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We currently have a patent application pending in the United States Patent
and Trademark Office. The patent applied for is a process to aggregate, print
and distribute out-of-stock and out-of-print books. That patent application was
filed on August 17, 1999. There can be no assurance that any patent applications
will result in patents being issued, or that the resulting patents, if any, will
provide protection against competitors who successfully challenge our patents,
obtain patents that may have an adverse effect on our ability to conduct
business or are able to circumvent our patent position.
GOVERNMENT REGULATIONS
There are an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted relating to issues such as
liability for information retrieved from or transmitted over the Internet,
online content regulation, user privacy, taxation and quality of products and
services. Moreover, it may take years to determine whether and how existing laws
such as those governing intellectual property ownership and infringement,
privacy, libel, copyright, trade mark, trade secret, obscenity, personal
privacy, taxation and the regulation of the sale of other specified goods and
services apply to the Internet. The requirement that we comply with any new
legislation or regulation, or any unanticipated application or interpretation of
existing laws, may decrease the growth in the use of the Internet, which could
in turn decrease the demand for our Internet-based services, increase our cost
of doing business or otherwise materially harm our business.
Federal, state and foreign governments have enacted or may enact laws or
consider regulations regarding the collection and use of personal identifying
information obtained from individuals when accessing websites, with particular
emphasis on access by minors. Such regulations may include requirements that
companies establish procedures to:
o give adequate notice to consumers regarding information collection and
disclosure practices;
o provide consumers with the ability to have personal identifying
information deleted from a company's data;
o provide consumers with access to their personal information and with
the ability to rectify inaccurate information;
o clearly identify affiliations or a lack thereof with third parties
that may collect information or sponsor activities on a company's
website;
o obtain express parental consent prior to collecting and using personal
identifying information obtained from children; and
o comply with the Federal Children's Online Privacy Act.
Such regulation may also include enforcement and redress provisions. While
we have implemented programs designed to enhance the protection of the privacy
of our users, including children, there can be no assurance that such programs
will conform to applicable laws or regulations. Moreover, even in the absence of
such regulations, the Federal Trade Commission has begun investigations into the
privacy practices of companies that collect information on the Internet. One
such investigation has resulted in a consent decree pursuant to which an
Internet company agreed to establish programs to implement the privacy
safeguards described above. We may become subject to such an investigation, or
the FTC's regulatory and enforcement efforts may adversely affect the ability to
collect demographic and personal information from users, which could have an
adverse effect on the our ability to provide highly targeted opportunities for
advertisers and e-commerce marketers. Any such developments could harm our
business.
It is also possible that "cookies" may become subject to laws limiting or
prohibiting their use. The term "cookies" refers to information keyed to a
specific server, file pathway or directory location that is
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stored on a user's hard drive, possibly without the user's knowledge, and which
is used to track demographic information and to target advertising. Some of the
currently available Internet browsers allow users to modify their browser
settings to remove cookies or prevent cookies from being stored on their hard
drives. In addition, a number of Internet commentators, advocates and
governmental bodies in the United States and other countries have urged the
passage of laws limiting or abolishing the use of cookies. Limitations on or
elimination of the use of cookies could limit the effectiveness of our targeting
of advertisements, which could harm our ability to generate advertising revenue.
We currently obtain and retain personal information about our Web site
users with their consent. We have a stringent privacy policy covering this
information. However, if third persons were able to penetrate our network
security and gain access to, or otherwise misappropriate, our users' personal
information, we could be subject to liability. Such liability could include
claims for misuses of personal information, such as for unauthorized marketing
purposes or unauthorized use of credit cards. These claims could result in
litigation, our involvement in which, regardless of the outcome, could require
us to expend significant financial resources.
Data Protection. Legislation pending in Congress, if passed, would afford
broader rights to owners of databases of information, such as stock quotes and
sports scores. Such protection already exists in the European Union. If enacted,
this legislation could result in an increase in the price of services that
provide data to websites. In addition, such legislation could create potential
liability for unauthorized use of such data.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet and some
states have taken measures to tax Internet-related activities. Although Congress
recently placed a three-year moratorium, due to expire in October 2001, on state
and local taxes on Internet access or on discriminatory taxes on e-commerce,
existing state or local laws were expressly excepted from this moratorium.
Further, once this moratorium is lifted, some type of federal or state taxes may
be imposed upon Internet commerce. Such legislation or other attempts at
regulating commerce over the Internet may substantially impair the growth of
commerce on the Internet and, as a result, adversely affect our opportunity to
derive financial benefit from such activities.
Jurisdiction. Due to the global reach of the Internet, it is possible that,
although our transmissions over the Internet originate primarily in the
Commonwealth of Massachusetts, the governments of other states and foreign
countries might attempt to regulate Internet activity and our transmissions or
take action against us for violations of their laws.
CUSTOMERS
One customer, Barnes and Noble College Bookstores, Inc., accounted for 29%
and 66% of net sales for the twelve months ended December 31, 2000 and 1999,
respectively. No other single customer represented 10% or more of sales during
2000 or 1999.
EMPLOYEES
As of April 30, 2001, we have a total of 40 employees, of which 35 are
full-time. The Company's success is highly dependent on its ability to attract
and retain qualified employees. To date, the Company believes it has been
successful in its efforts to recruit qualified employees, but there can be no
assurance that it will continue to be successful in the future. None of our
employees are subject to collective bargaining agreements and we consider our
relations with our employees to be good.
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ITEM 2. DESCRIPTION OF PROPERTY
Our primary operations are located in Woburn, Massachusetts. We currently
occupy approximately 10,685 square feet of commercial space in a modern
industrial office park under a lease expiring on September 14, 2004. The lease
terms include an annual base rent of $146,005 per year plus a proportionate
share of certain operating costs. The total rent expense on this facility was
$152,738 in 2000. The Company's offices have the capacity to accommodate
approximately 70 employees.
The Company also rents office space in Chapel Hill, North Carolina. An
office and a reception area occupy 283 square feet in a commercial building
within walking distance of the University of North Carolina campus. The lease
terms include an annual base rent of $4,245 per year, which includes taxes and
insurance. The office presently accommodates two employees and could accommodate
three employees.
ITEM 3. LEGAL PROCEEDINGS
On September 29, 2000 Advizex Technologies, LLC ("Advizex") filed a
complaint against booktech.com, inc. in Middlesex County (MA) Superior Court
alleging breach of the terms of our contracts with them in the amount of
$408,000. On October 6, 2000 we made a partial payment of $124,000 to Advizex.
On October 11, 2000 Advizex allowed us an extension through November 29, 2000 to
file a response to their complaint. We filed our response on April 18, 2001. The
judge delayed further court proceedings to allow Advizex and us additional time
to resolve the matter out-of-court. The Company intends to enter into a Consent
Judgment which will require the Company to pay $120,000 in cash beginning in
July 2001 in equal installments over a twelve month period. In addition, the
Company will be required to issue shares of restricted stock to Advizex with an
aggregate value of $120,000 based on the $.73 price per share.
We may from time to time become a party to various other legal proceedings
arising in the ordinary course of our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fourth quarter of the fiscal year covered by this report.
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PART II.
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Since April 5, 2000, our common stock has traded on the American Stock
Exchange ("AMEX") under the symbol "BTC". On April 23, 2001, the AMEX halted
trading of our common stock as a result of our failure to file this Form 10-KSB.
The following table sets forth the high and low sales price information for our
common stock on the AMEX for the periods indicated.
BTC Sales Prices for the Three Months Ended
-------------------------------------------
June 30, September 30, December 31, March 31,
2000 2000 2000 2001
---- ---- ---- ----
High $10.00 $4.38 $4.25 $1.94
Low 2.50 2.00 .94 .85
The closing price for the common stock was $.73 on April 23, 2001.
From November 1999 to April 4, 2000, our common stock was listed on the
Over-The-Counter Bulletin Board Market ("OTCBB") under the symbol "EBGV". Prior
to November 1999 there was no market for our common stock. The following table
sets forth the high and low bid price information for the common stock as
reported on the OTCBB for the periods indicated. The quotations reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
represent actual transactions.
EBGV Bid Price Information
--------------------------
November 1999 to January 1, 2000 to
December 31, 2000 March 31, 2000
----------------- --------------
High No trades of EBGV $7.00
Low Common stock 3.93
HOLDERS
As of April 30, 2001, there were approximately 400 holders of record of our
common stock. In addition, there were an estimated 2,000 additional beneficial
owners of our common stock whose shares were held in street name by brokerage
houses.
DIVIDENDS
The Company has not paid any cash dividends on the common stock and does
not anticipate or contemplate paying cash dividends on the common stock in the
foreseeable future. The payment by us of dividends, if any, in the future rests
within the discretion of our Board of Directors and will depend, among other
things, upon our earnings, capital requirements and financial condition, as well
other relevant factors. It is the present intention of management to utilize all
available funds for the development of our business.
The only restrictions that limit the ability to pay dividends on the common
stock are those imposed by law. Under Nevada corporate law, no dividends or
distributions may be made which would render the Company insolvent or reduce
assets to less than the sum of liabilities plus the amount needed to satisfy any
liquidation preference.
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RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS
On March 31, 2001, the Company issued 1,000 shares of common stock and an
option to purchase 2,000 shares of common stock to Barry Romeril, one of its
directors, and to Sherry Turkle, one of its directors.
As of March 22, 2001, in connection with the equity line of credit
described in the section entitled "Financial Condition, Liquidity and Capital
Resources" the Company is required to issue 250,000 shares of its common stock
to Yorkeville Advisors, Management, LLC for no consideration. These shares will
be issued pursuant to Regulation D under the Securities Act of 1933 ("the
Securities Act."). At the date of this report, no shares have been issued to
Yorkeville.
On March 15, 2001, the Company offered to issue 500,000 shares of its
common stock to Dutchess Advisors, Ltd. ("Dutchess") as consideration for their
advisory services in connection with the Company's current efforts to secure
additional financing through a private placement. The shares will be issued
pursuant to Regulation D under the Securities Act, as amended. Of the total
shares that could be issued, 100,000 shares contain piggyback registration
rights. At the date of this report the Company has rescinded the offer and no
shares have been offered to Dutchess. An additional finder's fee may be paid in
cash to Dutchess upon completion of a private placement transaction.
On February 8, 2001, the Company sold 40,000 shares of its common stock to
Phil Burgess, an accredited investor, for $20,000. The issuance was made
pursuant to Regulation D of the Securities Act.
On August 2, 2000, the Company purchased the customer list of Copytron,
Inc. ("Copytron") for an initial cost of $1.0 million, including $100,000
payable in cash, $200,000 in promissory notes and the balance payable in shares
of the Company's common stock. Accordingly, the Company issued 238,298 shares of
its common stock pursuant to Regulation D of the Securities Act with an
aggregate fair market value of $700,000 at closing as payment of the first
tranche pursuant to the purchase agreement. On the one year anniversary of the
agreement, and in the event that the fair value of the Company's common stock is
less than the fair market value, as defined in the agreement, the Company is
obligated to pay, either in cash or in common stock at the discretion of the
Company, an amount, which when combined with the value of the original issuance
of the Company common stock, has an aggregate value of $700,000. The Company
intends to satisfy this requirement by issuing additional shares of common
stock. As calculated using the April 23, 2001 fair market value of the Company's
common stock, the Company would be obligated to issue an additional 720,000
shares. In addition, pursuant to the terms of the purchase agreement, in the
event that certain annual sales targets are met, the Company may be required to
issue additional shares of common stock on August 2, 2001 and 2002, with each
issuance having a then current fair market value of up to $150,000.
On May 31, 2000, the Company issued:
(i) 1,500 shares of common stock and an option to purchase 2,000 shares of
common stock share to Barry Romeril, one of its Directors, in
accordance with his appointment; and
(ii) 1,000 shares of common stock and an option to purchase 2,000 shares of
common stock to Sherry Turkle, one of its Directors, in accordance
with her appointment.
On March 31, 2000, in conjunction with the Merger, the Company sold
4,666,667 shares of its common stock at $1.50 per share, including warrants to
purchase an additional 833,333 shares of its common stock at $1.50 per share, to
accredited investors pursuant to Regulation D under the Securities Act, for an
aggregate purchase price of $7,000,000, including conversion of the notes
payable, advances and accrued interest owed to Verus Investments Holdings, Inc.;
there were no underwriting discounts, commissions or other sales expenses
incurred in connection with this transaction. The $5,000,000 in net cash
proceeds received at the time of the Merger from the sale of the securities was
used for working capital and general corporate purposes. The shares were issued
to the following investors:
No. of Shares
Investor Name Purchased
------------- ---------
John Devries 488,000
Miriam Holdings Ltd 486,000
Gimby Enterprises Ltd. 483,000
Sovereign Services Limited 478,700
Finanzberatung Ltd. 475,000
Kristoff Kossuth 473,000
Antonia Croy 420,000
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Anteris Limited 382,000
Delta Realty Limited 291,500
Verus Investment Holdings Ltd. 244,467
Ajmal Khan 200,000
Green Crescent Corporation 70,000
Arshad Khan 50,000
Pashleth Investment Ltd. 50,000
Marousa Dumaresq 30,000
Sam Belzberg 25,000
Blair M. Duncan 10,000
Edacorp Limited 10,000
------
Total 4,666,667
=========
On March 31, 2000, also in conjunction with the Merger, the Company:
(a) Issued 7,520,690 shares of its common stock and 1,100,000 shares of its
Series B Preferred Stock to the former stockholders of booktechmass in
exchange for all 25,000 shares of common stock of booktechmass issued and
outstanding as of the effective time of the Merger;
(b) Issued 2,135,301 shares of its Series A Preferred Stock in exchange for
debt and accrued interest totaling $3,216,171 owed by booktechmass to
certain related parties;
(c) Issued 172,414 shares of common stock to Steve Encarnacao, its Chief
Marketing Officer (converted to non-employee status on October 31, 2000)
and issued an option to purchase 172,414 shares of its common stock at an
exercise price of $.58 per share in exchange for all of his options to
purchase common stock in booktechmass;
(d) Granted 166,667 shares of common stock which vest on January 17, 2001 to
Joseph Short, its Chief Education Officer, and issued an option to purchase
166,667 shares of its common stock at an exercise price of $1.25 per share,
in exchange for all of his options to purchase common stock in
booktechmass;
(e) Issued 1,379,310 shares of its common stock to the stockholders of
Virtuosity Press LLC as consideration for the acquisition of certain
technology and a patent application;
(f) Issued an option to purchase 344,828 shares of its common stock at an
exercise price of $.29 per share to Ted Bernhardt, its Chief Financial
Officer, in exchange for all of his options to purchase common stock in
booktechmass;
(g) Issued an option to purchase 344,828 shares of its common stock at an
exercise price of $.58 per share to Tom Delano, its Chief Business
Development and Public Relations Officer, in exchange for all of his
options to purchase common stock in booktechmass;
(h) Issued an option to purchase 344,828 shares of its common stock to Steven
Lewers, its Chief Trade Book Officer, at an exercise price of $.58 per
share, in exchange for all of his options to purchase common stock in
booktechmass;
(i) Issued an option to purchase 330,334 shares of its common stock to October
Ivins, its Chief Knowledge Officer, at an exercise price of $.66 per share,
in exchange for all of her options to purchase common stock in
booktechmass;
(j) Issued an option to purchase 66,667 shares of its common stock to Morris A.
Shepard, its then President and Chief Executive Officer, at an exercise
price of $1.50 per share.
All of the issuances set forth in (a) through (j) above were made pursuant to
Section 4(2) of the Securities Act.
On September 30, 1999, booktechmass issued 5,000 shares of its common
stock to the following stockholders in exchange for debt totaling $500,000 owed
by the Company. The issuance was made pursuant to Regulation D of the Securities
Act.
No. of Shares
Investor Name Purchased
------------- ---------
Frank Hershey 800
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Dennis Hershey 2,000
Frank Challant 1,200
Leonard Beck 250
Julie A. Hershey Trust 250
Noah B. Hershey Trust 250
Aaron M. Hershey Trust 250
-----
Total 5,000
=====
On May 21, 1998, booktechmass issued 7,000 shares of its common stock to its
then existing shareholders in conjunction with a recapitalization of the
Company. The issuance was made pursuant to Section 4(2) of the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Statement
Certain statements in this Form 10-KSB, including information set forth
under the following Management's Discussion and Analysis and Results of
Operations, contains trend analysis and other "forward-looking statements."
These statements relate to future events or other future financial performance,
and are identified by terminology such as "may", "will", "should", "expects",
"anticipates", "plans", "intends", believes", "estimates", or "continues" or the
negative of such terms or other comparable terminology. These statements are
only predictions. Actual events or results could differ materially from those
set forth in the forward-looking statements. Moreover, this discussion and
analysis should be read in conjunction with the Consolidated Financial
Statements and accompanying Notes to Consolidated Financial Statements beginning
on page 41.
Overview
As described in Note 2 to the consolidated financial statements, the
accounting applied in the Merger of booktech.com, inc., a Nevada corporation
(the "Company") and booktech.com, inc., a Massachusetts corporation
("booktechmass") differs from the legal form. As the transaction has been
accounted for as a capital transaction and treated as a reverse acquisition, our
historical financial results prior to the merger are those of booktechmass. In
addition, booktechmass changed its fiscal year from July 31 to December 31 to
conform to the fiscal year of Ebony and Gold, the legal acquirer.
We are subject to a number of risks similar to those of other companies in
an early stage of development. Principal among these risks are dependencies on
key individuals, competition from other substitute products and larger
companies, the successful development and marketing of our products, and the
need to obtain adequate additional financing necessary to fund our operations.
Our business is highly seasonal in nature. More than 75% of our revenues
are normally generated in the third and fourth quarters of the calendar year
since that period includes the traditional educational publishing selling
season. Accordingly, our operating losses have generally been greater in the
first and second quarters during a period when publishing revenues are at their
lowest levels. Moreover, we rely upon one customer for a significant portion of
our revenues - see Note 3 to the financial statements, "Concentration of Credit
Risk and Major Customer Information."
The discussion below assumes we can continue to do business on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in our financial
statements, we incurred net losses of $7,998,543, $1,060,646 and $2,182,431
during the year ended December 31, 2000, the five months ended December 31, 1999
and the year ended July 31, 1999, respectively. Moreover, at December 31, 2000
and December 31, 1999, our current liabilities of
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