UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended: June 30, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 000-26731
LOGIO, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0627910
(State of incorporation) (I.R.S. Employer
Identification No.)
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
(801) 578-9020
(Address and telephone number of principal executive offices
and principal place of business)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 August 1, 2001, the Registrant had a total of 18,425,828 shares of
common stock issued and outstanding, which are beneficially owned by its
parent corporation, Pacific WebWorks, Inc.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements................................................3
Item 2: Management's Discussion and Analysis or Plan of Operations.........11
Item 3: Quantitative and Qualitative Disclosures About Market Risk.........13
PART II: OTHER INFORMATION
Item 1: Legal Proceedings..................................................13
Item 6: Exhibits and Reports filed on Form 8-K.............................14
Signatures.................................................................15
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements
of operations for the three and six month periods ended June 30, 2001 and 2000
is unaudited. This financial information, in the opinion of management,
includes all adjustments consisting of normal recurring entries necessary for
the fair presentations of such data. The results of operations for the six
months ended June 30, 2001, are not necessarily indicative of results to be
expected for any subsequent period.
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, Dec 31,
2001 2000
------------- ------------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ - $ 25,849
Accounts receivable - 3,169
------------- ------------
Total current assets - 29,018
------------- ------------
PROPERTY & EQUIPMENT, net 156,330 1,485,182
------------- ------------
$ 156,330 $ 1,514,200
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term capital
lease obligations $ 1,569 $ 242,417
Capital leases past due 440,174 -
Overdraft in bank 23,766 -
Payables - past due 218,470 215,720
Accounts payable - 4,885
Accrued expenses 18,784 27,433
Note payable -parent company 112,013 -
------------- ------------
Total current liabilities 814,776 490,455
CAPITAL LEASE OBLIGATIONS, less current maturities - 222,546
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 18,426 18,426
Additional paid-in capital 18,893,398 18,731,993
Deficit accumulated during the development stage (19,570,179) (17,949,220)
Treasury stock (91) -
------------- ------------
Total stockholders' equity (658,446) 801,199
------------- ------------
$ 156,330 $ 1,514,200
============= ============
The accompanying notes are an integral part of these financial statements
F-1
3
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
amounts
since Six months ended June 30, Three months ended June 30,
inception 2001 2000 2001 2000
------------ ------------ ------------- ------------ ------------
Net revenues $ 147,273 $ - $ 1,534 $ - $ 1,534
------------ ------------ ------------- ------------ ------------
Cost of sales 478,813 - 300,746 - 300,746
------------ ------------ ------------- ------------ ------------
Gross loss (331,540) - (299,212) - (299,212)
------------ ------------ ------------- ------------ ------------
Research and development 3,361,201 12,072 1,558,834 100 645,983
Selling and marketing expenses 1,651,787 - 629,834 - 193,289
General and administrative 3,201,042 118,456 649,790 51,305 359,122
Depreciation and amortization 1,279,233 306,415 401,003 97,309 205,156
Compensation expense for
stock options 2,274,605 161,405 580,843 - 214,706
Impairment losses 987,372 987,372 - 788,847 -
------------ ------------ ------------- ------------ ------------
Total operating expenses 12,755,239 1,585,720 3,820,304 937,561 1,618,256
------------ ------------ ------------- ------------ ------------
Loss from operations (13,086,779) (1,585,720) (4,119,516) (937,561) (1,917,468)
------------ ------------ ------------- ------------ ------------
Other income (expense)
Interest income 249,105 17 34,835 - 9,913
Interest expense (177,424) (18,787) (62,991) (11,869) (31,417)
Finance charges (217,403) - - - -
Other (20,637) (16,469) - (19,714) -
------------ ------------ ------------- ------------ ------------
(166,359) (35,239) (28,156) (31,583) (21,504)
------------ ------------ ------------- ------------ ------------
Loss before extraordinary item (13,253,138) (1,620,959) (4,147,672) (969,144) (1,938,972)
------------ ------------ ------------- ------------ ------------
Extraordinary gain 217,180 - - - -
NET LOSS (13,035,958) (1,620,959) (4,147,672) (969,144) (1,938,972)
------------ ------------ ------------- ------------ ------------
Deduction for dividends and accretion (6,534,221) - (64,360) - -
------------ ------------ ------------- ------------ ------------
Net loss attributable to
common stockholders (19,570,179) (1,620,959) (4,212,032) (969,144) (1,938,972)
============ ============ ============= ============ ============
Net loss per common share -
basic and diluted
Before extraordinary item
and deduction for dividends
and accretion (1.44) (0.09) (0.32) (0.05) (0.14)
Extraordinary gain 0.02 0.00 0.00 0.00 0.00
Deduction for dividends
and accretion (0.71) 0.00 0.00 0.00 0.00
$ (2.12) $ (0.09) $ (0.32) $ (0.05) $ (0.14)
============ ============ ============= ============ ============
Weighted-average number of shares
outstanding - basic and diluted 9,228,479 18,425,830 13,035,217 18,425,830 13,479,105
============ ============ ============= ============ ============
The accompanying notes are an integral part of these financial statements
F-2
4
Logio, Inc.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
amounts Six Months
since ended June 30,
inception 2001 2000
------------- ------------ -------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $(13,035,958) $(1,620,959) $ (4,147,672)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation & amortization 1,279,233 306,415 401,003
Issuance of common stock, warrants and options
for compensation and other expenses 2,945,773 161,405 610,843
Impairment losses 987,372 987,372 -
Bad debt expense 34,169 3,169 -
Loss (gain) on disposal of assets 26,214 23,999 -
Finance charges for stock conversion 217,403 - -
Other adjustment 34,661 34,661 -
Extraordinary gain (217,180) - -
Changes in assets and liabilities
Accounts receivable - - (345)
Interest receivable - - 1,983
Prepaid expenses and other assets - - 137,369
Accounts payable 218,470 (2,135) 274,356
Accrued expenses 18,784 (8,649) 18,222
------------- ------------ -------------
Total adjustments 5,544,899 1,506,237 1,443,431
------------- ------------ -------------
Net cash used in operating activities (7,491,059) (114,722) (2,704,241)
------------- ------------ -------------
Cash flows from investing activities
Purchases of property and equipment (1,462,392) - (91,547)
Proceeds from disposal of assets 11,066 11,066 -
(Increase) decrease in short-term investments - - 1,113,170
Repayment of notes receivable from related parties 117,700 - 1,197
Notes receivable issued to related parties (117,700) - -
Increase in deposits - - 134
------------- ------------ -------------
Net cash provided by (used in)
investing activities (1,451,326) 11,066 1,022,954
------------- ------------ -------------
Cash flows from financing activities
Overdraft in bank 23,766 23,766 -
Proceeds from issuance of common stock 1,909,250 - 907,600
Proceeds from issuance of preferred stock 6,300,000 - -
Repurchase of common stock (91) (91) -
Cash paid for fees associated with preferred
stock issuance (392,100) - -
Net proceeds from issuance of notes payable
to related parties 1,535,013 112,013 500,000
Principal payments under capital lease obligations (635,346) (57,881) (193,624)
Proceeds from issuance of long term obligations
and notes payable 998,682 - -
Principal payments of long-term obligations and
notes payable (796,789) - (254,572)
------------- ------------ -------------
Net cash provided by financing activities 8,942,385 77,807 959,404
------------- ------------ -------------
Net increase (decrease) in cash and
cash equivalents - (25,849) (721,883)
Cash and cash equivalents at beginning of period - 25,849 1,055,371
------------- ------------ -------------
Cash and cash equivalents at end of period $ - $ - $ 333,488
============= ============ =============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 85,890 $ 6,654 $ 63,152
Cash paid for income taxes - - -
Non-cash financing activities:
Purchase of equipment with lease obligations $ 997,824 $ - $ 65,686
Conversion of preferred stock to common stock 63 - 63
Unrealized gain on investments - - 5,540
Dividends on preferred stock 402,277 - 64,360
Issuance of common stock for debt conversion 1,613,345 - -
The accompanying notes are an integral part of these financial statements
F-3
5
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
The Company
- -----------
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 intended to
service the needs of the business professional.
The Company has temporarily ceased the development and operations of its
products and has not produced any significant revenues to date.
The Company was incorporated on November 5, 1996 in the State of Utah under
the name of Redstone Publishing, Inc. During July 1998, the Company merged
with Dunamis, Inc. a public Company organized in the State of California. The
merger was recorded as a reverse acquisition, therefore WordCruncher was the
accounting survivor and the name was changed from Redstone Publishing, Inc. to
WordCruncher Internet Technologies in early 1999.
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 Salt Lake City, Utah.
On April 18, 2000, the Board of Directors approved the change of the Company's
name to Logio, Inc. The change was approved by the Company's stockholders in
June 2000. The Company also amended its articles of incorporation and filed
the appropriate documents with the state of Nevada in June 2000 when the
Company officially changed its name to Logio, Inc.
On February 8, 2001, Pacific WebWorks completed its acquisition of Logio,
Inc., in a stock-for-stock exchange. Pacific WebWorks exchanged 2,800,000
shares of its common stock for 18,425,830 shares of common stock. This
transaction was accounted for on the purchase method of accounting using
generally accepted accounting principles and valued at $2,450,000 representing
the fair value of the Pacific WebWorks shares on the date of exchange.
Logio's results of operations are included in the Pacific WebWorks, Inc.
consolidated results of operations from the acquisition date to June 30, 2001
and the fair value of its assets and liabilities have also been recorded on
the acquisition date and are included in the Pacific WebWorks, Inc.
consolidated balance sheet.
The Company conducts its business within one industry segment.
F-4
6
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for form 10-Q of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting standards have been condensed or omitted pursuant to such
rules and regulations. The accompanying interim consolidated financial
information reflects all adjustments (consisting of normal recurring
adjustments), which, in the opinion of management, are necessary for a fair
presentation of the results for the periods shown. These financial statements
should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000. The results of operations for
the quarter and six months ended June 30, 2001 may not be indicative of the
results that may be expected for the fiscal year ended December 31, 2001.
Certain prior period balances have been reclassified to conform with current
period presentation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Management
believes that the estimates used in preparing the financial statements are
reasonable and prudent; however, actual results could differ from these
estimates. The accompanying unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments, which, in
the opinion of management, are necessary for a fair presentation of the
results for the periods shown. Certain prior period balances have been
reclassified to conform with current period presentation.
Impairment of Long-Lived and Intangible Assets
- ----------------------------------------------
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, which requires that impairment losses be recognized
on such assets when indicators of impairment are discovered and estimated
undiscounted future cash flows to be generated from those assets are less than
their carrying value. As of June 30, 2001, and as a result of certain events
(Notes 2 and 3) and management's assessment of impaired assets due to the
Company's inability to generate cash flows, the Company recorded $987,372 in
losses relating to the impairment of certain long-lived assets.
F-5
7
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
NOTE 2 - MANAGEMENT'S PLANS AND ISSUES AFFECTING LIQUIDITY
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has a limited operating
history and has sustained losses since inception. In addition the Company had
negative cash flows from operations of $114,722 and $2,704,241 during the
six-month periods ended June 30, 2001 and 2000, respectively and $3,956,340
during the year ended December 31, 2000. The company had negative working
capital of $814,776 at June 30, 2001 and $461,437 at December 31, 2000. As a
result, the Company has relied significantly upon equity and debt funding to
support certain of its operations.
In March 2001, the Company became unable to make payment on its payables and
certain of its capital lease agreements related to hardware and
infrastructure. As a result of these defaults, the Company's most significant
debtor obtained possession of the equipment under its lease agreements in May
of 2001 and has filed a complaint for the full amount of the lease balance.
These events have caused impairments related to the loss of the equipment
under capital leases and other long-lived assets related to the equipment to
be recorded during second quarter 2001 (see Note ). Impairment losses
recorded for these events totaled $987,372 for the six months ended June 30,
2001.
The Company may not be able to generate positive cash flows from operations in
the foreseeable future as it is unable to obtain funding from traditional
sources, has ceased operations and development and has no cash balances. In
addition to the lease defaults approximating $440,000, the Company is unable
to pay liabilities approximating $375,000 to various professional services
firms, vendors, the Company's parent and an overdraft in a bank. Based upon
these facts, the Company may be required to seek bankruptcy protection.
There is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect
the possible effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.
NOTE 3 - IMPAIRMENT LOSSES
As discussed in Note 2, in March 2001, the Company was unable to make payment
on some of its capital lease obligations. The Company transferred the
equipment back to the vendor in May 2001. The default on these and other
capital lease obligations, approximating $440,000 at June 30, 2001, results in
impairment losses of $122,685, representing cash down payments by Logio at the
beginning of the leases that were being amortized over the life of the leases
and $788,847 in equipment under capital leases and related software and
equipment. The leases expire through December 2002.
F-6
8
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
NOTE 3 -IMPAIRMENT LOSSES - CONTINUED
In January 2001, the Company was notified by a software vendor that, due to
its default on financing arrangements, the software license was terminated.
The termination of the software license represents an impairment of $75,840
to the net asset and the payable in default of approximately $100,000 is
included in payables past due.
NOTE 4 - STOCK OPTIONS AND WARRANTS
In February 2001 and immediately previous to the completion of the acquisition
of Logio, Inc. by Pacific WebWorks, Inc., approximately 90,000 Logio, Inc.
options were accelerated in their vesting terms in accordance with the terms
of the grant agreements. This acceleration resulted in a $161,405 charge for
the remaining, unearned intrinsic value of the options accelerated.
Also, in February 2001, and in conjunction with the acquisition of the Company
by Pacific WebWorks, Inc., the board of directors of the Company's Parent
converted Logio options to Pacific WebWorks options at a rate of one Pacific
WebWorks option for every 6.6 Logio option held on the date the acquisition
was effectively completed (February 8, 2001).
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Threatened litigation
- ---------------------
As previously discussed, in March 2001, the Company, was unable to make
payment on some of its capital lease obligations. The Company transferred the
equipment back to the vendor in May of 2001. The default on these and other
capital lease obligations totals $440,174. These leases have been classified
as current liabilities in accordance with the terms of default under the lease
agreements. The creditor has filed a complaint pursuant to the default and
seeks the full amount of the default plus legal fees.
The Company is involved in other various disputes and legal claims in the
normal course of business. It is not possible to state the ultimate
liability, if any, in these matters. In the opinion of management, any
resulting litigation will have no material effect on the financial position
and results of operations of the Company in excess of amounts recorded.
Line-of-Credit and Intercompany Agreement
- -----------------------------------------
The Company has entered into a Line-of-Credit and Intercompany Agreement with
Pacific WebWorks, Inc. (its only shareholder and parent company). The Line-of
Credit Agreement, among other things, allows for the advancement of up to
$120,000 as needed at an interest rate of 12%, is collateralized by
substantially all business assets of the Company, and is payable on
F-7
9
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
NOTE 5 - COMMITMENTS AND CONTINGENCIES - CONTINUED
Line-of-Credit and Intercompany Agreement - Continued
- -----------------------------------------------------
demand. The Company will also be charged $1,067 monthly under the
Intercompany Agreement for management related fees and will be paid $1,422
monthly for rental of certain its fixed assets. The equipment may be rented by
Pacific WebWorks, Inc. until such time as Logio, Inc. recommences development
of its Internet products.
F-8
10
In this report references to "Logio," "we," "us," and "our" refer to
Logio, Inc.
FORWARD LOOKING STATEMENTS
This Form 10-Q 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 Form 10-Q 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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Logio, Inc., formerly WordCruncher Internet Technologies, Inc., is the
wholly owned subsidiary of Pacific WebWorks, Inc. In October 2000 we
temporarily ceased our development activities and preliminary operations
related to the Logio business directory and directory services due to funding
constraints and in anticipation of our acquisition by Pacific WebWorks in
February 2001. We are not actively marketing any products and the production
and operation of a portal or directory have been discontinued.
Results of Operations
The following discussions are based on our consolidated financial
statements included with this report. Comparisons are presented for the three
(the second quarter) and six month periods ended June 30, 2001 and 2000.
Gross profit. We had no revenues, cost of sales or gross profit for the
second quarter and six month period ended June 30, 2001, because we
temporarily discontinued operations of our portal and directory services and
the logio.com site. The revenues of $1,534 in the 2000 second quarter and six
month period were derived from sales of advertising on the Logio site. The
$300,746 costs of sales for the 2000 second quarter and six month period
included the cost of services, hosting, support and monitoring related to the
logio.com site. As a result of the cost of sales we recorded a gross loss of
$299,212 for the 2000 second quarter and six month period.
Research and development expenses. For the 2001 six month period and
second quarter research and development expenses were only $12,072 and $100,
respectively. In the 2001 six month period quarter these expenses were only
0.8% of our total operating expenses and less than 1% for the 2001 second
quarter. For the 2000 six month period research and development expenses of
$1,558,834 were 40.8% of our total operating expenses and for the 2000 second
quarter $645,983 of these expenses were 39.9% of total operating expenses.
These expenses were primarily related to the development launch of our Logio
site, which involved a number of employees and consultants engaged in
continued site and directory development and enhancement and the retention of
other third party service providers related to other site content.
Selling and marketing expenses. We did not record any of these type of
expenses during the 2001 six month period and second quarter. These expenses
were 16.4% and 11.9% of total operating expenses in the 2000 six month period
and 2000 second quarter, respectively. Selling and marketing expenses were
related primarily to compensation to employees for strategic marketing,
content, public relations and for other consultants and third party services.
General and administrative expense. These expenses consist of all
finance and administrative salaries and
11
benefits, rental of office space, professional fees and other general office
expenses. General and administrative expenses were 7.5% of total operating
expenses for the 2001 six month period compared to 17.0% of total operating
expenses for the 2000 six month period. For the 2001 and 2000 second quarter
these expenses were 5.5% and 22.2% of total operating expenses, respectively.
Depreciation and amortization. These expenses were 19.3% of our total
operating expenses for the 2001 six month period and 10.4% for the 2001 second
quarter compared to 10.5% and 12.7% of our total operating expenses for the
2000 six month period and 2000 second quarter, respectively. These expenses
were a result of the purchase of computer equipment and software technology,
mostly on capital lease agreements, and the related depreciation charges. The
computer equipment and software were required to launch and maintain the Logio
site and related Logio directory and we remain obligated under these
agreements even though we have ceased these activities.
Compensation expense for stock options. 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.
Compensation expenses decreased $419,438 for the 2001 six month period
compared to the 2000 six month period. The overall decrease in compensation
expenses for stock options represents the forfeiture of options during 2000,
management's efforts to discontinue granting of options at an exercise price
less than fair market value, and the completion of vesting periods for certain
employee options. Compensation expense was 10.2% of total operating expenses
in the 2001 six month period compared to 15.4% of total operating expenses for
the 2000 six month period. These expenses for the 2001 six month period
relate to options to purchase 90,000 Logio common shares which were
accelerated per the terms of the grant agreements prior to the completion of
our acquisition by Pacific WebWorks. This charge reflects the unearned
intrinsic value of the accelerated options. We did not record any of these
expenses in the 2001 second quarter and such expenses were 13.3% of total
operating expenses in the 2000 second quarter.
Impairment losses. For the 2001 six month period, impairment losses of
$987,372 accounted for 62.3% of our total operating expenses and for the 2001
second quarter they were $788,847, or 84.1% of our total operating expenses.
These impairment losses are discussed in more detail in "Liquidity and
Capital Resources," below.
Total operating expenses. Due to the lack of operations in the 2001
second quarter and six month period our total operating expenses dropped
$2,234,584 for the 2001 six month period compared to the 2000 six month period
and dropped $680,695 for the 2001 second quarter compared to the 2000 second
quarter.
Other income or expense. For the 2001 six month period other expenses
increased $7,083 compared to the 2000 comparable period. This increase was
the result of a drop in interest income and an increase in other expenses
related to the sale or abandonment of fixed assets.
Net loss. We recorded a net loss of $1,620,959 for the 2001 six month
period and a loss of $969,144 for the 2001 second quarter compared to a net
loss of $4,212,032 for the 2000 six month period and $1,938,972 for the 2000
second quarter. The loss per share was $0.09 and $0.05, respectively, for the
2001 six month and second quarter compared to $0.32 and $0.14, respectively,
for the 2000 six month and second quarter.
Liquidity and Capital Resources
At the six month period ended June 30, 2001 we had no cash on hand and no
total current assets compared to $25,849 cash on hand and total current assets
of $29,018 at the year ended December 31, 2000. Our total current liabilities
were $814,776 at the 2001 six month period compared to $490,455 at the 2000
fiscal year. Our accumulated deficit is $19,570,179 as of June 30, 2001. We
have had a limited operating history, have recorded losses since our inception
and have relied upon equity and debt funding to support our operations. We
may be unable to generate positive cash flows from operations in the
foreseeable future. These factors raise substantial doubt that we can
continue as a going concern.
12
We have no material commitments for capital expenditures for the next
twelve months and our major obligations are related to capital lease
agreements which are in default and $1,067 owed for monthly management fees to
Pacific WebWorks. Net cash used in operating activities for the six month
period ended June 30, 2001, was $114,722 compared to $2,704,241 for the 2000
six month period. Net cash provided by investing was $11,066 in the 2001
period compared to $1,022,954 for the 2000 period. Net cash provided by
financing activities was $77,807 for the 2001 period and was primarily the
result of issuance of $112,013 in notes payable to related parties and a bank
overdraft of $23,766. For the 2000 period $959,404 net cash was provided by
financing activities primarily from the issuance of notes payable for $500,000
and proceeds of $907,600 from the issuance of common stock
In March 2001 we were unable to make payments on our payables and capital
lease agreements related to hardware and our operating infrastructure, which
resulted in defaults under those agreements. Accordingly, we have recorded
impairment losses of $987,372 for the 2001 six month period. We defaulted on
a licensing agreement with Oracle Corporation and may no longer rely on that
software license. We have recorded an impairment loss of $75,840 to the net
asset and recorded a payable in default of approximately $100,000. We also
defaulted on capital lease agreements with Sun Microsystems Finance from whom
we leased the server equipment necessary to host our web site. We returned
the equipment to Sun Microsystems in May 2001; however, Sun Microsystems'
assignee has initiated a legal action to collect the full amount of the lease
balance. (See, Part II, Item 1: "Legal Proceedings," below.). Accordingly,
our financials show impairment losses of $122,685, representing the cash down
payments Logio made at the beginning of the leases which were amortized over
the life of the lease, and $788,847 related to losses for equipment under
capital leases and related software and equipment. Management intends to
negotiate settlements of the defaults, but cannot ensure that we will be
successful in such negotiations.
In addition to defaults approximating $440,000, we are unable to pay
liabilities of approximately $375,000 to various professional services firms,
vendors, Pacific WebWorks and an overdraft in a bank account. In January 2001
we obtained a line of credit of $120,000 from our parent corporation, Pacific
WebWorks. Pursuant to the agreement we would receive advancements up to
$120,000 at 12% interest with the advancements collateralized by all the
business assets of Logio. We agreed to pay management fees of $1,067 per
month to Pacific WebWorks and Pacific WebWorks agreed to rent certain of our
fixed assets for $1,422 per month.
Based upon our inability to satisfy our obligations we may be required to
seek bankruptcy protection if we are unable to obtain other financing.
Management expects to resume development and operations in the future when
sufficient funding is available; however, management cannot predict when or if
such funding may be obtained.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
In June 2001 Sunrise International Leasing Corporation, a Minnesota
corporation and assignee of Sun Microsystems Finance, filed a complaint in the
Fourth District Court, County of Hennepin, of the State of Minnesota, related
to the default under the equipment lease agreement between Logio and Sun
Microsystems. Sunrise International is seeking damages of $444,589.40 and
costs and reasonable attorney fees. Management intends to answer the
complaint and will attempt to negotiate a settlement of this matter. Further
action on the part of Logio will be largely determined by the outcome of these
settlement discussions.
13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Part II Exhibits.
Exhibit Description
- ------- -----------
2.1 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. (Incorporated by
reference to exhibit 3.6 to Form 10-K, filed April 17, 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 (Incorporated by reference to exhibit 10.4 of Form
S-1, File No. 333-78537, as amended)
10.2 Employment Agreement between Logio and James W. Johnston, dated
September 1, 1998 (Incorporated by reference to exhibit 10.5 of Form
S-1, File No. 333-78537, as amended)
10.3 Lease Agreement between Logio and Sun Microsystems Finance, as
amended (incorporated by reference to exhibit 10.3 of Form 10-Q,
filed May 15, 2001)
10.4 License Agreement between Logio and Oracle Corporation (incorporated
by reference to exhibit 10.4 of Form 10-Q, filed May 15, 2001)
10.5 Line of Credit and Inter-company Agreement between Logio and Pacific
WebWorks, dated January 2, 2001
(b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Logio, Inc.
8/13/01 /s/ Kenneth W. Bell
Date: _____________________ By: ________________________________________
Kenneth W. Bell, President and Director
8/13/01 /s/ Thomas R. Eldredge
Date:______________________ By: ______________________________________________
Thomas R. Eldredge, Secretary and Director