SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
REGISTRANT MEETS THE CONDITIONS OF GENERAL INSTRUCTION (I)(1)(a) AND (b) OF
FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 000-27453
LOGIO, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1370590
(State or incorporation) (I.R.S. Employer
Identification No.)
1760 Fremont Drive, Salt Lake City, Utah 84104
- ----------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (801) 578-9020
405 East 12450 South, Suite B, Draper, Utah 84020
- -------------------------------------------------
(Former address)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (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
Check if disclosure of delinquent filers in response to item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [x]
State issuer's revenue for its most recent fiscal year: $16,756.
As of February 28, 2001, the registrant had 18,425,830 shares of common stock
outstanding. The registrant is a wholly-owned subsidiary whose voting stock
is beneficially owned by its parent, Pacific WebWorks, Inc.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes ____ No X
PART I
Item 1. Business ........................................................ 3
Item 2. Properties .......................................................4
Item 3. Legal Proceedings ............................................... 4
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ........ 4
Item 7. Management's Discussion and Analysis ............................ 4
Item 8. Financial Statements and Supplementary Data ..................... 8
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ............................. 8
PART III
Item 10. Directors and Executive Officers ................................ 8
PART IV
Item 14. Exhibits and reports on Form 8-K................................. 9
FORWARD LOOKING STATEMENTS
In this annual report, references to "Logio," "we," "us," and "our" refer
to Logio, Inc.
This annual report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this annual report that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Logio's control. These factors include but are not limited to economic
conditions generally and in the industries in which Logio may participate;
competition within Logio's chosen industry, including competition from much
larger competitors; technological advances and failure by Logio to
successfully develop business relationships.
PART I
ITEM 1: BUSINESS
Overview
Logio, Inc., formerly WordCruncher Internet Technologies, Inc., is a
development stage company historically engaged in the development and
marketing of a focused Internet directory and search engine which serves the
needs of the business professional. Logio launched a web site, logio.com, on
March 19, 2000, which was tailored to provide, under one roof, a broad
spectrum of the information and services that are required by business people
in their daily work activities. During the second and third quarters of
fiscal year 2000 we realized minimal revenues from sales of advertising on our
web site, and continued to suffer losses.
In June 2000, our board of directors, due in part to changing market
conditions and ongoing operating losses, named Kenneth W. Bell as the new
chief executive officer of Logio. Mr. Bell undertook an immediate evaluation
of all aspects of our operations, including product development, sales and
marketing approaches, product positioning, employees and management, contracts
and agreements, and significant costs incurred by Logio. As a result of Mr.
Bell's recommendations, Logio repositioned its strategic direction, reduced
personnel, re-negotiated and settled contracts, and aggressively pursued new
financing sources.
Budgets were established for sales and costs related to Logio products
and operations. Executive management continually monitored progress related
to our sales and cost reduction goals in order to reduce losses and achieve
sales growth and profitability. Sales of Logio's directory did not meet
budgeted expectations and, despite the measures taken to reduce costs, we
continued to suffer losses, although at a reduced rate. As a result of these
ongoing losses and the continuing decline in the market price for our common
stock, previously agreed upon funding was withdrawn and other traditional
financing sources became unavailable at acceptable terms.
Due to the continuing negative trends in the Internet industry and
markets, the trading price of our stock continued to decline throughout third
quarter 2000. Because of these conditions and the resulting lack of funding,
the board of directors approved the pursuit of a merger, acquisition,
strategic partnership, joint partnership or other forms of continuation that
could potentially provide value to our stockholders.
On October 31, 2000, Logio entered into an Agreement and Plan of
Reorganization ("Plan") with Pacific WebWorks, Inc. to become its wholly owned
subsidiary. The Plan was approved by the stockholders of Logio on January 31,
2001 and Articles of Exchange were filed with the state of Nevada on February
8, 2001. The Plan provided for the transfer of 18,425,830 shares of our
outstanding common stock in exchange for 2,800,000 shares of Pacific WebWorks
common stock. Pacific WebWorks filed a registration statement with the
Securities
3
Exchange Commission to register the 2,800,000 shares issued pursuant to the
Plan. The registration statement was not reviewed by the SEC and was declared
effective December 20, 2000. In conjunction with the acquisition we ceased
our development activities and preliminary operations related to the Logio
business directory and directory services. At this time Logio is not actively
marketing any products and the production and operation of a portal or
directory have ceased. We are working with Pacific WebWorks to develop
directory and content related products for the Internet.
ITEM 2: PROPERTIES
We do not currently own or lease any real property. We use office space
at the corporate headquarters of our parent corporation, Pacific WebWorks.
ITEM 3: LEGAL PROCEEDINGS
We are not a party to any proceedings or threatened proceedings as of the
date of this filing.
PART II
ITEM 5: MARKET PRICE FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
a) Market Information
We do not have an active public trading market at this time. Our parent
corporation, Pacific WebWorks, is the beneficial owner of all of our
18,425,830 outstanding common shares.
We have not declared dividends on our common stock and do not anticipate
paying dividends on our common stock in the foreseeable future.
b) Recent Sales of Unregistered Securities
On October 25, 2000 our Board authorized the issuance of 1,500,000 common
shares to Technology Equity Fund Corp. to convert a debt of $240,000 with
interest. We relied on an exemption from registration under the Securities
Act provided by Section 4(2) as a private transaction not involving a public
distribution.
c) Use of Proceeds
We have terminated the registered offering of 2,689,447 shares of common
stock on Form S-1, File No. 333-79537, as amended, and declared effective
December 13, 1999. We also have terminated the registered offering on Form
S-1, File No. 333-42504, declared effective September 2000, related to the
public offering of 2,900,000 common shares.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Logio's initial revenue related to the Logio directory was derived from
sales of advertising on the logio.com site in second and third quarters 2000.
Our current business model is directed towards the generation
4
of revenues from set-up and maintenance fees resulting from the sale of our
search engine, directory and content-related services to certain Internet
sites and corporate intranets. We are currently working in conjunction with
Pacific WebWorks to develop directory and content related products for the
Internet. We are uncertain as to when we will achieve significant revenue
from our products and services and we are uncertain as to when we will emerge
from the development stage.
Early in October 2000, Logio temporarily discontinued substantial
development and operations of our directory and search engine products,
including a reduction in personnel, due to funding constraints and our pending
acquisition by Pacific WebWorks. Logio was acquired by Pacific WebWorks in
February 2001 and now acts as a holding company for certain assets and
liabilities. Our operations are extremely limited and our limited operating
history makes the prediction of future results of operations difficult and,
therefore, the results of operations for previous years should not be
considered indicative of future operating results.
Years Ended December 31,
2000 1999
------------- -------------
Net revenues $ 16,756 $ 23,355
Cost of revenues 447,072 15,071
------------- -------------
Gross profit (loss) (430,316) 8,284
------------- -------------
Research & development 1,757,739 1,198,546
General & administrative 1,315,226 1,340,486
Sales & marketing 660,933 953,708
Depreciation and amortization 776,824 179,169
Compensation expense for
stock options 660,590 1,452,610
------------- -------------
Total operating expense 5,171,312 5,124,519
------------- -------------
Operating loss (5,601,628) (5,116,235)
Other:
Interest expense (103,399) (9,955)
Interest income 42,425 196,310
Financing charges (217,403) -
Other expense (1,953) -
Loss on disposal of equipment (2,215) -
------------- -------------
(282,545) 186,355
------------- -------------
Loss before extraordinary item (5,884,173) (4,929,880)
Extraordinary gain 217,180 -
------------- -------------
Net loss (5,666,993) (4,929,880)
Deduction for dividends
and accretion (64,360) (6,469,861)
------------- -------------
Net loss attributable to
common stockholders $ (5,731,353) $(11,399,741)
============= =============
Net loss per common share
attributable to common
stockholders $ (0.39) $ (0.96)
============= =============
6
Weighted-average number of
shares outstanding - basic
and diluted 14,593,455 11,879,919
============= =============
Comparison of 2000 and 1999 Year End Periods. Following is a comparison
of our operating results for the year ended December 31, 2000 with the year
ended December 31, 1999:
Revenue. Our initial revenue related to the Logio directory was derived
from sales of advertising on the Logio site in second and third quarters 2000.
Revenues decreased $6,579, from $23,355 for the year ended December 31, 1999,
to $16,756 for the year ended December 31, 2000. This 28.3% decrease is due to
the change in focus from the sales of Logio's PC-based product
("WordCruncher") to a focus on the development and operations of the logio.com
site and the related Logio directory, which became available on the
marketplace in April 2000. The logio.com site, directory product and content
services have not been available for sale since November 2000 due to our
acquisition by Pacific WebWorks and our change in business model to facilitate
joint content products with Pacific Webworks.
Cost of Sales. Cost of sales consist primarily of fees paid to third
party service providers for use of their content and services, certain costs
related to site operations, and costs related to the insertion of banner and
other advertisements. Our cost of sales of $447,072 for the year ended
December 31, 2000 includes the cost of Logio services, hosting, support and
monitoring related to the logio.com site. Cost of sales for the year ended
December 31, 1999 totaled $15,071 and related to license fees to a university
for technology re-sold in the WordCruncher product.
Research and Development. Research and development expenses consisted
primarily of compensation to employees for site development, consulting
services and other third party service providers. Research and development
expenses increased 46.7% to $1,757,739 for the year ended December 31, 2000,
an increase of $559,193 from the $1,198,546 for the year ended December 31,
1999. The increase in research and development expenses is due primarily to
the significant increase in the number of employees and consultants engaged in
continued site and directory development and enhancement and for the retention
of other third party service providers related to other site content in first
and second quarters 2000. This increase relates to the recent release of the
Logio site and the related Logio directory to the marketplace. We began
reducing development personnel and overhead early in the second quarter 2000.
By late third quarter 2000, we again reduced development personnel
significantly due to the lack of funding that was previously committed by
certain investors and subsequently withdrawn.
Selling and Marketing. Selling and marketing expenses related primarily
to compensation to employees for strategic marketing, content, public
relations and for other consultants and third party services. Selling and
marketing expenses decreased 31% to $660,933 for year ended December 31,
2000, a decrease of $292,775 from the $953,708 for the year ended December 31,
1999. The decrease in selling and marketing expenses is due primarily to our
reduction in sales and marketing employees and consultants in April 2000 and
our complete abandonment of selling and marketing efforts in late September
2000 due to our lack of funding and our planned acquisition by Pacific
WebWorks. The larger amount of spending in 1999 related mostly to the hiring
of several marketing employees and marketing consulting firms for strategic
marketing planning and brand development in fourth quarter 1999.
General and Administrative. General and administrative expenses
decreased 1% to $1,315,226 for the year ended December 31, 2000, a decrease
of $25,260 from the $1,340,486 for the year ended December 31, 1999. The
decrease in general and administrative expenses is primarily due to our
substantial cost cutting activities in the fourth quarter 2000 related to
administrative personnel, office expenses and the salaries of certain members
of key management.
6
Depreciation and Amortization. Depreciation and amortization increased
$597,655 to $776,824 for the year ended December 31, 2000 from $179,169 for
the for the year ended December 31, 1999. The increase in depreciation and
amortization is due to the purchase of computer equipment and software
technology, mostly on capital leases, required to release and maintain the
Logio site and related Logio directory in late 1999, and the related
depreciation charges for the year ended December 31, 1999. In November 2000,
we renegotiated our largest lease for our operational computer equipment and
lengthened the term of our lease by 13 months. This caused the fair value of
our lease to increase substantially and the related depreciation has also
increased for the equipment.
Compensation Expense for Stock Options. Compensation expense for stock
options decreased to $660,590 for the year ended December 31, 2000, a decrease
of $792,020 from $1,452,610 for the year ended December 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 of
service. The decrease represents the forfeiture of options during 2000,
management's efforts to discontinue granting of options at an exercise price
less than fair market value since second quarter of 2000, and the completion
of vesting periods for certain employee options.
Total Operating Expenses. Our operating expenses increased 1% during the
year ended December 31, 2000 over the year ended December 31, 1999. This was
due primarily to the continued efforts to develop the infrastructure of the
logio.com site and the Logio directory, bringing products and services to the
marketplace and to develop new and innovative ideas for implementation on the
site and directory.
Interest Income. Interest income decreased 78.3% to $42,425 for the year
ended December 31, 2000, a decrease of $153,885 from $196,310 for the year
ended December 31, 1999. The decrease reflects the continued use of cash
balances and liquidation of short-term investments over the year ended
December 31, 2000 to fund operations.
Interest Expense and Financing Charges. Interest expense totaled
$103,399 for the year ended December 31, 2000, an increase of $93,444 from
$9,955 for the year ended December 31, 2000. The increase is due primarily to
capital leases entered into in late 1999 and early 2000 and other notes
payable to vendors and shareholders. Financing charges of $217,403 incurred
during 2000 represent the intrinsic value of debt and accrued interest
converted to Logio common stock. In these transactions $1,357,642 of notes
payable to shareholders and related accrued interest were converted to
approximately 4,941,422 of our common stock at prices ranging from $0.16 to
$0.25 to per share. These shares were issued at prices less than the fair
market value of the common stock on the dates of conversion and, consequently,
financing charges of $271,403 were incurred for the intrinsic values.
Extraordinary Gain. From September to December 2000, Logio settled
$558,098 of vendor payables for $340,918 cash and stock. The forgiven debt
from these transactions resulted in $217,180 in extraordinary gain for the
year ended December 31, 2000.
Net Loss. Net loss increased 15% to $5,666,993 for the year ended
December 31, 2000, an increase of $737,113 compared to a net loss of
$4,929,880 for the year ended December 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 and
related directory and their operations.
Net Loss Attributable to Common Stockholders. The accretion of the
beneficial conversion feature of Series A Preferred Stock was fully
recognized by fiscal year end 1999. The remaining cumulative 6% dividend to
each of the Series A Preferred stockholders was recognized in the first
quarter 2000, totaling $64,360. As such, net loss attributable to common
shareholders totaled $5,731,353 for the year ended December 31, 2000. Net
loss attributable to common stockholders for the year ended December 31, 1999
totaled $11,399,741 after giving effect to the dividends and accretion of the
beneficial conversion feature of Series A Preferred Stock recognized during
the first nine months of 1999 for the year ended December 31,1999, totaling
$6,469,861. This transaction resulted in an increase to additional paid-in
capital and a corresponding increase in accumulated deficit during the
quarters.
7
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, upon achieving significant levels of revenue, we will adopt
SAB 101 in the recognition of such revenue and that this statement will then
be reflected in its financial statements.
ITEM 8: FINANCIAL STATEMENTS
Reference is made to the financial statements for the years ended
December 31, 2000, 1999 and 1998 which are attached to this Form 10-K report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
As previously reported in March 2001, our Board of Directors authorized
the engagement of Chisholm & Associates, CPA's as our independent certified
public accountants for the fiscal year ended December 31, 2000, and
concurrently, dismissed Grant Thornton LLP, which had served as our
independent accountants since February 2000. As previously reported 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, dismissed Crouch Bierwolf &
Chisholm, P.C., which had served as our independent accountants since 1998.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages and
positions are set forth below. Biographical information for each of those
persons is also presented below. Our bylaws require three directors who serve
until our next annual meeting or until each is succeeded by another qualified
director who has been elected. 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 executive officers or directors.
Name Age Position
- --------------------- ---- -------------------------
Kenneth W. Bell 51 President and Director
Thomas R. Eldredge 32 Secretary/Treasurer and Interim Director
James W. Johnston 48 Director
8
Kenneth W. Bell: Mr. Bell joined Logio as Senior Vice President, Chief
Financial Officer, Secretary and Treasurer and Director in February 1997. On
April 18, 2000, the Board of Directors released Mr. Bell from his
responsibilities as Secretary. On June 2, 2000, our Board of Directors
appointed him as Chief Executive Officer and President of Logio, releasing him
from his responsibilities as Senior Vice President and Chief Financial
Officer. Prior to joining Logio, 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 over 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. Mr. Bell is a
director of Pacific WebWorks, Inc. a reporting company.
Thomas R. Eldredge: In April of 2000, Mr. Eldredge joined Logio as our
Vice President of Finance and Corporate Secretary. On June 2, 2000, our Board
of Directors appointed Mr. Eldredge as Senior Vice President and Chief
Financial Officer. In January 2001 our Board of Directors appointed him as
Secretary/Treasurer and an interim director, releasing him from his
responsibilities as Senior Vice President and Chief Financial Officer. 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.
James W. Johnston: Mr. Johnston was a co-founder of WordCruncher
Publishing and has served as our Director since November 1996. He has also
served as Chairman of the Board and Executive Vice President. 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 over 15 years of expertise in developing and marketing
products involving content presentation, analysis software and virtual
publishing.
PART VI
ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K
(1) Financial Statements
Independent auditors report...............................................F-3
Consolidated Balance Sheets as of December 31, 2000
and December 31, 1999 ................................................ F-4
Consolidated Statements of Operations for Years Ended
December 31, 2000, 1999 and 1998 ...................................... F-6
Consolidated Statements of Stockholder's Equity for
Years Ended December 31, 2000, 1999 and 1998 .......................... F-8
Consolidated Statements of Cash Flows for Years Ended
December 31, 2000, 1999 and 1998 ...................................... F-10
Notes to Consolidated Financial Statements .............................. F-12
(2) All schedules of the Registrant for which the provision is made in the
applicable accounting regulations of the securities and Exchange Commission
are not required under the related instructions, are inapplicable, or have
been disclosed in the Notes to Consolidated Financial Statements, and
therefore, have been omitted.
9
(3) Exhibits
Exhibit
Number Description
- ------- -------------
2.1 Agreement and Plan of Reorganization between WordCruncher
Technologies and WordCruncher Publishing Technologies, Inc., dated
July 14 1998 (Incorporated by reference to exhibit 2.1 of Form S-1,
File No. 333-78537, as amended)
2.2 Agreement and Plan of Reorganization between Logio and Pacific
WebWorks, Inc., dated October 31, 2000
3.1 Articles of Incorporation of the Company (Incorporated by reference
to exhibit 3.1 of Form S-1, File No. 333-78537, as amended)
3.2 Articles of Merger, filed June 20, 1998 (Incorporated by reference
to exhibit 3.2 of Form S-1, File No. 333-78537, as amended)
3.3 Articles of Merger, filed July 15, 1998 (Incorporated by reference
to exhibit 3.3 of Form S-1, File No. 333-78537, as amended)
3.4 Articles of Merger (Incorporated by reference to exhibit 3.4 of
Form S-1, File No. 333-78537, as amended)
3.5 Certificate of Amendment, filed February 1, 1999 (Incorporated by
reference to exhibit 3.5 of Form S-1, File No. 333-78537, as
amended)
3.6 Articles of Exchange filed February 8, 2001.
3.7 Bylaws of the Company (Incorporated by reference to exhibit 3.6 of
Form S-1, File No. 333-78537, as amended)
10.1 Employment Agreement between Logio and Kenneth W. Bell, dated
September 1, 1998
10.2 Employment Agreement between Logio and James W. Johnston, dated
September 1, 1998
10.3 Sun Microsystems License Agreement, dated December, 1999
10
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
4/16/01
Date_________________________ Logio, Inc.
/s/ Kenneth Bell
By: ______________________________________
Kenneth W. Bell
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934. This
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
4/16/01 /s/ Thomas R. Eldredge
Date__________________ By: ______________________________________
Thomas R. Eldredge
Secretary/Treasurer and Director
11
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Financial Statements
December 31, 2000, 1999 and 1998
C O N T E N T S
Independent Auditor's Report ...............................................3
Consolidated Balance Sheets ............................................... 4
Consolidated Statements of Operations ..................................... 6
Consolidated Statement of Stockholders' Equity............................. 8
Consolidated Statements of Cash Flows .................................... 10
Notes to the Consolidated Financial Statements ............................12
CHISHOLM & ASSOCIATES
Certified Public Accountants
P.O. Box 540216 Office (801)292-8756
North Salt Lake, Utah 84054 FAX (801) 292-8809
- ------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Logio, Inc.
We have audited the accompanying consolidated balance sheets of Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)(a development stage
company) as of December 31, 2000 and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2000 and
1998 and from inception of the development stage on November 5, 1996 through
December 31, 2000. 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. The financial statements of Logio,
Inc. (formerly WordCruncher Internet Technologies, Inc.) for the year ended
December 31, 1999 were audited by other auditors whose report dated March 6,
2000 expressed an unqualified opinion.
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 Logio,
Inc. (a development stage company) as of December 31, 2000 and the results of
its consolidated operations and cash flows for the years ended December 31,
2000 and 1998 and from inception of the development stage on November 5, 1996
through December 31, 2000 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to
the consolidated financial statements, the Company has had recurring operating
losses and is dependent upon financing to continue operations. These factors
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in the Note
8. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Chisholm & Associates
North Salt Lake, Utah
April 5, 2001
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Balance Sheets
ASSETS
December 31,
2000 1999
------------- -------------
CURRENT ASSETS
Cash & cash equivalents $ 25,849 $ 1,055,371
Short term investments - 1,462,147
Accounts receivable (net of allowance for
doubtful of $31,000 and $0, respectively) 3,169 736
Interest receivable - 1,983
Prepaid assets - 311,199
Notes receivable - 1,955
------------- -------------
Total Current Assets 29,018 2,833,391
------------- -------------
PROPERTY & EQUIPMENT, at cost, net 1,485,182 1,930,335
------------- -------------
OTHER ASSETS - 6,011
------------- -------------
TOTAL ASSETS $ 1,514,200 $ 4,769,737
============= =============
The accompanying notes are an integral part of these financial statements.
-4-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Balance Sheets continued
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2000 1999
------------- -------------
CURRENT LIABILITIES
Current portion of long-term capital
lease obligations $ 242,417 $ 299,983
Payables past due 215,720 -
Accounts Payable 4,885 306,349
Accrued expenses 27,433 86,319
Note payable - 659,682
------------- -------------
Total Current Liabilities 490,455 1,352,333
------------- -------------
LONG-TERM OBLIGATIONS
Capital lease obligations 464,963 553,333
Less current portion (242,417) (299,983)
------------- -------------
Total long-term liabilities 222,546 253,350
------------- -------------
TOTAL LIABILITIES 713,001 1,605,683
------------- -------------
STOCKHOLDERS' EQUITY
6% preferred stock, par value $.01; liquidation
preference $1,000; authorized 50,000 shares;
issued and outstanding 0 and 6,300, respectively - 63
Common stock, authorized 60,000,000 shares
of $.001 par value, issued and outstanding
18,425,830 and 11,891,002 shares, respectively 18,426 11,891
Additional paid-in capital 18,731,993 15,362,028
Accumulated other comprehensive income - 7,940
Deficit accumulated during the development stage (17,949,220) (12,217,868)
------------- -------------
Total Stockholders' Equity 801,199 3,164,054
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,514,200 $ 4,769,737
============= =============
The accompanying notes are an integral part of these financial statements.
-5-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Statements of Operations
From inception
on November 5,
For the Year ended 1996 through
December 31, December 31,
2000 1999 1998 2000
-------------- ------------- ------------- --------------
Net revenues $ 16,756 $ 23,355 $ 82,678 $ 147,273
Cost of sales 447,072 15,071 15,864 478,813
-------------- ------------- ------------- --------------
Gross profit (loss) (430,316) 8,284 66,814 (331,540)
-------------- ------------- ------------- --------------
Selling & marketing expenses 660,933 953,708 34,554 1,651,787
Research & development 1,757,739 1,198,546 266,563 3,349,129
General &
administrative expenses 1,315,226 1,340,486 217,318 3,082,585
Depreciation & amortization 776,824 179,169 10,406 972,818
Compensation for stock options 660,590 1,452,610 - 2,113,200
-------------- ------------- ------------- --------------
Total operating expenses 5,171,312 5,124,519 528,841 11,169,519
-------------- ------------- ------------- --------------
Operating loss (5,601,628) (5,116,235) (462,027) (11,501,059)
-------------- ------------- ------------- --------------
Other Income and (Expenses)
Interest income 42,425 196,310 7,276 249,088
Financing charges (217,403) - - (217,403)
Other expense (1,953) - - (1,953)
Loss on disposal of
equipment (2,215) - - (2,215)
Interest expense (103,399) (9,955) (28,158) (158,637)
-------------- ------------- ------------- --------------
Total Other Income
(Expenses) (282,545) 186,355 (20,882) (131,120)
-------------- ------------- ------------- --------------
Loss Before
Extraordinary Item (5,884,173) (4,929,880) (482,909) (11,632,179)
Extraordinary gain 217,180 - - 217,180
-------------- ------------- ------------- --------------
The accompanying notes are an integral part of these financial statements.
-6-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Statements of Operations
(Continued)
Net Loss (5,666,993) (4,929,880) (482,909) (11,414,999)
-------------- ------------- ------------- --------------
Deduction for dividends
and accretion (64,360) (6,469,861) - (6,534,221)
-------------- ------------- ------------- --------------
NET Loss Attributable to
Common Stockholders $ (5,731,353) $(11,399,741) $ (482,909) $ (17,949,220)
============== ============= ============= ==============
Net loss per common share
- - basic and diluted:
Before extraordinary item
and deduction for
dividends and accretion $ (.41) $ (.41) $ (.08) $ (1.43)
Extraordinary gain $ .02 $ - $ - $ .02
Deduction for dividends
and accretion $ - $ (.54) $ - $ (.80)
Net loss per common share
attributable to common
stockholders $ (.39) $ (.96) $ (.08) $ (2.21)
============== ============= ============= ==============
Weighted Average Number
of Shares Outstanding -
Basic and Diluted 14,593,455 11,879,919 6,100,679 8,122,053
============== ============= ============= ==============
The accompanying notes are an integral part of these financial statements.
-7-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 2000 and 1999 and
From Inception on November 5, 1996 to December 31, 2000
Deficit
Accumulated Accumulated
Additional Other During
Price Per Preferred Stock Common Stock Paid in Comprehensive Development
Date Share Shares Amount Shares Amount Capital Income Stage
---------- ---------- --------- ---------- ----------- ---------- ----------- ---------- ------------
Balances at
November 5, 1996 - $ - - $ - - $ - $ - $ - $ -
Net loss for the
year ended
December 31, 1996 - - - - - - - - -
--------- ---------- ----------- ---------- ----------- ---------- ------------
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 license
agreement Feb-97 - - - 110,742 111 (111) - -
Issuance of stock
for services
performed Aug-97 1.092 - - 37,875 38 41,337 - -
Issuance of stock
to employees
for services Sep-97 0.333 - - 252,450 252 83,898 - -
Net loss for the
year ended
December 31, 1997 - - - - - - - - (335,217)
--------- ---------- ----------- ---------- ----------- ---------- ------------
Balance at
December 31, 1997 - - - - 1,091,067 1,091 125,184 - (335,217)
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
overage Nov-98 1.00 - - 25,000 25 24,975 - -
Net loss for
the year ended
December 31, 1998 - - - - - - - - (482,909)
--------- ---------- ----------- ---------- ----------- ---------- ------------
Balance at
December 31, 1998 - - - - 11,877,002 11,877 1,247,334 - (818,126)
Issuance of
warrants for
consulting services Nov-98 - - - - - 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 employees
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 - -
The accompanying notes are an integral part of these financial statements.
9
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 2000 and 1999 and
From Inception on November 5, 1996 to December 31, 2000
Deficit
Accumulated Accumulated
Additional Other During
Price Per Preferred Stock Common Stock Paid in Comprehensive Development
Date Share Shares Amount Shares Amount Capital Income Stage
---------- ---------- --------- ---------- ----------- ---------- ----------- ---------- ------------
Accretion of
intrinsic value
of preferred
stock Feb-Dec-99 - - - - - 6,131,944 - (6,131,944)
Dividends on
preferred stock Feb-Dec-99 - - - - - 337,917 - (337,917)
Unrealized gain
on marketable
securities - - - - - - - 7,940 -
Net loss for the
year ended
December 31, 1999 - - - - - - - - (4,929,880)
--------- ---------- ----------- ---------- ----------- ---------- ------------
Balance
December 31, 1999 - - 6,300 63 11,891,002 11,891 15,362,028 7,940 (12,217,867)
Issuance of common
stock for exercise
options Jan-00 0.10 - - 2,000 2 198 - -
Issuance of common
stock for exercise
of warrants Jan-00 5.00 - - 100,000 100 499,900 - -
Conversion of
preferred stock
to common stock Feb-00 - (2,500) (25) 248,016 248 (223) - -
Issuance of common
stock for exercise
options Mar-00 0.10 - - 12,000 12 1,188 - -
Issuance of common
stock for exercise
of warrants Mar-00 7.00 - - 58,000 58 405,942 - -
Conversion of
preferred stock
to common stock Mar-00 - (3,800) (38) 376,984 377 (339) - -
Issuance of common
stock for reset
shares Mar-00 - - - 727,756 728 (728) - -
Dividends on
preferred stock Jan-Mar-00 - - - - - 64,360 - (64,360)
Issuance of common
stock for preferred
dividends paid Mar-00 - - - 61,650 62 (62) - -
Issuance of common
stock for exercise
options Apr-Oct-00 0.10 - - 7,000 7 693 - -
Unrealized gain
on marketable
securities Jan-Sep-00 - - - - - - 6,071 -
Net realized gain
on marketable
securities Jan-Jun-00 - - - - - - (14,011) -
Issuance of stock
for conversion 0.16-
of notes payable Sep-00 0.251 - - 4,315,000 4,315 1,058,364 - -
Issuance of stock
for conversion
of notes payable to Sep & 0.81-
shareholders Oct-00 0.82 - - 626,422 626 511,040 - -
Issuance of warrants
for consulting May -
services Dec-00 - - - - - 169,042 - -
Issuance of stock
options to employees Jan -
for compensation Dec-00 - - - - - 660,590 - -
Net loss for the
year ended
December 31, 2000 - - - - - - - - (5,666,993)
--------- ---------- ----------- ---------- ----------- ---------- ------------
Balances at
December 31, 2000 - - - $ - 18,425,830 $ 18,426 $18,731,993 $ - $(17,949,220)
========= ========== =========== ========== =========== ========== ============
The accompanying notes are an integral part of these financial statements.
9
Logio, Inc.
(Formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Statements of Cash Flows
From inception
on November 5,
For the Year ended 1996 through
December 31, December 31,
2000 1999 1998 2000
-------------- ------------- ------------- --------------
Cash Flows From Operating Activities
Net income (loss) $ (5,731,353) $ (4,929,880) $ (482,909) $ (11,479,360)
Non-cash items:
Depreciation & amortization 776,824 179,169 10,406 972,818
Loss on disposal of equipment 2,215 - - 2,215
Bad debt expense 31,000 - - 31,000
Financing charge for stock conversion 217,403 - - 217,403
Stock issued for services 660,590 1,452,610 95,200 2,333,925
Warrants issued for services 169,042 258,000 - 427,042
Extraordinary gain (217,180) - - (217,180)
(Increase)/decrease in current assets:
Prepaid Expenses 311,199 (311,199) - -
Accounts receivable (33,433) (736) - (34,169)
Interest receivable 1,983 8,035 (7,141) -
Increase/(decrease) in current liabilities:
Accounts payable (85,744) 295,928 4,251 220,605
Accrued expenses (58,886) 61,827 19,063 27,433
-------------- ------------- ------------- --------------
Net Cash Used in Operating Activities (3,956,340) (2,986,246) (361,130) (7,498,268)
-------------- ------------- ------------- --------------
Cash Flows from Investing Activities
Cash paid for property, equipment
and software technology (61,003) (1,260,831) (18,627) (1,340,461)
Increase)/Decrease in
short-term investments 1,462,147 (1,454,207) - -
Cash received on notes receivables 1,955 110,745 5,000 117,700
Cash advanced on notes receivable - (12,500) (23,200) (117,700)
Cash paid for deposits 6,011 - (5,076) -
-------------- ------------- ------------- --------------
Net Cash Provided by (Used in)
Investing Activities 1,409,110 (2,616,793) (41,903) (1,340,461)
-------------- ------------- ------------- --------------
Cash Flows from Financing Activities
Cash received from stock issuance 908,100 6,300,400 1,000,000 8,209,250
Payment of stock issuance fees - (392,100) - (392,100)
Cash received from debt financing 1,423,000 685,682 13,000 2,421,682
Principal payments on long-term debt (813,392) (361,274) (194,634) (1,374,254)
-------------- ------------- ------------- --------------
Net Cash Provided by
Financing Activities 1,517,708 6,232,708 818,366 8,864,578
-------------- ------------- ------------- --------------
Increase/(decrease) in Cash (1,029,522) 629,669 415,333 25,849
The accompanying notes are an integral part of these financial statements.
-10-
Logio, Inc.
(Formerly WordCruncher Internet Technologies, Inc.)
(a Development Stage Company)
Consolidated Statements of Cash Flows
(Continued)
Cash and Cash Equivalents
at Beginning of Period 1,055,371 425,702 10,369 -
-------------- ------------- ------------- --------------
Cash and Cash Equivalents
at End of Period $ 25,849 $ 1,055,371 $ 425,702 $ 25,849
============== ============= ============= ==============
Supplemental Cash Flow Information:
Cash paid for interest $ 29,888 $ 4,584 $ 29,888 $ 79,016
Cash paid for income taxes $ - $ - $ - $ -
Non-cash financing transactions:
Purchase of equipment with
lease obligations $ 241,018 $ 766,987 $ - $ 1,059,195
Unrealized gain on securities $ - $ 7,940 $ - $ 7,940
Issuance of common stock for
debt conversion $ 1,574,345 $ 26,000 $ 13,000 $ 1,613,345
Payment of stock dividend $ 64,360 $ - $ - $ -
The accompanying notes are an integral part of these financial statements.
-11-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Logio, Inc., formerly WordCruncher Internet Technologies, Inc.,(the
Company) is a development stage company historically engaged in the
development and marketing of a focused Internet directory and search engine
which serves the needs of the business professional.
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 essentially no assets and liabilities, and
management of Dunamis had resigned and management of the Company then managed
the consolidated entity. The merger was recorded as a reverse acquisition,
therefore WordCruncher became the accounting survivor.
In connection with the merger, the Company changed it's name to
WordCruncher Internet Technologies, Inc. and changed its domicile to the State
of Nevada. The Company's headquarters were in Draper, Utah, where the Company
was engaged in the marketing of a search engine software product.
In March 2000, the Company commenced planned principal operations of its
Internet portal and directory, but has not produced any significant revenues.
In April 2000, the Company changed its name to Logio, Inc. and in September
2000 the Company changed its focus from its Internet portal to its continuing
developmental efforts on the Logio business directory. Logio currently has no
operations and acts as a holding company for certain assets and liabilities.
b. Recognition of Revenue
The Company recognizes income and expense on the accrual basis of
accounting. The Company has received revenues from services provided for
indexing printed materials to online format. Pursuant to SOP 97-2, revenue is
recorded when the services are completed. The Company also generated revenues
from the sale of their publishers proprietary version of the search engine
technology. This product was sold separately without future performance such
as upgrades, maintenance or PCS services, therefore according to SOP 97-2.08
revenue has been recorded upon the sale and delivery of the product.
Licensing fees were also generated from the sublicensing of the technology
which was included in the software of certain sublicenses. Licensing fees
have been recorded as revenue as software is reported as sold by the
sublicensee.
c. Loss Per Share
The computation of loss per share of common stock is based on the weighted
average number of shares outstanding at the date of the financial statements.
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 because their effects were antidilutive.
-12-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
c. Loss Per Share (continued)
Loss Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ------------
Cumulative amounts since inception:
Loss from operations $(11,501,059)
-------------
Basic and diluted EPS
Income (loss) to common
stockholders $(17,949,220) 8,122,053 $ (2.21)
============= ============= =============
For the year ended December 31, 2000:
Loss from operations $ (5,601,628)
-------------
Basic and diluted EPS
Income (loss) to common
stockholders $ (5,731,353) 14,593,455 $ (.39)
============= ============= =============
For the year ended December 31, 1999:
Loss from operations $ (5,116,235)
--------------
Basic and diluted EPS
Income (loss) to common
stockholders $(11,399,741) 11,879,919 $ (.96)
============= ============= =============
For the year ended December 31, 1998:
Loss from operations $ (462,027)
-------------
Basic and diluted EPS
Income (loss) to common
stockholders $ (482,909) 6,100,679 $ (.08)
============= ============= =============
-13-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
c. Earnings Per Share (continued)
The following is the calculation for Weighted-average common shares used
in basic and dilutive net loss per common share:
Cumulative
Amounts
Since Year ended December 31,
Inception 2000 1999 1998
------------ ----------- ------------- ------------
Common shares outstanding
during the entire period - 11,879,919 11,877,002 1,091,067
Weighted-average common
shares issued during the
period 8,122,053 2,713,536 2,917 5,009,612
------------ ----------- ------------- ------------
Weighted-average common
shares used in basic EPS 8,122,053 14,593,455 11,879,919 6,100,679
Dilutive effects of
potential common shares - - - -
------------ ----------- ------------- ------------
Weighted-average number of
common shares and dilutive
potential common stock
used in diluted EPS 8,122,053 14,593,455 11,879,919 6,100,679
============ ============ ============ ============
d. Provision for 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 does not pay
corporate income taxes on its taxable income during that period of time.
Instead, the stockholders are 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 a consolidated
return with it's parent and lost it's S-Corp status.
No provision for income taxes has been recorded due to net operating loss
carry forwards totaling approximately $17,949,220 that will be offset against
future taxable income. These NOL carry forwards begin to expire in 2013. No
tax benefit has been reported in the financial statements because the Company
has not yet proven it can generate taxable income.
-14-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
d. Provision for Income Taxes (continued)
Deferred tax assets and the valuation account is as follows at December 31,
2000 and 1999:
2000 1999
------------- --------------
Deferred tax asset:
NOL carry forward $ 6,100,000 $ 4,154,075
Valuation allowance (6,100,000) (4,154,075)
------------- --------------
Total $ - $ -
============= ==============
e. Cash and Cash Equivalents
The company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
f. Property and Equipment
The provision for depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. The useful lives of
equipment, furniture and software are 3-5 years, 7 years and 3 years,
respectively. Depreciation expense for the periods ended December 31, 2000,
1999 and 1998 is $776,824, $179,169 and $10,272, respectively.
g. Impairment of Long Lived Assets
Fixed assets are evaluated periodically by management and if impaired are
written down to the fair market value.
h. Stock Split & 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
changed to $.001. This change has also been retroactively applied.
-15
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
i. Software Development Costs
The Company expenses all costs associated with software development as
research and development expense until technological feasibility has been
achieved. Subsequent to technological feasibility, costs to produce product
masters 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.
j. Development Stage Company
The Company is a development stage company as defined in Financial
Accounting Standards Board Statement No. 7. It is concentrating substantially
all of its efforts in raising capital and developing its operations.
k. Short-Term Investments
Short-term investments are comprised of various governmental 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. At December 31, 2000, short-term investments were liquidated and the
Company recorded a gain of $14,011 on these securities.
l. 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 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.
m. 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.
-16-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 2 - Property & Equipment
Property and equipment consists of the following at December 31, 2000 and
1999:
2000 1999
------------- -------------
Computer equipment $ 1,527,077 $ 1,217,668
Furniture and fixtures 58,175 49,392
Software technology 872,011 858,868
------------- -------------
2,457,263 2,125,928
Less accumulated depreciation (972,081) (195,593)
------------- -------------
Total Property & Equipment $ 1,485,182 $ 1,930,335
============= =============
NOTE 3 - Notes Receivable - Related Party
Notes receivable to shareholders at December 31, 2000 and 1999 are as
follows:
December 31,
2000 1999
------------- -------------
Note receivable from a former employee,
interest rate of 8%, interest and principle
due April 2000. - 1,955
------------- -------------
Total - 1,955
Less current portion - 1,955
------------- -------------
Notes receivable - long term $ - $ -
============= ==============
NOTE 4 - Capital Lease Obligations
In October 2000, the Company reworked its lease with a computer equipment
corporation. The lease was renegotiated from $23,779 per month for a total of
23 months to $19,000 for 26 remaining months. There were 12 months remaining
under the original lease. The renegotiation caused a $175,333 increase in the
present value of the outstanding lease in 2000. Included in property and
equipment is $1,234,528 and $818,177 of computer equipment under capital
leases at December 31, 2000 and 1999, respectively. The related accumulated
amortization is $290,137 and $56,411 at December 31, 2000 and 1999,
respectively.
-17-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 4 - Capital Lease Obligations (Continued)
Future minimum lease payments are as follows at December 31, 2000:
2001 $ 274,491
2002 233,336
Thereafter -
-----------
Total minimum lease payments 507,827
Less portion representing interest (42,864)
-----------
Present Value of net minimum lease payments 464,963
Less current maturities 242,417
-----------
Total $ 222,546
===========
NOTE 5 - Settlement of Liabilities
During the year ended December 31, 2000, the Company settled $558,098 of
vendor payables for $340,918 in cash and stock. These settlements resulted in
$217,181 of forgiven debt and extraordinary gain.
In June 2000, the Company was loaned $500,000 from three principle
shareholders and officers of the Company in exchange for notes payable bearing
interest of 8% annually. Principal and interest were due in full on July 1,
2001. The note was note collateralized. On September 26, 2000 the Company
converted the notes and $11,666 of accrued interest into 626,422 of the
Company's common stock at $0.81 and $0.82 per share, which represents prices
in excess of fair market value ($0.3125) of the common shares on the date of
conversion.
The Company was also released from approximately $460,000 of other
long-term debt commitments with certain of its vendors that would have expired
through April 2002 by obtaining releases and giving consideration through
settlements as discussed above.
NOTE 6 - Note Payable in Default
The Company is in default of approximately $100,000 to a software
corporation for a current note payable.
NOTE 7 - Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
-18-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 8 - 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, 2000,
and has sustained losses from operations each period since inception. In
addition, it has a deficit accumulated during the development stage of
$17,949,220. Also, the Company has used cash in, rather than provided cash
from, 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 operations.
The Company has been acquired by Pacific Webworks, Inc. in February 2001
and currently has no operations. Management has settled numerous liabilities
and commitments and has reduced the Company's monthly cash outflows
significantly in late 2000. The Company is liable for certain leases and
payables that it currently does not have funding to pay. Logio will continue
to work with vendors and debtors to negotiate settlements and payment
arrangements.
NOTE 9 - Commitments and Contingencies
The Company is currently committed to three employment and severance
agreements with certain officers of the Company. Salaries covered by these
agreements range from $84,000 to $120,000 annually, subject to annual
adjustment. Contracts with two individuals provide for annual salaries up to
$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
agreements, the contracts provide for compensation equal to five times the
average sum of amounts paid to the executive for five fiscal years immediately
preceding the date of the change in control. The other contract provides for
annual salaries of $84,000 to $100,000 (plus monthly commission 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 severance payments under these employment contracts.
-19-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 10 -Preferred Stock
On January 19, 1999 the Board of Directors organized a Series A
Convertible Preferred Stock with 50,000 shares authorized. The preferred
stock has a stated value of $1,000, a cumulative dividend of 6%. The Company
issued 6,300 series of the Series A Convertible Preferred Stock in February
and March 1999. Under the terms of the document for those sales, the shares
were convertible into 624,999 shares of common stock at a conversion rate of
$10.08 per share, upon registration of the common stock. The conversion price
was 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 up to 20% of the preferred
stock was available for conversion into common during each month following the
effective date of the Company's prospectus.
The preferred stock included a "lock-out" provision, which prevented the
preferred shareholders from converting into common stock for a period of 5
months after the issuance of the preferred stock. Preferred shareholders had
a limited right to receive additional shares of common stock at certain times
if the market price of the common stock was less than $12.096 per share. On
the 10th trading day after each of July 8, 1999, October 6, 1999, and February
13, 2000, preferred shareholders 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 ten day trading average.
On the dates that the Series A Convertible Stock were issued, the
intrinsic values of the beneficial conversion feature were $10,995,740 and
$31,944 respectively. The intrinsic value was derived by the difference
between the conversion price and the market value of the common stock on the
day of the preferred stock issuance, times the number of common shares into
which the preferred stock was convertible. The proceeds received from the
sale of the convertible instruments were $6,100,000 and $200,000 respectively.
Since the intrinsic values of the beneficial conversion feature are greater
than the proceeds. The discounts assigned to the convertible instruments are
$6,100,000 and $31,944 respectively, creating a total discount of $6,131,944.
This amount was being accreted over a five month period, which is the period
to the security's earliest conversion date of November 30, 1999, and is
reflected on the statement of operations as a deduction for dividends and
accretion.
The investors of the Series A Preferred Stock were also issued Series A
and B warrants to purchase common stock. A Series C warrant was also issued
to a third party as a finders fee. Series A warrants allow their holders to
purchase up to an aggregate of 71,069 shares of common stock at a weighted
average price of $34.53 per share (125% of the closing bid price of the common
stock on the day prior to the closing of the purchase agreement) at any time
through the fifth anniversary of the closing. Series B warrants allow their
holders to purchase up to an aggregate of 47,380 shares of common stock at a
weighted average of $41.44, through the expiration date. Series C warrants
allow their holders to purchase up to 189,000 shares of common stock at a
weighted average price of $29.01 per share through the fifth anniversary of
the warrant issue.
-20-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 10 -Preferred Stock (Continued)
Offering costs related to the issuance of Preferred Stock total $392,100
and have been netted with the proceeds for reporting purposes. Cumulative
Dividends total $337,917 as of December 31, 1999
Preferred stock conversion
- --------------------------
In February and March 2000, holders of the Company's convertible preferred
stock converted 6,300 preferred shares into 625,000 common shares. The
preferred stockholders also received 727,756 shares of the Company's common
stock in conjunction with the reset provisions of the preferred stock
agreement. Common stock totaling 61,650 shares were also issued to preferred
shareholders representing a six percent cumulative dividend.
NOTE 11 - Stockholders' Equity
Stock purchase agreement
- ------------------------
On July 6, 2000, the Company signed a purchase agreement with five
investors for the sale of two million shares of its common stock for a total
purchase price of $1.4 million. The terms of the agreement required the
deposit of $1.4 million into escrow account before July 31,2000. The monies
were agreed to be released to the Company upon the effective registration of
the shares with the Securities and Exchange Commission on or before October
31, 2000. In September 2000, the Securities and Exchange Commission declared
the registration effective. As of December 31, 2000, the investors have not
released the funds and are in default of the agreement.
Conversion of notes payable to equity
- --------------------------------------
In September 2000, the Company was advanced a total of $605,976 from
various parties to fund the settlement of liabilities in the form of notes
payable. Also in September 2000 the Company then converted the notes payable
and $2,976 of accrued interest into 2,815,000 of the Company's common stock at
prices ranging from $0.2012 to $0.251 per share. The conversion prices did
not represent the fair market value of the common shares on the date of
conversion. As such, the Company incurred $88,576 in financing charges.
In September 2000, a corporation assumed $130,045 in liability from one
of the Company's vendors. Also in September 2000, the Company converted
$70,000 of this liability into 350,000 shares of the Company's common stock
and was forgiven of $60,045 in liability by the assuming creditor. The
liability was converted at $0.20 per share, which did not represent the fair
market value of the Company's common shares on the date of conversion. As
such, the Company incurred $45,127 in financing charges.
As discussed in Note 5, in September 2000, the Company converted
$511,666 of notes payable and interest to shareholders to 626,422 shares of
its common stock. The fair market value of the shares on the date of
conversion was $0.3125 and the conversion prices ranged from $0.81 to $0.82
per share.
-21-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 11 - Stockholders' Equity (Continued)
In October 2000, notes payable totaling $170,000 were converted to
1,150,000 shares of the Company's common stock. The liability was
converted at $0.16 per share, which did not represent the fair market value of
the Company's common shares on the date of conversion. As such, the Company
incurred $83,700 in financing charges.
NOTE 12 - Incentive Stock Option Plan
On April 18, 2000, the Board of Directors adopted the Logio, Inc. 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. The Plan was approved by the Company's stockholders in June
2000. The Board of Directors has approved the granting of options under the
plan as follows.
Directors, officers, employees and certain consultants have been granted
options to acquire 1,288,666 shares of the Company's common stock. The
options were granted at exercise prices ranging from $0.10 - $5.88 per share.
The options vest periodically through December 2001. The options expire
through March 2008.
Fair Market Value of Options Granted
- ------------------------------------
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" (FAS
123). Therefore, the Company accounts for stock-based compensation under the
Accounting Principles Board Opinion No. 25, under which approximately $660,590
has been recognized for compensation earned related to options issued at
exercise prices that were less than the fair market value of the Company's
stock on the date of grant in 2000 and $1,452,610 in 1999. Had compensation
cost for the stock-based compensation been determined based upon the fair
value of options at the grant date consistent with methodology set forth by
FAS 123, the Company's net loss and loss per share would have increased to the
following proforma amounts:
2000 1999
------------- -------------
Pro forma net earnings
As reported (5,731,353) (11,399,741)
Pro forma (6,492,228) (11,453,549)
Net loss per common share -
basic and fully diluted
As reported (.39) (.96)
Pro forma (.44) (.96)
-22-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 12 - Incentive Stock Option Plan (Continued)
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 for 2000 and 1999: expected volatility of 157
percent and 120 percent, respectively; risk free interest rate of 6.5 percent
and 6.5 percent, respectively; and expected life of 1.5 to 3.5 years. The
weighted average fair value of options granted $1.41 and $4.75 in 2000 and
1999, respectively.
Option pricing models require the input of highly sensitive assumptions,
including expected stock 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.
Information with respect to the Company's stock options at December 31, 2000
is as follows:
Weighted-
Average
Stock Exercise Exercise
Options Price Price
------------- ------------ -------------
Outstanding at January 1, 1998 - $ - $ -
Granted - - -
Exercised - - -
Forfeited - - -
------------- ------------ -------------
Outstanding at December 31, 1998 - - -
Granted 1,079,000 0.10-5.54 1.79
Exercised (4,000) 0.10 0.10
Forfeited - - -
------------- ------------ -------------
Outstanding at December 31, 1999 1,079,000 0.10-5.54 1.80
Granted 1,283,000 0.63-7.78 1.29
Exercised (21,000) 0.10 0.10
Forfeited ( 1,052,334) 0.10-7.78 2.40
------------- ------------ -------------
Outstanding at December 31, 2000 1,288,666 $0.10-$5.88 $2.21
============= ============ ============
-23-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 12 - Incentive Stock Option Plan (continued)
Additional information related to stock options outstanding and exercised
at December 31,2000:
Options Outstanding
------------------- Weighted-
Weighted- Average
Average Remaining
Exercise Number Exercise Contractual
Price Outstanding Price Life
------------ ------------ ---------- -----------
$0.10 216,666 $0.10 2 yrs
0.63 425,000 0.63 3 yrs
1.00 1,000 1.00 3 yrs
1.25 375,000 1.25 3 yrs
1.43-1.47 71,000 1.45 3 yrs
2.72 100,000 2.72 4.5 yrs
4.79 80,000 4.79 3 yrs
5.88 20,000 5.88 3 yrs
-----------
1,288,666
===========
Options Exercisable
---------------------
Weighted-
Average
Exercise Number Exercise
Price Exercisable Price
------------ ------------ --------------
$0.10 206,666 $0.10
0.63 425,000 0.63
1.00 500 1.00
1.25 375,000 1.25
1.44-1.47 33,500 1.46
2.72 100,000 2.72
4.79 5,000 4.79
5.88 20,000 5.88
----------
959,000
==========
-24-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 13 - Warrants
Series A, B and C warrants
- ---------------------------
In connection with the sale of Series A Convertible Preferred Stock,
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 $7.00 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 $8.40 per share.
Series C warrants allow holders to purchase up to 132,000 shares of
common stock at a weighted-average price of $7.00 per share.
All 250,449 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, 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 $5.50 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.
In May of 2000 the Company issued warrants to purchase 400,000 shares of
the Company's common stock to its investor relations consultant. 200,000 of
these warrants were issued with an exercise price of $4.00 per share and
200,000 of these warrants were issued with an exercise price of $3.00 per
share. The warrants are fully vested at December 31, 2000. The fair value
of $.42 was estimated as the value of the services performed. Consulting
expenses relating to these warrants totaled $169,042 during 1999.
-25-
Logio, Inc.
(formerly WordCruncher Internet Technologies, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 14 - Subsequent Events
On January 31, 2001, shareholders of Logio, Inc. approved the proposed
sale of the Company to Pacific Webworks, Inc. On February 8, 2001, Logio,
Inc. filed a Share Exchange Agreement with the state of Nevada to exchange
approximately 18,425,830 of its common shares for 2,800,000 shares of Pacific
Webworks, Inc. stock.
In the first quarter 2001, and in conjunction with the acquisition, the
Board of Directors of Pacific Webworks, Inc., Logio's parent company, approved
the conversion of 1,288,666 options, each to purchase one share of Logio, Inc.
common stock, to 195,252 options, each to purchase one share of Pacific
Webworks stock.
All outstanding warrants were also adjusted for price and number at a 6.6
to 1 ratio.
In March 2001, the Company was in default of its lease obligations to a
computer equipment corporation.
-26-