U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X} QUARTERLY REPORT UNDER SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO ___________.
Commission file number 0-27453
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 84-1370590
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
405 East 12450 South, Suite B,
Draper, Utah 84020
(Address of Principal Executive Offices) (Zip Code)
801.816.9904
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No
As of May 10, 2000, 13,481,698 shares of registrant's Common Stock, par value
$0.001 per share, were outstanding.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements Required by Form 10-Q
The accompanying unaudited consolidated financial statements of
WordCruncher Internet Technologies, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and pursuant to the rules and regulations of the Securities and
Exchange Commission. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
Notes herein and the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1999, which are incorporated herein by reference. The accompanying financial
statements have not been examined by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of management, all
adjustments (consisting of normal recurring entries) necessary for the fair
presentation of the Company's results of operations, financial position and
changes therein for the periods presented have been included. The results of
operations for the three months ended March 31, 2000 may not be indicative of
the results that may be expected for the year ending December 31, 2000.
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc., dba Logio
(a development stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
------------------- -------------------
<S> <C> <C>
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 856,321 $ 1,055,371
Short term investments 882,476 1,462,147
Accounts receivable 736 736
Interest receivable - 1,983
Note receivable from related Party 1,481 1,955
Prepaid expenses 272,913 311,199
------------------- -------------------
Total Current Assets 2,013,927 2,833,391
PROPERTY & EQUIPMENT, net 1,797,716 1,930,335
OTHER ASSETS 5,944 6,011
------------------- -------------------
$ 3,817,587 $ 4,769,737
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations $ 285,361 $ 299,983
Accounts payable 392,318 306,349
Accrued expenses 134,154 86,319
Notes payable 588,993 659,682
------------------- -------------------
Total Current Liabilities 1,400,826 1,352,333
CAPITAL LEASE OBLIGATIONS, less current maturities 184,181 253,350
STOCKHOLDERS' EQUITY (NOTES 2 and 4)
Series A Convertible 6% preferred stock, par value $0.01;
liquidation preference $1,000; authorized 15,000 shares;
issued and outstanding none at March 31, 2000
and 6,300 shares at December 31, 1999. - 63
Common stock, par value $0.001; authorized 60,000,000
shares; issued and outstanding 13,477,408 shares at March
31, 2000 and 11,891,002 shares at December 31, 1999 13,478 11,891
Additional paid-in capital 16,698,620 15,362,028
Accumulated other comprehensive income 11,412 7,940
Deficit accumulated during the development stage (14,490,930) (12,217,868)
------------------- -------------------
Total Stockholders' Equity 2,232,580 3,164,054
------------------- -------------------
$ 3,817,587 $ 4,769,737
=================== ===================
The accompanying notes are an integral part of these financial statements
tements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc., dba Logio
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative Three months ended March 31,
amounts ------------------------------------
since
inception 2000 1999
------------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues $ 130,517 $ - $ 2,883
Cost of revenues 31,741 - 250
------------------- ---------------- ----------------
Gross profit 98,776 - 2,633
Selling and marketing expenses 1,462,410 468,875 81,396
Research and development 2,428,172 836,782 97,308
General and administrative 2,098,870 334,192 239,197
Depreciation and amortization 391,841 195,847 18,377
Compensation expense for stock options 1,818,965 366,356 250,969
------------------- ---------------- ----------------
Total operating expenses 8,200,258 2,202,052 687,247
------------------- ---------------- ----------------
Loss from operations (8,101,482) (2,202,052) (684,614)
Other income (expense)
Interest income 210,444 21,400 23,106
Interest expense (86,812) (31,572) (2,241)
Other 21,141 3,522 7,863
------------------- ---------------- ----------------
144,773 (6,650) 28,728
------------------- ---------------- ----------------
NET LOSS $ (7,956,709) $(2,208,702) $ (655,886)
=================== ================ ================
Deduction for dividends and accretion $ (6,534,221) ($ 64,360) $ (1,879,417)
=================== ================ ================
Net loss attributable to common stockholders $ (14,490,930) $(2,273,062) $ (2,535,303)
=================== ================ ================
Net loss per common share - basic and diluted (NOTE 3) $ (2.46) $ (0.18) $ (0.21)
=================== ================ ================
Weighted-average number of shares outstanding -
basic and diluted (NOTE 3) 5,890,459 12,431,687 11,877,002
=================== ================ ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc., dba Logio
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 2000, (unaudited) and years ended December 31, 1999,
1998, 1997, and period from November 5, 1996 (inception) to December 31, 1996
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 November 5, 1996 - $ - - $ - - $ - $ -
Net loss - - - - - - -
----------- --------- -------------- ---------- --------------
Balances at December 31, 1996 - - - - - - -
Issuance of stock for cash
to organizers Jan-97 0.001 - - 622,500 623 52
Issuance of stock for cash Feb-97 0.001 - - 67,500 67 8
Issuance of stock for
licence agreement Feb-97 - - - 110,742 111 (111)
Issuance of stock to employees
for services Sep-97 0.333 - - 252,450 252 83,898
Issuance of stock for services Aug-97 1.092 - - 37,875 38 41,337
Net loss for the year - - - - - - -
----------- --------- -------------- ---------- ------------
Balances at December 31, 1997 - - - - 1,091,067 1,091 125,184
Issuance of stock for cash Jul-98 4.17 - - 120,000 120 499,880
Reverse acquisition and
reorganization adjustment Jul-98 - - - 9,885,435 9,886 (8,550)
Issuance of stock for cash Jul-98 0.725 - - 690,000 690 499,310
Issuance of stock for debt conversion Jul-98 0.96 - - 13,500 13 12,987
Issuance of stock for services Oct-98 1.90 - - 39,000 39 70,161
Issuance of stock for
software technology Oct-98 1.80 - - 13,000 13 23,387
Issuance of stock for insurance
coverage Nov-98 1.00 - - 25,000 25 24,975
Net loss for the year - - - - - - -
----------- --------- -------------- ---------- --------------
Balances at December 31, 1998 - - - - 11,877,002 11,877 1,247,334
Issuance of warrants for
consulting services Jan-99 - - - - - 258,000
Issuance of preferred stock for
cash, net of offering costs Feb-99 1,000 6,100 61 - - 5,719,839
Issuance of preferred stock for
cash, net of offering costs Mar-99 1,000 200 2 - - 187,998
Issuance of common stock
to employee for compensation Jun-99 0.11 - - 2,000 2 21,998
Issuance of common stock for
exercise of options Aug-99 0.10 - - 4,000 4 396
Issuance of common stock for
conversion of debt Dec-99 3.25 - - 8,000 8 25,992
Issuance of stock options to
employees for compensation Jan-Dec-99 - - - - - 1,430,610
Accretion of intrinsic value of
preferred stock Feb-Dec-99 - - - - - 6,131,944
Dividends on preferred stock Feb-Dec-99 - - - - - 337,917
Unrealized gain on
short-term investments - - - - - - -
----------- --------- -------------- ---------- --------------
Net loss for the year - - - - - - -
----------- --------- -------------- ---------- ---------------
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 0.100 - - 2,000 2 198
Issuance of common stock for
exercise of warrants Jan-00 5.000 - - 100,000 100 499,900
Conversion of preferred stock
to common stock Feb-00 - (2,500) (25) 248,016 248 (223)
Issuance of common stock for
exercise of options Mar-00 0.100 - - 12,000 12 1,188
Issuance of common stock for
exercise of warrants Mar-00 7.000 - - 58,000 58 405,942
Conversion of preferred stock
to common stock Mar-00 - (3,800) (38) 376,984 377 (339)
Issuance of common stock
for reset shares Mar-00 - - - 727,756 728 (728)
Dividends on preferred stock Jan-Mar-00 - - - - - 64,360
Issuance of common stock
for preferred dividends paid Feb-Mar-00 - - - 61,650 62 (62)
Issuance of stock options to
employees for compensation Jan-Mar-00 - - - - - 366,356
Unrealized gain on
marketable securities Jan-00 - - - - - -
Net loss for the interim period
ended March 31, 2000 - (Unaudited) - - - - - -
Balances at
March 31, 2000 - (Unaudited) - - $ 13,477,408 $ 13,478 $16,698,620
----------- -------- -------------- ---------- --------------
----------- -------- -------------- ---------- --------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc., dba logio
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
Three months ended March 31, 2000, (unaudited) and years ended December 31, 1999, 1998,
1997, and period from November 5, 1996 (inception) to December 31, 1996
Deficit
Accumulated accumulated
other during the
comprehensive development
Date income stage
-------------- ------------------ -------------
<S> <C> <C> <C>
Balances at November 5, 1996 $ - $ -
-
Net loss - - -
------------------ -------------
Balances at December 31, 1996 - - -
Issuance of stock for cash
to organizers] Jan-97 - -
Issuance of stock for cash Feb-97 - -
Issuance of stock for
licence agreement Feb-97 - -
Issuance of stock to employees
for services Sep-97 - -
Issuance of stock for services Aug-97 - -
Net loss for the year - (335,218)
------------------ -------------
Balances at December 31, 1997 - - (335,218)
Issuance of stock for cash Jul-98 - -
Reverse acquisition and
reorganization adjustment Jul-98 - -
Issuance of stock for cash Jul-98 - -
Issuance of stock for debt conversion Jul-98 - -
Issuance of stock for services Oct-98 - -
Issuance of stock for
software technology Oct-98 - -
Issuance of stock for insurance
coverage Nov-98 - -
Net loss for the year - (482,909)
---------------- -------------
Balances at December 31, 1998 - - (818,127)
Issuance of warrants for
consulting services Jan-99 - -
Issuance of preferred stock for
cash, net of offering costs Feb-99 - -
Issuance of preferred stock for
cash, net of offering costs Mar-99 - -
Issuance of common stock
to employee for compensation Jun-99 - -
Issuance of common stock for
exercise of options Aug-99 - -
Issuance of common stock for
conversion of debt Aug-99 - -
Issuance of stock options to
employees for compensation Jan-Dec-99 - -
Accretion of intrinsic value of
preferred stock Feb-Dec-99 - (6,131,944)
Dividends on preferred stock Feb-Dec-99 - (337,917)
Unrealized gain on
short-term investments - 7,940 -
Net Loss for the year - - (4,929,880)
------------------ -------------
<PAGE>
-
Balances at December 31, 1999 7,940 (12,217,868)
Issuance of common stock for
exercise of options Jan-00 - -
Issuance of common stock for
exercise of warrants Jan-00 - -
Conversion of preferred stock
to common stock Feb-00 - -
Issuance of common stock for
exercise of options Mar-00 - -
Issuance of common stock for
exercise of warrants Mar-00 - -
Conversion of preferred stock
to common stock Mar-00 - -
Issuance of common stock
for reset shares Mar-00 - -
Dividends on preferred stock Jan-Mar-00 - (64,360)
Issuance of common stock
for preferred dividends paid Feb-Mar-00 - -
Issuance of stock options to
employees for compensation Jan-Mar-00 - -
Unrealized gain on
marketable securities Jan-00 3,472 -
Net loss for the interim period
ended March 31, 2000 - (Unaudited) - (2,208,702)
------------------ -------------
Balances at
March 31, 2000 - (Unaudited) $ 11,412 $(14,490,930)
------------------ ------------
------------------ ------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WordCruncher Internet Technologies, Inc., dba Logio
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
amounts Three months
since ended March 31,
inception 2000 1999
-------------------- -------------------- -----------------
<S> <C> <C> <C>
(Unaudited) (Unaudited) (Unaudited)
Increase (decrease) in cash and cash equivalents
Cash flows From operating activities
Net loss $ (7,956,709) $ (2,208,702) $ (655,886)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 391,841 195,847 18,377
Issuance of common stock and options
for compensation and other expenses 2,039,691 366,356 250,969
Issuance of warrants for consulting services 258,000 - 64,500
Changes in assets and liabilities
Accounts receivable (736) - (589)
Interest receivable - 1,983 (14,800)
Prepaid expenses and other assets (272,913) 38,286 10,085
Accounts payable 392,318 85,969 38,728
Accrued expenses 134,154 47,835 18,830
-------------------- -------------------- -----------------
Total adjustments 2,942,354 736,276 386,100
-------------------- -------------------- -----------------
Net cash used in
operating activities (5,014,355) (1,472,426) (269,786)
-------------------- -------------------- -----------------
Cash flows from investing activities
Purchases of property and equipment (1,333,801) (49,344) (281,229)
(Increase) decrease in short-term investments (871,064) 583,143 -
Repayment of notes receivable from related parties 116,219 474 100,200
Notes receivable issued to related parties (117,700) - (12,500)
Increase in deposits (5,076) - -
-------------------- -------------------- -----------------
Net cash provided by (used in)
investing activities (2,211,422) 534,273 (193,529)
-------------------- -------------------- -----------------
Cash flows from financing activities
Proceeds from issuance of common stock 1,908,550 907,400 -
Proceeds form issuance of preferred stock 6,300,000 - 6,300,000
Payment of fees associated with issuanc
of preferred stock (392,100) - (392,100)
Proceeds from issuance of notes payable 685,682 - 10,000
Proceeds from long term debt 313,000 - -
Principal payments under capital
lease obligations (354,031) (97,608) (4,407)
Principal payments of long-term obligations (379,003) (70,689) (130,000)
-------------------- -------------------- -----------------
Net cash provided by
financing activities 8,082,098 739,103 5,783,493
-------------------- -------------------- -----------------
Net increase (decrease) in
cash and cash equivalents 856,321 (199,050) 5,320,178
Cash and cash equivalents at beginning of period - 1,055,371 425,702
-------------------- -------------------- -----------------
Cash and cash equivalents at end of period $ 856,321 $ 856,321 $ 5,745,880
==================== ==================== =================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 78,927 $ 29,799 $ 2,241
Income taxes
- - -
Non-cash financing activities:
During the three months ended March 31, 2000 and 1999, the Company purchased
$13,817 and $0, respectively, in property and equipment through capital lease
obligations.
Also during the three months ended March 31, 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 March 31, 2000 for reset provisions and
cumulative dividends, respectively (Note 2).
The unrealized gain on short-term investments totaled $3,472 for the three
months ended March 31, 2000.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WORDCRUNCHER INTERNET TECHNOLOGIES, INC. dba Logio
(a development stage company)
For the three months ended March 31, 2000 and 1999
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
WordCruncher Internet Technologies, Inc. (dba Logio) is a development stage
company engaged in the development and marketing of a focused Internet site
which serves the needs of the business professional.
The Company commenced planned principal operations on March 19, 2000 of its
logio.com Internet portal, 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. On March 10, 1997, the Company changed its
name to WordCruncher Publishing Technologies, Inc. (WordCruncher). 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. The Company conducts
its business within one industry segment.
The accompanying unaudited consolidated financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results for the periods shown. Certain prior period balances
have been reclassified to conform with current period presentation.
NOTE 2 - 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
stock totaling 61,650 shares were issued to preferred shareholders representing
a six percent cumulative dividend.
Stock options and warrants
During the three months ended March 31, 2000, the Company granted 36,000
options, each to purchase one share of the Company's common stock to employees
and directors at exercise prices ranging from $5.25 to $7.84 per share. Common
stock issued in relation to the exercise of warrants and options during the
three months ended March 31, 2000 totaled 172,000 shares.
NOTE 3 - 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.
NOTE 4 - SUBSEQUENT EVENTS
Company name change
On April 18, 2000, the Board of Directors approved the change of the Company's
name to Logio, Inc. The change is subject to the approval of the Company's
stockholders.
Equity Incentive Plan
On April 18, 2000, the Board of Directors also 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 1,170,000 options, each to purchase one share of the
Company's common stock, granted through April 18, 2000. The Plan is subject to
the approval of the Company's stockholders.
Stock options
Subsequent to March 31, 2000, the Company granted an additional 115,000 options
to Company employees and Directors at exercise prices ranging from $2.81 to
$4.79 and expiring through October of 2006. Options exercised subsequent to the
three months ended March 31, 2000 total 2,000 shares.
<PAGE>
Item 2. Management's Discussions and Analysis of Financial
Condition and Results of Operations.
The purpose of this section is to discuss and analyze the Company's
consolidated financial condition, liquidity and capital resources and the
results of operations. This analysis should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
Overview
WordCruncher Internet Technologies, Inc. (dba Logio) is a development
stage company engaged in the development and marketing of a focused Internet
site which serves the needs of the business professional. From November 5, 1996
(inception) to March 31, 2000, the Company's activities relate primarily to
attracting employees, raising capital, purchasing assets, developing the Logio
site and implementing sales and marketing programs. As such, the reported
financial information is not necessarily indicative of the Company's future
operating results or of its future financial condition.
Content and services found at the Company's Website, logio.com, which became
available on March 19, 2000, are tailored to provide, under one roof, a broad
spectrum of the information and services that are required by business people in
their daily work activities. Information resources include a unique, readily
accessible "drill down" directory that organizes thousands of business-oriented
web sites and pages according to specific professional discipline and function.
The directory is augmented by an advanced search technology that can search
either the abstracts or the full text of all sites listed in the directory, and
then displays the search results in a "hits-in-context" format. We couple this
information with the services that the average business professional uses on a
daily basis, including travel arrangements, stock quotes, investment and
portfolio information, news, weather, maps, financial calculators, personal
email and calendaring. These services are provided free-of charge to the user of
the Logio site. This combination creates a full service destination portal
designed specifically for the business professional. We intend to expand the
delivery of this full service concept into other forms of commerce such as
business-to-business purchasing on-line. We also intend to expand the delivery
of this concept to other electronic means of communication such as cell phones,
pagers, personal digital assistants and set top boxes. It is expected that all
of the electronic services will be marketed under the brand name "Logio." We
plan further to introduce a private label version of our product which includes
our directory and search technology.
Although there is a great deal of free information accessible over the
Internet, publishers still own valuable content that is not currently available
on the Internet. This information can be very useful to business people.
Examples of information routinely sold in print form to the business communities
include research reports, market analyses, industry specific newsletters and
commentary, and studies produced by analyst and research firms. Sales and
delivery of this kind of content over the Internet seems a logical step in the
development of information distribution channels. Logio expects to take a
leading role in this effort.
Logio is expected to generate a large percentage of its initial revenue
from sales of advertising and sponsorships on the site. Traffic to the site
ultimately drives the ability to generate such revenue. As the Company is in its
development stage, it has not yet recognized initial advertising or sponsorship
revenues. We expect to emerge from the development stage in third quarter 2000
Cost of revenues will consist primarily of fees paid to third party
service providers for use of their content and services, certain costs related
to site operations, and costs related to the insertion of banner and other
advertisements.
Research and development expenses consist primarily of compensation to
employees for site development, consulting services and other third party
service providers.
Selling and marketing expenses relate primarily to compensation to
employees for strategic marketing, content, public relations and for other
consultants and third party services.
The Company has incurred and expects to continue to incur substantial
losses and negative cash flows both on an annual basis and for interim periods.
Subject to capital funding, the Company intends to increase its focus and
spending on brand development, sales and marketing, further product development,
website content and strategic relationships. The Company has an extremely
limited operating history, and its prospects are subject to the risks, costs and
difficulties frequently experienced by companies in the new and rapidly changing
markets for Internet products and services. To address these risks, the Company
must, among other things, continue to respond to competitive forces, recruit,
retain and motivate valuable and qualified employees, implement and successfully
execute its advertising sales strategies, develop and market additional products
and services, upgrade and maintain its technologies, and further market products
and services using such technologies. There can be no assurance that the Company
will successfully address these risks. As of March 31, 2000, the Company reports
an accumulated deficit of $14,490,930 which includes the effects of dividends
and accretion of the beneficial conversion feature of series A preferred stock
approximating $6,534,221. The extremely limited operating history of the Company
makes the prediction of future results of operations difficult or impossible
and, therefore, the recently reported operations should not be considered
indicative of future operating results. The Company currently expects to
significantly increase its operating expenses to expand its sales and marketing
strategies, to fund further site development as well as planned improvements and
enhancements to the site. In the future, other Web sites and distribution
channels may require payments of cash or other consideration from the Company in
order to list Logio on their sites. The Company also plans to invest funds into
further electronic business-to-business commerce capabilities.
The Company's operating results may fluctuate significantly in the
future as a result of several factors, many of which are not within the
Company's control. These factors include, but are not limited to, Internet
usage, seasonal trends in advertising placements and Internet usage, Internet
advertisement demand, advertisement budgeting cycles of Internet advertisers,
need for capital expenditures and costs relating to Company expansion,
introduction of new services or products to the site, competitive forces, price
changes in the industry, technical difficulties to the site, general and
industry-wide economic conditions, and the availability of service providers. As
a result of changes to the competitive Internet environment, the Company may
make certain service changes or acquisitions that could materially affect the
Company's business, operations, and financial condition. The Company also
expects certain seasonal effects, as it relates to advertising revenues, due to
lower traffic during the vacation periods and holidays. Due to all of the
aforementioned factors, in some future interim periods, the Company's operating
results may be adversely affected and fall below the expectations of analysts
and investors. In such case, the trading price of the Company's common stock
would likely be materially and adversely affected.
Results of Operations
Revenues
The Company did not incur any revenues for the three months ended March
31, 2000. This was due to the discontinuation of the sales of our PC-based
product ("WordCruncher") to focus on the development of our Logio.com site,
which has only recently become available on the marketplace. Revenues of $2,883
for the three months ended March 31, 1999 were derived from the sales of our
WordCruncher product. Accumulated revenues since inception total $130,517 and
were derived from the sales of our WordCruncher product and royalties related to
third party licensing.
Cost of Revenues
The Company did not incur cost of revenues for the three months ended
March 31, 2000. This was again due to the discontinuation of the sales of our
WordCruncher product. Cost of sales of $250 for the three months ended March 31,
1999 relate to license fees to a University for technology re-sold in our
WordCruncher product. Accumulated cost of revenues total $31,741, representing
license fees to a University for technology re-sold in our WordCruncher product.
Operating Expenses
The Company's operating expenses increased significantly since the
Company's inception. This is due primarily to the continued efforts to develop
the infrastructure of the logio.com site, bring existing products and services
to the marketplace and to develop new and innovative ideas for implementation on
the site. The Company believes that planned expansion of the Logio site, further
improvements and enhancement of the site, and establishing brand recognition in
the professional business arena are all elements of its future success.
Operating expenses accumulated since inception total $8,200,258 and are related
to the aforementioned costs.
Selling and Marketing
Sales and marketing expenses increased 476% to $468,875 for the quarter
ended March 31, 2000, an increase of $387,479 from the $81,396 for the quarter
ended March 31, 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, providing of content and
advertising and branding campaigns in the first quarter of 2000 related to the
release of the Logio site to the marketplace. Selling and marketing expenses
accumulated since inception total $1,462,410 and have been incurred in
conjunction with the aforementioned activities.
Research and Development
Research and development expenses increased 760% to $836,782 for the
quarter ended March 31, 2000, an increase of $739,474 from the $97,308 for the
quarter ended March 31, 1999. The increase in research and development expenses
is due primarily to a significant increase in the number employees and
consultants engaged in continued site development and enhancement and for the
retention of other third party service providers related to site content and
development. This increase relates to the recent release of the Logio site to
the marketplace. Research and development expenses accumulated since inception
total $2,428,172 and have been incurred primarily in conjunction with the
aforementioned activities.
General and Administrative
General and administrative expenses increased 40% to $334,192 for the
quarter ended March 31, 2000, an increase of $94,995 from the $239,197 for the
quarter ended March 31, 1999. The increase in general and administrative
expenses is primarily due to accounting and legal professional fees related to
contracts and our public filings, the addition of one employee to our finance
department subsequent to first quarter 1999 and obtaining additional insurance.
General and administrative expenses accumulated since inception total $2,098,870
and relate primarily to finance and investor relation employee compensation,
professional fees, other office and leasing charges, and employee compensation,
respectively.
Depreciation and Amortization
Depreciation and amortization increased 966% to $195,847 for the
quarter ended March 31, 2000, an increase of $177,470 from $18,377 for the
quarter ended March 31, 1999. The increase in depreciation and amortization is
due to the purchase of computer equipment and software technology required to
release the Logio site in first quarter 2000, and the related depreciation
charge for first quarter ended March 31, 2000. Depreciation and amortization
expense accumulated since inception totals $391,841.
Compensation Expense for Stock Options
Compensation expense for stock options increased 46% to $366,356 for
the quarter ended March 31, 2000, an increase of $115,387 from $250,969 for the
quarter ended March 31, 1999. These charges reflect the intrinsic value of stock
options granted to employees and directors recorded as earned by the employee or
director over each period.
Interest Income
Interest income decreased 7% to $21,400 for the quarter ended March 31,
2000, a decrease of $1,706 from $23,106 for the quarter ended March 31, 1999.
The decrease reflects the continued use of cash balances and short-term
investments over the quarter ended March 31, 2000 to fund operations.
Interest Expense
Interest expense increased $29,331 to $31,572 for the quarter ended
March 31, 2000 from $2,241 for the quarter ended March 31, 1999. The increase is
due primarily to capital leases entered into subsequent to first quarter 1999.
Net Loss
Net loss for the quarter ended March 31, 2000 grew $1,552,816 to
$2,208,702 compared to a net loss of $655,886 for the quarter ended March 31,
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 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 6%
dividend to each of the series A preferred shareholders was recognized in the
first quarter 2000 totaling $64,360. As such, net loss attributable to common
shareholders totals $2,273,062 for the quarter ended March 31, 2000. Net loss
attributable to common shareholders for the quarter ended March 31, 1999 totals
$2,535,303 after giving affect to the dividends and accretion of the beneficial
conversion feature of series A preferred stock recognized during first quarter
1999. This resulted in an increase to additional paid-in capital and a
corresponding increase in accumulated deficit during the quarters.
Liquidity and Capital Resources
As a development stage Company, the Company has been unable to fund its
cash requirements through operations. Since our inception, we have funded our
cash requirements through debt and equity financings. We have used the proceeds
of those transactions to fund our investment in the development of our Logio
business information site, to provide working capital and for other general
corporate purposes.
We used $269,786 in cash for operations during the quarter ended March
31, 1999.
Cash totaling $281,229 was used in investing related activities for
purchases of property and equipment during the quarter ended March 31, 1999.
Cash was repaid totaling $100,200 during the quarter ended March 31, 1999 by a
related party for a receivable.
Cash provided by financing activities in first quarter 1999 included
$6.3 million from the private placement of series A preferred stock to eight
investors. Expenses for the offering totaled $392,100, resulting in the net
proceeds of $5,907,900.
As of March 31, 2000 the Company has $1,738,797 in cash and short-term
investments, $3,817,587 in total assets and total liabilities of $1,585,007. As
of March 31, 2000, the Company has positive working capital of $613,101, an
accumulated deficit of $14,490,930 (a significant portion of which is due to
dividends and accretion of the beneficial conversion feature of series A
preferred stock) and total stockholders' equity totals $2,232,580.
We used $1,472,426 in cash for operations during the quarter ended
March 31, 2000.
Cash totaling $49,344 was used in investing related activities for
purchases of property and equipment during the quarter ended March 31, 2000.
Short-term investments were sold for cash totaling $583,143 during the quarter
ended March 31, 2000.
Cash provided by financing activities in first quarter 2000 includes
$907,400 from the exercise of options and warrants. The Company purchased
$13,817 of equipment during the quarter ended March 31, 2000 by entering into a
capital lease agreement. Cash used in financing activities for capital lease and
other long-term obligations totals $168,291 during the first quarter 2000. The
Company paid a cumulative stock dividend of 6% to series A preferred
shareholders during first quarter 2000 totaling 61,650 shares of the Company's
common stock.
As of March 31, 2000, the Company has no material commitments for
capital expenditures for the remainder of fiscal 2000. Our capital lease
obligations totaling $469,542 are due through January, 2002.
We expect to continue to generate negative cash flows for at least the
next several quarters. We expect that a portion of our cash requirements will be
met through revenues from operations. The Company anticipates that its principal
liquidity needs over the next twelve months will be met with proceeds generated
from private offerings of its securities. There can be no assurance that the
offerings will take place or that the proceeds of such offerings will be
adequate to meet the Company's needs. Our need to raise external capital in the
future will depend on many factors, including, but not limited to, the rate of
sales growth and market acceptance of our products and services, the amount and
timing of our necessary and continuing research and development expenditures,
the amount and timing of our expenditures to sufficiently market and promote our
Logio site and the Logio brand name and the timing of any new product
introductions.
We currently estimate that we will require between $15 and $20 million
to continue to develop our products and operate in accordance with our business
plan through 2001. The actual costs will depend on a number of factors,
including:
Our ability to negotiate favorable prices for purchases of
necessary portal components
the number of our customers (traffic) and advertisers
the services for which they subscribe
the nature and success of the services which we offer
regulatory changes, and
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 that our actual financial needs will not exceed the amounts
available to us.
Expected future uses of cash include continued expansion and
enhancements of the Logio site, strategic sales and marketing related to brand
recognition, obtaining of additional advertisers and sponsors, the driving of
additional traffic to the site and maintaining our current level of
administration and operations. This is expected to be achieved by obtaining
additional staffing in the sales and marketing department and by engaging
certain professional services firms.
To the extent that we acquire the amounts necessary to fund our
business plan through the issuance of equity securities, our then-current
stockholders may experience dilution in the value per share of their equity
securities. The acquisition of funding through the issuance of debt could result
in a substantial portion of 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.
Special Note Regarding Forward-Looking Statements
Certain statements contained in "Management's Discussion and Analysis"
constitute forward-looking statements concerning the Company's operations,
economic performance and financial condition. Because those statements involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by those forward-looking statements.
In addition, any statements that express or involve discussions as to
expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward-looking and,
accordingly, those statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those expressed in
the forward-looking statements. Accordingly, those types of statements are
qualified in their entirety by reference to, and are accompanied by, the factors
discussed throughout this report. Among the key factors that have a direct
bearing on the Company's results of operations are the potential risk of delay
in implementing the Company's business plan; the economic and legal aspects of
the markets in which the Company operates; competition; and the Company's need
for additional substantial financing. The Company has no control over these
factors.
The factors described in this report could cause the Company's actual
operating results to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Persons reviewing this report, therefore, should not place undue reliance on
those forward-looking statements. Further, to the extent this report contains
forward-looking statements, they speak only as of the date of this report, and
the Company undertakes no obligation to update any forward-looking statement or
statements to reflect the occurrence of unanticipated events. New factors may
emerge from time to time, and it is not possible for management to predict all
of such factors. Further, management cannot assess the impact of each such
factor on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any proceeding or threatened proceeding
as of the date of this quarterly report.
Item 2. Changes in Securities
In January 2000, the Company issued 2,000 shares of its common stock
for the exercise of stock options for $200.
In January 2000, the Company issued 100,000 shares of its common stock
for the exercise of warrants for $500,000.
In February 2000, holders of 2,500 shares of the Company's series A
convertible preferred stock converted their holdings into 248,016 shares of the
Company's common stock.
In March 2000, the Company issued 12,000 shares of its common stock for
the exercise of stock options and cash of $2,000.
In March 2000, the Company issued 58,000 shares of its common stock for
the exercise of warrants and cash of $406,000.
In February and March 2000, the Company paid a 6% cumulative dividend
in the form of its common stock, totaling 61,650 shares to holders of its series
A convertible preferred stock.
In March 2000, holders of 3,800 shares of the Company's series A
convertible preferred stock converted their holdings into 376,984 shares of the
Company's common stock.
In March 2000, the Company issued 727,756 shares of the Company's
common stock to holders of the Company's series A convertible preferred stock
pursuant to the reset provisions of the preferred stock agreement.
Item 3. Defaults upon Senior Securities
None.
Item 4. Matters Submitted to a Vote of the Company's Stockholders
No matters were submitted to a vote of the Company's stockholders
during the first quarter of the fiscal year ending December 31, 2000.
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) EXHIBITS.
None.
(b). REPORTS ON FORM 8-K
See Insert A
<PAGE>
INSERT A
On March 1, 2000, the Company filed a Current Report on Form 8-K,
relating to the engagement of Grant Thornton LLP as the Company's auditor for
the 1999 fiscal year, and the dismissal of Crouch Bierwolf & Chisholm, P.C.,
which had served as the company's independent accountant's since 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
Date: May 15, 2000 By: /s/ Kenneth W. Bell
-------------------
Kenneth W. Bell, Director and
Chief Financial Officer
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