<PAGE>
(5) Includes 409,728 shares held in trust for Noah B. Hershey, Julie A. Hershey
and Aaron M. Hershey, and 223,414 shares of common stock issuable upon
conversion of the Series A and Series B Preferred Stock held by the trusts
over which Dennis Hershey has voting control; and 463,276 shares of common
stock and 67,760 shares of common stock issuable upon conversion of Series
B Preferred Stock held by the Hershey Family Limited Partnership.
(6) Includes 583,000 shares held by Delta Realty Limited and 402,467 shares and
warrants to purchase 883,333 shares held by Verus Investments Holdings Ltd.
over which Mr. Khan has control.
(7) Includes 587,817 shares of common stock held by the Bonnie L. Hershey
Trust; 555,328 shares jointly held with Frank Challant, her husband, as
part of the Hershey Family Limited Partnership; 85,976 shares of common
stock issuable upon conversion of Series B Preferred Stock held by the
Bonnie L. Hershey Trust; and 81,224 shares of common stock issuable upon
conversion of Series B Preferred Stock jointly held with Mr. Challant as
part of the Hershey Family Limited Partnership.
(8) Includes 555,328 shares jointly held with Bonnie Hershey as part of the
Hershey Family Limited Partnership; and 81,224 shares of common stock
issuable upon conversion of Series B Preferred Stock jointly held with
Bonnie Hershey as part of the Hershey Family Limited Partnership.
(9) Consists of options to purchase shares of common stock, which are
immediately exercisable, as follows: Ted Bernhardt -- 344,828; Thomas F.
Delano -- 344,828, October Ivins -- 100,000; Steven Lewers -- 344,828, and
Joseph Short -- 166,667.
(10) Includes options to purchase 4,000 shares of common stock, which are
immediately exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH STOCKHOLDERS, DIRECTORS AND OFFICERS
During the year ended December 31, 2000, Verus Investments Holdings, Inc.
("Verus"), a British Virgin Islands corporation controlled by Ajmal Khan, one of
our directors, provided $2,639,261 in interim financing to fund the Company's
working capital needs. In connection with the Merger, $1,500,000 of the loans
provided in 2000 and $500,000 in Verus loans outstanding at December 31, 1999
were converted into 1,333,333 shares of common stock. The remaining loans of
$939,261 and $200,000 outstanding at December 31, 2000, are unsecured, mature
December 31, 2001 and November 22, 2001, respectively, and carry interest at a
rate of 8% and 10%, respectively per annum. $200,000 of these loans are
convertible at the option of the holder, into shares of common stock on the
earlier of (i) November 22, 2001 at a conversion rate of $2.35 per share or (ii)
at anytime at a conversion rate of $2.94 per share when the average price, as
defined in the convertible agreement, exceeds $3.675. In addition, Verus was
granted warrants to purchase 50,000 shares of our common stock at an exercise
price of $2.94 per share.
On March 31, 2000, the Company received $317,951 in advances from a
stockholder. During the twelve months ended December 31, 2000, the Company
repaid $456,710 in principal and accrued interest on loans from stockholders,
including the $317,951 received on March 31, 2000, using a portion of the
proceeds from the sale of the common stock in conjunction with the Merger.
On March 31, 2000, pursuant to the terms of the Merger Agreement, the
Company sold to certain investors 4,666,667 shares of its common stock and
warrants to purchase 833,333 shares of its common stock for an aggregate
purchase price of $7,000,000 including conversion of the notes payable, advances
and accrued interest owed to Verus. The Company received net proceeds of $5
million at the time of the Merger.
In conjunction with the Merger, a total of $2,815,000 in loans from
stockholders plus the related accrued interest of $401,171 (including $57,858
and $210,734 expensed during the years ended December 31, 2000 and 1999,
respectively) were converted into 2,135,301 shares of Series A preferred stock.
The following stockholders were involved in these transactions: Frank Challant,
Dennis Hershey, Bonnie Hershey, Morris A. Shepard and Ruth Anne Shepard.
36
<PAGE>
On March 31, 2000, the Company entered into a consulting agreement with
Verus. The agreement provides for consulting fees to Verus of $15,000 per month
for a two-year period commencing March 31, 2000. The agreement was terminated
effective September 30, 2000. The Company paid $30,000 to Verus under this
agreement during the year ended December 31, 2000. The balance owed of $60,000
is included in accounts payable at December 31, 2000.
Barry Romeril, a member of the Company's Board of Directors, serves in an
executive capacity with Xerox Corporation ("Xerox"). The Company purchases
services from Xerox under an equipment supplier contract that expires on March
1, 2004. The Company paid $1,102,865, $99,074 and $391,030 to Xerox during the
year ended December 31, 2000, the five months ended December 31, 1999 and the
year ended July 31, 1999, respectively. At December 31, 1999, the Company was in
default under a promissory note. In April 2000, the Company repaid the note,
including related accrued interest, with a portion of the proceeds from the sale
of the common stock issued in conjunction with the Merger. On January 10, 2001,
the Company refinanced $455,627 of accounts payable due to Xerox under the
services agreement described in Note 9 to the consolidated financial statements
with a promissory note. The note is payable in monthly installments of $41,339,
including interest at a rate of 16% per annum, beginning on February 15, 2001.
The final payment will be due on January 10, 2002, unless the Company defaults
under the terms of the note, in which case, the promissory note becomes fully
due and payable. The Company has not made the required payments under the
promissory note in 2001 and, accordingly, the Company is in default under the
terms of the note.
Between February 19, 1997 and March 31, 2000, Dennis Hershey made loans to
the Company totaling $460,000. The notes carried interest at rates varying
between 8.0% and 8.25% per annum. On September 1, 1999, $200,000 of the notes
were converted into 2,000 shares of common stock and the Company paid the $2,063
of accrued interest in cash. On March 31, 2000, the balance of the notes plus
the related accrued interest of $79,656 was converted into 225,506 shares of
Series A Preferred Stock. In addition, Dennis Hershey controls the Aaron M.
Hershey Trust, the Julie A. Hershey Trust and the Noah B. Hershey Trust. These
trusts were involved in certain transactions with the Company as set forth
below.
Between January 14, 1999 and March 31, 2000, the Aaron M. Hershey Trust
made loans to the Company totaling $250,000. The notes carried interest at a
rate of 8.0% per annum. On September 1, 1999, $25,000 of the notes were
converted into 250 shares of common stock. On March 31, 2000, the balance of the
notes plus the related accrued interest of $17,170 were assigned to Morris A.
Shepard, the Company's Chief Executive Officer. The notes plus the related
accrued interest were converted into 160,783 shares of the Company's Series A
preferred Stock in conjunction with the Merger.
Between February 23, 1999 and March 31, 2000, the Julie A. Hershey Trust
made loans to the Company totaling $250,000. The notes carried interest at a
rate of 8.0% per annum. On September 1, 1999, $25,000 of the notes were
converted into 250 shares of common stock. On March 31, 2000, the balance of the
notes plus the related accrued interest of $16,940 were assigned to Morris A.
Shepard, the Company's Chief Executive Officer. The notes plus the related
accrued interest were converted into 160,631 shares of the Company's Series A
preferred Stock in conjunction with the Merger.
Between January 14, 1999 and March 31, 2000, the Noah B. Hershey Trust made
loans to the Company totaling $250,000. The notes carried interest at a rate of
8.0% per annum. On September 1, 1999, $25,000 of the notes were converted into
250 shares of common stock. On March 31, 2000, the balance of the notes plus the
related accrued interest of $17,379 were assigned to Morris A. Shepard, the
Company's Chief Executive Officer The notes plus the related accrued interest
were converted into 160,922 shares of the Company's Series A preferred Stock in
conjunction with the Merger.
Between September 5, 1996 and March 31, 2000, Aaron Shepard, the son of
Morris A. Shepard, made loans to the Company totaling $30,000. The notes carried
interest at rates varying between 8.0% and 8.25% per annum. As of November 10,
1999, $24,000 of the notes and $5,394 of accrued interest had been repaid. On
March 31, 2000, the balance of the notes plus the related accrued interest of
$3,806 was paid by the Company.
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<PAGE>
Between March 5, 1997 and March 31, 2000, Barry J. Hershey made loans to
the Company totaling $300,000. The notes carried interest at a rate of 8.0% per
annum. On March 31, 2000, the notes plus the related accrued interest of $17,951
were purchased by the Aaron M Hershey, Julie A. Hershey and Noah B. Hershey
Trusts.
Between March 5, 1997 and March 31, 2000, Bonnie Hershey made loans to the
Company totaling $725,000. The notes carried interest at rates varying between
8.0% and 8.25% per annum. The Company paid a total of $1,040 in accrued
interest. On March 31, 2000, the notes and related accrued interest of $113,885
were converted into 556,958 shares of the Company's Series A Preferred Stock.
Between January 7, 1999 and March 31, 2000, Frank Challant made loans to
the Company totaling $120,000. The notes carried interest at a rate of 8.0% per
annum. On September 1, 1999, the notes were converted into 1,200 shares of
common stock. On March 31, 2000, the $6,111 of accrued interest outstanding on
the notes was converted into the Company's Series A Preferred Stock.
Between October 30, 1996 and March 31, 2000, Frank Challant made loans to
the Company totaling $635,000. The notes carried interest at rates varying
between 8.0% and 8.25% per annum. On September 1, 1999, $80,000 of the notes
were converted into 800 shares of common stock and $1,028 of related accrued
interest was paid in cash. On March 31, 2000, the balance of the notes plus the
related accrued interest was converted into 447,971 shares of the Company's
Series A Preferred Stock.
Between July 31, 1997 and March 31, 2000, Heather Shepard, the daughter of
Morris A. Shepard, made loans to the Company totaling $9,500. The notes carried
interest at a rate of 8.0% per annum. On March 31, 2000, the Company repaid the
notes plus the related accrued interest of $2,064.
Between April 1, 1997 and March 31, 2000, Leonard Beck made loans to the
Company totaling $25,000. The notes carried interest at rates varying between
8.0% and 8.25% per annum. On September 1, 1999, the notes were converted into
250 shares of common stock and $1,040 of related accrued interest was paid in
cash. On March 31, 2000, the balance of $3,929 in accrued interest was paid by
the Company.
TRANSACTIONS WITH PROMOTERS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated March 31, 2000 (1)
3.1(a) Certificate of Incorporation, as amended (1)
3.1(b) Certificate of Designation of Series A Preferred Stock (1)
3.1(c) Certificate of Designation of Series B Preferred Stock (1)
3.2 By-laws of the Company (2)
4.1 Specimen of Share of Company's Common Stock*
4.2 Form of Warrant (1)
10.1 2000 Stock Option Plan (3)
10.2 Oracle Software License and Services Agreement (3)
10.3 Oracle Time & Materials Contract Student Portal Development (3)
10.4 Oracle Time & Materials Contract FastForward ERP Development (3)
10.5 Oracle Time & Materials Contract Professor Portal Development (3)
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
10.6 Lease Agreement for Woburn, Massachusetts facility*
10.7 Consulting Agreement with Verus International Ltd. (3)
10.8 Asset Purchase Agreement, dated as of August 2, 2000, by and between
booktech.com, inc. and Copytron, Inc. (4)
10.9 Investment Agreement, dated as of March 22, 2001 by and between booktech.com
inc. and Cornell Capital Partners, L.P.*
10.10 Registration Rights Agreement, dated as of March 22, 2001 by and between
booktech.com, inc., Cornell Capital Partners, L.P. and Yorkeville Advisors
Management, LLC*
10.11 Resale Restriction Agreement, dated as of March 22, 2001 by and between
booktech.com, inc. and Yorkeville Advisors Management, LLC*
10.12 Loan Agreement, dated as of December 31, 2000 by and between booktech.com,
inc. and Verus Investments Holdings, Inc.*
10.13 Promissory Note, dated as of December 31, 2000 issued by booktech.com, inc. to
Verus Investments Holdings, Inc.*
10.14 Promissory Note, dated January 10, 2001 issued by booktech.com, inc. to Xerox
Corporation.*
11.1 Computation of Per Share Earnings.*
16.1 Letter Appointing Deloitte & Touche LLP as Independent Auditor (5)
21.1 List of Subsidiaries*
</TABLE>
--------------------
* filed herewith.
(1) Incorporated herein in its entirety by reference to the Company's Form 8-K,
as filed with the Securities and Exchange Commission on April 4, 2000.
(2) Incorporated herein in its entirety by reference to the Company's Form
10-SB, as filed with the Securities and Exchange Commission on August 2,
1999.
(3) Incorporated herein in its entirety by reference to the Company's Quarterly
Report on Form 10-QSB/A for the quarter ended March 31, 2000 as filed with
the Securities and Exchange Commission on August 10, 2000.
(4) Incorporated herein in its entirety by reference to the Company's Form 8-K,
as filed with the Securities and Exchange Commission on August 17, 2000.
(5) Incorporated herein in its entirety by reference to the Company's Form 8-K,
as filed with the Securities and Exchange Commission on May 15, 2000.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2000.
On May 2, 2001, the Company filed a Form 8-K announcing the appointment of
William Christie as President, Chief Executive Officer and Chairman of the Board
of Directors. In addition, the Company announced that it would restate its
previous filings on Form 10-QSB for the quarters ended March 31, 2000, June 30,
2000 and September 30, 2000 as a result of stock compensation not recorded
during the quarters.
39
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
booktech.com, inc.
/s/
--------------------------
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ TED BERNHARDT Chief Financial Officer (Principal June 22, 2001
--------------------------- Financial and Accounting Officer),
Ted Bernhardt Secretary and Treasurer
/S/ JOEL DUMARESQ Director June 22, 2001
---------------------------
Joel Dumaresq
/S/ AJMAL KHAN Director June 22, 2001
---------------------------
Ajmal Khan
/S/ BARRY ROMERIL Director June 22, 2001
---------------------------
Barry Romeril
/S/ SHERRY TURKLE Director June 22, 2001
---------------------------
Sherry Turkle
</TABLE>
40
<PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report............................................... 42
Consolidated Statements of Operations for the Year Ended December 31, 2000,
the Five Months Ended December 31, 1999 and the Year Ended July 31,
1999..................................................................... 43
Consolidated Balance Sheets as of December 31, 2000 and 1999............... 44
Consolidated Statements of Stockholders' Equity (Deficiency) for the Year
Ended December 31, 2000, the Five Months Ended December 31, 1999 and the
Year Ended July 31, 1999................................................. 45
Consolidated Statements Of Cash Flows for the Year Ended December 31, 2000,
the Five Months Ended December 31, 1999 and the Year Ended July 31,
1999..................................................................... 46
Notes to Consolidated Financial Statements................................. 47
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
booktech.com, inc.
Woburn, Massachusetts
We have audited the accompanying consolidated balance sheets of booktech.com,
inc. (the "Company") as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year ended December 31, 2000, the five months ended December 31, 1999
and the year ended July 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2000
and 1999, and the results of its operations and its cash flows for the
above-stated periods, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has a negative working
capital position, is in default of several of its financing and other
contractual agreements, and is experiencing difficulty in generating sufficient
cash flow to meet its obligations and sustain its operations, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
June 29, 2001
42 |
