - -
Executive V.P., Chairman
------------------------------- -------------- ------------- --------------------------------- ----------------------
M. Daniel Lunt - - - -
Executive V.P., Director
------------------------------- -------------- ------------- --------------------------------- ----------------------
Peter Stoop - - 103,333 / 396,667 $2,875,000
V.P. Sales and Marketing
------------------------------- -------------- ------------- --------------------------------- ----------------------
Martin Cryer - - 5,000 / 295,000 $1,725,000
V.P. Product Development
------------------------------- -------------- ------------- --------------------------------- ----------------------
Thomas R. Eldredge - - - -
Sr. V.P., CFO, Secretary
------------------------------- -------------- ------------- --------------------------------- ----------------------
William Barnett - - 0/150,000 -
V.P
------------------------------- -------------- ------------- --------------------------------- ----------------------
</TABLE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of July 11, 2000, the beneficial
ownership of our outstanding common stock by
o each person known by us to own beneficially 5% or more of our
outstanding common stock,
o each of our executive officers,
o each of our directors,
o all executive officers and directors as a group, and
o the selling stockholders.
Beneficial ownership after this offering will depend on the number of shares
actually sold by the selling stockholders. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. For
purposes of calculating the percentages shown in the chart, each person listed
is also deemed to beneficially own any shares issuable on either the exercise of
vested options or warrants held by that person and that are exercisable within
60 days after July 11, 2000. Except as indicated by footnote, the persons named
in the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The inclusion of any shares as
beneficially owned does not constitute an admission of beneficial ownership of
those shares. The number of shares shown for each selling stockholder is based
on the latest information we have obtained from those stockholders regarding
their beneficial ownership.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------- -------------------------------- ----------------- ----------------------------------
Common Stock Beneficially Number of Common Stock Beneficially Owned
Name of Beneficial Owner and Owned Prior to Offering 1 Shared Being After Offering(2)
Relationship to Us -------------------------------- Registered ----------------------------------
Shares Percent Shares Percent
------------------------------- -------------- ---------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Officers and Directors
Kenneth W. Bell (3) 1,385,608 10.2% 100,000 1,285,608 8.24%
President, CEO, Director
James W. Johnston (4) 1,896,223 13.9% 100,000 1,796,223 11.5%
Chairman of the Board, Executive V.P.
M. Daniel Lunt (5) 1,675,383 12.3% 100,000 1,575,383 10.1%
Executive V.P., Director
Thomas R. Eldredge(6) 5,000 * - 5,000 *
Sr. V.P.,Chief Financial Officer,
Secretary
William Barnett (6) -0- * - -0- -
V.P.
Michael D. Fowler (7) 10,500 * - 10,500 *
Director
Edward Sullivan (7) 10,000 * - 10,000 *
Director
David Grow (7) 10,000 * - 10,000 *
Director
All executive officers and 4,992,714 35.9% 300,000 4,692,714 33.8%
directors as a group (8
persons) (8)
Selling Stockholders
Trans-Pacific Security 500,000 3.7% 500,000 -0- -
Consultants, Inc. 10
Mid West First National, Inc. 500,000 3.7% 500,000 -0- -
(10)
CONDIV Investments, Inc. 10 500,000 3.7% 500,000 -0- -
Mutual Ventures Corporation 10 500,000 3.7% 500,000 -0- -
Columbia Financial Group 9 500,000 3.7% 500,000 -0- -
Capital Communications 360,000 2.7% 100,000 260,000 1.7%
-------------------------------- ------------------ ------------- ----------------- ----------------- ----------------
</TABLE>
8* Less than 1% of the outstanding common stock.
(1) Percentage of beneficial ownership prior to offering is based on
13,479,408 shares of common stock outstanding as of July 11, 2000. See "Summary"
for a description of the calculation of the number of shares of common stock
outstanding.
(2) Percentage of beneficial ownership after offering is based on
15,479,408 outstanding shares of common stock, assuming the issuance of
2,000,000 common shares upon the effectiveness of the registration statement of
which this prospectus is a part. See "Summary". The actual number of shares sold
may be less than the total registered hereunder. See "Summary" for a description
of the calculation of the number of shares of common stock to be outstanding.
(3) Mr. Bell has sole voting power and investment power of 330,000
shares and shares voting power and investment power of 928,608 shares with his
wife, Roberta L. Bell, and 2,000 shares with his son and daughter.
(4) Mr. Johnston shares voting power and investment power of 1,703,339
shares held jointly with his wife, Catherine F. Johnston, and 66,408 are held in
the name of his wife, Catherine F. Johnston. He also influences the investment
power and voting power of 1,476 shares held by his son, LeGrand Johnston. Mr.
Johnston does not disclaim beneficial ownership of his wife's and son's shares.
Includes options to acquire 125,000 common shares.
(5) Mr. Lunt shares voting power and investment power with his wife,
Lori Lunt.
<PAGE>
(6) Mr. Barnett holds options to acquire 200,000 common shares, none of
which are currently vested. Mr. Eldredge holds options to acquire 130,000 common
shares, of which the options for 5,000 common shares are vested.
(7) Includes, as to each listed party, options to acquire 10,000 common
shares.
(8) Assumes the matters set forth in footnotes 1 through 5.
(9) Includes warrants to acquire 500,000 shares of the Company's common
stock.
(10) Includes, with respect to each listed party, 500,000 shares from
the private placement we completed in July 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes certain transactions either we
engaged in during at least the past two years or we propose to engage in
involving our executive officers, directors, 5% stockholders or immediate family
members of those persons:
Management Loans to Us. In June, 2000, Messrs. Johnston, Bell and Lunt
loaned us an aggregate of $500,000 in exchange for our notes which bear interest
at 8% per annum and are due and payable on or before July 1, 2001. These notes
are unsecured.
Messrs. Johnston, Bell and Lunt previously secured a line of credit in
the amount of $250,000, which they agreed to use to loan us up to that amount on
a revolving basis, and loaned us an additional $50,000, for a total of $300,000
in 1997. Messrs. Johnston, Bell, and Lunt have received no direct or indirect
consideration for their securing this line of credit. We subsequently drew down
the entire $250,000 loan commitment. As of December 31, 1998, we owed $120,000
of the $300,000. In October 1998, we repaid the $50,000 loan and the line of
credit was paid down to zero in January 1999. In May 1998, Mr. Lunt loaned us
$13,000, which we repaid in July 1998 though our issuance of additional common
stock to Mr. Lunt.
Indebtedness of Management. We advanced a total of $66,700 to James W.
Johnston during 1997 and 1998. The amounts outstanding on these loans as of
December 31, 1998 was $66,700. The interest rate is 8%, with interest and
principal due on January 1, 2000, but was paid in full by Mr. Johnston in March
1999. We also advanced a total of $29,500 to Kenneth W. Bell in 1997 and 1998.
Mr. Bell repaid those amounts to us in March 1999. We also loaned an entity
owned by M. Daniel Lunt $10,000 in 1997, and loaned him $4,000 personally in
1998. Five thousand dollars of the $10,000 loan was repaid by offsetting amounts
we otherwise owed Mr. Lunt, and the other $5,000 was repaid in cash, and the
$4,000 loan was paid to us in March 1999.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In February, 2000, our Board of Directors authorized the engagement of
Grant Thornton LLP as our independent certified public accountants for the
fiscal year ended December 31, 1999, and concurrently, we dismissed Crouch
Bierwolf & Chisholm, P.C., which had served as our independent accountants since
1998. Our decision to change accountants was prompted by the ability of Grant
Thornton to provide audit services for us on an extended scale as our operations
are expected to expand. Our Board of Directors participated in and approved the
decision to change independent accountants.
The reports of Crouch Bierwolf on our financial statements for the two
fiscal years prior to their termination contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audit for 1998 and
through February 23, 2000, there were no disagreements with Crouch Bierwolf on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Crouch Bierwolf would have caused Crouch Bierwolf to make
reference thereto in their report on the financial statements for such year.
<PAGE>
During the most recent fiscal year and through February 23, 2000, we
had not consulted with Grant Thornton LLP regarding either: (i) the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on our financial
statements, and neither a written report was provided to us nor oral advice was
provided that Grant Thornton LLP concluded was an important factor considered by
us in reaching a decision as to the accounting, auditing or financial reporting
issue; or (ii) any matter that was either the subject of a disagreement or a
reportable event.
INTEREST OF NAMED EXPERTS AND COUNSEL
We are not aware of any expert or legal counsel named in this
registration statement who will receive a direct or indirect substantial
interest in the offering. Our counsel, Parsons Behle & Latimer, will pass on the
legality of the shares to be issued pursuant to the conversion of the Series A
Preferred Stock and the exercise of the warrants issued in connection with the
sale of the Series A Preferred Stock. Our financial statements at December 31,
1999, and for the year then ended have been audited by Grant Thornton LLP as set
forth in their report given on the authority of that firm as experts in
accounting and auditing. Our financial statements as of December 31, 1998 and
1997, and for the periods then ended, have been audited by Crouch, Bierwolf &
Chisholm, as set forth in their report at the end of this prospectus, and are
included in reliance on that report given on the authority of that firm as
experts in accounting and auditing.
PLAN OF DISTRIBUTION
We will not use the services of underwriters or dealers in connection
with the sale of the shares registered hereunder. The shares will be freely
transferable, except for the shares issued to certain of the selling
stockholders who are affiliates. The selling stockholders will offer and sell
the shares registered hereunder from time to time. They will act as principals
for their own accounts in selling the shares and may sell the shares through
public or private transactions, on or off established markets, at prevailing
market prices or at privately negotiated prices. The selling stockholders will
receive all of the net proceeds from the sale of the shares and will pay all
commissions and underwriting discounts in connection with their sale. Other than
the exercise price the selling stockholders may pay with respect to the exercise
of the warrants, we will not receive any proceeds from the sale of the shares.
The distribution of the shares by the selling stockholders is not
subject to any underwriting agreement. We expect that the selling stockholders
will sell the shares through customary brokerage channels, including
broker/dealers acting as principals (who then may resell the shares), in private
sales, in transactions under Rule 144 under the Securities Act, or in block
trades in which the broker/dealer engaged will attempt to sell the shares as
agent but position and resell a portion of the block as principal to facilitate
the transaction. We expect the selling stockholders to sell the shares at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or negotiated prices. The selling stockholders may also pledge all
or a portion of the shares as collateral in loan transactions. Upon any default
by the selling stockholders, the pledgee in the loan transaction would then have
the same rights of sale as the selling stockholders under this prospectus. The
selling stockholders may also transfer the shares in other ways not involving
market makers or established trading markets, including directly by gift,
distribution or other transfer without consideration, and upon any such
transfer, the transferee would have the same rights of sale as the selling
stockholders under this prospectus. Finally, the selling stockholders and the
brokers and dealers through whom sales of the shares are made may be deemed to
be "underwriters" within the meaning of the Securities Act, and the commissions
or discounts and other compensation paid to those persons could be regarded as
underwriters compensation.
From time to time, the selling stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in our
securities or derivatives of our securities, and will be able to sell and
deliver the shares in connection with those transactions or in settlement of
securities loans. In effecting sales, brokers and dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate in those
sales. Brokers or dealers may receive commissions or discounts from the selling
stockholders (or, if any such broker dealer acts as agent for the purchaser of
those shares, from the purchaser) in amounts to be negotiated, which are not
expected to exceed those customary in the types of transactions involved.
Brokers and dealers may agree with the selling stockholders to sell a specified
number of shares at a stipulated price per share and, to the extent those
brokers and dealers are unable do so acting as agent for the selling
stockholders, to purchase as principal any unsold shares at the price required
to fulfill the broker dealer commitment to the selling stockholders. Broker
dealers who acquire shares as principals may thereafter resell those shares from
time to time in transactions in the over-the-counter market or otherwise and at
prices and on terms then prevailing at the time of sale, at prices then related
to the then-current market price or negotiated transactions and, in connection
with those resells, may pay to or receive from the purchasers of those shares
commissions as described above.
<PAGE>
We will pay all expenses of registration incurred in connection with
this offering, but the Selling Stockholders will pay all brokerage commission
and other similar expenses incurred by them.
At the time a particular offer of the shares is made, to the extent it
is required, we will distribute a supplement to this prospectus, which will
identify and set forth the aggregate amount of shares being offered and the
terms of the offering. The selling stockholders may sell the shares at any
price. Sales of the shares at less than market price may depress the market
price of our common stock. Subject to applicable securities laws (and the
provisions of the purchase agreement for the Series A Preferred Stock, which
limit the number of shares of Series A Preferred Stock that their holders can
convert to shares of common stock at any one time), the selling stockholders
will generally not be restricted as to the number of shares which they may sell
at any one time, and it is possible that a significant number of shares could be
resold at the same time. The selling stockholders and any other person
participating in the distribution of the shares will also be subject to
applicable provisions of the Securities Exchange Act of 1934 and the rules and
regulations promulgated under it, including, without limitation, Regulation M,
which may limit the timing of purchases and sales of the shares by the selling
stockholders and any other person. Furthermore, Regulation M of the Securities
Exchange Act of 1934 may restrict the ability of any person engaged in the
distribution of the shares to engage in market-making activities with respect to
the particular shares being distributed for a period of up to 5 business days
prior to the commencement of the distribution. All of the foregoing may affect
the marketability of the shares and the ability of any person or entity to
engage in market-making activities with respect to the shares.
To comply with certain states securities laws, if applicable, the
shares may be sold in those jurisdictions only through registered or licensed
brokers or dealers. In certain states the shares may not be sold unless the
selling stockholder meets the applicable state notice and filing requirements.
Available Information. This prospectus does not contain all of the
information set forth in the registration statement relating to the shares. For
further information, reference is made to the registration statement and such
exhibits and schedules. Statements contained in the prospectus concerning any
documents are not necessarily complete and, in each instance, reference is made
to the copies of the documents filed as exhibits to the registration statement.
Each such statement is qualified in its entirety by that reference. Copies of
these documents may be inspected, without charge, at the Commission's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549 and at the
regional offices of the Commission. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. Copies of this material also should be available through the
Internet by using the Commission's EDGAR Archive, the address of which is
http://www.sec.gov.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital consists of 60,000,000 shares of common stock,
$0.001 par value, and 50,000 preferred shares, $0.01 par value, of which 15,000
shares have been designated as the Series A Preferred Stock. As of July 11,
2000, there were 13,479,408 shares of common stock and no shares of Series A
Preferred Stock outstanding. As of that date, an additional 1,189,166 shares of
common stock may be issued upon the exercise of outstanding share options (of
which 728,666 are presently exercisable), up to an additional 500,000 shares may
be issued to a third party upon the exercise of warrants acquired by that party
in exchange for services, an additional 307,449 shares may be issued upon the
exercise of the outstanding warrants issued in connection with the sale of the
Series A Preferred Stock. As of July 11, 2000, there were approximately 161
holders of record of the common stock.
<PAGE>
Common Stock. Subject to preferences that may be applicable to any then
outstanding preferred shares, holders of the common stock are entitled to
receive, pro rata, such dividends as may be declared by our Board of Directors
out of funds legally available for such purposes. In the event of our
liquidation, dissolution or winding-up, the holders of the common stock are
entitled to participate in all assets remaining after the payment of liabilities
and the liquidation preferences of any then-outstanding preferred shares. The
holders of the common stock have no preemptive rights and no right to convert
the common stock into any other securities. There are no redemption or sinking
fund provisions applicable to the common stock, and all outstanding common stock
are fully paid and non-assessable. The holders of the common stock are entitled
to one vote for each share they hold of record on all matters submitted to a
vote of our stockholders. We have not paid, and do not intend to pay, cash
dividends on the common stock for the foreseeable future.
Preferred Shares. Our Articles of Incorporation grant our Board of
Directors the authority to issue up to 50,000 shares of preferred stock, and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights of those shares without any further vote or action by the
stockholders.
In early 1999, our Board of Directors created 15,000 shares of the
Series A Convertible Preferred Stock, and sold 6,300 of these shares to certain
of the selling stockholders for $1,000 per share. The Series A Convertible
Preferred Stock gives its holders the right to receive $1,000, plus 6% each year
for each share, before any of our other stockholders receive anything if we are
liquidated, but does not give their holders the right to vote in most matters
our stockholders are asked to consider and vote on. These shares of preferred
stock also give their holders a right to receive an annual 6% dividend at the
time the preferred shares are converted into common stock. We have the option of
paying the dividend in cash or in shares of common stock. The Series A Preferred
Stock was convertible into shares of our common stock. As of July 11, 2000, the
6,300 outstanding shares have been converted into 625,000 common shares.
In addition to the right to convert the Series A Preferred Stock into
common stock, we also gave the holders of the Series A Preferred Stock a limited
right to receive additional shares of common stock at certain times if the
market price for the common stock is less than $12.096 per share. On the 10th
trading day after each of July 8, 1999, October 6, 1999 and February 13, 2000,
the holders of the Series A Preferred Stock were entitled to receive the number
of shares of common stock equal to one-third of the purchase price for their
Series A Preferred Stock times the difference between the 10 day average closing
price of the common stock and $12.096, divided by the conversion price of $10.08
per share, divided by the ten day trading average. Based on the trading price of
our common stock during the 10 business day period following each date listed
above, the holders of the Series A Preferred Stock were issued 256,678 shares,
317,960 shares and 153,118 shares of our common stock. The Series A Preferred
Stockholders would have also been entitled to receive additional shares of
common stock under certain other limited conditions, including if the Securities
and Exchange Commission places a stop order on this registration statement.
However, no such additional shares have been issued at this time.
We believe our Board of Directors' authority to set the terms of, and
our ability to issue, additional shares of preferred stock will provide
flexibility in connection with possible financing transactions in the future.
The issuance of additional preferred stock, however, could adversely affect the
voting power of holders of common stock, and the likelihood that the holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in our control. However, we
do not presently have any plan to issue any additional shares of preferred
stock.
Warrants. When we sold the Series A Preferred Stock to
investors in February and March 1999, we also issued them warrants. These
warrants were issued in three series - Series A and Series B, which the
investors in the Series A Preferred Stock acquired, and Series C, which we
issued to a third party as a finder's fee for the transaction. The Series A
Warrants allow their holders to purchase up to an aggregate of 71,069 shares of
common stock at an approximate weighted average exercise price of $7.00 per
share at any time through the fifth anniversary of the closing of the
transaction. The Series B Warrants allow their holders to purchase up to an
aggregate of 47,380 shares of common stock at an approximate weighted average
exercise price of $8.40 at any time through the warrant expiration date. The
Series C Warrants allow its holder to purchase up to 189,000 shares of common
stock at an approximate weighted average exercise price equal to $7.00 per share
at any time through the warrant expiration date. The warrants originally had
exercise prices ranging from approximately $28 to $40 per share, but we agreed
to reduce the exercise prices. We currently are completing the documents which
will reflect the amendments to those exercise prices. None of the Series A or B
warrants have been exercised as of July 11, 2000. Through June 5, 2000, there
have been 58,000 Series C warrants exercised. If the holders exercise the
remainder of these warrants, we would receive a total of $1,812,475.
<PAGE>
We have also entered into agreements with other third parties that are
providing investor relations or other services to us. Under the agreements, we
have granted that party warrants to acquire up to 100,000 shares of our common
stock at $5 per share, 200,000 shares of our common stock at $4 per share, and
200,000 shares of our common stock at $3 per share. As of July 11, 2000, 300,000
warrants are exercisable into common shares.
Registration Rights. We granted contractual registration rights to the
holders of the Series A Preferred Stock. On December 9, 1999 the Securities and
Exchange Commission declared a registration statement for the shares of the
Series A Preferred Shareholders effective.
2000 Equity Incentive Plan. Our Board and stockholders adopted and
approved in June, 2000, an incentive compensation plan.
Our 2000 Equity Incentive Plan provides for grants to employees,
officers, independent directors and consultants of both non-qualified stock
options and "incentive stock options" (within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended). The plan also provides for the grant
or sale of restricted shares of our common stock and granting of stock
appreciation rights. Each independent director is eligible to receive 5,000
shares of our common stock or options to acquire our common stock each year in
which they serve as a member of our board and 10,000 options upon joining our
board. The purpose of the plan is to enable us to attract and retain the best
available personnel and to encourage stock ownership by our employees, officers,
independent directors and consultants in order to give them a greater personal
stake in our successes.
Our Board of Directors our Compensation Committee administer the plan
and is responsible for determining the type, amount and terms of any
consideration awarded to a recipient. Under the plan, any options granted to a
recipient are exercisable in accordance with the terms of the agreement
governing the grant. If the option is an incentive stock option, those terms
must be consistent with the requirements of the Internal Revenue Code, as
amended, and applicable regulations, including the requirement that the option
price not be less than the fair market value of the common stock on the date of
the grant. If the option is not an incentive stock option, the option price may
be any price determined by the Board or the Committee.
Description of the Plan.
Eligibility. All of our and our subsidiaries' employees, officers and
independent directors are eligible to participate in the plan. Our non-employee
agents, consultants, advisors and independent contractors are also eligible to
participate. We currently have approximately 32 employees, officers and
directors eligible to participate in the plan.
The plan is administered by the Board, which designates from time to
time the individuals to whom awards are made under the plan, the amount of any
such award and the price and other terms and conditions of any such award. The
Board may delegate any or all authority for administration of the plan to a
committee of the Board. Subject to the provisions of the plan, the Board, or a
committee, if any, may adopt and amend rules and regulations relating to the
administration of the plan. Only the Board may amend, modify or terminate the
plan.
Types of Awards. The plan permits us to grant incentive stock options,
nonstatutory stock options, restricted shares and stock appreciation rights
(SARs). Our common stock awarded under the plan may be authorized and unissued
shares or shares acquired in the market. If any award granted under the plan
expires, terminates or is cancelled, or if shares sold or awarded under the plan
are forfeited to or repurchased by us, the shares other than ISO's again become
available for issuance under the plan.
<PAGE>
The plan shall continue in effect until April, 2010, subject to earlier
termination by the Board. The Board may suspend or terminate the plan at any
time.
The Board determines the persons to whom options are granted, the
option price, the number of shares to be covered by each option, the period of
each option, the times at which options may be exercised and whether the option
is an ISO or an NSO. We do not receive any monetary consideration upon the
granting of options.
Options are exercisable in accordance with the terms of an option
agreement entered into at the time of grant. If the option is an ISO, all terms
must be consistent with the requirements of the Code and applicable regulations,
including that the option price cannot be less than the fair market value of the
shares of our common stock on the date of the grant. If the option is an NSO,
the option price may be any price determined by the Board, which may be less
than the fair market value of the shares of our common stock on the date of
grant. Upon the exercise of an option, the number of shares subject to the
option is reduced by the number of shares with respect to which the option is
exercised, and the number of shares available under the plan for future option
grants are reduced by the number of shares with respect to which the option is
exercised, less the number of shares surrendered or withheld in connection with
the exercise of the option and the number of shares surrendered or withheld to
satisfy withholding obligations.
The Board may award our common stock under the plan as restricted stock
awards. The Board determines the persons to receive awards, the number of shares
to be awarded and the time of the award. No restricted stock awards have been
granted under the plan.
We may grant SARs under the plan. SARs may, but need not, be granted in
connection with an option grant or an outstanding option previously granted
under the plan. A SAR gives the holder the right to payment from us in an amount
equal in value to the excess of the fair market value on the date of exercise of
a share of our common stock over its fair market value on the date of grant or,
if granted in connection with an option, the option price per share under the
option to which the SAR relates.
A SAR is exercisable only at the time or times established by the
Board. If a SAR is granted in connection with an option, it is exercisable only
to the extent and on the same conditions that the related option is exercisable.
We may pay the holder of a SAR in shares of our common stock valued at its fair
market value, in cash, or partly in stock and partly in cash, as determined by
the Board. The Board may withdraw any SAR granted under the plan at any time and
may impose any condition upon the exercise of a SAR or adopt rules and
regulations from time to time affecting the rights of holders of SARs. No SARs
have been granted under the plan.
The existence of SARs, as well as grants of NSOs or restricted shares
at an exercise price below fair market value on the cost of grants, would
require charges to our income at the time of the grant and/or over the life of
the award based upon the amount of appreciation, if any, in the market value of
the shares of our common stock over the exercise price of shares subject to
exercisable SARs.
Changes in Capital Structure. The plan provides that, if the number of
outstanding shares of our common stock is increased or decreased or changed into
or exchanged for a different number or kind of our shares or securities or of
another corporation by reason of any recapitalization, stock split or similar
transaction, appropriate adjustment will be made by the Board in the number and
kind of shares available for awards under the plan. In the event of a merger,
consolidation or plan of exchange to which we are a party or a sale of all or
substantially all of our assets (each a "Transaction"), the Board will, in its
sole discretion and to the extent possible under the structure of the
Transaction, select one of the following alternatives for treating outstanding
options under the plan: (i) outstanding options will remain in effect in
accordance with their terms, (ii) outstanding options shall be converted into
options to purchase stock in the corporation that is the surviving or acquiring
corporation in the Transaction, or (iii) the Board will provide a 30-day period
prior to the consummation of the Transaction during which outstanding options
shall be exercisable to the extent exercisable and upon the expiration of such
30-day period, all unexercised options shall immediately terminate. The Board
may, in its sole discretion, accelerate the exercisability of options so that
they are exercisable in full during such 30-day period. In the event of our
dissolution, options shall be treated in accordance with clause (iii) above.
<PAGE>
Tax Consequences. Certain options authorized to be granted under the
plan are intended to qualify as ISOs for federal income tax purposes. Under
United States federal income tax law currently in effect, the optionee will
recognize no income upon grant or upon a proper exercise of the ISO. The amount
by which the fair market value of the stock at the time of exercise exceeds the
exercise price, however, is includible in the optionee's alternative minimum
taxable income and may, under certain conditions, result in alternative minimum
tax liability. If an employee exercises an ISO and does not dispose of any of
the option shares within two years following the date of grant and within one
year following the date of exercise, any gain realized on subsequent disposition
of the shares will be treated as income from the sale or exchange of a capital
asset. If an employee disposes of shares acquired upon exercise of an ISO before
the expiration of either the one-year holding period or the two-year waiting
period, any amount realized will be taxable as ordinary compensation income in
the year of such disqualifying disposition to the extent that the lesser of the
fair market value of the shares on the exercise date or the fair market value of
the shares on the date of disposition exceeds the exercise price. We are not
allowed any deduction for federal income tax purposes at either the time of the
grant or the exercise of an ISO. Upon any disqualifying disposition by an
employee, we will generally be entitled to a deduction to the extent the
employee realized ordinary income.
Certain options authorized to be granted under the plan will be treated
as NSOs for United States federal income tax purposes. Under United States
federal income tax law currently in effect, no income is realized by the grantee
of an NSO until the option is exercised. At the time of exercise of an NSO, the
optionee will realize ordinary compensation income, and we will generally be
entitled to a deduction, in the amount by which the market value of the shares
subject to the option at the time of exercise exceeds the exercise price. We are
required to remit withholding taxes on the amount of income realized by the
optionee.
Under federal income tax law currently in effect, no income is realized
by the grantee of a SAR until the SAR is exercised. At the time the SAR is
exercised, the grantee will realize ordinary compensation income, and we
generally will be entitled to a deduction, in an amount equal to the fair market
value of the shares or cash received. We are required to remit withholding taxes
on the amount of income realized by the optionee.
An employee who receives stock in connection with the performance of
services will generally realize taxable income at the time of receipt unless the
shares are substantially nonvested for purposes of Section 83 of the Code and no
Section 83(b) election is made. If the shares are not vested at the time of
receipt, the employee will realize taxable income in each year in which a
portion of the shares substantially vest, unless the employee elects to
accelerate the recognition of income under Section 83(b) within 30 days after
the original transfer. We will generally be entitled to a tax deduction in the
amount includible as income by the employee at the same time or times as the
employee recognizes income equal to the amount of the cash bonus paid at the
time of receipt.
Anti-Takeover Laws In Nevada. Nevada law provides that any agreement
providing for the merger, consolidation or sale of all or substantially all of
the assets of a corporation be approved by the owners of at least the majority
of the outstanding shares of that corporation, unless a different vote is
provided for in our Articles of Incorporation. Our Articles of Incorporation do
not provide for a super-majority voting requirement in order to approve any such
transactions. Nevada law also gives appraisal rights for certain types of
mergers, plans of reorganization, or exchanges or sales of all or substantially
all of the assets of a corporation. Under Nevada law, a stockholder does not
have the right to dissent with respect to:
o a sale of assets or reorganization, or
o any plan of merger or any plan of exchange, if the shares held by
the stockholder are part of a class of shares which are listed on
a national securities exchange or the NASDAQ National Market
Systems, or are held of record by not less than 2,000
shareholders, and the stockholder is not required to accept for
his shares any consideration other than shares of a corporation
that, immediately after the effective time of the merger or
exchange, will be part of a class of shares which are listed on a
national securities exchange or the NASDAQ National Market
System, or are held of record by not less than 2,000 holders.
<PAGE>
The Nevada Private Corporation Law also has three provisions designed
to deter take-over attempts:
Control Share Acquisition Provision. Under Nevada law, when a
person has acquired or offers to acquire one-fifth, one-third or a majority of
the stock of a corporation, a stockholders meeting must be held after delivery
of an "offerors" statement, at the offerors expense, so that the stockholders of
the corporation can vote on whether the shares proposed to be acquired can
exercise voting rights. Except as otherwise provided in a corporation's Articles
of Incorporation, the approval of the majority of the outstanding stock not held
by the offerors is required so that the stock held by the offerors will have
voting rights. The control share acquisition provisions are applicable to any
acquisition of a controlling interest, unless the Articles of Incorporation or
by-laws of a corporation in effect on the tenth day following the acquisition of
a controlling interest by an acquiring person provides that the control share
acquisition provisions do not apply. We have not elected out of the control
share acquisition provisions of Nevada law.
Combination Moratorium Provision. Nevada law provides that a
corporation may not engage in any "combinations," which is broadly defined to
include mergers, sales and leases of assets, issuances of securities and similar
transactions with an "interested stockholder", which is defined as the
beneficial owner of 10% or more of the voting power of the corporation, and
certain affiliates of their associates for three years after an interested
stockholder's date of acquiring the shares, unless the combination or the
purchase of the shares by the interested stockholder is first approved by the
Board of Directors. After the initial three-year period, any combination must
still be approved by a majority of the voting power not beneficially owned by
the interested stockholder or the interested stockholder's affiliates or
associates, unless the aggregate amount of cash and the market value of the
consideration other than cash that could be received by stockholders as a result
of the combination is at least equal to the highest bid per share of each class
or series of shares, including the common shares, on the date of the
announcement of the combination or on the date the interested stockholder
acquired the shares, or for holders of preferred stock, the highest liquidation
value of the preferred stock.
Other Provisions. Under Nevada law, the selection of a period
for achieving corporate goals is the responsibility of the directors. In
addition, the directors and officers, in exercising their respective powers with
a view to the interest of the corporation, may consider the interest of the
corporations employees, suppliers, creditors and customers, the economy of the
state and the nation, the interest of the economy and of society and the
long-term, as well as short-term, interests of the corporation and its
stockholders, including the possibility that those interests may be best served
by the continued independence of the corporation. The directors may also resist
any change or potential change of control of the corporation if the directors,
by majority vote of a quorum, determine that a change or potential change is
opposed to or not in the best interest of the corporation "upon consideration of
the interest of the corporations stockholders," or for one of the other reasons
described above. The directors may also take action to protect the interests of
the corporation's stockholders by adopting or executing plans that deny rights,
privileges, powers or authority to a holder of a specific number of shares or
percentage of share ownership or voting power.
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751, our
Articles of Incorporation and bylaws provide for the indemnification of our
officers and directors. Mandatory indemnification is required for present and
former directors. However, the director must have conducted himself in good
faith and reasonably believed that his conduct was in, or not opposed to, our
best interests. In a criminal action he must not have had a reasonable cause to
believe his conduct was unlawful. Advances for expenses may be made if the
director affirms in writing that he believes he has met the standards and that
he will personally repay the expense if it is determined he did not meet the
standards. We provide permissive indemnification for officers, employees or
agents. Our Board must approve such indemnification and the standards and
limitations are the same as for a director.
We will not indemnify a director or officer adjudged liable due to his
negligence or willful misconduct toward us, adjudged liable to us, or if he
improperly received personal benefit. Indemnification in a derivative action is
limited to reasonable expenses incurred in connection with the proceeding. Also,
we are authorized to purchase insurance on behalf of an individual for
liabilities incurred whether or not we would have the power or obligation to
indemnify him pursuant to our bylaws.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, or officers or persons controlling us
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
WORDCRUNCHER INTERNET TECHNOLOGIES, INC
Audited Financial Statements: Page
-----
<S> <C>
Report of Grant Thornton LLP............................................................F-2
Report of Crouch, Bierwolf & Chisholm...................................................F-3
Consolidated Balance Sheets at December 31, 1999 and 1998...............................F-4
Consolidated Statements of Operations for Years Ended December 31, 1999,
1998 and 1997 and Cumulative Amounts Since Inception...........................F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 and period from
November 5, 1996 (inception) to December 31, 1996..............................F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998, and 1997
and Cumulative Amounts Since Inception.........................................F-12
Notes to Consolidated Financial Statements..............................................F-14
Interim Financial Statements:
Consolidated Balance Sheet at June 30, 2000.............................................F-28
Consolidated Statements of Operations for the Six Months Ended
June 30, 2000 and 1999 and Cumulative Amounts Since Inception..................F-29
Consolidated Statements of Stockholders' Equity (Deficit) for the Six
Months Ended June 30, 2000.....................................................F-30
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 and cumulative amounts since inception..................F-32
Notes to the Interim Financial tatements...............................................F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
WordCruncher Internet Technologies, Inc.
We have audited the accompanying consolidated balance sheet of
WordCruncher Internet Technologies, Inc. (a development stage company), as of
December 31, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements, audited by other auditors, for the period
from November 5, 1996 (inception) to December 31, 1998 reflect total revenues
and net loss of $107,162 and $818,127, respectively, of the related totals. Our
opinion insofar as it relates to the cumulative amounts since inception included
for such prior period, is based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors,
the 1999 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of WordCruncher Internet
Technologies, Inc. (a development stage company), as of December 31, 1999, and
the consolidated results of their operations and their consolidated cash flows
for the year then ended and cumulative amounts since inception in conformity
with generally accepted accounting principles.
The Company is in the development stage as of December 31, 1999. Recovery of the
Company's assets is dependent on future events, the outcome of which is
indeterminable. In addition, successful completion of the Company's development
plan and its transition, ultimately, to attaining profitable operations, is
dependent upon obtaining adequate financing to fulfil its development activities
and achieving a level of sales adequate to support the Company's cost structure.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred consolidated cumulative net losses attributable to
common stockholders of $12,217,868 since inception of operations. This factor,
among others, as discussed in Note B to the financial statements, raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note B. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/GRANT THORNTON LLP
Salt Lake City, Utah
March 6, 2000
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of WordCruncher Internet Technologies, Inc.
We have audited the accompanying consolidated balance sheets of WordCruncher
Internet Technologies, Inc. (a development stage company) as of December 31,
1998 and 1997 and the related statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1998, 1997 and 1996 and from
inception of the development stage on November 5, 1996 through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WordCruncher
Internet Technologies, Inc. (a development stage company) as of December 31,
1998 and 1997 and the results of its consolidated operations and cash flows for
the years ended December 31, 1998, 1997 and 1996 and from inception of the
development stage on November 5, 1996 through December 31, 1998 in conformity
with generally accepted accounting principles.
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
January 21, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
1999 1998
---------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,055,371 $ 425,702
Short-term investments (Note C) 1,462,147 -
Prepaid expenses 311,199 -
Interest receivable 1,983 -
Current maturities of notes receivable (Note F) 1,955 -
Accounts receivable 736 -
---------------- -------------
Total current assets 2,833,391 425,702
---------------- -------------
PROPERTY And Equipment, at cost (Note E) 1,930,335 81,419
NOTES RECEIVABLE, less current maturities (Note F) - 100,200
Other assets (Note D) 6,011 16,296
---------------- -------------
$ 4,769,737 $ 623,617
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations (Note G) $ - $ 120,000
Current maturities of capital lease obligations (Note H) 299,983 16,006
Notes payable 659,682 -
Accounts payable 306,349 10,421
Accrued expenses 86,319 24,492
---------------- -------------
Total current liabilities 1,352,333 170,919
CAPITAL LEASE OBLIGATIONS, less current maturities (Note H) 253,350 11,614
COMMITMENTS (Notes H and I) - -
Stockholders' equity (Notes B, C, I, J, K, M and N) 6% preferred stock, par
value $0.01; liquidation preference $1,000;
authorized 50,000 shares; designated as Series A Preferred Stock 15,000 63 -
Shares; issued and outstanding 6,300 shares
in 1999 and none in 1998
Common stock, par value $0.001; authorized 60,000,000 shares; issued and
outstanding 11,891,002 shares in 1999
and 11,877,002 shares in 1998 11,891 11,877
Additional paid-in capital 15,362,028 1,247,334
Accumulated other comprehensive income 7,940 -
Deficit accumulated during the development stage (12,217,868) (818,127)
---------------- -------------
Total stockholders' equity 3,164,054 441,084
---------------- -------------
$ 4,769,737 $ 623,617
================ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
amounts Year ended December 31,
since --------------------------------------------------
inception 1999 1998 1997
-------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 130,517 $ 23,355 $ 82,678 $ 24,484
Cost of sales 31,741 15,071 15,864 806
-------------- --------------- ---------------- --------------
Gross profit 98,776 8,284 66,814 23,678
Operating Expenses
Selling expenses 993,536 953,708 34,554 5,274
Research and development 1,591,390 1,198,546 266,563 126,281
General and administrative 1,764,678 1,340,486 217,318 206,874
Depreciation and amortization 195,994 179,169 10,406 6,419
Compensation expense for common
stock and options (Note K) 1,452,610 1,452,610 - -
-------------- --------------- ---------------- --------------
Total operating expenses 5,998,208 5,124,519 528,841 344,848
-------------- --------------- ---------------- --------------
Loss from operations (5,899,432) (5,116,235) (462,027) (321,170)
Other income (expense)
Interest income and other 206,663 196,310 7,276 3,077
Interest expense (55,238) (9,955) (28,158) (17,125)
-------------- --------------- ---------------- --------------
151,425 186,355 (20,882) (14,048)
-------------- --------------- ---------------- --------------
Net Loss (5,748,007) (4,929,880) (482,909) (335,218)
Deduction for dividends and accretion (Note J) (6,469,861) (6,469,861) - -
------------- --------------- --------------- --------------
Net loss attributable to common stockholders $ (12,217,868) $ (11,399,741) $ (482,909) $ (335,218)
============= =============== ================ ==============
Net loss per common share - basic and diluted
(Note M) $ (2.09) $ (0.96) $ (0.08) $ (0.61)
============== =============== ================ ==============
Weighted-average number of shares outstanding -
basic and diluted 5,850,408 11,879,919 6,100,679 545,535
============== =============== ================ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996
(inception) to December 31, 1996
Preferred stock Common stock
--------------------------- ---------------------------
Price per Number Number
Date share of shares Amount of shares Amount
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at November 5, 1996 - $ - - $ - - $ -
Net loss - - - - - -
------------ ------------ ------------ ------------
Balances at December 31, 1996 - - - - - -
Issuance of stock for cash to Jan 97 0.001 - - 622,500 623
organizers
Issuance of stock for cash Feb 97 0.001 - - 67,500 67
Issuance of stock for license Feb 97 - - - 110,742 111
agreement (Note I)
Issuance of stock to employees Sep 97 0.333 - - 252,450 252
for services
Issuance of stock for services Aug 97 1.092 - - 37,875 38
performed
Net loss for the year - - - - - -
------------ ------------ ------------ ------------
Balances at December 31, 1997 - - - - 1,091,067 1,091
Issuance of stock for cash Jul 98 4.17 - - 120,000 120
Reverse acquisition and Jul 98 - - - 9,885,435 9,886
reorganization adjustment
</TABLE>
(Continued)
F-6
<PAGE>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY-CONTINUED
Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996
(inception) to December 31, 1996
Deficit
Accumulated accumulated
Additional other during
paid-in comprehensive development
capital income stage
------------ --------------- ------------
Balances at November 5, 1996 - $ - $ -
Net loss - - -
------------ --------------- ------------
Balances at December 31, 1996 - - -
Issuance of stock for cash to 52 - -
organizers
Issuance of stock for cash 8 - -
Issuance of stock for license (111) - -
agreement (Note I)
Issuance of stock to employees 83,898 - -
for services
Issuance of stock for services 41,337 - -
performed
Net loss for the year - - (335,218)
------------ --------------- ------------
Balances at December 31, 1997 125,184 - (335,218)
Issuance of stock for cash 499,880 - -
Reverse acquisition and (8,550) - -
reorganization adjustment
F-7
Continued
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996
(inception) to December 31, 1996
Preferred stock Common stock
--------------------------- ---------------------------
Price per Number Number
Date share of shares Amount of shares Amount
------------- ------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock for cash Jul 98 0.725 - - 690,000 690
Issuance of stock for debt Jul 98 0.96 - - 13,500 13
conversion
Issuance of stock for services Oct 98 1.90 - - 39,000 39
Issuance of stock for software Oct 98 1.80 - - 13,000 13
technology
Issuance of stock for insurance Nov 98 1.00 - - 25,000 25
coverage
Net loss for the year - - - - - -
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Balances at December 31, 1998 - - - - 11,877,002 11,877
Issuance of warrants for Jan 99 - - - - -
consulting services (Note K)
Issuance of preferred stock for Feb 99 1,000 6,100 61 - -
cash, net of offering costs
(Note J)
Issuance of preferred stock for Mar 99 1,000 200 2 - -
cash, net of offering costs
(Note J)
</TABLE>
F-8
(Continued)
<PAGE>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996
(inception) to December 31, 1996
Deficit
Accumulated accumulated
Additional other during
paid-in comprehensive development
capital income stage
------------ --------------- -------------
Issuance of stock for cash 499,310 - -
Issuance of stock for debt 12,987 - -
conversion
Issuance of stock for services 70,161 - -
Issuance of stock for software 23,387 - -
technology
Issuance of stock for insurance 24,975 - -
coverage
Net loss for the year - - (482,909)
------------ --------------- -------------
------------ --------------- -------------
Balances at December 31, 1998 1,247,334 - (818,127)
Issuance of warrants for 258,000 - -
consulting services (Note K)
Issuance of preferred stock for 5,719,839 - -
cash, net of offering costs
(Note J)
Issuance of preferred stock for 187,998 - -
cash, net of offering costs
(Note J)
F-9
(Continued)
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996
(inception) to December 31, 1996
Preferred stock Common stock
--------------------------- ---------------------------
Price per Number Number
Date share of shares Amount of shares Amount
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to Jun 99 0.11 - - 2,000 2
employees for compensation
Issuance of common stock for Aug 99 0.10 - - 4,000 4
exercise of options
Issuance of common stock for Dec 99 3.25 - - 8,000 8
conversion of debt
Issuance of stock options to Jan-Dec 99 - - - - -
employees for compensation
Accretion of intrinsic value of Feb-Dec 99 - - - - -
preferred stock (Note J)
Dividends on preferred stock (Note J) Feb-Dec 99 - - - - -
Unrealized gain on marketable - - - - - -
securities (Note C)
Net loss for the year - - - - - -
------------ ------------ ------------ ------------
Balances at December 31, 1999 - - 6,300 $ 63 11,891,002 $ 11,891
============ ============ ============ ============
</TABLE>
F-10
<PAGE>
WordCruncher Internet Technologies, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31, 1999, 1998, 1997, and period from November 5, 1996
(inception) to December 31, 1996
Deficit
Accumulated accumulated
Additional other during
capital income stage
------------ --------------- -------------
Issuance of common stock to 21,998 - -
employees for compensation
Issuance of common stock for 396 -
exercise of options
Issuance of common stock for 25,992 - -
conversion of debt
Issuance of stock options to 1,430,610 - -
employees for compensation
Accretion of intrinsic value of 6,131,944 - (6,131,944)
preferred stock (Note J)
Dividends on preferred stock 337,917 - (337,917)
Note J
Unrealized gain on marketable - 7,940 -
securities (Note C)
Net loss for the year - - (4,929,880)
------------ --------------- -----------
Balances at December 31, 1999 $ 15,362,028 $ 7,940 $(12,217,868)
============ =============== ============
The accompanying notes are an integral part of this statement.
F-11
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc.
(a development stage company)
STATEMENTS OF CASH FLOWS
Cumulative
Amounts Year ended December 31,
Since -------------------------------------------------
Inception 1999 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (5,748,007) $ (4,929,880) $ (482,909) $ (335,218)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 195,994 179,169 10,406 6,419
Issuance of common stock and
options for compensation and
other expenses 1,673,335 1,452,610 95,200 125,525
Issuance of warrants for consulting services 258,000 258,000 - -
Changes in assets and liabilities
Prepaid expenses (311,199) (311,199) - -
Interest receivable (1,983) 8,035 (7,141) (2,877)
Accounts receivable (736) (736) - -
Accounts payable 301,349 295,928 4,251 1,170
Accrued expenses 86,319 61,827 19,063 5,429
--------------- --------------- --------------- ---------------
Total adjustments 2,201,079 1,943,634 121,779 135,666
--------------- --------------- --------------- ---------------
Net cash used in
operating activities (3,546,928) (2,986,246) (361,130) (199,552)
--------------- --------------- --------------- ---------------
Cash flows from investing activities
Purchases of property and equipment (1,279,458) (1,260,831) (18,627) -
Increase in short-term investments (1,454,207) (1,454,207) - -
Repayment of notes receivable
from related parties 115,745 110,745 5,000 -
Notes receivable issued to related parties (117,700) (12,500) (23,200) (82,000)
Increase in deposits (5,076) - (5,076) -
--------------- --------------- --------------- ---------------
Net cash used in
investing activities (2,740,696) (2,616,793) (41,903) (82,000)
--------------- --------------- --------------- ---------------
(Continued)
F-12
<PAGE>
WordCruncher Internet Technologies, Inc.
(a development stage company)
STATEMENTS OF CASH FLOWS - CONTINUED
Cumulative
Amounts Year ended December 31,
Since ------------------------------------------------
Inception 1999 1998 1997
--------------- -------------- -------------- --------------
Cash flows from financing activities
Proceeds from issuance of common stock 1,001,150 400 1,000,000 750
Proceeds from issuance of preferred stock 6,300,000 6,300,000 - -
Payment of fees associated with issuance
of preferred stock (392,100) (392,100) - -
Proceeds from issuance of notes payable 685,682 685,682 - -
Proceeds from issuance of long-term obligations 313,000 - 13,000 300,000
Principal payments under capital lease obligations (256,423) (241,274) (6,320) (8,829)
Principal payments of long-term obligations (308,314) (120,000) (188,314) -
--------------- -------------- -------------- --------------
Net cash provided by
investing activities 7,342,995 6,232,708 818,366 291,921
--------------- -------------- -------------- --------------
Net increase in cash and
cash equivalents 1,055,371 629,669 415,333 10,369
Cash and cash equivalents at beginning of period - 425,702 10,369 -
--------------- -------------- -------------- --------------
Cash and cash equivalents at end of period $ 1,055,371 $ 1,055,371 $ 425,702 $ 10,369
=============== ============== ============== ==============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 49,128 $ 4,584 $ 29,888 $ 14,656
Income taxes - - - -
Noncash financing activities
Purchase of equipment through lease obligations $ 818,177 $ 766,987 $ - $ 51,190
Unrealized gain on available-for-sale securities 7,940 7,940 - -
Issuance of common stock for
debt conversion 39,000 26,000 13,000 -
The accompanying notes are an integral part of these statements.
</TABLE>
F-13
<PAGE>
WordCruncher Internet Technologies, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompanying financial statements follows:
1. Organization and principles of consolidation
--------------------------------------------
WordCruncher Internet Technologies, Inc. (the Company) was incorporated
on November 5, 1996 in the State of Utah under the name of Redstone
Publishing, Inc. On March 10, 1997, the Company changed its name to
WordCruncher Publishing Technologies, Inc. During July 1998, the Company
merged with Dunamis, Inc. a public company organized in the State of
California. Dunamis had approximately $1 million of cash and essentially
no other assets and liabilities. Management of Dunamis resigned and
management of the Company now manages the consolidated entity. 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,
where the Company is engaged in the development and marketing of a
business information Internet site. The Internet site is specialized for
business professionals and the business-to-business marketplace. The
Company has acquired a license agreement from a University wherein the
Company has an exclusive, worldwide right to sell, develop and
manufacture the "WordCruncher" technology.
2. Stock split and change in par value
-----------------------------------
In July 1998, the Company authorized a 3 for 1 forward stock split. These
financial statements have been retroactively restated to reflect the
stock split. Pursuant to the reverse merger with Dunamis, the Company's
par value of its common stock changed to $.001 per share. This change has
also been retroactively applied.
3. Development stage company
The Company is a development stage company and is concentrating
substantially all of its efforts in raising capital and developing its
business information Internet site for future commercial release.
4. Software development costs
Software development costs incurred in the development of software
related products are charged to expense as incurred. Material software
development costs incurred subsequent to the establishment of
technological feasibility are capitalized. Technological feasibility is
established by the Company upon completion of a working model. Software
development costs incurred by the Company subsequent to technological
feasibility have been insignificant.
F-14
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
5. Recognition of revenue
The Company recognizes income and expense on the accrual basis of
accounting. During the development stage, the Company has received
revenues for certain services provided for indexing printed materials to
online format. Revenue is recorded when the services are completed. The
Company also generates revenues during the development stage from the
sale of its publishers' proprietary version of the search engine
technology. This technology is sold separately without future performance
such as upgrades or maintenance, and is not sold with support services,
therefore revenue is recorded upon the sale and delivery of the product.
Licensing fees are also received from the sublicensing of this technology
which is included in the software of certain sublicenses. Licensing fees
are recorded as revenue as software is reported as sold by the
sublicensee.
6. Cash and cash equivalents
-------------------------
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.
7. Short-term investments
Short-term investments are comprised of various government securities,
commercial paper and other securities, which mature in one year or less
and are classified as available-for-sale. Available-for-sale securities
are measured at fair value with net unrealized gains and losses reported
in equity.
8. Fair value of financial instruments
-----------------------------------
The fair value of the Company's cash equivalents, receivables, accounts
payable and accrued liabilities approximate carrying value due to the
short-term maturity of the instruments. The fair value of long-term
obligations approximate carrying value based on their effective interest
rates compared to current market rates.
9. Use of estimates
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ significantly from those estimates.
10. Depreciation and amortization
Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the assets. Accelerated methods
of depreciation of property and equipment are used for income tax
purposes.
F-15
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. Depreciation and amortization - continued
-----------------------------------------
Property and equipment under capital leases are amortized over the lessor
of the life of the asset or the term of the lease.
Maintenance, repairs, and renewals which neither materially add to the
value of the property nor appreciably prolong its life are charged to
expense as incurred. Gains or losses on dispositions of property and
equipment are included in earnings.
11. Income taxes
In 1997, WordCruncher Publishing Technologies, Inc. elected to file
federal and state income taxes under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company did not
pay corporate income taxes on its taxable income during that period of
time. Instead, the stockholders were liable for individual income taxes
on their respective shares of the Company's net operating income in their
individual income tax returns. Effective July 1, 1998, the Company filed
consolidated tax returns with its parent and terminated its S-Corporation
status.
Since July 1, 1998, the Company utilizes the liability method of
accounting for income taxes. Under the liability method, deferred income
tax liabilities are provided based on the difference between the
financial statement and tax bases of assets and liabilities as measured
by the currently enacted tax rates in effect for the years in which these
differences are expected to reverse. Deferred tax expense or benefit is
the result of changes in deferred tax assets and liabilities.
12. Comprehensive income
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes standards for disclosure and financial statement display for
reporting total comprehensive income and its individual components.
Comprehensive income, as defined, includes all changes in equity during a
period from nonowner sources. The Company's comprehensive income includes
net loss and unrealized gains on investments and is displayed in the
statement of stockholders' equity.
13. Net loss per common share
-------------------------
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 EPS because their effects were antidilutive.
F-16
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
14. Certain reclassifications
Certain nonmaterial reclassifications have been made to the 1998 and 1997
financial statements to conform to the 1999 presentation.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company is a
development stage company, has generated only limited revenue through
December 31, 1999, and has sustained losses from operations each period
since inception. In addition, it has a deficit accumulated during the
development stage of $12,217,868. Also, the Company has used cash in,
rather than provided cash from, its operations.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheets is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to
meet its financing requirements on a continuing basis, to maintain
present financing and to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company
be unable to continue in existence.
The Company has taken the following steps to revise its operating and
financial requirements which it believes are sufficient to provide the
Company with the ability to continue in existence:
o During February and March 1999, Company received a total of
$6,300,000 for a preferred stock offering (Note J).
o During December 1999, the Company's pending S-1 Registration
Statement became effective.
o Through January 2000, the Company entered into agreements with
prominent ad serving and reporting technology companies to
utilize various technologies for its site management.
o Also in January 2000, the Company has selected a full-service
advertising agency to promote its planned business information
Internet site.
o In March of 2000, negotiations were underway to obtain up to
$15,000,000 of additional financing.
o In March 2000, the Company completed a working model of its
planned business information Internet site.
F-17
<PAGE>
NOTE C - SHORT-TERM INVESTMENTS
At December 31, 1999, the cost, fair value and unrealized gain on
short-term investments are as follows:
Fair value $ 1,462,147
Cost 1,454,207
------------
Unrealized gain $ 7,940
============
NOTE D - OTHER ASSETS
Other assets consist of the following:
1999 1998
------------ ------------
Deposits $ 5,076 $ 5,076
Other 935 1,202
Interest receivable - 10,018
------------ ------------
$ 6,011 $ 16,296
============ ============
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment, at cost and estimated useful lives are as
follows:
Estimated
useful
1999 1998 lives
------------ ------------- -------------
Computer equipment $ 1,217,668 $ 54,352 5
Furniture and fixtures 49,392 5,358 7
Software technology 858,868 38,400 3
------------- ------------ -------------
2,125,928 98,110
Less accumulated depreciation 195,593 16,691
------------ -------------
Total property $ 1,930,335 $ 81,419
and equipment ============ =============
F-18
<PAGE>
<TABLE>
<CAPTION>
NOTE F - NOTES RECEIVABLE - RELATED PARTIES
Notes receivable consist of the following: 1999 1998
------------- -------------
<S> <C> <C>
8% note receivable from a former employee, interest and
principal due in full April 2000, not collateralized $ 1,955 $ -
8% note receivable from an officer, interest and principal
due in full January 1, 2000, received in full in 1999 - 66,700
8% note receivable from an officer, interest and principal
due in full January 1, 2002, received in full in 1999 - 29,500
8% note receivable from a corporation owned by an officer,
interest and principal due in full January 1, 2000,
received in full in 1999 - 4,000
------------- ------------
1,955 100,200
Less current maturities 1,955 -
------------- ------------
$ - $ 100,200
============= ============
</TABLE>
NOTE G - LONG-TERM OBLIGATIONS
At December 31, 1998, the Company had prime plus 1.5 percent (9.25
percent) notes payable to officers in the amount of $120,000. Interest
payments were due monthly, and principal was due in December 1999. The
notes were not collateralized and were paid in full in 1999.
NOTE H - LEASES
1. Operating leases
The Company leases their office facilities under an operating lease,
which expires in March 2002. Future minimum lease payments are as
follows:
Year ending December 31,
2000 $ 44,933
2001 44,933
2002 11,233
Thereafter -
-------------
$ 101,099
=============
F-19
<PAGE>
NOTE H - LEASES - CONTINUED
2. Capital lease obligations
Included in property and equipment is $818,177 and $51,101 of computer
equipment under capital leases at December 31, 1999 and 1998,
respectively. The related accumulated amortization is $56,411 and $16,333
at December 31, 1999 and 1998, respectively.
Future minimum lease payments at December 31, 1999, are as follows:
Year ending December 31,
-----------------------
2000 $ 335,930
2001 260,923
2002 3,388
Thereafter -
-------------
Total minimum lease payments 600,241
Less amount representing interest 46,908
-------------
Present value of net minimum lease payments 553,333
Less current maturities 299,983
-------------
Noncurrent portion $ 253,350
=============
NOTE I - COMMITMENTS
1. Licenses
On February 14, 1997, the Company signed an exclusive license agreement
with Brigham Young University (BYU), a Utah nonprofit corporation and
educational institution, wherein the Company has the worldwide rights to
market, modify, develop and manufacture the "WordCruncher" technology,
which is a software program used to search data for specific items
(search engine). The term of the license covers the underlying period of
the patent as provided for by federal law, which is 17 years. The
agreement calls for license fees and royalties of three percent of
adjusted gross sales, and 50 percent of royalty payments from
sublicenses. Annual minimum royalties begin for the calendar year 1999
and are due the quarter following the year end, as specified below.
Minimum royalty payments will be capped at $150,000 from 2002 forward.
The Company acquired the license through stock issuance, and was required
to maintain BYU's equity interest of 10 percent through July 1998.
F-20
<PAGE>
NOTE I - COMMITMENTS - CONTINUED
1. Licenses - continued
The Company is committed to minimum royalty payments as follows:
Year ending December 31,
-----------------------
2000 $ 50,000
2001 100,000
2002 150,000
2003 150,000
2004 150,000
Thereafter 1,368,750
-------------
$ 1,968,750
=============
These minimum royalties are due as long as the license agreement is in
effect.
2. Employment agreements
The Company has six employment and severance agreements with certain
officers and a manager of the Company. Salaries covered by these
agreements range from $100,000 to $120,000 annually, subject to annual
adjustment. Contracts with three individuals provide for annual salaries
of $120,000 (plus annual increases of at least eight percent and cash
bonuses determined by the board of directors or the compensation
committee), and are for terms of three years expiring in August 2001. The
agreements provide for severance equal to one year's salary if the
individual is terminated without cause. Furthermore, if there is a change
in control as defined by these three agreements, the contracts provide
for compensation equal to five times the average of the sum of amounts
paid to the executive for salary for the five fiscal years immediately
preceding the date of the change in control. The other three contracts
provide for annual salaries of $84,000 to $100,000 (plus monthly
commissions equal to 50 percent of monthly base salary and/or annual
incentive bonuses equal to 30-60 percent of annual base salary), and are
for terms of two years expiring April through December 2001. The
agreements also provide for severance equal to 90 days of the employee's
base salary plus the maximum amount of incentive pay the employee would
have earned in the same 90 day period. Furthermore, if there is a change
in control, as defined by these agreements, the contracts provide for
compensation equal to the employee's annual base salary. There is no
provision for any severance payments under these employment contracts.
3. Consulting and development contract
-----------------------------------
The Company has entered into a consulting and development contract in
connection with the launch of its website. The Company is required to pay
a fixed price of $500,000 in exchange for these services, to be paid in
four installments based upon meeting certain milestones. At December 31,
1999, $275,000 remains payable under this contract.
F-21
<PAGE>
NOTE J - PREFERRED STOCK
In January of 1999, the Board of Directors approved the creation of
Series A Convertible Preferred Stock (Preferred Stock) and authorized
15,000 shares. The Preferred Stock has a stated value of $1,000 per
share, and a cumulative dividend of 6 percent. The Company issued 6,100
and 200 shares of the Preferred Stock in February and March of 1999,
respectively. The Preferred Stock is convertible into a total of 625,000
shares of the Company's common stock at a conversion rate of $10.08 per
share. The conversion price is based on the average closing price of the
Company's common stock during the 20 day period immediately preceding the
closing of the preferred issuance. The Preferred shares hold no voting
rights and have liquidation preferences of $1,000 per share and
cumulative dividends.
The Preferred shareholders have a limited right to receive additional
shares of common stock ("reset shares") if the market price of the common
stock is less than the "reset price" of $12.096 per share for a ten day
period of time following certain reset dates (adjustment price). The
additional shares are calculated as the difference between the reset
price and the adjustment price, multiplied by one third of the purchase
price of Preferred stock divided by the conversion price, divided by the
adjustment price. The reset dates commence 150, 240 and 360 calendar days
following the issuance of the Preferred Stock. As of December 31, 1999,
the holders of Preferred stock are entitled to receive 574,867 shares of
common stock under this provision.
On the dates that the Preferred Stock was issued, the intrinsic values of
the beneficial conversion feature were $10,995,740 and $31,994 in
February and March, respectively. The intrinsic values were derived by
the difference between the conversion price and the market value of the
common stock on the day of the preferred stock issuance multiplied by the
number of common shares into which the Preferred Stock is convertible.
The closing price of the stock was $28.25 and $11.69 at each of the
respective closing dates. The proceeds received from the sale of these
convertible instruments were $6,100,000 and $200,000, respectively.
Because the intrinsic values of the beneficial conversion features are
greater than the proceeds received, the discounts assigned to the
convertible instruments are $6,100,000 and $31,944, respectively,
creating a total discount of $6,131,944. The Preferred Stock became fully
convertible into common stock as of November of 1999 and the discount was
accreted accordingly during 1999 and is reflected on the statement of
operations as a deduction for dividends and accretion.
Offering cost related to the issuance of Preferred Stock total $392,100
and have been netted with the proceeds for reporting purposes.
Cumulative Preferred dividends total $337,917 as of December 31, 1999.
F-22
<PAGE>
NOTE K - STOCK OPTIONS AND WARRANTS
1. Stock options
The Company provides for issuance of stock options to certain employees,
directors, officers and others. There has been no formal stock option
plan adopted as of December 31, 1999. The Board of Directors has approved
the granting of options as follows:
Directors, officers and key employees have been granted options to
acquire 1,079,000 shares of common stock. The options were granted at
various dates at prices ranging from $0.10 to $5.54 per share, which
amounts represent prices below market price of the Company's shares on
the dates granted as determined by the Board of Directors. The options
vest periodically through November 2002 and expire through June 2003.
Fair market value of options granted
The Company has adopted only the disclosure provisions of Statement of
Financial Accounting Standard No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". Therefore, the Company accounts for stock
based compensation under Accounting Principles Board Opinion No. 25,
under which compensation cost has been recognized using the intrinsic
value method. Under this method, compensation cost is recognized over the
vesting period based on the difference, if any, on the date of grant
between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock. Had compensation cost been determined
based upon the fair value of the options at the grant date consistent
with the methodology prescribed by SFAS 123, the Company's net loss and
loss per share would have been changed to the following pro forma
amounts:
1999
-----------------
Net loss attributable to As reported $ (11,399,741)
common stockholders Pro forma (11,453,549)
Net loss per common share - As reported (.96)
basic and diluted Pro forma (.96)
The fair value of these options was estimated at the date of grant using
the Black-Scholes American option-pricing model with the following
weighted-average assumptions: expected volatility of 120 percent;
risk-free interest rate of 6.5 percent; and expected life of 3.50 years.
The weighted-average fair value of options granted was $4.75.
Option pricing models require the input of highly sensitive assumptions,
including the expected stock price volatility. Also, the Company's stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially
affect the fair value estimate. Management believes the best input
assumptions available were used to value the options and that the
resulting option values are reasonable.
F-23
<PAGE>
<TABLE>
<CAPTION>
NOTE K - STOCK OPTIONS AND WARRANTS - CONTINUED
Information with respect to the Company's stock options is as follows:
Weighted
average
Stock Exercise exercise
options price price
<S> <C> <C> <C>
------------ ------------- -------------
Outstanding at January 1, 1997 - $ - $ -
Granted - - -
Exercised - - -
Canceled/expired - - -
------------ ------------- -------------
Outstanding at December 31, 1997 - - -
Granted - - -
Exercised - - -
Canceled/expired - - -
------------ ------------- -------------
Outstanding at December 31, 1998 - - -
Granted 1,079,000 0.10-5.54 1.79
Exercised (4,000) 0.10 0.10
Canceled/expired - - -
------------ ------------- -------------
Outstanding at December 31, 1999 1,075,000 $ 0.10-5.54 $ 1.80
============ ============= =============
Exercisable at December 31, 1999 116,833 $ 0.10 $ 0.10
============ ============= =============
</TABLE>
Additional information regarding stock options outstanding and
exercisable at December 31, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- --------------------------------------
Weighted-
average Weighted-average Weighted-average
remaining exercise exercise
Number contractual price Number price
Range of exercise prices outstanding life (years) exercisable
------------------------ ------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 0.10 440,000 13.3 $ 0.10 116,833 $ 0.10
$ 2.72 - $ 2.77 550,000 21.0 2.73 - -
$ 3.00 - $ 3.47 35,000 1.3 3.17 - -
$ 5.54 50,000 1.9 5.54 - -
------------- ------------
1,075,000 37.5 $ 1.80 116,833 $ 0.10
============= ============
</TABLE>
F-24
<PAGE>
NOTE K - STOCK OPTIONS AND WARRANTS - CONTINUED
2. Warrants
Series A, B and C warrants
In connection with the sale of Series A Convertible Preferred Stock (Note
J), purchasers, were issued Series A and B warrants to purchase the
Company's common stock. Series C warrants were also issued to a third
party for a finder's fee.
Series A warrants allow holders to purchase up to an aggregate of 71,069
shares of common stock at a weighted-average price of $34.53 per share.
Series B warrants allow holders to purchase up to an aggregate of 47,380
shares of common stock at a weighted-average of $41.44 per share.
Series C warrants allow holders to purchase up to 189,000 shares of
common stock at a weighted-average price of $29.01 per share.
All 307,449 Series A, B and C warrants expire in February 2004.
Other warrants issued for services
In January of 1999, and in conjunction with the sale of Series A
Convertible Preferred Stock (Note J), the Company issued warrants to
purchase 200,000 shares of the Company's common stock to its investor
relations consultant. The warrants were issued with an exercise price of
$5.00 per share and are fully vested at December 31, 1999. The fair value
of $1.29 was estimated as the value of the services performed. Consulting
expenses relating to these warrants totaled $258,000 during 1999.
Information with respect to the Company's warrants is as follows:
<TABLE>
<CAPTION>
Weighted-
Number average
of shares exercise price
------------ ---------------
<S> <C> <C>
Outstanding at January 1, 1997 - $ -
Granted - -
Exercised - -
Forfeited - -
------------ ---------------
Outstanding at December 31, 1997 - -
Granted - -
Exercised - -
Forfeited - -
------------ ---------------
Outstanding at December 31, 1998 - -
Granted 507,449 $ 21.48
Exercised - -
Forfeited - -
------------ ---------------
Outstanding at December 31, 1999 507,449 $ 21.48
============ ===============
Warrants exercisable at December 31, 1999 507,449 $ 21.48
============ ===============
</TABLE>
F-25
<PAGE>
NOTE L - INCOME TAXES
<TABLE>
<CAPTION>
The income tax expense (benefit) reconciled to the tax computed at the
federal statutory rate of 34 percent is as follows:
1999 1998
------------ -----------
<S> <C> <C>
Income tax benefit at statutory rate $ (1,676,159) $ (164,189)
Income tax attributed to the S-Corporation - 8,560
State income tax benefit, net of federal tax benefit (115,157) (15,936)
Nondeductible option compensation 493,887 -
Deductible stock option compensation (6,068) -
Change in valuation allowance 1,301,627 169,896
Other, net 1,870 1,669
------------ -----------
Income tax expense $ - $ -
============ ===========
Deferred income tax assets and liabilities are as follows:
1999 1998
------------ ------------
Deferred tax assets
Deferred expenses $ 146,465 $ -
Net operating losses 1,442,150 169,896
------------ ------------
1,588,615 169,896
Less valuation allowance (1,471,524) (169,896)
------------ ------------
117,091 -
------------ ------------
Deferred tax liabilities
Deferred income (117,091) -
------------ ------------
Net deferred tax assets (liability) $ - $ -
============ ============
</TABLE>
The Company has sustained net operating losses in each of the periods
presented. There were no deferred tax assets or income tax benefits
recorded in the financial statements for net deductible temporary
differences or net operating loss carryforwards because the likelihood of
realization of the related tax benefits cannot be established.
Accordingly, a valuation allowance has been recorded to reduce the net
deferred tax asset to zero and consequently, there is no income tax
provision or benefit for any of the period presented. The increase in the
valuation allowance was $1,301,628 and $169,896 for the years ended
December 31, 1999 and 1998, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $3,866,354 expiring in
various years through 2019.
Through June 30, 1998, the Company elected to file federal and state
income taxes under the provisions of Subchapter S of the Internal Revenue
Code. Effective July 1, 1998, the Company revoked its S election, and
will therefore be a taxable entity under the provisions of Subchapter S
of the Internal Revenue Code.
F-26
<PAGE>
NOTE M - NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Cumulative
amounts Year ended December 31,
since --------------------------------------------
inception 1999 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Common shares outstanding during
the entire period - 11,877,002 1,091,067 -
Weighted-average common shares
issued during the period 5,850,408 2,917 5,009,612 545,535
------------ ------------- ------------ -------------
Weighted-average common shares
used in basic EPS 5,850,408 11,879,919 6,100,679 545,535
Dilutive effects of potential common
shares - - - -
------------ ------------- ------------ -------------
Weighted-average number of common
shares and dilutive potential
common stock
used in diluted EPS 5,850,408 11,879,919 6,100,679 545,535
============ ============= ============ =============
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, and for cumulative
amounts since inception, all of the convertible securities, reset
provisions, options and warrants discussed in Notes J and K were not
included in the computation of diluted EPS because to do so would have
been antidilutive.
NOTE N - SUBSEQUENT EVENTS
1. Company name change
In January 2000, the Company began conducting business under the name
"Logio".
2. Preferred stock conversion
Through March 2000, 6,300 shares of the Company's preferred stock were
converted into 625,000 common shares and 728,046 "reset shares" of the
Company's common stock were issued to preferred shareholders (Note J).
Also, through March 2000, cumulative dividends were paid to preferred
shareholders in the form of 61,650 shares of the Company's common stock.
3. Options granted
Through March 2000, options for 5,000 shares of the Company's common
stock were granted to an employee.
4. Options and warrants exercised
------------------------------
Through March 2000, warrants were exercised for 158,000 shares of the
Company's common stock and options were exercised for 4,000 shares of the
Company's common stock.
F-27
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED BALANCE SHEET
(unaudited)
ASSETS
June 30,
2000
<S> <C>
----------------
CURRENT ASSETS
Cash and cash equivalents $ 333,488
Short term investments 354,517
Accounts receivable 1,081
Note receivable 758
Prepaid assets 173,830
----------------
Total current assets 863,674
PROPERTY & EQUIPMENT, net 1,686,565
OTHER ASSETS 5,877
---------------
$2,566,116
================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term capital lease obligations $ 305,943
Accounts payable 580,705
Accrued expenses 104,541
Notes payable 405,110
----------------
Total current liabilities 1,396,229
CAPITAL LEASE OBLIGATIONS, less current maturities 119,452
NOTES PAYABLE TO SHAREHOLDERS (Note 2) 500,000
STOCKHOLDERS' EQUITY (Notes 3, 5 and 6)
Preferred stock -
Common stock 13,480
Additional paid-in capital 16,943,305
Accumulated other comprehensive income 13,480
Deficit accumulated during the development stage (16,429,900)
----------------
Total stockholders' equity 540,365
----------------
$2,556,116
================
The accompanying notes are an integral part of this statement
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Cumulative
amounts since
inception Six months ended June 30,
------------------- --------------------------------------
2000 1999
<S> <C> <C> <C>
Revenues
Advertising $ 1,534 $ 1,534 $ -
Product 130,517 14,072
----------- ----------------- -------------
-
132,051 1,534 14,072
----------- -------------- -------------
Cost of sales 332,487 300,746 4,099
---------- ----------- -------------
Gross profit (loss) (200,436) (299,212) 9,973
---------- ----------- ------------
Operating Expenses
Research and development 3,150,224 1,558,834 330,068
Selling expenses 1,623,370 629,834 176,955
General and administrative 2,414,468 649,790 527,662
Depreciation and amortization 596,997 401,003 38,660
Compensation expense for stock options 2,033,453 580,843 705,187
--------- ----------- ------------
Total operating expenses 9,818,512 3,820,304 1,778,532
--------- --------- ---------
Loss from operations (10,018,948) (4,119,516) (1,768,559)
Other income (expense)
Interest income 241,498 34,835 97,247
Interest expense (118,229) (62,991) (2,909)
------------ ------------ -----------
123,269 (28,156) 94,338
----------- ------------ ---------
NET LOSS (9,895,679) (4,147,672) (1,674,221)
Deduction for dividends and accretion (6,534,221) (64,360) (4,719,894)
----------- -------- -----------
Net loss attributable to common stockholders $(16,429,900) $(4,212,032) $(6,394,115)
============= =========== ============
Net loss per common share - basic and diluted $ (2.37) $ (0.32) $ (0.54)
(Note 4) ================== =============== ================
Weighted-average number of shares outstanding - basic and
diluted 6,925,800 13,035,217 11,877,002
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement
F-29
<PAGE>
<TABLE>
<CAPTION>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Six months ended June 30, 2000
Preferred Stock Common Stock Additional
Price per ------------------- ------------------- Paid-in
Date share Shares Amount Shares Amount Capital
---- ----- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 - $ - 6,300 $ 63 11,891,002 $11,891 $15,362,028
Issuance of common stock for
exercise of options Jan 00 .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 (233)
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 (399)
Issuance of common stock for
reset shares Mar 00 - - - 727,756 728 (728)
Dividends on preferred stock Jan-Mar 00 - - - - - 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 warrants for 30,000
consulting services May-Jun 00
Issuance of stock options to
employees for compensation Jan-Jun 00 - - - - - 580,843
Unrealized gain on
marketable securities Jan-Jun 00 - - - - - -
Net loss for the interim
period ended June 30, 2000 -
- - - - - -
------------ ----------- --------- ---------- ----------- ---------
- - - -
Balances at June 30, 2000 -
- - $ 13,479,408 $13,480 $16,943,305
============ ========== ======== ========== ======= ===========
</TABLE>
F-30
<PAGE>
Deficit
Accumulated Accumulated
other during the
comprehensive Development
income Stage
------ -----
Balances at December 31, 1999 $7,940 $(12,217,868)
Issuance of common stock for - -
exercise of options
Issuance of common stock for - -
exercise of warrants
Conversion of preferred
- -
stock to common stock
Issuance of common stock for - -
exercise of options
Issuance of common stock for - -
exercise of warrants
Conversion of preferred
- -
stock to common stock
Issuance of common stock for - -
reset shares
Dividends on preferred stock - (64,360)
Issuance of common stock for
preferred dividends paid - -
Issuance of common stock for - -
exercise of options
Issuance of warrants for
consulting services - -
Issuance of stock options to
employees for compensation - -
Unrealized gain on
marketable securities 5,540 -
Net loss for the interim
period ended June 30, 2000 - (4,147,672)
(Unaudited) ------------ -----------
Balances at June 30, 2000 - $13,480 (16,429,900)
(Unaudited) ============ ============ E>
he accompanying notes are an integral part of this statement
F-31
<PAGE>
<TABLE>
Logio, Inc.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Cumulative Six Months
amounts ended June 30,
since --------------------------------
inception 2000 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $(9,895,679) $(4,147,672) $(1,674,221)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation & amortization 596,997 401,003 38,660
Issuance of common stock and options
for compensation and other expenses 2,033,453 580,843 705,187
Issuance of warrants for consulting services 288,000 30,000 129,051
Changes in assets and liabilities
Accounts receivable (1,081) (345) (427)
Interest receivable - 1,983 (7,831)
Prepaid expenses and other assets (173,830) 137,369 -
Accounts payable 580,705 274,356 45,076
Accrued expenses 104,541 18,222 20,336
-------------- -------------- --------------
Total adjustments 3,428,785 1,443,431 930,052
-------------- -------------- --------------
Net cash used in operating activities (6,466,894) (2,704,241) (744,169)
-------------- -------------- --------------
Cash flows from investing activities
Purchases of property and equipment (1,399,699) (91,547) (329,988)
(Increase) decrease in short-term investments (341,037) 1,113,170 (1,516,682)
Repayment of notes receivable from related parties 116,942 1,197 100,200
Notes receivable issued to related parties (117,700) - (2,615)
Increase in deposits (5,877) 134 10,152
-------------- -------------- --------------
Net cash provided by (used in) investing activities (1,747,371) 1,022,954 (1,738,933)
-------------- -------------- --------------
Cash flows from financing activities
Proceeds from issuance of common stock 2,215,211 907,600 -
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 500,000 500,000 -
Principal payments under capital lease obligations (480,468) (193,624) (8,350)
Proceeds from issuance of long term obligations and notes payable 998,682 - -
Principal payments of long-term obligations and notes payable ( 593,572) (254,572) (120,000)
-------------- -------------- --------------
Net cash provided by financing activities 8,547,753 959,404 5,779,550
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 333,488 (721,883) 3,296,448
(continued)
F-32
<PAGE>
Cash and cash equivalents at beginning of period - 1,055,371 425,702
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 333,488 $ 333,488 $3,722,150
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 112,280 $ 63,152 $ 2,990
Cash paid for income taxes - - -
</TABLE>
Non-cash financing activities:
During the six months ended June 30, 2000 and 1999, the Company
purchased $65,686 and $0, respectively, in property and equipment
through capital lease obligations.
Also during the six months ended June 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 three months ended June 30,
2000 for reset provisions and cumulative dividends, respectively
(Note 3).
The unrealized gain on short-term investments totaled $5,540 for the
six months ended June 30, 2000.
The accompanying notes are an integral part of this statement
F-33
<PAGE>
Logio, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 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 site and directory which serves the needs of the business
professional.
The Company commenced planned principal operations on March 19, 2000 of its
logio.com Internet portal and directory, but has not produced any significant
revenues.
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 only of normal recurring adjustments) which, in the
opinion of management, are necessary for a fair presentation of the results for
the periods shown. The results of operations and cash flows for the six months
ended June 30, 2000 may not be indicative of the results that may be expected
for the year ending December 31, 2000. Certain prior period balances have been
reclassified to conform with current period presentation.
NOTE 2 - NOTES PAYABLE TO SHAREHOLDERS
In June 2000, the Company was loaned $500,000 from three principal shareholders
and officers of the Company in exchange for a Note Payable bearing interest of
8% annually and principal and interest are due in full on July 1, 2001. The note
is not collateralized.
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 stock
holders also received 727,756 shares of the Company's common stock in
conjunction with the "reset" provisions of the preferred stock agreement. Common
sock totaling 61,650 shares were issued to preferred shareholders representing a
six percent cumulative dividend.
Stock options and warrants
During the six months ended June 30, 2000, the Company granted 723,500 options,
each to purchase one share of the Company's common stock to employees, directors
and certain consultants at exercise prices ranging from $1.19 to $7.78 per
share. Approximately 588,000 options were forfeited by employees during the six
months ended June 30, 2000. Common stock issued in relation to the exercise of
warrants and options during the six months ended June 30, 2000 totaled 174,000
shares.
F-34
<PAGE>
On May 15, 2000, the Company entered into an agreement with a consultant to
provide public 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 $30,000 which represents the
fair market value of the services performed through June 30, 2000. The agreement
terminates on January 15, 2001 when the services are completed. The vested
warrants expire on May 15, 2005.
NOTE 4 - NET LOSS PER COMMON SHARE
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 antidilutive. As of June 30, 2000, there were 1,189,116 options and
749,489 warrants outstanding, each to acquire one share of common stock.
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 1,189,166 options, each to purchase one share of the
Company's common stock, outstanding as of June 30, 2000. The Plan was approved
by the Company's stockholders in June of 2000.
NOTE 6 - SUBSEQUENT EVENTS
Ticker symbol change
In July 2000, the Company changed its ticker symbol from "WCTI" to "LGIO" to
reflect its name change to Logio, Inc.
Stock purchase agreement
On July 6, 2000, the Company completed a private placement with five investors
for the sale of 2 million shares of its common stock for a total purchase price
of $1.4 million. The terms of the agreement require the deposit of $1.4 million
into an escrow account before July 31, 2000. The monies will be released to the
Company upon the effective registration of the shares with the Securities and
Exchange Commission on or before October 31, 2000.
F-35
<PAGE>
We have not authorized any dealer,
salesperson or other person to give any 2,900,000 shares
information or represent anything not contained
in this prospectus. You must not rely on any
unauthorized information. This prospectus
does not offer to sell or buy any shares
in any jurisdiction where it is
unlawful. The information in this
prospectus is current only as of its
date.
LOGIO, INC.
-------------------------------------------------------------
PROSPECTUS
-------------------------------------------------------------
TABLE OF CONTENTS ON PAGE 2 July 28, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution
The following table sets forth the expenses paid by us in connection
with the sale of the shares. All the amounts shown have been previously paid in
connection with the original effective date of this registration statement:
Securities and Exchange Commission Registration Fee .. . . $ 1,097
--------
Printing and Engraving Expenses . . . . . . . . . . .. . . 10,000
egal and Accounting Fees and Expenses . . . . . . .. . . 20,000
Blue Sky Qualification Fees and Expenses . . . . . . .. . . 15,000
Transfer Agent and Registrar Fees and Expenses . . . .. . . 3,000
Miscellaneous . . . . . . . . . . . . . . . . . . . .. . . 5,000
--------
$49,097
Total: ========
Item 14. Indemnification of Directors and Officers
Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751, our
Articles of Incorporation and bylaws provide for the indemnification of our
officers and directors. Mandatory indemnification is required for present and
former directors. However, the director must have conducted himself in good
faith and reasonably believed that his conduct was in, or not opposed to, our
best interests. In a criminal action he must not have had a reasonable cause to
believe his conduct was unlawful. Advances for expenses may be made if the
director affirms in writing that he believes he has met the standards and that
he will personally repay the expense if it is determined he did not meet the
standards. We provide permissive indemnification for officers, employees or
agents. Our Board must approve such indemnification and the standards and
limitations are the same as for a director.
We will not indemnify a director or officer adjudged liable due to his
negligence or willful misconduct toward us, adjudged liable to us, or if he
improperly received personal benefit. Indemnification in a derivative action is
limited to reasonable expenses incurred in connection with the proceeding. Also,
we are authorized to purchase insurance on behalf of an individual for
liabilities incurred whether or not we would have the power or obligation to
indemnify him pursuant to our bylaws.
Item 15. Recent Sales of Unregistered Securities
The following discussion describes all securities we have sold within
the past three years without registration. The issuances described represent
issuances of our capital stock other than as a result of the exercise of
outstanding options or warrants or by reason of the reset provisions relating to
the issuance of our Series A preferred stock, as described below.
On May 16, 1997 we issued 1,500,000 shares of common stock for $1,500
in cash to Carol N. Purcell and Wilford Purcell, the founders of Dumanis, Inc.
Beginning on May 15 and ending on June 11, 1997 we sold 1,500,000 shares of
common stock at $.05 per share, for an aggregate offering amount of $75,000
pursuant to Rule 504 of Regulation D of the Securities Act. On July 14, 1998,
the Company issued an aggregate of 2,433,334 shares of common stock to the
stockholders of WordCruncher Publishing in a merger of that company into ours.
On July 1, 1998, we issued 13,500 shares of common stock, valued at $13,000, to
M. Daniel Lunt, one of our officers and directors, in satisfaction of a note we
issued to Mr. Lunt. On October 30, 1998 we issued an aggregate of 39,000 shares
of common stock, for $70,200, to four individuals in consideration for services
they provided to us. Specifically, 29,000 restricted shares were issued to
Timothy J. Riker, 5,000 shares to Peter T. Stoop, and 5,000 shares to Robert J.
Stevens. On October 29, 1998, we issued 13,000 shares of common stock to Jeffrey
B. Peterson to acquire certain intellectual property rights held by Mr.
Peterson. We valued those shares at $23,400. In November 1998, we issued 25,000
shares of common stock to Universal Business Insurance in satisfaction of
insurance premiums we owed to it. We valued those shares at $25,000. On February
8 and March 15, 1999, we issued an aggregate of 6,300 shares of Series A
Preferred Stock to eight persons pursuant to a purchase agreement. The Series A
Preferred Stock was issued for an aggregate of $6.3 million.
In June 1999, we issued 1,000 shares to Brent Hale and Randy Hemingway
for compensation valued at $22,000. Further, in December 1999 we issued 8,000
shares to Universal Business Insurance for conversion of debt valued at $26,000.
On July 6, 2000, we sold 2,000,000 shares of our common stock to an
aggregate of four investors under the terms of a stock purchase agreement. Upon
the effective date of a registration statement we recently filed, we will
receive proceeds of $1.4 million in the transaction.
In connection with each of these isolated issuances of our securities,
we believe that each purchaser (i) was aware that the securities had not been
registered under the federal securities laws, (ii) acquired the securities for
its own account for investment purposes and not with a view to or for resale in
connection with any distribution for purposes of the federal securities laws,
(iii) understood that the securities would need to be indefinitely held unless
registered or an exemption from registration applied to a proposed disposition
and (iv) was aware that the certificate representing the securities would bear a
legend restricting their transfer. We believe that, in light of the foregoing,
the sale of our securities to the respective acquirers did not constitute the
sale of an unregistered security in violation of the federal securities laws and
regulations by reason of the exemptions provided under ss.ss. 3(b) and 4(2) of
the Securities Act, and the rules and regulations promulgated thereunder.
<TABLE>
<CAPTION>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit Number Description
<S> <C>
2.1** Agreement and Plan of Reorganization between the Company and WordCruncher
Publishing Technologies, Inc., dated July 14 1998
3.1** Articles of Incorporation of the Company
3.2** Articles of Merger, filed June 20, 1998
3.3** Articles of Merger, filed July 15, 1998
3.4** Articles of Merger
3.5** Certificate of Amendment, filed February 1, 1999
3.6** Bylaws of the Company
4.1** Reference is made to Exhibit 3.4
4.2** Specimen of Common Stock Certificate
5.1*** Opinion of Parsons Behle & Latimer
10.1** Lease between the Company and SLT III, LLC, dated December 24, 1998
10.2** License Agreement between the Company and Brigham Young University, dated
February 14, 1997
10.3** Purchase Agreement between the Company and Jeffrey B. Petersen, dated
December 28, 1998
10.4** Employment Agreement between the Company and Kenneth W. Bell, dated September
1, 1998
10.5** Employment Agreement between the Company and James W. Johnston, dated
September 1, 1998
10.6** Employment Agreement between the Company and M. Daniel Lunt, dated September
1, 1998
10.7** Employment Agreement between the Company and Peter T. Stoop
10.8** Preferred Stock Purchase Agreement between the Company and certain Series A
Preferred investors, dated February 8, 1999
10.9** Letter Amendment Regarding Preferred Stock Purchase Agreement, dated April
21, 1999
10.10** Escrow Agreement among the Company, the Goldstein Law Group and certain
Series A Preferred Investors, dated February 8, 1999
10.11** Registration Rights Agreement among the Company and certain Series A
Preferred Investors, dated February 8, 1999
10.12** Form of Warrant issued to certain Series A Preferred Investors on February 8,
1999
10.13** Warrant issued to Placement Agent, dated February 8, 1999
10.14** Dataware License Agreement, dated July 1999
10.15** Pittard Sullivan Contract, dated July 1999
10.16** Digital Boardwalk Agreement, dated July 1999
10.17** Acsiom, Inc. Consulting Agreement, dated July 1999
10.18** Netscape Software Financial Agreement, dated November, 1999
10.19** Oracle Software Agreement, dated November, 1999
10.20** Sun Microsystems License Agreements, dated December, 1999
10.21** Qwest Dedicated Internet Access Service Agreement, dated November, 1999
10.22** Netdotworks Consulting and Support Agreement, dated February, 2000
10.23** DoubleClick, Inc. DART Service Agreement, dated February, 2000
10.24** Telcobid.com Agreement, dated May 9, 2000
10.25** b2bstores.com Agreement, dated May 9, 2000
10.26** Stock Purchase Agreement and Escrow Agreement
10.27** 2000 Equity Incentive Plan
10.28** Office Space Lease, dated April 2000
10.29** Columbia Financial Group Agreement, dated May 2000
10.30** Sierra Systems Agreement, dated September 1999
10.31** Employment Agreement for Tom Eldredge
10.32** Employment Agreement for William Barnett
23.1* Consent of Parsons Behle & Latimer
23.2* Consent of Grant Thornton LLP
23.3* Consent of Crouch, Bierwolf & Chisholm
24.1* Power of Attorney (see signature page)
27.1* Financial Data Schedule
</TABLE>
-------------------------
* Filed herewith
** Previously filed as part of the Company's Registration Statement Number
333-79537, and incorporated herein by this reference.
*** To be filed
Item 17. Undertakings
Pursuant to Rule 415, the undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 242(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statements.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Salt
Lake, State of Utah, on July 28, 2000.
LOGIO, INC.
a Nevada Corporation
/s/ Kenneth W. Bell
By:-----------------------------------------
Kenneth W. Bell,
Chief Executive Officer, President, and
Director
/s/ Thomas Eldredge
By:-----------------------------------------
Thomas Eldredge,
Chief Financial Officer,
Senior Vice President, and Secreetary
