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As a result of the seasonal fluctuations and because the online sale of
books and online selling in general is new and it is difficult to predict
consumer demand, it is possible that in some future periods our results of
operations may be below the expectations of public market analysts and
investors. In that event, it is likely that the price of our stock would
decline.
WE FACE SIGNIFICANT COMPETITION, AND THAT COMPETITION MAY INCREASE SUBSTANTIALLY
BECAUSE OF THE LOW BARRIERS TO MARKET ENTRY.
The online custom publishing market is rapidly evolving. We expect
competition to continue to intensify in the future. We currently compete with
the following categories of companies:
o Traditional textbook publishers, like McGraw-Hill and Pearson, are
recombining their own content and reselling it as printed text, lab
manuals, readers, and workbooks.
o Traditional publishers are also striking deals with new media
publishers to migrate their content to the Web.
o Online libraries, such as Questia, ebrary, and netLibrary, are
pursuing a variety of business models in the education market. In
general, the research-oriented sites (Questia and ebrary) are focused
on selling student subscriptions to content they either own, license
or are in the process of acquiring
Many of our current and potential competitors have longer general retail
operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing, technological, operational and other
resources than we do. Some of our competitors may be able to secure textbooks
from vendors on more favorable terms, devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing, shipping policies or
inventory availability policies and devote substantially more resources to Web
site and systems development than we can.
As competition increases, we may experience reduced operating margins, loss
of market share and a diminished brand franchise. To remain competitive, we may
from time to time make pricing, service or marketing decisions or acquisitions
that could affect our financial condition and results of operations. It is
possible that our supply channel (distributors and, indirectly, publishers) may
enter the market and match our pricing through direct retail centers or that
either or both our supply channel and traditional college bookstores may enter
the online commerce market as our competitors. It is also possible that
companies that control access to transactions through network access or Web
browsers could promote our competitors or charge us a substantial fee for
inclusion.
As Internet use becomes increasingly prevalent, it is possible that the
full text of books we offer for sale will be available for viewing on the Web or
on other electronic devices such as virtual textbooks. If virtual textbooks
become a reality and students rely on them in lieu of purchasing hard copies of
textbooks, our business may decline.
Our ability to remain competitive will depend in significant part upon our
ability to develop and introduce, in a timely and cost-effective manner, product
enhancements, new products and services to expand and diversify our customer
base. There can be no assurance we will be successful in developing and
introducing these products enhancements and new products. In addition, there can
be no assurance that our potential competitors will not achieve technological
advances that provide a competitive advantage over our products and services or
that make such products and services obsolete.
LOSS OF ANY OF OUR KEY MANAGEMENT PERSONNEL COULD NEGATIVELY AFFECT OUR
BUSINESS.
Our future success depends to a significant extent on the continued service
and coordination of our management team, particularly William G. Christie,
President, Chief Executive Officer, and Chairman of the Board. Mr. Christie was
appointed President, Chief Executive Officer and Chairman of the Board on May
14, 2001. Nonetheless, the loss or departure of any of our executive officers or
key employees could harm our ability to implement our business plan. We do not
maintain key person insurance on any member
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of our management team. Our senior management team deferred receipt of their
salaries from November 2000 to May 6, 2001. We cannot be assured that senior
management will not need to seek other employment due to personal financial
requirements.
OUR BUSINESS AND GROWTH WILL SUFFER IF WE ARE UNABLE TO SUCCESSFULLY HIRE AND
RETAIN KEY PERSONNEL.
Our future success depends on our ability to attract, train, motivate and
retain highly skilled employees. We may be unable to retain our key employees or
attract, assimilate or retain other highly qualified employees in the future.
The failure to attract and retain the necessary managerial, marketing,
merchandising, operational, customer service, technical, financial or
administrative personnel could harm our business. In addition, as we grow and
add additional product and service offerings, we anticipate a need to further
develop and expand our Web site. We cannot be certain we will be able to attract
and retain a sufficient number of qualified software developers or outside
consultants for our Web site and transaction-processing systems.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO OPERATE OR GROW OUR BUSINESS
AND ANY ADDITIONAL FINANCING MAY BE ON TERMS ADVERSE TO YOUR INTERESTS.
We intend to continue to grow our business. We expect to continue to lose
money and generate negative cash flows from operations for the foreseeable
future. We need to raise additional funds in the future to fund more aggressive
marketing programs, to acquire or develop new technology, to increase our staff
to meet operational demands, to introduce new products or services or to acquire
complementary businesses or services or intellectual property rights. If we
raise additional funds by issuing equity securities, our stockholders may
experience significant dilution of your ownership interest and such securities
may have rights senior to those of the holders of their common stock. Obtaining
additional financing will be subject to a number of factors, including:
o Market and economic conditions;
o Our financial condition and operating performance; and
o Investor sentiment.
These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us. If additional financing is not
available when required or is not available on commercially reasonable terms, we
may be unable to:
o continue our existing operations;
o fund our expansion;
o Successfully promote our brand name;
o develop or enhance our products and services;
o develop or purchase new servers, software and other technology to
enable us to process increased transactions and service increased
traffic on our Web site;
o attract and retain the appropriate talent and a sufficient number of
employees to handle our increasing operations; and
o take advantage of business opportunities or respond to competitive
pressures.
Our inability to take any of these actions could reduce the value of our
securities.
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WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS.
We expect our operating expenses and staffing levels to increase in the
future. We expect that we will need to continue to improve our financial and
managerial controls and reporting and training systems and procedures. We will
also need to continue to expand and maintain close coordination among our
marketing and sales, operational, technical, accounting, finance and
administrative organizations. Any failure by us to implement cohesive management
and operating systems, add resources on a cost effective basis or manage our
expansion could have a material adverse effect on our company.
EXPANDING THE BREADTH AND DEPTH OF OUR PRODUCT OR SERVICE OFFERINGS IS EXPENSIVE
AND DIFFICULT, AND WE MAY RECEIVE NO BENEFIT FROM OUR EXPANSIONS.
We are expanding our operations by promoting new, complementary products,
expanding the breadth and depth of products and services we currently offer and
expanding our market presence through relationships with new schools and other
third parties. We cannot be certain that our current expansion and any potential
expansion would generate sufficient revenues to offset the costs involved.
Moreover, we may pursue the acquisition of new or complementary businesses,
products or technologies or other intellectual property rights, although we have
no present understandings, commitments or agreements with respect to any such
acquisitions.
Expansion of our products and services will require significant additional
expenditures and could strain our management, financial and operational
resources. For example, we may need to incur significant marketing expenses,
develop relationships with new partners, manufacturers or distributors or comply
with new regulations. We cannot be certain we will be able to expand our product
and service offerings in a cost-effective or timely manner, and we cannot be
certain that any such efforts would receive market acceptance or increase our
overall market acceptance. The offering of new products and services that are
not favorably received by our customers could damage our reputation and brand
name. In addition, we may not be able to offer additional products or services.
If we are able to do so, we may not be able to offer these products or services
before our competition. For many of these products and services, there are
already other traditional and online retailers offering these products and we
may not be able to change our customers' purchasing habits.
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS MODEL IF USE OF THE INTERNET AND
ONLINE COMMERCE GROWS.
Our business would be adversely affected if Internet usage does not
continue to grow. Internet usage may be inhibited for any of the following
reasons:
o The Internet infrastructure may be unable to support increased demand
or its performance and reliability may decline as usage grows;
o The inability of Web sites to provide security and authentication of
confidential information contained in transmissions over the Internet;
o The quality of Internet products and services may not continue to
generate user interest;
o Online commerce is at an early stage and buyers may be unwilling to
shift their traditional purchasing to online purchasing;
o Increased government regulation or taxation of online commerce, at the
state or federal level, may adversely affect the viability of online
commerce;
o Insufficient availability of telecommunication services or changes in
telecommunication services may result in slower response times; and
o Web sites may not have the ability to respond to privacy concerns of
potential users, including concerns related
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to the placement by Web sites of information on a user's hard drive
without the user's knowledge or consent.
IF WE ARE UNABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS CONTINUE
TO EVOLVE, OUR SERVICES AND PRODUCTS COULD BECOME LESS DESIRABLE.
A key element of our strategy is to generate a high volume of traffic to,
and use of, our Web site. Accordingly, the satisfactory performance, reliability
and availability of our Web site, transaction-processing systems and network
infrastructure are critical to our reputation and our ability to attract and
retain customers and maintain adequate customer service levels. An unanticipated
dramatic increase in the volume of traffic on our Web site or the number of
orders placed by our customers may force us to expand and upgrade our
technology, transaction-processing systems and network infrastructure. There can
be no assurance that we will be able to accurately project the rate or timing of
increases, if any, in the use of our Web site or timely expand and upgrade our
systems and infrastructure to accommodate such increases. To be successful, we
must adapt to our rapidly changing market by continually enhancing the
technologies used in our Internet products and services and introducing new
technology to address the changing needs of our business and customers. If we
are unable, for technical, legal, financial or other reasons, to adapt in a
timely manner in response to changing market conditions or business and customer
requirements, our business could be harmed.
AS AN INTERNET-BASED RETAILER, WE DEPEND HEAVILY ON OUR INFORMATION TECHNOLOGY
INFRASTRUCTURE AND OUR OPERATIONS COULD BE JEOPARDIZED BY ANY SYSTEM FAILURE OR
INADEQUACY.
Our operations are dependent on our ability to maintain our computer and
communications software and equipment in effective working order and to protect
our systems against damage from fire, natural disaster, power loss,
communications failure or similar events. In addition, the growth of our
customer base may strain or exceed the capacity of our computer and
communications systems and lead to degradations in performance or systems
failure. Our success, in particular our ability to successfully receive and
fulfill orders and provide high-quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications
hardware systems. We use an internally developed system for our Web site, search
engine and substantially all aspects of transaction processing, including order
management, cash and credit card processing, purchasing, inventory management
and shipping.
We do not presently have a formal disaster recovery plan and do not carry
sufficient business interruption insurance to compensate for losses that may
occur. Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins, fire, flood,
power loss, telecommunications failure, break-ins, earthquake and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to accept and fulfill customer orders. Any damage, failure or delay
that causes interruptions in our system operations could have a material adverse
effect on our business.
CONCERNS ABOUT SECURITY ON THE INTERNET MAY REDUCE THE USE OF OUR WEB SITE AND
IMPEDE OUR GROWTH.
A significant barrier to confidential communications over the Internet has
been the need for security. We rely on SSL encryption technology to prevent the
misappropriation of customer credit card data during the transaction process.
Under current credit card practices, a merchant is liable for fraudulent credit
card transactions where, as is the case with the transactions we process, that
merchant does not obtain a cardholder's signature. A failure to adequately
control fraudulent credit card transactions could reduce our collections and
harm our business. Internet usage could decline if any well-publicized
compromise of security occurred. Our site could be particularly affected by any
such breach because our online commerce model requires the entry of confidential
customer ordering, purchasing and delivery data over the Internet, and we
maintain a database of this historical customer information. Until more
comprehensive security technologies are developed, the security and privacy
concerns of existing and potential customers may inhibit the growth of the
Internet as a medium for commerce.
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We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography or other developments will not result
in the compromise or breach of the algorithms we use to protect content and
transactions on our Web site or proprietary information in our databases. Anyone
who is able to circumvent our security measures could misappropriate
proprietary, confidential customer or company information or cause interruptions
in our operations. We may incur significant costs to protect against the threat
of such security breaches or to alleviate problems caused by these breaches.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS AND LEGAL
UNCERTAINTIES AFFECTING THE INTERNET WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
To date governmental regulations have not materially restricted use of the
Internet in our markets. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. Uncertainty and new
regulations could increase our costs of doing business and prevent us from
delivering our products and services over the Internet. The growth of the
Internet may also be significantly slowed. This could delay growth in demand for
our network and limit the growth of our revenues. In addition to new laws and
regulations being adopted, existing laws may be applied to the Internet. New and
existing laws may cover issues, which include:
o Sales and other taxes;
o User privacy;
o Pricing controls;
o Characteristics and quality of products and services;
o Consumer protection;
o Libel and defamation;
o Copyright, trademark and patent infringement; and
o Other claims based on the nature and content of Internet materials.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY INTELLECTUAL PROPERTY RIGHTS.
The unauthorized reproduction or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology and brand
name without paying us for them. If this were to occur, our revenues and the
value of our securities could be reduced. The steps we have taken to protect our
proprietary rights may not be adequate to deter misappropriation of proprietary
information. We may not be able to detect unauthorized use of our proprietary
information or take appropriate steps to enforce our intellectual property
rights. In addition, the validity, enforceability and scope of protection of
intellectual property in Internet-related industries is uncertain and still
evolving. The laws of other countries in which we may market our services in the
future may afford little or no effective protection of our intellectual
property. If we resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive.
DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE TIME
CONSUMING AND EXPENSIVE AND, IF WE ARE NOT SUCCESSFUL, COULD SUBJECT US TO
SIGNIFICANT DAMAGES AND DISRUPT OUR BUSINESS.
We cannot be certain that our products do not or will not infringe valid
patents, copyrights or other intellectual property rights held by third parties.
We expect that infringement claims in our markets will increase in number as
more participants enter the market. We may be subject to legal proceedings and
claims from time to time relating to the intellectual property of others in the
ordinary course of our business.
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We may incur substantial expenses in defending against these third-party
infringement claims, regardless of their merit. Successful infringement claims
against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.
AS INTERNET TECHNOLOGY AND REGULATION ADVANCES, WE MAY NOT BE ABLE TO PROTECT
OUR DOMAIN NAMES.
We currently hold various Web domain names relating to our brand, including
the "booktech.com" domain name. The acquisition and maintenance of domain names
generally is regulated by governmental agencies and their designees. The
regulation of domain names in the United States and in foreign countries is
expected to change in the near future. Such changes in the United States are
expected to include a transition from the current system to a system, which is
controlled by a non-profit corporation and the creation of additional top-level
domains. Requirements for holding domain names will also be affected. As a
result, there can be no assurance that we will be able to acquire or maintain
relevant domain names. Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. Therefore, we may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon or otherwise decrease
the value of our trademarks and other proprietary rights. Any such inability
could harm our business.
WE MAY BECOME SUBJECT TO REGULATION AS AN INVESTMENT COMPANY.
We, as sole stockholder, currently control booktechmass. If we were to
cease participation in the management of booktechmass, our interest in
booktechmass could be deemed an "investment security" for purposes of the
Investment Company Act of 1940. A determination that such investment was an
investment security could result in our company being an investment company
under the Investment Company Act and becoming subject to the registration and
other requirements of the Investment Company Act. If anything were to happen
which would cause us to be deemed to be an investment company under the
Investment Company Act, restrictions imposed by the Investment Company Act,
including limitations on our capital structure and our ability to transact with
affiliates, could make it impractical for us to continue our business as
currently conducted and could have a material adverse effect on our business and
booktechmass.
SOME STATES MAY IMPOSE A NEW SALES TAX ON OUR BUSINESS.
A 1992 Supreme Court decision confirmed that the commerce clause of the
United States Constitution prevents a state from requiring the collection of its
sales and use tax by a mail-order company unless such company has a physical
presence in the state. However there continues to be uncertainty due to
inconsistent application of the Supreme Court decision by state and federal
courts. We attempt to conduct our operations consistent with our interpretation
of the applicable legal standard, but there can be no assurance that such
compliance will not be challenged. In recent challenges, various states have
sought to require companies to begin collection of sale and use taxes and/or pay
taxes from previous sales. As of the date of this annual report, we have not
received assessments from any state. We currently collect and forward sales tax
on all shipments to New York, New Jersey, Virginia and Canada. The Supreme Court
decision also established that Congress has the power to enact legislation which
would permit states to require collection of sales and use taxes by mail-order
companies. Congress has from time to time considered proposals for such
legislation. We anticipate that any legislative change, if adopted, would be
applied on a prospective basis. While there is no case law on the issue, we
believe that this analysis could also apply to our online business. Recently,
several states and local jurisdictions have expressed an interest in taxing
e-commerce companies who do not have any contacts with their jurisdictions other
than selling products online to customers in such jurisdictions. The Internet
Tax Freedom Act imposed a moratorium on new taxes or levies on e-commerce for a
three-year period due to expire in October 2001. However, there is a possibility
that Congress may not renew this legislation. Any such taxes could have an
adverse effect on online commerce, including our business.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
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The stock market in general and the market prices of shares in newly public
technology companies, particularly those such as ours that offer Internet-based
products and services, have been extremely volatile and have experienced
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. We cannot be certain that these trading prices or
price to earnings ratios will be sustained. The market price of our common stock
could be highly volatile and subject to wide fluctuations in response to many
factors which are largely beyond our control. These factors include:
o Quarterly variations in our results of operations;
o Adverse business developments;
o Changes in financial estimates by securities analysts;
o Investor perception of us and online retailing services in general;
o Announcements by our competitors of new products and services; and
o General economic conditions both in the United States and in foreign
countries.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION,
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES.
Securities class action litigation has often been brought against companies
that experience volatility in the market price of their securities. Litigation
brought against us could result in substantial costs to us in defending against
the lawsuit and a diversion of management's attention that could cause our
business to be harmed.
SINCE OUR CURRENT AND FORMER OFFICERS AND DIRECTORS, AND OUR LARGE STOCKHOLDERS,
OWN A LARGE PERCENTAGE OF OUR OUTSTANDING SHARES, THEY ARE ABLE TO SIGNIFICANTLY
INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL.
As of April 30, 2001, our current and former executive officers, directors,
and large stockholders, and their respective affiliates, beneficially own in the
aggregate 7,978,354 shares or approximately 38% of our issued and outstanding
stock. These stockholders may be able to exercise control over all matters
requiring approval by our stockholders, including the election of directors and
the approval of significant corporate transactions.
FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK PRICE.
As of April 30, 2001, there were 20,766,489 shares of our common stock
outstanding. Assuming trading resumes on the AMEX, 14,346,248 shares of our
common stock will be eligible for sale, subject to the volume limitations set
forth in Rule 144 of the Securities Act. The market price of our common stock
could decline as a result of sales of a large number of shares of our common
stock in the market following the date of this annual report, or the perception
that such sales could occur. These sales also might make it more difficult for
us to sell equity securities in the future at a time and at a price that we deem
appropriate.
WE MAY NOT FIND SUFFICIENT ACQUISITION CANDIDATES.
As part of our strategy, we continually search for acquisition
opportunities. There can be no assurance that we will be successful in
identifying attractive acquisitions. If any potential acquisition opportunities
are identified, there can be no assurance that we will consummate such
acquisitions or, if any such acquisition does occur, that we will be successful
in enhancing our business. We may in the future face competition for acquisition
opportunities, which may inhibit our ability to consummate suitable acquisitions
and increase the expense of completing acquisitions.
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