| To: ChainSaw who started this subject | 5/25/2001 4:47:24 PM | | From: jmhollen | | | | FYI: I spoke with Ted (the Comptroller) today. He said they would have the 10K and the 10Q all done and submitted by the third week in June.
That should satisfy the yayhoos at Amex and put BTC back on the board for trading.
Sounds like the company is motoring along smoothly and making good progress, so hopefuly the share price will roll right back up to previous levels (and better).
Regards,
John :-) |
| | booktech.com BTC - AMEX | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
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| To: ChainSaw who started this subject | 7/1/2001 12:08:25 PM | | From: jmhollen | | | | Howdy BTC fans,
I eChatted with Jim Stock this weekend, who is/was associated with BTC as a PR representative.
It appears that BTC will make it back on to the AMEX this coming week(+/- due to Holiday), with good PRs to back up the "..re-light.." of their candle.
The stock should open at $0.70 where it was temporarily stopped; but, it should move back up to it's normal trading range (..over a buck..) fairly quickly.
Might be a real good opportunity for both short-term and long-term gains. BTC is well connected with major universities around the country.
booktech.com
John :-) |
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| To: ChainSaw who started this subject | 7/3/2001 10:59:41 PM | | From: jmhollen | | | | "................TOLJA................":
BTC
10KSB Annual Report 7/3/2001 526
10QSB/A Amended Quarterly Report 7/3/2001 93
10QSB/A Amended Quarterly Report 7/3/2001 89
10QSB/A Amended Quarterly Report 7/3/2001 72
10QSB Quarterly Report 7/3/2001 76
Tee hee.
John :-)
. |
| | booktech.com BTC - AMEX | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last ReadRead Replies (1) |
|
| To: jmhollen who wrote (26) | 7/3/2001 11:20:26 PM | | From: jmhollen | | | | EBONY & GOLD VENTURES INC, BOOKTECH COM INC, filed this 10KSB on 07/03/2001.
Outline View Header First Page »
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES ACT EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
[ ] Transition Report under Section 13 or 15(d) of
THE SECURITIES ACT EXCHANGE ACT OF 1934
For the Transition Period From _____ To _____
Commission File Number: 000-26903
booktech.com, inc.
------------------
(Name of small business issuer as specified in its charter)
Nevada 88-0409153
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
42 Cummings Park, Woburn, Massachusetts 01801
---------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (781) 933-5400
Securities registered pursuant to Section 12(b) of the Exchange Act: Common
Stock, Par Value $.00042 Per Share
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 No X
___ ___
Check if the disclosure of delinquent filers in response to Item 405 of
Regulation SB is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year: $1,725,019
----------
At April 30, 2001, 20,766,489 shares of our common stock were outstanding. The
aggregate market value of our voting and non-voting stock held by non-affiliates
(based upon the closing price on the American Stock Exchange on April 23, 2001
of $.73 per share) was approximately $9,335,339. The American Stock Exchange
halted trading of our common stock on April 23, 2001.
<PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
INDEX TO FORM 10-KSB
<TABLE>
<CAPTION>
PART I
PAGE
----
<S> <C> <C>
ITEM 1. Description of Business ...................................................................................... 3
ITEM 2. Description of Property ...................................................................................... 10
ITEM 3. Legal Proceedings ............................................................................................ 10
ITEM 4. Submission of Matters to a Vote of Security Holders .......................................................... 10
PART II
ITEM 5. Market for Common Stock and Related Stockholder Matters ...................................................... 11
ITEM 6. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................ 14
ITEM 7. Financial Statements ......................................................................................... 29
ITEM 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure ......................... 29
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons, Compliance With Section 16(a) of the
Exchange Act ............................................................................................... 30
ITEM 10. Executive Compensation ....................................................................................... 32
ITEM 11. Security Ownership of Certain Beneficial Owners and Management ............................................... 35
ITEM 12. Certain Relationships and Related Transactions ............................................................... 36
ITEM 13. Exhibits and Reports on Form 8-K ............................................................................. 38
Signatures .............................................................................................................. 40
</TABLE>
2
<PAGE>
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
booktech.com, inc., the predecessor to the Company ("booktechmass"), was formed
under the laws of the State of Massachusetts on October 31, 1995 and is a
publisher of digital and on-demand custom textbooks, also known as coursepacks.
In anticipation of the acquisition of booktechmass, Ebony & Gold Ventures, Inc.
("Ebony & Gold"), a publicly held corporation formed under the laws of the state
of Nevada, changed its name to booktech.com, inc. ("btc"). On March 31, 2000, EG
Acquisitions Corporation, a Nevada corporation and the wholly owned subsidiary
of Ebony & Gold, acquired booktechmass pursuant to the terms of an Agreement and
Plan of Merger (the "Merger"). The business of our Company is identical to that
of booktechmass. For financial statement purposes, the transaction has been
treated as a recapitalization of booktechmass. For tax purposes, the acquisition
was a tax-free exchange of equity securities. Subsequent to the acquisition, the
sole activities of booktech.com, inc. have been, and will continue to be, those
previously conducted by booktechmass. Accordingly, the following discussion of
our business relates to the business previously conducted by booktechmass.
BUSINESS OF THE COMPANY
GENERAL
We are a publisher of digital and on-demand custom textbooks, also known as
coursepacks, which are distributed primarily through college bookstores.
Educators can select from copyrighted content, public domain content, and their
own work to create a unique set of course materials. Materials can include
chapters from trade or textbooks, and articles from newspapers, magazines or
scholarly journals. booktech.com. was initially conceived in 1995 by Dr. Morris
Shepard, formerly a professor of Political Science at Northeastern University.
Dr. Shepard recognized the need for highly customized and flexible teaching
materials and founded the business that has developed into booktech.com. We are
now a national provider of cutting edge teaching materials, dedicated to
empowering academic and corporate educators through technology and highly
personalized customer service. Since 1995, we have attracted a wide range of
individuals to our executive management team, including a university program
chairman, a former college president, three executives from publishing and an
academic librarian.
We are committed to providing academic and corporate-training educators
with the e-learning and customized on-demand publishing needs that traditional
textbook publishers cannot satisfy. We believe that due to our offering of
digital formats, through CD-ROMs and digital downloads, we will be in the
forefront of the online e-education movement. We expect to launch a Web site
that will make it possible for educators to access our vast digital library of
content, and create entirely new collections of material from anywhere in the
world, 24 hours a day.
MARKET OPPORTUNITY
Educators are demanding the ability to create, publish, and deliver
their own copyright-protected custom textbooks and course materials online. This
demand, at all levels of our educational system, arises from multiple factors
including:
o THE NEED FOR CURRENT, HIGH QUALITY AND COMPELLING CONTENT. Traditional
textbooks can be out-of-date before they even hit an editor's desk and
educators often want to teach with current information unavailable
from traditional sources and standard textbooks.
o THE DESIRE TO TEACH FROM DIVERSE SOURCES AND VIEWPOINTS.
o LACK OF ACCESS TO FIRST-RATE LIBRARIES.
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o THE PREVALENCE OF NETWORKED LEARNING ENVIRONMENTS. Colleges and
universities are the most wired community on the Web, with over 90% of
college students accessing the Internet, 52% of them daily. Likewise,
the number of K-12 schools connected to the Internet has climbed from
35% in 1994 to 96% today. Moreover, the number of K-12 students with
Internet access has grown from virtually zero in 1994 to 10 million in
1996 and is projected to grow to 40 million by 2002.
o THE EMERGENCE OF DISTANCE LEARNING PROGRAMS THROUGHOUT THE UNITED
STATES AND ABROAD.
o THE DEVELOPMENT OF COURSEWARE TO ASSIST EDUCATORS IN CREATING
WEB-BASED COURSES.
INDUSTRY BACKGROUND
The market for educational services is continually expanding. According to
a May 2000 study by Merrill Lynch, the U.S. market for online higher education
is estimated to grow from $1.2 billion in 1999 to $7 billion in 2003, a growth
rate of 55%. Currently there are 84 million students enrolled in higher
education worldwide, forecasted to reach 160 million by 2005, with at least 40
million students enrolled in online education. Expenditures for elementary and
high school texts are in excess of $2 billion annually, while spending for other
instructional materials are around $5 billion. Recent catalysts such as
for-profit education, charter schools, distance learning, school accountability
and individual learning issues have created a new climate for dynamic change in
the U.S. educational industry, as technology solutions are rapidly replacing
traditional brick and mortar solutions. The market for custom course material
also extends past traditional academic institutions and extends into the
burgeoning fields of distance and corporate education.
The textbook market is dominated by on-campus bookstores, although online
retailers are threatening to become more popular with students. We employ both
on-campus and online venders to provide our services, and also engage in direct
e-commerce. Our relationship with bookstores revolves around their need for
outsourcing copyright management and production services that we provide.
College and independent school bookstores have sought our services for a variety
of reasons, ranging from necessary staffing levels to copyright compliance
assurance.
According to the same May 2000 Merrill Lynch study, distance education
programs are currently in place at 50% of the country's postsecondary
institutions, a number that is projected to reach 84% by 2002. The growing need
to deliver educational content to a decentralized group of learners is apparent.
Our ability to fulfill individual orders digitally (through CD-ROM, digital
download, and sometimes Zipdisk) or in a paper-based format falls directly into
line with the needs of this expanding demographic.
STRATEGY
Our primary objective is to establish ourselves as a leading force in
custom publishing in both traditional media and web-enabled content delivery.
Our present strategies, assuming funding is available, consist of:
o EXPANDING THE EDUCATORS ONLINE LIBRARY(TM). We have accrued an
extensive digital library of custom content that will be available to
educators through the Internet. We intend to increase the number of
library items available as more intellectual content is licensed or
acquired, and as the demand for customized educational and training
materials expands. All content is catalogued, archived and copyright
cleared before printing or downloading. It will include premium
content from the H.W. Wilson Company. We have licensed H.W. Wilson's
Omnifile Full-Text Mega Edition database for use in our Educator's
Online Library(TM). The H.W. Wilson index and full-text article
databases, which index over 2 million items, including full text
versions of 760 periodicals and comprehensive abstracts for 2,700
journals, will link with our Professor Portal for inclusion with other
course materials.
4
<PAGE>
o INAUGURATING OUR PROFESSOR/STUDENT AND PUBLISHER PORTALS. We plan to
make our Professor and Student Portals available for the Fall Semester
2001. The Professor Portal will enable professors and teachers both in
the U.S. and abroad to link to The Educators Online Library(TM) in
order to design custom textbooks over the Internet. Student selection
of required materials, payment method and choice of delivery will all
be facilitated by the Student Portal. The accompanying Publisher
Portal will provide up-to-the-minute information on the management of
rights and permissions.
o TARGETING MARKET SEGMENTATION. We intend to differentiate ourselves
from our competitors by identifying and building strong relationships
with a very select segment of opinion leaders, change agents and first
movers in custom publishing. We currently have a market presence both
in New England and the Mid-Atlantic States and are committed to
broadening the geographic distribution of the market both nationally
and internationally. We plan to aggressively expand into expanding
markets such as distance learning, K-12, and corporate training.
Presently, we have established channels of distribution to:
o Thousands of individual educators in higher education, distance
education, corporate training and K-12.
o Hundreds of college bookstores that recommend custom publishing
providers to educators.
o Institutions with new and developing distance education programs,
such as the University of Maryland University College and the
University of Texas TeleCampus.
o Educational associations such as the United States Distance
Learning Association (USDLA), the Program on Negotiation (PON),
and the Consortium for Worker Education (CWE).
o BUILDING THE CATEGORY. We are strategically positioned to build
awareness, understanding, and usage of custom publishing as a teaching
tool. As professors and teachers seek to enrich and deepen the
learning experience of their students, we expect to continue to
partner with professors and teachers to enhance current course
materials with relevant and quality-added custom textbooks. Through a
national print advertising campaign and introductory guides to both
traditional as well as web-enabled custom publishing, we hope to
increase category awareness and provide educators with the tools to
make custom textbooks accessible and feasible. We intend to promote an
understanding of the complex, changing and often confusing issues
related to reproduction of printed and digital materials by educating
and encouraging schools to comply with current copyright laws.
o CULTIVATING BRAND AWARENESS. We intend to establish ourselves as the
leading custom textbook brand through targeted marketing and
promotional campaigns to higher education, distance education, K-12,
and corporate training markets.
o STRATEGIC ACQUISITIONS. We continually assess the market and plan to
pursue selective acquisitions such as local coursepack competitors,
K-12 supplementary publishers, and technology providers.
ALLIANCES AND RELATIONSHIPS
We have established partnerships with Reciprocal, Content Guard, Oracle,
Mimeo.com and Xerox. Also established are key strategic relationships with the
University of Maryland, University of Texas Telecampus, Consortium for Worker
Education, Lesley University, and the U.S. Distance Learning Association.
5
<PAGE>
COMPETITION
Traditional textbook publishers, new media publishers, and online libraries
are all competing to capture the attention of professors, K-12 teachers, and
corporate trainers. Even companies like iUniverse (an eBook and print-on-demand
retailer, distributor, and conversion operation) are realizing that the
educational market is the only place today to generate significant revenues for
digital content and are beginning to adapt their business models accordingly.
Traditional textbook publishers, like McGraw-Hill and Pearson, are
recombining their own content and reselling it as printed text, lab manuals,
readers, and workbooks. And while many of these publishers are offering
web-based content selection tools, their offers are limited predominantly to
their own content databases. booktech, based on experience working with
educators for over six years, believes this approach has the limitation of being
publisher-driven not educator-driven. Our daily customer contact and market
research demonstrates that educators, especially those who teach graduate and
higher-level undergraduate courses, want to choose from unlimited content
sources and formats and do not want to be restricted to a single publishers'
database of content.
Traditional publishers are also striking deals with new media publishers to
migrate their content to the Web. These publishers are grappling with decisions
about what to convert into digital format, how to pay for the conversion, and
whether to convert new, backlist titles or both. Our ability to offer teachers
and students access to up-to-date content from any source sets it apart from
these companies.
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. Much of the content acquired by these companies comes from
out-of-print and slow-selling books. netLibrary's MetaText division works with
textbook publishers to translate their physical texts into interactive web
pages, enabling professors to add pedagogical frameworks and links to images,
audio, video, other parts of the books, and web pages.
Few of these companies appear to have the teacher focus of booktech the
wide access to multiple types of quality content (books, journals, newspapers,
magazines, etc.), or the ability to create custom course materials online and
output these material in both printed and digital form. booktech already has
over 6 years of experience creating high quality, print-on-demand custom
textbooks. Assuming we receive additional funding, we will soon launch our
online Educator's Portal(TM) (the "Portal"), a 24/7 web site and e-Commerce
platform that will enable professors to request, compile, and track their
material online from anywhere in the world. The Portal will feature
booktech.com's Educators' Online Library(TM), a digital repository of over
35,000 unique titles that are being used in college classrooms around the
country. Plus, students and bookstores will be able to search for, select, and
pay for custom textbooks online. The Portal, along with pending content
licensing deals, will be hard to replicate.
XanEdu is a 1 year-old division of Bell+Howell that offers teachers online
access to the ProQuest library of newspapers, magazines and journals for the
purpose of building custom textbooks. XanEdu is only now experimenting with
allowing educators to include content beyond that held in the ProQuest database
and to support print delivery as well as digital.
OPERATING INFRASTRUCTURE
We intend to create a powerful and complex system of hardware and software
to perform all functions associated with being a full service custom publisher.
Our computer system will be designed to enable customers and users to interface
with a Web Portal that is customized to their needs through the Professor
Portal, Student Portal, and Publisher Portal as described below.
PROFESSOR PORTAL: The Professor Portal is a website that streamlines
the process teachers use to design their course material. The Educators Online
Library(TM) utilizes technology that has been customized
6
<PAGE>
to our needs. Once the order is placed the professor will be able to monitor
developments such as permissions received and still outstanding, or current
permission costs, and once completed, the number of students purchasing the
material.
STUDENT PORTAL: The Student (or Bookstore) Portal allows customers to
purchase their course material online. This area is powered by e-commerce
software and uses data encryption technology to protect credit card data while
it is passed through the site. For students who are downloading digital
material, ContentGuard, Inc. and Reciprocal Inc. technologies will assist in
protecting the copyrighted material from any unauthorized dissemination.
Students purchasing digital materials will also have options for electronic
delivery such as point-of-purchase downloading, and/or CD-ROM.
PUBLISHER PORTAL: The Publisher Portal, will be the area of the website
through which publishers will be able to view up-to-date status reports on
outstanding permission requests, material usage and royalty payments.
Publishers' accounts receivable departments will have the option of establishing
an Electronic Data Interchange (EDI) for payments and invoicing.
We use an Enterprise Resource Planning (ERP) Solution that operates on
Hewlett-Packard servers. This is the system through which the rights and
permission analysts generate and log permission requests, communicate with the
production department about quality issues, assemble custom textbook for clients
who do not use the Professor Portal, and ultimately finalize all aspects of the
custom textbook prior to its production.
The production department utilizes Xerox DocuImage 6205 Scanners to
generate black/white and color scans of all materials. The scanning equipment is
used in conjunction with Xerox's DigiPath print management software. Once all
content is scanned, cleaned, assembled online, and given final approval, our
paper-based custom texts are printed on a DocuTech 6180 printer. For texts on
CD-ROM, we use an AMS Plexwriter 8/20 to burn the CD, which can hold up to 650
MB of information.
HarvardNet is the collocation facility that we will use for hosting. This
will allow us to have twenty-four hour a day, seven day a week monitoring for
uptime, redundant power supplies, battery backup, diesel generators, carbon
dioxide fire suppression systems, climate controls, raised floors, and
protection from sabotage.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets, proprietary technology and similar intellectual property as critical to
our success. We rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees, customers,
independent contractors, sponsors and others to protect our proprietary rights.
We may be required to obtain licenses from others to refine, develop,
market and deliver new products and services. There can be no assurance that we
will be able to obtain any such license on commercially reasonable terms or at
all, or that rights granted pursuant to any licenses will be valid and
enforceable.
Domain names are the user's Internet "address." Domain names have been the
subject of significant trademark litigation in the United States. Domain names
derive value from the individual's ability to remember such names, therefore
there can be no assurance that our domain name will not lose its value if, for
example, users begin to rely on mechanisms other than domain names to access
online resources. The current system for registering, allocating and managing
domain names has been the subject of litigation and of proposed regulatory
reform. There can be no assurance that our domain name will not lose its value,
or that we will not have to obtain an entirely new domain name in addition to or
in lieu of our current domain name, if such litigation or reform effort results
in a restructuring of the current domain name system.
7 |
| | booktech.com BTC - AMEX | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
|
| To: ChainSaw who started this subject | 7/3/2001 11:23:03 PM | | From: jmhollen | | | | <PAGE>
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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<PAGE>
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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<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
14 |
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$6,479,351 and $5,438,929, respectively, exceeded our current assets by
$6,218,101 and $5,127,710, respectively, and a majority of our accounts payable
at December 31, 2000, in the amount of $4,009,090, are beyond the normal payment
terms. The Company is in default on certain provisions of its loan and other
agreements. We are currently seeking additional financing to fund our
operations. See Note 13 to our financial statements for a discussion of our
efforts subsequent to December 31, 2000 to secure additional financing. We can
give no assurance that we will be able to secure new financing in an amount that
is required or on terms that are acceptable to us. Further, due to certain
non-compliance with financial reporting regulations, the American Stock Exchange
("AMEX") suspended trading of the Company's common stock in April 2001. This
suspension precludes the Company from seeking financing through the public
markets until such time as the AMEX lifts the suspension. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
Our financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
we be unable to continue as a going concern. Our continuation as a going concern
is dependent upon our ability to obtain additional financing, generate
sufficient cash flow to meet our obligations on a timely basis, comply with the
terms of our financing agreements and to ultimately attain profitability.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2000 COMPARED TO UNAUDITED YEAR
ENDED DECEMBER 31, 1999 ("1999")
Net sales increased 5.3% to $1,725,019 in 2000 from $1,638,324 in 1999. The
increase can be attributed to new business associated with our acquisition of
the customer list from Copytron, Inc. ("Copytron") 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.
Cost of sales were $2,317,030, or 134.3% of net sales, in 2000 compared to
$2,152,409 or 131.4% of net sales, in 1999. The higher cost of sales in 2000 was
due to an increase in certain fixed production costs as the Company expands its
capacity in anticipation of increased sales levels.
Selling, marketing, and general and administrative expenses (excluding
stock-based compensation) increased 255% to $6,314,304 in 2000 from $1,779,075
in 1999 due primarily to higher compensation and related benefits and facility
costs associated with an increase in the number of employees we hired to: (a)
build market share in higher education; (b) research and identify new markets
for our products; (c) develop for launch our e-commerce portal to meet the
demand for customized learning materials; and (d) expand our digital library of
educational content. Legal and accounting expenses also increased due to the
costs normally associated with being a public company.
Stock-based compensation costs of $964,945 in 2000 represent the fair
market value of stock options and restricted stock awards granted to employees,
and stock warrants granted to financial advisors in connection with financial
advisory services. We recorded deferred compensation expense of $16,115 at
December 31, 2000 relating to the employee stock option grants, which will be
amortized and recognized as stock-based compensation as the options vest over
the next three years. In addition, certain employee stock options will be
accounted for as variable award options, and accordingly, changes to stock-based
compensation will be recorded in the future based upon the difference between
the grant price of the option and the fair value of the Company's common stock
at each reporting date. The fair value of the stock warrants granted to the
financial advisors was $402,143 in 2000. There were no stock-based compensation
costs in 1999.
Interest expense decreased to $157,580 in 2000 from $262,485 in 1999
primarily due to lower debt levels resulting from the conversion of $2,815,000
of related party debt in conjunction with the Merger and to the repayment of
approximately $1,070,000 of debt during the twelve months ended December 31,
2000.
Interest income was $30,297 in 2000 due to higher cash balances. There was
no interest income in 1999.
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<PAGE>
Uncertainty exists regarding the future realization of our tax net
operating loss carryforwards. Accordingly we have fully reserved our deferred
tax assets.
The net loss increased to $7,998,543 in 2000 from $2,555,645 in 1999,
primarily due to higher selling, marketing, product development, general and
administrative expenses and stock-based compensation costs.
RESULTS OF OPERATIONS - FIVE MONTHS ENDED DECEMBER 31, 1999
Net sales for the five months ended December 31, 1999 were $1,024,866. This
five month period represents more than 70% of the annual sales for traditional
publishers. Sales to one customer, Barnes & Noble College Bookstores, Inc.,
accounted for approximately 70% of the net sales. No other single customer
represented 10% or more of net sales.
Cost of sales for the five months ended December 31, 1999 were $1,027,223,
or 100.2% of net sales, versus $1,578,308, or 118.8% of net sales, in fiscal
1999. The lower cost of sales in the five month period ended December 31, 1999,
on a percentage basis, is due to lower average copyright fees on the mix of
coursepacks sold, to lower overtime costs and to process improvements related to
production.
Selling, marketing and general and administrative expenses for the five
months ended December 31, 1999 were $932,540, or 91.0% of net sales, versus
$1,718,300 or 129.3% of net sales, in fiscal 1999. Actual costs increased (on an
annualized basis) due to an increase in personnel and to additional office space
and related costs. However, selling, marketing, general and administrative
expenses as a percentage of net sales were lower in the five months ended
December 31, 1999 as the costs were allocated over the peak revenue season.
Interest expense was $125,749, or 12.3% of net sales, down from $214,636 or
16.2% of net sales in fiscal 1999 due to the conversion of $500,000 in related
party debt to common stock on September 30, 1999.
RESULTS OF OPERATIONS - FISCAL YEARS ENDED JULY 31, 1999 AND 1998
Net sales increased 67.5% to $1,328,813 in 1999 from $793,178 in 1998 due
to greater penetration of the large corporate market and to the high retention
rate of existing customers. Sales to one customer, Barnes & Noble College
Bookstores, Inc., accounted for approximately 75% and 57% of the net sales in
1999 and 1998, respectively. No other single customer represented 10% or more of
net sales.
Cost of sales were $1,578,308, or 118.8% of net sales, in 1999 compared to
$856,559, or 108.0% of net sales in 1998. The higher cost of sales percentage in
1999 was primarily due to higher average copyright fees on the mix of
coursepacks sold and to significant overtime costs incurred to handle the
increase in sales volume.
Selling, marketing and general and administrative expenses were $1,718,300,
or 129.3% of net sales, in 1999 compared to $1,025,932, or 129.3% of net sales,
in 1998. The actual cost increase is due to an increase in personnel and
additional office space and related costs.
Interest expense increased to $214,636 in 1999 from $112,300 in 1998 due to
additional loans from related parties to fund our operating losses. Since
virtually all of the accrued interest expense due to related parties was
converted into common stock in conjunction with the Merger, most of the interest
expense incurred on these loans did not require an outlay of cash.
The net loss increased to $2,182,431 in 1999 from $1,201,613 in 1998
primarily due to the higher copyright fees and to additional overhead costs
incurred to accommodate the growth in sales.
16
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
To meet our financing needs, we have historically depended primarily upon
loans from our stockholders and directors and sales of our common stock. During
the year ended December 31, 2000, we also relied significantly on (1) the
issuance of common stock to finance the purchase of assets; (2) trade credit;
and (3) common stock awards to employees and non-employees as compensation for
their services. Other sources of financing have included bank debt.
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
and our cash balance at December 31, 2000 was $4,611. Our current liabilities at
December 31, 2000 and December 31, 1999 of $6,479,351 and $5,438,929,
respectively, exceeded our current assets at those dates by $6,218,101 and
$5,127,710, respectively. Moreover, a majority of our accounts payable in the
amount of $4,009,090 at December 31, 2000 were beyond their normal payment
terms. The Company is in default on certain provisions of its loan and other
contractual agreements. Accordingly, we are currently seeking additional
financing to fund our operations.
Until new financing can be secured on a more permanent basis, we will
require interim financing. Verus Investments Holdings, Inc. ("Verus") provided
$2,639,261 in interim financing to fund the Company's working capital needs
during the year ended December 31, 2000. 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 due on demand unsecured advances of $939,261 and $200,000 outstanding
at December 31, 2000, carry interest at a rate of 8% and 10%, respectively, per
annum. The advances have been formalized with stated repayment terms which
provide for the advances to be repaid by December 31, 2001 and November 22,
2001, respectively. $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 of the Company's common stock, 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.
During the year ended December 31, 2000, the cost of our property and
equipment increased by $3,518,818, primarily due to the purchase of a new
management information system. The total $3,518,818 of property and equipment
purchases was financed as follows: $833,686 through debt (primarily capital
leases), $1,862,318 through accounts payable and the balance of $822,814 in
cash. We are not currently planning to make any significant capital outlays in
2001.
On August 2, 2000, we entered into an Asset Purchase Agreement (the
"Agreement") with Copytron, an unrelated entity, to purchase a customer list for
a maximum aggregate purchase price of up to $1,300,000. The terms of the
agreement required aggregate cash payments of $300,000, $100,000 at closing and
$200,000 payable in three installments with the last $100,000 due on October 9,
2000, and the $1.0 million balance of the purchase price to be paid through the
issuance of three tranches of our common stock. We paid the $100,000 at closing
and one additional $100,000 installment during 2000. However, given our
financial position, we only paid $50,000 as of December 31, 2000 against the
last installment and the balance of $50,000 owing on the last installment
remains unpaid as of the date of this report. Accordingly, we are in default
under the terms of this promissory note. On August 2, 2000, we issued 238,298
shares of common stock with an aggregate value of $700,000 as payment of the
first tranche under the 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
17
<PAGE>
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, we will issue
additional shares of common stock on August 2, 2001 and 2002, if annual sales
from customers previously served by Copytron exceed $700,000, with each issuance
having a then current fair market value of up to $150,000.
In conjunction with the Merger on March 31, 2000, we (a) refinanced
$2,815,000 of our stockholder and director loans plus $401,171 in related
accrued interest by the issuance of 2,135,301 shares of Series A Preferred
Stock; (b) purchased new technology and a related patent application with the
issuance of 1,379,310 shares of common stock; and (c) sold 4,666,667 shares of
common stock, including warrants to purchase an additional 833,333 shares of our
common stock for an aggregate purchase price of $7 million, including conversion
of the notes payable, advances and accrued interest owed to Verus International
Group, Ltd. At the time of the Merger, we realized net cash proceeds of $5
million on the sale.
Since November 1, 2000, all senior officers have deferred their salaries in
anticipation of the Company securing additional financing. The financing has not
been secured and accordingly, the officers' salaries have been accrued as a
liability in the Company's financial statements as of December 31, 2000, in the
amount of $168,462. The liability as of May 6, 2001, is $535,961. The officers
will be paid for current salaries beginning May 7, 2001, and accordingly, no
further liability is expected to be accrued.
On January 5, 2001, the Company borrowed $55,000 from two of its officers.
These promissory notes are unsecured, bear interest at 5% per annum, and are due
February 5, 2001. As of June 28, 2001 $46,000 has been repaid.
On January 10, 2001, the Company refinanced $455,627 of accounts payable
due to Xerox under the services agreement described in Note 8 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.
On January 19, 2001, the Company borrowed $40,000 from two additional
officers. These promissory notes are unsecured, are due February 19, 2001, and
are payable with interest at a rate of 5% per annum.
On February 8, 2001, the Company sold 40,000 shares of its common stock to
an accredited investor for $20,000. The issuance was made pursuant to Section
4(2) of the Securities Act.
On February 13, 2001, the Company borrowed $100,000 from a stockholder and
officer of the Company due and payable on June 30, 2001 with interest at 8% per
annum. This borrowing is unsecured.
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 would 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.
The Company is factoring the majority of its accounts receivable. Net
advances from the factor approximate $375,000 through June 28, 2001. Fees for
these services are expected to average 6% of amounts factored.
On March 22, 2001, the Company entered into an equity line of credit with a
private investor. Under the terms of this agreement, upon the effective
registration of the Company's common stock, the investor will purchase up to an
aggregate of $10 million of such common stock over the course of 36 months from
the date of the agreement at a purchase price per share equal to 91% of the
market price as defined therein. The amount of shares to be put to the investor
by the Company is subject to certain average daily trading volumes for the
Company's common stock in the U.S. financial markets. In connection with
18
<PAGE>
this agreement, we will be issuing 250,000 shares of common stock for no
consideration to an affiliate of the investor. The Company will record $212,500
in stock-based compensation in the quarter ended March 31, 2001 related to this
agreement.
Our cash balance at June 28, 2001 is not sufficient to fund the Company's
operations. As described above, we are currently seeking additional sources of
equity or debt financing to fund our operations. Between December 31, 2000 and
the date of this report, Verus loaned the Company $1,000,000.
Although we have been successful in raising financing in the past, there
can be no assurance that any additional financing will be available to us on
commercially reasonable terms, or at all. Furthermore, we can provide no
assurance that our stockholders will continue to provide additional financing on
either an interim or permanent basis. Any inability to obtain the necessary
additional financing will have a material adverse effect on us, requiring us to
significantly curtail or possibly cease our operations. In addition, any
additional equity financing may involve substantial dilution to the interests of
our then existing stockholders.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. We adopted SFAS No. 133 effective January
1, 2001 which did not have an impact on our financial position or our results of
operations.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition. We adopted SAB
No. 101 in the fourth quarter of 2000, as required. The adoption of SAB No. 101
did not have an effect on the Company's financial position or its results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
Any investment in shares of our common stock involves a high degree of
risk. You should carefully consider the following information about these risks,
together with the other information contained herein, before you decide to buy
our common stock. If any of the following risks occur, our business could be
materially harmed. In these circumstances, the market price of our common stock
could decline, and you may lose all or part of the money you paid to buy our
common stock.
STOCK TRADING HALT
On April 23, 2001, the American Stock Exchange halted trading of the
Company's common stock due to the Company's failure to file its Form 10-KSB for
the year ended December 31, 2000. With the filing of the Form 10-QSB for the
period ending March 31, 2001, the Company expects that AMEX will allow the
Company to resume trading. However, there can be no assurance that AMEX will
allow the Company to resume trading once this report on Form 10-KSB and the
10-QSB for the period ended March 31, 2001 has been filed. Moreover, although
the Company will attempt to do so, there can be no assurance that the Company
will be able to maintain its listing on the American Stock Exchange in the
future.
If the Company loses its listing on the AMEX, the common stock may
thereafter be included for trading on the Over The Counter Bulletin Board
("OTCBB"). For the common stock to be traded on the OTCBB, a market maker must
make certain filings with the National Quotation Bureau. There can be no
assurance that any such filings will be made, or that if made, the common stock
will be accepted for
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inclusion in the OTCBB. Even if included, a trading market may not develop or be
sustained, and investors may not be able to liquidate their investment.
WE HAVE NOT BEEN PROFITABLE, HAVE GENERATED NEGATIVE OPERATING CASH FLOWS AND WE
EXPECT OUR LOSSES AND NEGATIVE CASH FLOWS TO CONTINUE.
We have never been profitable. We base current and future expense levels on
our operating plans and our estimates of future revenues. If our revenues do not
materialize or grow at a slower rate than we anticipate, or if our spending
levels exceed our expectations or cannot be adjusted to reflect slower revenue
growth, we may not achieve profitability or positive cash flows. As shown in our
financial statements, we incurred losses of $7,998,543, $1,060,646 and
$2,182,431 for the year ended December 31, 2000, the five months ended December
31, 1999 and the year ended July 31, 1999, respectively. At December 31, 2000,
we had an accumulated deficit of $13,677,257 and our current liabilities of
$6,562,755 exceeded our current assets by $6,301,505. Moreover, a majority of
our accounts payable in the amount of $4,009,090 at December 31, 2000 were
beyond the normal payment terms. We expect to continue to lose money and
generate negative cash flows from operations in the foreseeable future because
we anticipate incurring significant expenses in connection with building our
brand, improving our services and increasing our product offerings. We may find
it necessary to accelerate expenditures relating to our marketing and sales
efforts or to further develop our Web site and information technology. If we
accelerate these expenditures and our revenues do not increase proportionately,
our rate of losses and negative operating cash flows will increase.
WE RELY ON ONE CUSTOMER FOR MOST OF OUR REVENUE.
We depend on Barnes & Noble College Bookstores, Inc. for a significant
portion of our revenues. Sales to this customer represented 29%, 70% and 75% of
net sales for the year ended December 31, 2000, the five months ended December
31, 1999 and the year ended July 31, 1999, respectively. The decrease in sales
to Barnes & Noble College Bookstores, Inc. during the year ended December 31,
2000 relative to the Company's total sales is primarily the result of increased
Company sales to other parties and sales to former Copytron customers, net of a
decrease in sales to this customer. There can be no assurance that the customer
will continue to purchase goods from us at prior levels, if at all. The loss of
this customer would have a material adverse effect on our company.
OUR BUSINESS AND REVENUE MODEL IS UNPROVEN.
Our ability to generate significant revenues and profits from the sale of
custom textbooks and course packs and other products and services we may offer
in the future is uncertain. To be successful, we must attract and retain a
significant number of customers to our Web site at a reasonable cost. Any
significant shortfall in the expected number of purchases occurring through our
Web site will negatively affect our financial results by increasing or
prolonging operating losses and negative operating cash flows. Conversion of
customers from traditional shopping methods to electronic shopping may not occur
as rapidly as we expect, if at all. Therefore, we may not achieve the customer
traffic we believe is necessary to become successful. Specific factors which
could prevent widespread customer acceptance of our business and our ability to
increase revenues include:
o Lack of consumer awareness of our online presence;
o Pricing that does not meet consumer expectations;
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o Consumer concerns about the security of online transactions;
o Shipping charges, which do not apply to shopping at traditional retail
stores and are not always charged by some of our online competitors;
o Delivery time associated with online orders, as compared to the
immediate receipt of products at traditional retail stores;
o Product damage from shipping or shipments of the wrong products, which
may result in a failure to establish trust in purchasing our products
online;
o Delays in responses to consumer inquiries or in deliveries to
consumers; and
o Difficulty in returning or exchanging orders.
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT SEASONAL FLUCTUATIONS.
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. Sales in the textbook industry traditionally are
significantly higher in the first and third calendar quarters of each year
compared with the second and fourth calendar quarters. A part of our strategy is
to offer additional products and services through our Web site. We cannot be
sure that we will be able to generate significant sales of any product other
than new textbooks or generate revenues from additional services or that such
sales or revenues will not occur with textbook sales or in their own seasonal
pattern and, as a result, we may continue to experience such fluctuations in
operating results. Fluctuations in our quarterly operating results could cause
our stock price to decline. You should not rely on sequential quarter-to-quarter
comparisons of our results of operations as an indication of future performance.
Factors that may affect our quarterly results include:
o Seasonal trends in the textbook industry;
o Our ability to manage or influence inventory and fulfillment
operations;
o The level of merchandise returns we experience;
o Our ability to attract new customers, retain existing customers and
maintain customer satisfaction;
o Introduction of new products and services or enhancements, or a change
in pricing policies, by us or our competitors, or a change in pricing
policy by our sole fulfillment source;
o Changes in the amount and timing of expenditures related to marketing,
information technology and other operating expenses to support future
growth;
o Technical difficulties or system downtime affecting the Internet
generally or the operation of our Web site specifically;
o Increasing consumer acceptance and use of the Internet and other
online services for the purchase of consumer products;
o Potential acquisitions or strategic alliances either by us or our
competitors; and
o General economic conditions and economic conditions specific to the
Internet, online commerce and the book industry.
21 |
| | booktech.com BTC - AMEX | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
|
| To: ChainSaw who started this subject | 7/3/2001 11:27:19 PM | | From: jmhollen | | | | <PAGE>
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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ANY ACQUISITIONS WE MAKE MAY POSE A NUMBER OF RISKS THAT COULD MATERIALLY
ADVERSELY AFFECT OUR STRATEGY.
To the extent that we complete acquisitions, such acquisitions could pose a
number of special risks, including the diversion of management's attention, the
assimilation of the operation and personnel of the acquired companies, the
integration of acquired assets with existing assets, adverse short-term effect
on reported operating results, the amortization of acquired intangible assets
and the loss of key employees. Additionally, with respect to potential future
acquisitions by us, our stockholders are not expected to have the right to vote
on such acquisitions.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY AND THIS COULD
DEPRESS OUR STOCK PRICE.
Nevada corporate law and our amended and restated certificate of
incorporation and our by-laws contain provisions that could have the effect of
delaying, deferring or preventing a change in control of booktech.com or a
change of our management that stockholders may consider favorable or beneficial.
These provisions could discourage proxy contests and make it more difficult for
you and other stockholders to elect directors and take other corporate actions.
These provisions could also limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions include those
which:
o Authorize the issuance of "blank check" preferred stock, which is
preferred stock that can be created and issued by the Board of
Directors without prior stockholder approval, with rights senior to
those of common stock;
o Provide for a staggered Board of Directors, so that it would take
three successive annual meetings to replace all directors;
o Prohibit stockholder action by written consent; and
o Establish advance notice requirements for submitting nominations for
election to the Board of Directors and for proposing matters that can
be acted upon by stockholders at a meeting.
ITEM 7. FINANCIAL STATEMENTS
Incorporated by reference from the consolidated financial statements and
notes thereto of booktech.com, inc., which are attached hereto beginning on page
41.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The registrant filed a report on Form 8-K on May 15, 2000 which reported
that the Board of Directors of the Company approved the dismissal of Barry L.
Friedman P.C. as its independent auditor and appointed Deloitte & Touche LLP.
There were no disagreements between booktech.com, inc. and Barry L.
Friedman P.C. on any matter of accounting principle or practice, financial
statement disclosures, auditing scope or procedure which, if not resolved to his
satisfaction of would have caused Barry L. Friedman P.C. to make reference to
the subject matter of the disagreement in connection with their report. The
audit opinion of Barry L. Friedman P.C. contained an explanatory paragraph
emphasizing the Company's status as a development stage enterprise and
uncertainty regarding the Company's ability to continue as a going concern.
It should also be noted that Deloitte & Touche LLP provided independent
auditing services to booktechmass prior to the Merger.
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<PAGE>
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
IDENTIFY DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Directors are elected by the stockholders or by affirmative vote of a
majority of the directors then in office, and hold office until the next annual
meeting of the stockholders. Officers and other employees serve at the will of
the Board of Directors. The following table sets forth certain information
regarding our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive Officers
William G. Christie 53 President, Chief Executive Officer, and Chairman
Morris A. Shepard, Ph.D.* 63 President, Chief Executive Officer, and Chairman
Joel Dumaresq 37 Director
Ajmal Khan 39 Director
Barry Romeril 56 Director
Sherry Turkle 52 Director
Ted Bernhardt 49 Chief Financial Officer, Treasurer and Secretary
Key employees
October Ivins 49 Chief Knowledge Officer
Steven Lewers 52 Chief Trade Book Officer
</TABLE>
Directors and Executive Officers
William G. Christie has been our President, Chief Executive Officer, and
Chairman of the Board since May 14, 2001. Immediately prior to these positions,
Mr. Christie was the Chief Operating Officer of !heyinc, with responsibility for
sales, business development, and shared responsibility for investment and
investor relations. In August, 1998, Mr. Christie was part of an investor group
which acquired Contact Dynamics. The company was renamed icontact.com and he
last served as Chief Executive Officer before it merged with hey Software to
form !heyinc. in August, 2000. From 1997 until 1998, Mr. Christie was the
principal of his own consulting firm, W. G. Christie Associates. The company
worked in the data warehousing/data mining and Internet applications areas. For
the preceding 12 years, he was responsible for MIS and Merchandising Support of
the CALDOR Corporation.
*Morris A. Shepard, Ph.D. was our Chairman of the Board of Directors, Chief
Executive Officer, and President from March 31, 2000 through May 11, 2001.
Immediately prior to holding those positions, Mr. Shepard had been President,
Director and Chief Executive Officer of booktech.com, inc., a Massachusetts
corporation ("booktechmass") since 1995, which formerly carried on the business
now carried on by our company. Prior to founding booktechmass in 1995, he taught
graduate and undergraduate courses in Boston and in Europe.
Joel Dumaresq was elected a Director on January 17, 2000. Mr. Dumaresq is
an experienced business executive and investment specialist. His experience
ranges from running public and private corporations to working for a national
investment-banking firm. From 1994 until its being sold in 1998, Mr. Dumaresq
was president of Westair Aviation Inc., a regional charter airline service. For
the past two years, he has worked with the Verus Group on public equity
financings and mergers and acquisitions. He holds a degree in economics from the
University of British Columbia.
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<PAGE>
Ajmal Khan was elected a Director on March 31, 2000. Since 1992, Mr. Khan
has been the President of Verus International Group Ltd., a diversified
investment group, which he founded in 1990. Verus International Group Ltd.. is
involved in the ownership of hotels, venture capital financing, corporate
acquisitions, and several joint venture interests, including Barakaat Holdings
Ltd., a sports marketing company.
Barry Romeril was elected a Director on March 31, 2000. From 1993 to the
present, he has served as Chief Financial Officer of Xerox Corporation
("Xerox"). In April 1999, he was elected to the Board of Directors of Xerox and
was named its vice chairman. Mr. Romeril is responsible for all finance,
treasury, tax and audit activities at Xerox as well as its internal services and
real estate operations. In addition, he is responsible for (a) Xerox Technology
Enterprises, which oversees emerging businesses; (b) Xerox's intellectual
property unit and (c) Xerox Engineering Services.
Sherry Turkle was elected a Director on March 31, 2000. From 1999 to the
present, she has served as the Abby Rockefeller Mauze Professor in the Program
in Science, Technology, and Society at the Massachusetts Institute of Technology
("MIT"). From 1991 through 1999, Ms. Turkle served as Professor of the Sociology
of Science at MIT. She has published books and articles on a variety of subjects
and is a frequent speaker on the digital revolution.
Ted Bernhardt has been our Chief Financial Officer and Treasurer since
March 31, 2000, and Secretary since September, 2000. From June 1999 to March 31,
2000, he was Chief Financial Officer of booktechmass. From 1998 to May 1999, he
provided financial and business development consulting services for INSO
Corporation and Custom Communications Partners. From 1993 to 1998, Mr. Bernhardt
was Chief Financial Officer of the custom publishing division of Cadmus
Communications Corporation. He received his bachelor's degree in Finance from
Boston College and his Masters in Business Administration from Suffolk Business
School.
October Ivins has been our Chief Knowledge Officer since March 6, 2000.
From June 1998 to December 1999, Ms. Ivins served as Director of Strategic
Relationships for PubList.com, an on-line directory of publications and related
services. From 1995 to 1998, she taught courses on information access and
Internet use as a doctoral student at the University of Texas at Austin. Ms.
Ivins brings 20 years of experience in academic libraries at Louisiana State
University and the University of North Carolina at Chapel Hill where she earned
her Bachelor of Arts degree and her Masters in Library Sciences.
Steven Lewers has been our Chief Trade Book Officer since January 31, 2000.
Immediately prior to joining the Company, he managed Steven Lewers & Associates,
a consulting firm for the consumer book industry, which he founded in 1999. He
also serves as Vice President of the Waldorf School of Lexington (MA). From 1997
to 1999, he served as Vice President, Marketing and Strategic Planning for the
On-Demand Machine Corporation. From 1990 to 1997, Mr. Lewers served as Vice
President, Director of Sales, Marketing and New Business development for
Houghton Mifflin Co. He received his bachelors degree in Economics from Harvard
University.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No present director or officer of the Company: (1) has had any petition
filed, within the past five years, in Federal Bankruptcy or state insolvency
proceedings on such person's behalf or on behalf of any entity of which such
person was an officer or general partner either at the time of the bankruptcy or
within two years prior to that time; or (2) has been convicted in a criminal
proceeding within the past five years or is currently a named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses); or (3) has been the subject, within the past five years, of any
order, judgment, decree or finding (not subsequently reversed, suspended, or
vacated) of any court or regulatory authority involving violation of securities
or commodities laws, or barring, suspending, enjoining or limiting any activity
relating to securities, commodities or other business practice.
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<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's common shares to file with the Securities and
Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of Common
Shares and other equity securities of the Company, on Form 3, 4, and 5,
respectively.
To the best of our knowledge, all executive officers, directors and persons
owning more than 10% of our common stock filed the required reports in a timely
manner, with the exception of the following:
Name Number of Late Reports
---- ----------------------
William G. Christie 1(1)
Ajmal Khan 1(2)
Joel Dumaresq 1(2)
Sherry Turkle 1(3)
----------
(1) Mr. Christie did not timely file a Form 3- Initial Statement of Beneficial
Ownership. However, Mr. Christie filed a Form 3- Initial Statement of
Beneficial Ownership and a Form 4- Statement of Changes in Beneficial
Ownership on June 21, 2001.
(2) The named director did not timely file a Form 3- Initial Statement of
Beneficial Ownership. However, the named director subsequently late filed a
Form 3- Initial Statement of Beneficial Ownership and Form 5- Annual
Statement of Changes in Beneficial Ownership on June 21, 2001.
(3) The named director did not file a Form 3- Initial Statement of Beneficial
Ownership. However, we expect that the named director will file the
appropriate forms within ten (10) days of the date of this report.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the total compensation paid to our Chief
Executive Officer and our two most highly compensated executive officers, other
than our Chief Executive Officer, for the year ended December 31, 2000, whose
salary and bonus for such fiscal year was greater than $100,000:
<TABLE>
<CAPTION>
Long Term Compensation
Period --------------------------------------- (2)
For the Compensation (1) $Restricted Securities All
Name and Principal Period ------------------- Stock Underlying $ LTP Other
Position Ended $ Salary $ Bonus Awards Options/SARs Payouts Comp.
-------- ------- -------- ------- ------ ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Morris A. Shepard 12/31/2000 $155,953 -- -- 66,667 -- $2,960
President, CEO (3)
Joel Dumaresq (4) 12/31/2000 -- -- -- -- -- --
Ted Bernhardt 12/31/2000 118,746 -- -- 344,828 -- 7,200
CFO
Thomas F. Delano 12/31/2000 116,365 -- -- 344,828 -- 7,200
Chief Business
Development Officer
</TABLE>
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<PAGE>
(1) Salary compensation for the year ended December 31, 2000 represents paid
compensation only, reported amounts exclude accrued but unpaid salaries for
the year ended December 31, 2000 as follows: Shepard, $27,692; Bernhardt,
$23,078; and Delano, $23,078.
(2) All other compensation represents automobile allowances paid to executives.
(3) Dr. Shepard resigned as President, Chief Executive Officer and Chairman of
the Board of Directors on May 11, 2001.
(4) Mr. Dumaresq served from January 17, 2000 until March 31, 2000 as the
President of Ebony and Gold Ventures, Inc. prior to the Merger.
Our 2000 Stock Option Plan (the "Plan") allows us to grant stock options,
restricted stock and other stock-based awards, including stock appreciation
rights to employees, officers, directors, consultants and advisors of the
Company. The maximum number of shares of common stock that may be issued under
the Plan is 5,000,000. The Plan is administered by the Board of Directors, which
has the authority to designate the nature of the award, the number of shares and
the vesting period, among other terms. The stock options expire no later than
ten years from the date of grant. As of December 31, 2000, there were 2,883,853
shares of common stock available for future issuance under the Plan.
The following table sets forth information concerning individual grants,
including adjustments resulting from the Merger, of stock options made to each
of the executive officers and key employees in 2000:
<TABLE>
<CAPTION>
Fair
Number of Market Potential Realizable
Securities Percent of Value at Value at Assumed
Underlying Total Options/ Option Date of Annual Rates of
Options SARs Granted Exercise Grant Stock Appreciation Option
SARs To Employees Price Per or For the Option Term Expiration
Name Granted In 2000 Share Adjustment 5% 10% Date
---- ------- ------- ----- ----- -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Morris A. Shepard 66,667 3.8% $1.50 $ .72 $ -- $ -- 3/31/06
Ted Bernhardt 344,828 19.4 .29 .72 177,084 207,658 6/30/02
Thomas F. Delano 344,828 19.4 .58 .72 68,172 88,626 11/8/01
October Ivins 330,334 18.6 .66 .72 48,455 78,962 6/30/02
Steven Lewers 344,828 19.4 .58 .72 104,250 169,333 3/31/04
Joseph Short, Ph.D. 166,667 9.4 1.25 .72 -- -- 1/17/03
</TABLE>
None of the named executives exercised any stock options in the year ended
December 31, 2000. The following table sets forth information concerning the
unexercised options / SARs for each of the above named executives at December
31, 2000. The Value of the Unexercised In-The-Money-Options is based on the
closing sales price ($1.125) of the Company's common stock on the American Stock
Exchange on December 31, 2000.
<TABLE>
<CAPTION>
Shares
Acquired Number of Securities Underlying Value of Unexercised
On Value Unexercised Options In-The-Money Options
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Morris A. Shepard -- $ -- -- 66,667 $ -- $ --
Ted Bernhardt -- -- 344,828 -- 287,931 --
Thomas F. Delano -- -- 344,828 -- 187,931 --
October Ivins -- -- -- 330,334 -- 153,605
Steven Lewers -- -- 344,828 -- 187,931 --
Joseph Short, Ph.D. -- -- -- 166,667 -- --
</TABLE>
In connection with the Merger on March 31, 2000, the Company adjusted the
number and exercise price of the unexercised options previously granted to Mr.
Delano and Mr. Lewers.
33
<PAGE>
The Company also cancelled a previously issued stock option to Mr.
Bernhardt and issued to Mr. Bernhardt a new option with a cashless exercise
feature. The following table sets forth information concerning the adjustment of
the unexercised options for each of the executives.
<TABLE>
<CAPTION>
Length of
Original
Number of Exercise Option Term
Securities Market Price Price at Remaining
Underlying of Stock at Time of at Date of
Options/SARs Time of Issue, Issue, New Issue,
Issued, Adjusted, Adjustment, Adjustment, Exercise Adjustment,
Name Date or Amended or Amendment or Amendment Price or Amendment
---- ---- ---------- ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Ted Bernhardt 3/31/00 344,828 $ .72 $ .29 $ .29 27 months
Thomas F. Delano 3/31/00 344,828 .72 .58 .58 21 months
Steven Lewers 3/31/00 344,828 .72 .58 .58 36 months
</TABLE>
DIRECTORS' COMPENSATION
The Company's inside directors receive no compensation for their services
as members of the Board. Non-employee directors receive an annual retainer of
$10,000. In addition, non-employee directors annually receive 1,000 shares of
the Company's common stock and options to purchase 2,000 additional shares of
the Company's common stock. All directors receive reimbursement of their actual
expenses incurred in connection with attending each meeting of the Board and
each meeting of any committee of the Board.
The following table sets forth information concerning individual grants of
common stock and stock options made to the outside directors in 2000:
<TABLE>
<CAPTION>
Restricted Stock Grants Common Stock Option Grants
--------------------------- -----------------------------------------------------------
Number of Fair Market Number of Exercise Fair Market Option
Shares Value At Options / Price Per Value At Expiration
Name Granted Date of Grant SARs Granted Share Date of Grant Date
---- ------- ------------- ------------ --------- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
Barry Romeril 1,500 $4,320 2,000 $ 2.88 $ 2.88 3/31/2006
Sherry Turkle 1,000 2,880 2,000 2.88 2.88 3/31/2006
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee
The Audit Committee is responsible for making recommendations to the Board
of Directors as to the selection of our independent auditor, maintaining
communication between the Board and the independent auditor, reviewing the
annual audit report submitted by the independent auditor, and determining the
nature and extent of issues, if any, presented by such audit warranting
consideration by the Board. The current member of this Committee is Joel
Dumaresq.
The Compensation Committee
The Compensation Committee is responsible for determining the compensation
payable to officers and directors. The current members of the Compensation
Committee are Sherry Turkle, Ajmal Khan and Joel Dumaresq.
The Nominating Committee
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<PAGE>
The Nominating Committee is responsible for recommending candidates to the
stockholders for election to the Board of Directors. The current members of the
Nominating Committee are Sherry Turkle and Ajmal Khan..
EMPLOYMENT AGREEMENTS
William G. Christie was named President, Chief Executive Officer and
Chairman of the Board on May 14, 2001. Mr. Christie was appointed by the Board
upon his verbal acceptance of an offer of employment at an annual salary of
$250,000. We anticipate that an employment agreement with Mr. Christie will be
concluded within 30 days of the date of this report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 30, 2001 by (i) each person
who is known to the Company to own beneficially more than 5% of the Company's
common stock on a fully diluted basis; (ii) all directors, officers and key
employees of the Company; and (iii) all directors, officers and key employees of
the Company as a group. The number of shares beneficially owned by each named
person and the number of shares of common stock outstanding used in calculating
the percentage for each named person assumes the conversion of all preferred
stock outstanding into common stock. The number of shares of common stock
outstanding used in calculating the percentage for each named person includes
the shares of common stock underlying options and warrants held by that person
which are exercisable within 60 days of April 30, 2001.
Shares Percent
of Common Stock of Common Stock
Name and Address of Beneficial Owner (1) Beneficially Owned Owned
---------------------------------------- ------------------ -----
Morris A. Shepard (2) 3,235,744 15.2%
Joel Dumaresq (3) 1,445,800 6.7%
Ruth Anne Shepard (4) 2,387,123 11.2%
Dennis Hershey (5) 2,858,544 13.6%
Ajmal Khan (6) 2,268,800 10.5%
Bonnie Hershey (7) 1,499,124 7.2%
Frank Challant (8) 1,202,184 5.8%
Ted Bernhardt (9) 344,828 1.6%
Thomas F. Delano (9) 344,828 1.6%
Steven Lewers (9) 344,828 1.6%
Joseph Short, Ph.D. (9) 166,667 *
October Ivins (9) 100,000 *
Barry Romeril (10) 6,500 *
Sherry Turkle (10) 6,000 *
All Officers, Directors and Key
Employees as a Group (10 persons) 6,978,195 29.6%
----
* Less than 1%
(1) The address for each individual is c/o booktech.com, inc., 42 Cummings
Park, Woburn Massachusetts 01801.
(2) Includes 2,387,123 shares jointly held with Ruth Anne Shepard; 848,621
shares held in trust for Aaron and Heather Shepard, the children of Morris
Shepard; and options to purchase 66,667 shares of common stock.
(3) Includes 60,000 shares held by his wife Marousa Dumaresq; 100,000 shares
held by Pashleth Investments; and 402,467 shares and warrants to purchase
883,333 held by Verus over which Joel Dumaresq has control.
(4) All shares jointly owned with Morris Shepard, including options to purchase
66,667 shares of common stock.
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(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.
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<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.
37
<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
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| To: ChainSaw who started this subject | 7/3/2001 11:33:52 PM | | From: jmhollen | | | | <PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended
December 31, December 31, July 31,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES .............................................................. $ 1,725,019 $ 1,024,866 $ 1,328,813
COST OF SALES .......................................................... 2,317,030 1,027,223 1,578,308
------------ ------------ ------------
Gross margin ................................................... (592,011) (2,357) (249,495)
------------ ------------ ------------
OPERATING EXPENSES:
Selling, marketing and general and administrative (excluding
stock-based compensation costs of $964,945 in 2000) ............ 6,314,304 932,540 1,718,300
Stock-based compensation .......................................... 964,945 -- --
------------ ------------ ------------
Total operating expenses ....................................... 7,279,249 932,540 1,718,300
------------ ------------ ------------
LOSS FROM OPERATIONS ................................................... (7,871,260) (934,897) (1,967,795)
------------ ------------ ------------
INTEREST EXPENSE TO RELATED PARTIES .................................... 83,950 83,422 209,795
OTHER INTEREST EXPENSE ................................................. 73,630 42,327 4,841
------------ ------------ ------------
Total interest expense ......................................... 157,580 125,749 214,636
------------ ------------ ------------
INTEREST INCOME ........................................................ 30,297 -- --
------------ ------------ ------------
NET LOSS ............................................................... (7,998,543) (1,060,646) (2,182,431)
ACCRUED DIVIDENDS ON PREFERRED STOCK ................................... 195,736 -- --
------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ........................... $ (8,194,279) $ (1,060,646) $ (2,182,431)
============ ============ ============
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER
SHARE -- BASIC AND DILUTED ..................................... $ (0.51) $ (0.15) $ (0.36)
============ ============ ============
SHARES USED IN COMPUTING BASIC AND DILUTED NET
LOSS PER SHARE ................................................. 16,123,291 6,921,001 6,016,552
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................................................... $ 4,611 $ 82,753
Accounts receivable, less allowances for uncollectible accounts and returns
of $78,100 in 2000 and $91,700 in 1999 ......................................... 205,503 228,466
Other current assets ............................................................... 51,136 --
------------ ------------
Total current assets .................................................. 261,250 311,219
------------ ------------
PROPERTY AND EQUIPMENT, at cost ....................................................... 4,327,116 808,298
Accumulated depreciation .............................................................. (613,621) (73,928)
------------ ------------
Property and equipment, net ........................................... 3,713,495 734,370
------------ ------------
OTHER ASSETS:
Acquired technology and patent application ........................................... 993,103
Acquired customer list, net ........................................................... 944,138 --
Deposits and other .................................................................... 75,854 25,200
------------ ------------
Total other assets .................................................. 2,013,095 25,200
------------ ------------
TOTAL ................................................................. $ 5,987,840 $ 1,070,789
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Bank overdraft ..................................................................... $ 25,681 $ --
Current portion of long-term debt .................................................. 888,587 437,838
Current portion of long-term debt due to related parties ........................... 1,013,100 2,953,759
Accounts payable, including past due amounts ....................................... 4,009,090 1,282,385
Accrued payroll .................................................................... 344,041 143,423
Accrued interest expense to related parties ........................................ 17,660 354,130
Accrued other expenses ............................................................. 181,192 267,394
------------ ------------
Total current liabilities ............................................. 6,479,351 5,438,929
------------ ------------
LONG-TERM DEBT ........................................................................ 11,585 591,824
------------ ------------
DEFERRED LEASE OBLIGATION ............................................................. 101,250 146,250
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIENCY:
Preferred stock, 5,000,000 shares authorized:
Convertible Series A, par value, $.00042,
2,135,301 shares issued and outstanding (liquidation value, $3,398,688) at
December 31, 2000; no shares issued or outstanding at December 31, 1999 ...... 897 --
Convertible Series B, par value, $.00042,
1,100,000 shares issued and outstanding at December 31, 2000; no shares
issued or outstanding at December 31, 1999 ................................... 462 --
Common stock, authorized, 54,523,810 shares, $.00042 par value, 19,146,546
shares issued and outstanding at December 31, 2000; no par value,
68,965,600 shares authorized; 9,655,184 shares issued and
8,620,700 shares outstanding at December 31, 1999 ............................... 8,041 760,000
Dividends payable in shares of common stock ........................................ 195,736 --
Additional paid-in capital ......................................................... 12,883,890
Deferred compensation .............................................................. (16,115) --
Treasury stock, at cost (1,034,484 shares at December 31, 1999) .................... -- (187,500)
Accumulated deficit ................................................................ (13,677,257) (5,678,714)
------------ ------------
Total stockholders' deficiency ........................................ (604,346) (5,106,214)
------------ ------------
TOTAL ................................................................. $ 5,987,840 $ 1,070,789
============ ============
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
booktech.com, inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
$.00042 Par Value $.00042 Par Value
Convertible Preferred Convertible Preferred $.00042 Par Value
Stock, Series A Stock, Series B Common Stock
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1998 ....................... -- $ -- -- $ -- -- $ --
Net loss for the period .................... -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance, July 31, 1999 ........................ -- -- -- -- -- --
Related party loans converted into
common stock .............................. -- -- -- -- -- --
Net loss for the period ..................... -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance, December 31, 1999 .................... -- -- -- -- -- --
Adjustment to reflect exchange of common
stock in reverse merger ................... -- -- -- -- 7,520,690 3,159
Issuance of preferred stock in exchange for
common stock .............................. -- -- 1,100,000 462 -- --
Conversion of related party notes and
accrued interest into preferred stock ..... 2,135,301 897 -- -- -- --
Issuance of common stock, including
conversion of other debt and accrued
interest into common stock ................ -- -- -- -- 4,666,667 1,960
Common stock held by former Ebony & Gold
Ventures' shareholders .................... -- -- -- -- 5,000,000 2,100
Issuance of common stock to acquire
technology and patent application ......... -- -- -- -- 1,379,310 579
Reverse merger expenses ..................... -- -- -- -- -- --
Issuance of common stock to acquire assets
of Copytron, Inc. ......................... -- -- -- -- 238,298 100
Stock-based compensation .................... -- -- -- -- 341,581 143
Accrued dividends on convertible preferred
stock, Series A ........................... -- -- -- -- -- --
Fair value of warrants granted in connection
with issuance of notes payable to related
parties ................................... -- -- -- -- -- --
Beneficial conversion feature of notes
payable to related parties ................ -- -- -- -- -- --
Net loss for the period ..................... -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance, December 31, 2000 .................... 2,135,301 $ 897 1,100,000 $462 19,146,546 $ 8,041
========= ====== ========= ====== ========== =======
<CAPTION>
Dividends
No Par Additional Payable In
Common Stock Paid-In Shares of
Shares Amount Capital Common Stock
------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, August 1, 1998 ....................... 20,000 $260,000 $ -- $ --
Net loss for the period .................... -- -- -- --
------ --------- ----------- ----------
Balance, July 31, 1999 ........................ 20,000 260,000 -- --
Related party loans converted into
common stock .............................. 5,000 500,000 -- --
Net loss for the period ..................... -- -- -- --
------ --------- ----------- ----------
Balance, December 31, 1999 .................... 25,000 760,000 -- --
Adjustment to reflect exchange of common
stock in reverse merger ................... (21,810) (663,024) 472,365 --
Issuance of preferred stock in exchange for
common stock .............................. (3,190) (96,976) 96,514 --
Conversion of related party notes and
accrued interest into preferred stock ..... -- -- 3,215,274 --
Issuance of common stock, including
conversion of other debt and accrued
interest into common stock ................ -- -- 7,022,577 --
Common stock held by former Ebony & Gold
Ventures' shareholders .................... -- -- (2,100) --
Issuance of common stock to acquire
technology and patent application ......... -- -- 992,524 --
Reverse merger expenses ..................... -- -- (582,938) --
Issuance of common stock to acquire assets
of Copytron, Inc. ......................... -- -- 699,900 --
Stock-based compensation .................... -- -- 980,917 --
Accrued dividends on convertible preferred
stock, Series A ........................... -- -- (195,736) 195,736
Fair value of warrants granted in connection
with issuance of notes payable to related
parties ................................... -- -- 83,317 --
Beneficial conversion feature of notes
payable to related parties ................ -- -- 101,276 --
Net loss for the period ..................... -- -- -- --
------ --------- ----------- ----------
Balance, December 31, 2000 .................... -- $ -- $12,883,890 $ 195,736
====== ========= =========== ==========
<CAPTION>
Deferred Treasury Accumulated
Compensation Stock Deficit Total
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, August 1, 1998 ....................... $ -- $ (187,500) $ (2,435,637) $(2,363,137)
Net loss for the period .................... -- -- (2,182,431) (2,182,431)
--------- ----------- ------------ ----------
Balance, July 31, 1999 ........................ -- (187,500) (4,618,068) (4,545,568)
Related party loans converted into
common stock .............................. -- -- -- 500,000
Net loss for the period ..................... -- -- (1,060,646) (1,060,646)
--------- ----------- ------------ ----------
Balance, December 31, 1999 .................... -- (187,500) (5,678,714) (5,106,214)
Adjustment to reflect exchange of common
stock in reverse merger ................... -- 187,500 -- --
Issuance of preferred stock in exchange for
common stock .............................. -- -- -- --
Conversion of related party notes and
accrued interest into preferred stock ..... -- -- -- 3,216,171
Issuance of common stock, including
conversion of other debt and accrued
interest into common stock ................ -- -- -- 7,024,537
Common stock held by former Ebony & Gold
Ventures' shareholders .................... -- -- -- --
Issuance of common stock to acquire
technology and patent application ......... -- -- -- 993,103
Reverse merger expenses ..................... -- -- -- (582,938)
Issuance of common stock to acquire assets
of Copytron, Inc. ......................... -- -- -- 700,000
Stock-based compensation .................... (16,115) -- -- 964,945
Accrued dividends on convertible preferred
stock, Series A ........................... -- -- -- --
Fair value of warrants granted in connection
with issuance of notes payable to related
parties ................................... -- -- -- 83,317
Beneficial conversion feature of notes
payable to related parties ................ -- -- -- 101,276
Net loss for the period ..................... -- -- (7,998,543) (7,998,543)
--------- ----------- ------------ ----------
Balance, December 31, 2000 .................... $ (16,115) $ -- $(13,677,257) $ (604,346)
========= =========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
45
<PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended
December 31, December 31, July 31,
2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,998,543) $(1,060,646) $(2,182,431)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization 625,524 23,515 49,101
Stock-based compensation 964,945 -- --
Related-party interest expense satisfied by issuing convertible
preferred stock, Series A 56,839 -- --
Amortization of warrants and beneficial conversion feature on
convertible notes payable to related parties 8,432 -- --
Loss on disposal of property and equipment -- 12,869 --
Write-off of acquisition deposit 300,000 -- --
(Decrease) increase in cash from:
Accounts receivable, net 22,963 (114,359) (37,084)
Other current assets (51,136) -- --
Deposits and other assets (50,654) (2,000) (23,200)
Stockholder's advance -- 19,267 (19,267)
Accounts payable 864,387 368,075 663,939
Accrued payroll and other expenses 138,953 234,605 8,308
Accrued interest to related parties 7,862 101,348 164,756
Deferred lease obligation (45,000) 60,000 120,000
----------- ----------- -----------
Net cash used in operating activities (5,155,428) (357,326) (1,255,878)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of customer list (129,969) -- --
Expenditures for property and equipment (822,814) (181,699) (35,948)
Payment of merger costs (582,938) -- --
Acquisition deposit (300,000) -- --
----------- ----------- -----------
Net cash used in investing activities (1,835,721) (181,699) (35,948)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 25,681 -- --
Proceeds from notes and warrants issued to related parties 2,957,212 150,000 1,510,000
Repayments of notes to related parties (456,710) (22,707) (20,106)
Proceeds from other debt financings -- 595,539 100,000
Repayments of other debt financings (613,176) (159,505) (271,772)
Net proceeds from issuance of common stock 5,000,000 -- --
----------- ----------- -----------
Net cash provided from financing activities 6,913,007 563,327 1,318,122
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (78,142) 24,302 26,296
CASH, BEGINNING OF PERIOD 82,753 58,451 32,155
----------- ----------- -----------
CASH, END OF PERIOD $ 4,611 $ 82,753 $ 58,451
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
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