UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2002
[ ] 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 small business issuer as specified in its charter)
Nevada 84-1370590
(State of incorporation) (I.R.S. Employer Identification No.)
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
(Address of principal executive offices and principal place of business)
(801) 578-9020
(Issuer's telephone number)
Check whether the issuer (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 8, 2002, the issuer 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.
1
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements ..............................................3
Item 2: Plan of Operations.................................................11
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports filed on Form 8-K ............................11
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, 2002 and
2001, is unaudited. This financial information, in the opinion of management,
includes all adjustments consisting of normal recurring entries necessary for
the fair presentation of such data. The results of operations for the six
month period ended June 30, 2002, are not necessarily indicative of results to
be expected for any subsequent period.
2
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
------------- --------------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ - $ -
PROPERTY & EQUIPMENT, net 58,077 91,791
------------- --------------
$ 58,077 $ 91,791
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of long-term capital
lease obligations $ - $ 460
Capital leases past due 438,648 438,373
Overdraft in bank 23,766 23,766
Payables - past due 177,174 213,688
Accrued expenses 40,055 32,018
Note payable -parent company 148,554 135,713
------------- --------------
Total current liabilities 828,197 844,018
STOCKHOLDERS' DEFICIT
Preferred stock - -
Common stock 18,426 18,426
Additional paid-in capital 18,893,398 18,893,398
Deficit accumulated during the development stage (19,681,853) (19,663,960)
Treasury stock (91) (91)
------------- --------------
Total stockholders' deficit (770,120) (752,227)
------------- --------------
$ 58,077 $ 91,791
============= ==============
The accompanying notes are an integral part of these financial statements
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 2002 2001 2002 2001
------------- ------------- ------------- ------------ -------------
Net revenues $ 147,273 $ - $ - $ - $ -
------------- ------------- ------------- ------------ -------------
Cost of sales 478,813 - - - -
------------- ------------- ------------- ------------ -------------
Gross profit (loss) (331,540) - - - -
------------- ------------- ------------- ------------ -------------
Research and development 3,361,201 - 12,072 - 100
Selling and marketing expenses 1,651,787 - - - -
General and administrative 3,221,589 4,254 118,456 1,294 51,305
Depreciation and amortization 1,377,485 33,714 306,415 13,285 97,309
Compensation expense for stock options 2,274,605 - 161,405 - -
Impairment losses 987,372 - 987,372 - 788,847
------------- ------------- ------------- ------------ -------------
Total operating expenses 12,874,039 37,968 1,585,720 14,579 937,561
------------- ------------- ------------- ------------ -------------
Loss from operations (13,205,579) (37,968) (1,585,720) (14,579) (937,561)
------------- ------------- ------------- ------------ -------------
Other income (expense)
Interest income 249,105 - 17 - -
Interest expense (220,058) (16,441) (18,787) (4,871) (11,869)
Finance charges (217,403) - - - -
Other 29,123 36,516 (16,469) 36,516 (19,714)
------------- ------------- ------------- ------------ -------------
(159,233) 20,075 (35,239) 31,645 (31,583)
------------- ------------- ------------- ------------ -------------
Loss before extraordinary item (13,364,812) (17,893) (1,620,959) 17,066 (969,144)
------------- ------------- ------------- ------------ -------------
Extraordinary gain 217,180 - - - -
NET LOSS (13,147,632) (17,893) (1,620,959) 17,066 (969,144)
------------- ------------- ------------- ------------ -------------
Deduction for dividends and accretion (6,534,221) - - - -
------------- ------------- ------------- ------------ -------------
Net loss attributable to
common stockholders $(19,681,853) $ (17,893) $ (1,620,959) $ 17,066 $ (969,144)
============= ============= ============= ============ =============
Net loss per common share -
basic and diluted
Before extraordinary item
and deduction for dividends
and accretion $ (1.23) $ - $ (0.09) $ - $ (0.05)
Extraordinary gain 0.02 - - - -
Deduction for dividends
and accretion (0.60) - - - -
------------- ------------- ------------- ------------ -------------
$ (1.81) $ - $ (0.09) $ - $ (0.05)
============= ============= ============= ============ =============
Weighted-average number of shares
outstanding - basic and diluted 10,857,765 18,425,830 18,425,830 18,425,830 18,425,830
============= ============= ============= ============ =============
The accompanying notes are an integral part of these financial statements
4
<TABLE
Logio, Inc.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
amounts Six Months
since ended June 30,
inception 2002 2001
------------- -------------- --------------
<s> <c> <c> <c>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $(13,147,632) $ (17,893) $ (1,620,959)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation & amortization 1,377,485 33,714 306,415
Issuance of common stock, warrants and options
for compensation and other expenses 2,945,773 - 161,405
Impairment losses 987,372 - 987,372
Bad debt expense 34,169 - 3,169
Loss (gain) on disposal of assets 26,215 - 23,999
Finance charges for stock conversion 217,403 - -
Other adjustment 34,936 275 34,661
Extraordinary gain (217,180) - -
Changes in assets and liabilities
Accounts receivable - - -
Interest receivable - - -
Prepaid expenses and other assets - - -
Accounts payable 177,174 (36,514) (2,135)
Accrued expenses 40,055 8,037 (8,649)
------------- -------------- --------------
Total adjustments 5,623,402 5,512 1,506,237
------------- -------------- --------------
Net cash used in operating activities (7,524,230) (12,381) (114,722)
------------- -------------- --------------
Cash flows from investing activities
Purchases of property and equipment (1,462,392) - -
Proceeds from disposal of assets 11,066 - 11,066
(Increase) decrease in short-term investments - - -
Repayment of notes receivable from related parties 117,700 - -
Notes receivable issued to related parties (117,700) - -
Increase in deposits - - -
------------- -------------- --------------
Net cash provided by (used in) investing activities (1,451,326) - 11,066
------------- -------------- --------------
Cash flows from financing activities
Overdraft in bank 23,766 - 23,766
Proceeds from issuance of common stock 1,909,250 - -
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) - -
Proceeds from issuance of note payable to parent 148,554 12,841 112,013
Payments on capital lease obligations (627,168) - (57,881)
Proceeds from issuance of long term obligations
and notes payable 2,421,682 - -
Principal payments of long-term obligations and notes payable (808,337) (460) -
------------- -------------- --------------
Net cash provided by financing activities 8,975,556 12,381 77,807
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents - - (25,849)
Cash and cash equivalents at beginning of period - - 25,849
------------- -------------- --------------
Cash and cash equivalents at end of period $ - $ - $ -
============= ============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 189,257 $ - $ 6,654
Cash paid for income taxes - - -
Non cash financing activities:
Conversion of debt to stock $ 1,613,345 $ - $ -
Purchase of equipment with lease obligations 1,065,816 - -
Payment of stock dividend to preferred shareholders 64,360 - -
Unrealized gain on securities 7,940 - -
The accompanying notes are an integral part of these financial statements
5
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(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 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. The name was changed from Redstone
Publishing, Inc. to WordCruncher Publishing Technologies, Inc. in early 1997.
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.
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, Inc. 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 approximately
$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 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.
6
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION - Continued
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for form 10-QSB 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 ended June 30, 2002 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. Such
estimates include amounts recorded for contingent liabilities, capital leases
in default and interest payable. Management believes that the estimates used
in preparing the financial statements are reasonable and prudent; however,
actual results could differ from these estimates.
7
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(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. The development of the
Company's products has ceased. In addition the Company had negative cash
flows from operations of $12,381 and $114,722 during the six-month periods
ended June 30, 2002 and 2001 respectively and $135,512 during the year ended
December 31, 2001. The company had negative working capital of $828,197 at
June 30, 2002 and $844,018 at December 31, 2001. As a result, the Company has
relied significantly upon debt funding from its parent to support certain of
its obligations.
In 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 creditor obtained
possession of the equipment under its lease agreements in 2001. 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 2001. Impairment losses recorded for these events totaled $987,372 and
$788,847 for the six months and three months ended June 30, 2001,
respectively.
The Company will 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 $439,000, the Company is unable
to pay liabilities approximating $390,000 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.
8
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Threatened litigation
- ---------------------
The Company is involved in various disputes 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. During June 2002, due to management's belief that
a threatened dispute with a vendor is no longer a risk to the Company, an
estimate of approximately $38,000 for the contingent liability was changed to
a zero balance in June 2002. The amount has been recorded as other income for
the six months and three months ended June 30, 2002
Line-of-Credit and Intercompany Agreement - related party
- ---------------------------------------------------------
The Company has entered into a Line-of-Credit and Intercompany Agreement with
Pacific WebWorks, Inc. (its beneficial 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-demand.
The balance of the line-of-credit totaled $148,554 and $135,713 as of June 30,
2002 and December 31, 2001, respectively, which is in excess of the agreed
upon amount.
The Company is also charged $1,067 monthly under the Intercompany Agreement
for management related fees and records income of $1,422 monthly for rental of
certain its fixed assets. The equipment may be rented by Pacific WebWorks
until such time as Logio, Inc. re-commences development of its Internet
products.
Intercompany transactions under the Line-of Credit and Intercompany Agreement
during the six months ended June 30, 2002 and 2001 are as follows:
2002 2001
---------- --------
Management fee expense $ 6,402 $ 6,402
Rental Income (8,532) (8,532)
Interest expense 8,587 7,834
---------- ---------
Net intercompany transactions $ 6,457 $ 1,290
========== =========
9
Logio, Inc.
A wholly owned subsidiary of Pacific WebWorks, Inc.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
NOTE 4 - SUBSEQUENT EVENTS
Discontinued operations
- -----------------------
In July 2002 and though the Company has already ceased its development and
operations, the Board of Directors of Pacific WebWorks, Inc. resolved to
formally discontinue the operations of its wholly owned subsidiary Logio, Inc.
The Company will further attempt to receive forgiveness of the majority of its
remaining debts and to settle its line-of-credit with the parent company prior
to its eventual sale or disposal.
10
In this report references to "Logio," "we," "us," and "our" refer to
Logio, Inc.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements and any
statements contained in this 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; and failure of
Logio to continue business development, recommence product development and
operations and to successfully develop business relationships.
ITEM 2: PLAN OF OPERATIONS
We have a limited operating history, have sustained losses since
inception and have ceased development of our products. At June 30, 2002, we
had no cash on hand and net property and equipment of $58,077 compared to no
cash on hand and net property and equipment of $91,791 at the year ended
December 31, 2001. Our total current liabilities were $828,197 at June 30,
2002 compared to $844,018 at the 2001 year end. Our accumulated deficit was
$19,681,853 as of June 30, 2002.
In July 2002, the Board of Directors of Pacific WebWorks, our parent
company, resolved to discontinue our operations. Our parent company intends
to actively seek a potential acquisition or merger candidate for us. Based on
current economic and regulatory conditions, management believes that it is
possible, if not probable, for a company like ours, which is a reporting
company without many assets and liabilities, to negotiate a merger or
acquisition with a viable private company. The opportunity arises principally
because of the high legal and accounting fees and the length of time
associated with the registration process of "going public." However, should
any of these conditions change, it is very possible that there would be little
or no economic value for anyone taking over control of Logio.
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, payables past due and notes payable to our
parent corporation. During the next twelve months our management will attempt
to receive forgiveness of the majority of our remaining debts. These debts
include approximately $439,000 in capital lease defaults and approximately
$390,000 in liabilities to various professional services firms, vendors, our
parent company and an overdraft in a bank. If management is not successful in
these negotiations, we may be required to seek bankruptcy protection.
We believe that our current cash needs for the next twelve months are
limited and can be met by loans from our parent company. We have relied on a
line-of-credit agreement with our parent company for funding, but we have
exceeded the agreed upon limit of $120,000. As of June 30, 2002, we owe
$148,554 on this line-of-credit, with 12% interest. Our intercompany
agreement with our parent corporation provides that we pay $1,067 per month in
management fees, but we rent our equipment to our parent company for $1,422 a
month. The intercompany transactions resulted in net expense of $6,457 during
the six month period ended June 30, 2002.
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Part II Exhibits
Exhibit No. Description
- ---------- -----------
11
2.1 Agreement and Plan of Reorganization between Logio and Pacific
WebWorks, Inc., dated October 31, 2000 (Incorporated by reference
to exhibit 2.2 to Form 10-K filed April 17, 2001)
3.1 Articles of Incorporation as amended (Incorporated by reference to
exhibit 3.1 to Form 10-Q filed November 14, 2001)
3.2 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 (Incorporated by reference
to exhibit 10.5 of Form 10-Q filed August 13, 2001)
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Logio, Inc.
Date: 8/14/02 By: /S/ Kenneth W. Bell
-----------------------------------------------
Kenneth W. Bell
President, Secretary/Treasurer, Principal
Financial and Accounting Officer, and Director