UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 4, 2000 (April 4, 2000)
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booktech.com, inc.
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(Exact name of registrant as specified in charter)
Nevada 000-26903 88-0409153
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
42 Cummings Park, Woburn, Massachusetts 01801
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (781) 933-5400
---------------
Ebony & Gold Ventures, Inc.
Suite 2000 1177 West Hastings Street, Vancouver,
British Columbia V6E 2K3, Canada
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(Former Name or Former Address, if Changed Since Last Report)
Item 1. Change in Control of Registrant.
--------------------------------
On March 31, 2000, EG Acquisitions Corporation, a Nevada corporation
("Merger-Sub"), a wholly owned subsidiary of Ebony & Gold Ventures, Inc., a
Nevada corporation (the "Company"), merged (the "Merger") with and into
booktech.com, inc., a Massachusetts corporation ("booktech"), pursuant to an
Agreement and Plan of Merger dated March 31, 2000 (the "Merger Agreement").
booktech is an Internet based developer and distributor of college coursepack
materials. Following the Merger, the business to be conducted by the Company
will be the business conducted by booktech prior to the Merger. The Merger will
be accounted for as a reverse acquisition. In conjunction with the Merger, the
Company changed its name to "booktech.com, inc."
Pursuant to the terms of the Merger Agreement, the Company issued
7,520,690 shares of its authorized but unissued common stock to the former
holders of booktech common stock in exchange for 21,810 shares of common stock
of booktech ("booktech common stock") issued and outstanding as of the effective
time of the Merger and 1,100,000 shares of the Company's Series B Preferred
Stock based in exchange for 3,190 shares of booktech common stock issued and
outstanding as of the effective time of the Merger.
Pursuant to the Merger, debt and accrued interest ($3,216,171) owed by
booktech to certain investors, was converted into 2,135,301 shares of Series A
Preferred Stock of the Company.
In addition, the Company purchased technology and a related patent
application from Virtuosity Press LLC, a Delaware Limited Liability Company
("Virtuosity"), in exchange for 1,379,310 shares of the Company's $.00042 par
value Common Stock.
The shares issued to the former booktech stockholders represent
approximately 56.8% of the outstanding voting securities (by vote) of the
Company following the Merger.
Item 2. Acquisition or Disposition of Assets.
-------------------------------------
See Item 1 above for a description of the Merger.
Item 5. Other Events.
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In connection with the Merger, the Company changed its name to
"booktech.com, inc." and issued 4,666,667 shares of common stock pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and warrants to purchase
833,333 shares of Common Stock at an exercise price of $1.50 per share for an
aggregate purchase price of $7,000,000.
In connection with the Merger, Barry Romeril, Sherry Turkle, Morris
A. Shepard and Ajmal Khan were appointed by Joel Dumaresq, the sole director, of
the Company as directors to fill vacancies on the Board of Directors, to serve
in such capacity until the next annual meeting of shareholders of the Company or
until their earlier resignation or removal.
Item 7. Financial Statements and Exhibits.
---------------------------------
Financial Statements of booktech
Audited financial statements for the 5-month period ending
December 31, 1999, and for the years ending July 31, 1998,
and July 31, 1999.
Pro Forma Balance Sheet as of December 31, 1999, Pro Forma
Statement of Operations for the five months ended December 31,
1999 and for the year ended July 31, 1999.
EXHIBIT LIST.
2.1 Agreement and Plan of Merger(1)
2.2 List of Exhibits and Schedules
4.1 Articles of Incorporation of the Company(2)
4.2 Amendment to Articles of Incorporation of Company
authorizing Blank Check Preferred Stock
4.3 Certificate of Designation of Series A Preferred Stock
4.4 Certificate of Designation of Series B Preferred Stock
4.5 Form of Warrant to purchase shares of Company Common Stock
27 Financial Data Schedules
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1 The Company undertakes to file supplementally a copy of any
schedule to the Agreement and Plan of Merger to the SEC upon
request.
2 The Articles of Incorporation of the Company were previously
filed as Exhibit 3.1 to Form 10SB12G filed on August 2, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
booktech.com, inc.
/s/ Morris A. Shepard
---------------------
Name: Morris A. Shepard
Title: President and Chief Executive Officer
Dated: April 4, 2000
---------------------------------------------
booktech.com, inc.
Balance Sheets as of December 31, 1999 and
July 31, 1999 and 1998 and Statements of
Operations, Shareholders' Deficiency, and
Cash Flows for the Five-Month Period Ended
December 31, 1999 and for the Years Ended
July 31, 1999 and 1998 and Independent
Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
booktech.com, inc.
Woburn, Massachusetts
We have audited the accompanying balance sheets of booktech.com, inc. (the
"Company") as of December 31, 1999 and July 31, 1999 and 1998, and the related
statements of operations, shareholders' deficiency, and cash flows for the
five-month period ended December 31, 1999 and for the years ended July 31, 1999
and 1998. 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and July
31, 1999 and 1998, and the results of its operations and its cash flows for the
five-month period ended December 31, 1999 and for the years ended July 31, 1999
and 1998 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses, negative working capital,
shareholders' deficiencies and noncompliance with provisions contained in
certain of its long-term debt agreements raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Deloitte & Touche LLP
Boston, Massachusetts
March 3, 2000
booktech.com, inc.
BALANCE SHEETS
DECEMBER 31, 1999, JULY 31, 1999 AND 1998
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December 31, July 31, July 31,
ASSETS 1999 1999 1998
CURRENT ASSETS:
Cash $ 82,753 $ 58,451 $ 32,155
Accounts receivable, less allowance
for returns of $91,732, $13,331 and
$8,887, respectively 228,466 114,107 77,023
Shareholder's advance - 19,267 -
---------- -------- --------
Total current assets 311,219 191,825 109,178
---------- -------- --------
PROPERTY AND EQUIPMENT:
Office and computer equipment 263,241 149,731 124,004
Furniture and fixtures 149,934 9,427 9,427
Leasehold improvements 80,632 56,249 56,249
Computer software 314,491 10,221 -
---------- -------- --------
Total property and equipment 808,298 225,628 189,680
Less accumulated depreciation
and amortization 73,928 124,966 75,865
---------- -------- --------
Property and equipment - net 734,370 100,662 113,815
---------- -------- --------
DEPOSITS 25,200 23,200 -
---------- -------- --------
TOTAL ASSETS $1,070,789 $315,687 $222,993
========== ======== ========
LIABILITIES AND SHAREHOLDERS' December 31, July 31, July 31,
DEFICIENCY 1999 1999 1998
CURRENT LIABILITIES:
Accounts payable $1,282,385 $ 610,040 $ 352,615
Accrued expense 410,817 67,463 59,155
Accrued interest from related parties 354,130 252,781 88,025
Current portion of loans from related parties 2,953,759 3,202,500 1,713,343
Current portion of long-term debt 437,838 389,657 153,561
---------- ---------- ----------
Total current liabilities 5,438,929 4,522,441 2,366,699
LOANS FROM RELATED PARTIES - 123,996 123,259
LONG-TERM DEBT 591,824 94,818 96,172
OTHER LIABILITIES 146,250 120,000 -
---------- ---------- ----------
6,177,003 4,861,255 2,586,130
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' DEFICIENCY:
Common stock, no par value, 200,000 shares
authorized; 28,000 shares issued and 25,000
shares outstanding at December 31, 1999;
23,000 shares issued and 20,000 shares
outstanding at July 31, 1999 and
July 31, 1998 760,000 260,000 260,000
Accumulated deficit (5,678,714) (4,618,068) (2,435,637)
---------- ---------- ----------
(4,918,714) (4,358,068) (2,175,637)
Less treasury stock, 3,000 shares (187,500) (187,500) (187,500)
---------- ---------- ----------
Total shareholders' deficiency (5,106,214) (4,545,568) (2,363,137)
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIENCY $1,070,789 $ 315,687 $ 222,993
========== ========== ==========
See notes to financial statements.
-2-
booktech.com, inc.
STATEMENTS OF OPERATIONS
FIVE-MONTH PERIOD ENDED DECEMBER 31, 1999 AND
YEARS ENDED JULY 31, 1999 AND 1998
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Five-Month
Period Ended
December 31, Year Ended July 31,
1999 1999 1998
NET SALES $ 1,024,866 $ 1,328,813 $ 793,178
COST OF SALES 1,027,223 1,578,308 856,559
------------ ------------ ------------
GROSS MARGIN (2,357) (249,495) (63,381)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 919,034 1,718,300 1,025,932
------------ ------------ ------------
LOSS FROM OPERATIONS (921,391) (1,967,795) (1,089,313)
------------ ------------ ------------
INTEREST EXPENSE:
Interest expense from related parties 83,422 209,795 88,363
Other 42,327 4,841 23,937
------------ ------------ ------------
Total interest expense 125,749 214,636 112,300
------------ ------------ ------------
OTHER EXPENSE 13,506 - -
------------ ------------ ------------
NET LOSS $ (1,060,646) $ (2,182,431) $ (1,201,613)
============ ============ ============
NET LOSS PER SHARE (Basic and diluted) $ (46) $ (109) $ (56)
============ ============ ============
SHARES USED IN COMPUTING NET LOSS
PER SHARE 23,007 20,000 21,504
============ ============ ============
See notes to financial statements.
-3-
booktech.com, inc.
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FIVE-MONTH PERIOD ENDED DECEMBER 31, 1999 AND
YEARS ENDED JULY 31, 1999 AND 1998
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Common Stock Treasury Accumulated
Shares Amount Stock Deficit Total
BALANCE, AUGUST 1, 1997 16,000 $ 260,000 $ -- $ (1,234,024) $ (974,024)
Purchase of treasury stock (3,000) -- (187,500) -- (187,500)
Common stock split 7,000 -- -- -- --
Net loss -- -- -- (1,201,613) (1,201,613)
-------- --------- ---------- ------------ ------------
BALANCE, JULY 31, 1998 20,000 260,000 (187,500) (2,435,637) (2,363,137)
Net loss -- -- -- (2,182,431) (2,182,431)
-------- --------- ---------- ------------ ------------
BALANCE, JULY 31, 1999 20,000 260,000 (187,500) (4,618,068) (4,545,568)
Related-party loans converted into
common stock 5,000 500,000 -- -- 500,000
Net loss -- -- -- (1,060,646) (1,060,646)
-------- --------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1999 25,000 $ 760,000 $ (187,500) $ (5,678,714) $ (5,106,214)
======== ========= ========== ============ ============
See notes to financial statements.
-4-
booktech.com, inc.
STATEMENTS OF CASH FLOWS
FIVE-MONTH PERIOD ENDED DECEMBER 31, 1999 AND
YEARS ENDED JULY 31, 1999 AND 1998
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Five-Month
Period Ended
December 31, Year Ended July 31,
1999 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,060,646) $(2,182,431) $(1,201,613)
----------- ----------- -----------
Adjustments to reconcile net loss to cash used for
operating activities:
Depreciation and amortization 23,515 49,101 41,858
Loss on disposal of property and equipment 12,869 -- --
(Decrease) increase in cash from:
Accounts receivable, net (114,359) (37,084) (77,023)
Shareholder's advance 19,267 (19,267) --
Deposits (2,000) (23,200) --
Accounts payable 368,075 663,939 173,501
Accrued expense 234,605 8,308 (3,366)
Accrued interest on loans from related parties 101,348 164,756 77,215
Other liabilities 60,000 120,000 --
----------- ----------- -----------
Total adjustments 703,320 926,553 212,185
----------- ----------- -----------
Cash used for operating activities (357,326) (1,255,878) (989,428)
----------- ----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES - Purchases of
property and equipment (181,699) (35,948) (33,942)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans from related parties 150,000 1,510,000 1,190,000
Payments from loans from related parties (22,707) (20,106) (19,970)
Proceeds from long-term debt 595,539 100,000 149,265
Payment of long-term debt (159,505) (271,772) (102,232)
Purchase of treasury stock -- -- (187,500)
----------- ----------- -----------
Cash provided by financing activities 563,327 1,318,122 1,029,563
----------- ----------- -----------
INCREASE IN CASH 24,302 26,296 6,193
CASH, BEGINNING OF YEAR 58,451 32,155 25,962
----------- ----------- -----------
CASH, END OF YEAR $ 82,753 $ 58,451 $ 32,155
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for interest $ 16,548 $ 53,721 $ 30,989
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Property and equipment in accounts payable $ 304,270 $ -- $ --
=========== =========== ===========
Property and equipment in accrued expense $ 75,000 $ -- $ --
=========== =========== ===========
Equipment acquired through capital leases $ 109,123 $ -- $ --
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Conversion of related-party loans into common stock $ 500,000 $ -- $ --
=========== =========== ===========
Conversion of accounts payable into long-term debt $ -- $ 406,514 $ --
=========== =========== ===========
See notes to financial statements.
-5-
booktech.com, inc.
NOTES TO FINANCIAL STATEMENTS
FIVE-MONTH PERIOD ENDED DECEMBER 31, 1999 AND
YEARS ENDED JULY 31, 1999 AND 1998
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1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business - booktech.com, inc. (the "Company") is a digital and
on-demand publisher of custom textbooks, also known as coursepacks, which
are distributed primarily through college bookstores.
Basis of Presentation - The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As
shown in the financial statements, the Company incurred net losses of
$1,060,646, $2,182,431 and $1,201,613 for the five-month period ended
December 31, 1999 and for the years ended July 31, 1999 and 1998,
respectively. At December 31, 1999, the Company has working capital and
stockholders' deficiencies each aggregating $5.1 million. The Company's
operating losses and working capital needs have been funded principally by
loans from its shareholders. The Company's shareholders have not committed
to continue funding the losses of the Company on a long-term basis. These
factors, among others, may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern. As described in Note 5, at
December 31, 1999, the Company was in default on certain provisions of its
lending agreements. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow through
increased net sales to meet its obligations on a timely basis, comply with
the terms and covenants of its financing agreements, obtain additional
financing or refinancing as may be required, and ultimately to attain
successful operations. Management is continuing its efforts to increase net
sales and obtain additional funds so that the Company can meet its
obligations and sustain operations. Subsequent to December 31, 1999, the
Company received additional financing of $1,500,000 and signed a letter of
intent to enter into a merger agreement (Note 9).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - Revenue is recognized at the time of shipment. The
Company has established programs which, under specified conditions, enable
customers to return products. The Company provides an allowance for
estimated sales returns based upon historical data.
Concentration of Credit Risk and Major Customer Information - Financial
instruments that potentially expose the Company to concentrations of credit
risk include cash and accounts receivable. The Company performs ongoing
credit evaluations of its customers and does not require collateral. In
addition, the Company maintains allowances for potential credit losses, and
such losses, in the aggregate, have not exceeded management expectations.
One customer accounted for 70%, 75% and 57% of net sales for the five-month
period ended December 31, 1999 and for the years ended July 31, 1999 and
1998, respectively. This same customer accounted for 77%, 41% and 54% of
accounts receivable at December 31, 1999, July 31, 1999 and July 31, 1998,
respectively.
-6-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment - Property and equipment are recorded at cost.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the various classes of assets or lease
terms, whichever is shorter. Ranges of useful lives are as follows:
Years
Furniture and fixtures 7
Office and computer equipment 5
Leasehold improvements 1-5
Computer software 3
The cost and related accumulated amortization of leased office and computer
equipment, which have been capitalized, aggregate $109,000 and $1,000 at
December 31, 1999, respectively.
Impairment of Long-Lived Assets - Recoverability of long-lived assets is
determined periodically by comparing the forecasted, undiscounted net cash
flows of the operations to which the assets relate to their carrying
amounts, including associated intangible assets of such operations.
Advertising - Advertising costs are expensed as incurred. Total marketing
material and advertising expenses for the five-month period ended December
31, 1999 and for years ended July 31, 1999 and 1998 aggregated $1,200,
$21,700 and $26,100, respectively.
Income Taxes - In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences and carryforwards are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The Company records a valuation allowance against net deferred tax assets
if, based upon the available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income and when temporary differences become deductible. The
Company considers, among other available information, uncertainties
surrounding the recoverability of deferred tax assets, scheduled reversals
of deferred tax liabilities, projected future taxable income, and other
matters in making this assessment.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Some of the areas where estimates are
utilized include allowances for doubtful accounts and returns, certain
accrued expenses, and the valuation allowance on deferred tax assets. Actual
results could differ from those estimates.
-7-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation - The Company accounts for stock options to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25 and for stock options to
nonemployees using the fair value method in accordance with SFAS No. 123.
Comprehensive Income - On August 1, 1997, the Company adopted the provisions
of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires the
Company to report in the financial statements, in addition to net income
(loss), comprehensive income and its components including all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company had no components of comprehensive
income.
Segment Information - On August 1, 1997, the Company adopted the provisions
of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." This statement establishes standards for reporting information
about operating segments in annual financial statements consistent with the
way that management organizes and evaluates financial information internally
for making operating decisions and assessing performance. The Company
currently operates in a single segment.
Earnings Per Share - The Company has adopted the provisions of SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the disclosure of basic and
diluted earnings per share. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during each year. The
weighted-average number of common shares outstanding for the period ending
July 31, 1998 has been computed assuming that the common stock split which
occurred during that period, occurred on August 1, 1997. Diluted earnings
per common share reflect the effect of the Company's outstanding common
stock option except where such item would be antidilutive. Due to the net
loss for the five-month period ended December 31, 1999 and for the years
ended July 31, 1999 and 1998, basic and diluted per share amounts are the
same. For the five-month period ended December 31, 1999 and the year ended
July 31, 1999, potential common shares are not included in the per share
calculations for diluted EPS, because the effect of their inclusions would
be antidilutive.
New Accounting Guidance - In June 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which the Company is required to adopt effective
January 1, 2001. SFAS No. 133 will require the Company to record all
derivatives on the balance sheets at fair value. The impact of SFAS No. 133
on the Company's financial statements will depend on a variety of factors,
including future interpretative guidance from the FASB and the future level
of derivative instruments and hedging activities. The Company is currently
evaluating the effects from adopting SFAS No. 133 to its financial
statements.
-8-
3. ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 31, July 31,
1999 1999 1999
Accrued professional fees $ 149,000 $ 10,000 $ 12,459
Accrued salaries and benefits 91,830 55,672 41,064
Accrued interest 9,643 1,791 5,632
Accrued vacation 51,594 - -
Accrued construction 75,000 - -
Deferred service contract expense 33,750 - -
--------- -------- --------
Total $ 410,817 $ 67,463 $ 59,155
========= ======== ========
4. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities and certain equipment under
noncancelable operating leases expiring at various dates through 2004. At
December 31, 1999, future minimum lease payments are as follows:
Capital Operating
Lease Leases
2000 $ 24,418 $ 154,664
2001 31,148 156,400
2002 31,148 152,237
2003 29,674 150,156
2004 13,462 116,487
-------- ---------
Total 129,850 $ 729,944
=========
Less amounts representing interest (21,799)
--------
Present value of minimum lease payments $108,051
========
Rental expense charged to operations approximated $52,700, $75,600 and
$50,000 for the five-month period ended December 31, 1999 and for the years
ended July 31, 1999 and 1998, respectively.
-9-
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Services Agreement - In March 1999, the Company entered into an agreement
with a service provider to provide reproduction services. The term of the
agreement is 60 months and includes base payment increases over the term of
the agreement. The total amount of the base service payments is being
charged to expense using the straight-line method over the term of the
agreement. The Company has recorded a deferred credit to reflect the excess
of services expense over cash payments since the inception of the agreement.
Deferred credits of $180,000 and $120,000 are recorded within the balance
sheets at December 31, 1999 and July 31, 1999, respectively. Future minimum
payments under the service agreement are as follows:
2000 $ 973,329
2001 984,576
2002 984,576
2003 984,576
2004 246,144
----------
Total $4,173,201
==========
Litigation - The Company is a party in various legal proceedings and
potential claims arising in the normal course of business. While the
ultimate outcome of these claims cannot be predicted, management does not
believe, after consultation with counsel, the ultimate resolution of these
claims will have a material effect on the Company's financial position,
results of operations or cash flows.
5. LONG-TERM DEBT
Long-term debt consisted of the following at:
December 31, July 31,
1999 1999 1998
Advances under line of credit $ 95,539 $ 100,000 $ 99,265
Term loans - 12,500 50,000
Small Business Administration loans 94,818 96,114 100,468
Supplier equipment promissory note 231,254 275,861 -
Capital lease obligation (Note 4) 108,051 - -
Verus Capital notes payable 500,000 - -
---------- --------- ---------
1,029,662 484,475 249,733
Less current portion (437,838) (389,657) (153,561)
---------- --------- ---------
Long-term debt $ 591,824 $ 94,818 $ 96,172
========== ========= =========
Line of Credit - The Company has a revolving line of credit which allows
borrowings up to $100,000. Interest is charged at the bank's prime rate
(8.5%, 8.0% and 8.5% at December 31, 1999, July 31, 1999 and 1998,
respectively) plus 2%, and borrowings outstanding are collateralized by
substantially all of the Company's tangible assets. The line of credit
expires December 4, 2000. Available credit under the line of credit was
$4,461, $0 and $735 at December 31, 1999, July 31, 1999 and 1998,
respectively.
-10-
5. LONG-TERM DEBT (CONTINUED)
Term Loans - On March 27, 1997, the Company entered into two term loans with
a bank in the amounts of $25,000 each, which were due May 27, 1997. Interest
was charged at the bank's prime rate plus 2% and borrowings outstanding were
collateralized by substantially all of the Company's assets and guaranteed
by a shareholder of Company (subordinated to the line of credit). At July
31, 1998, the Company was in default of the term loans which aggregated
$50,000. The Company's lending bank waived the default, and, at July 31,
1998, the interest rate on the term loans was 10%. The Company and the bank
entered into an agreement to extend the maturity date to October 23, 1998,
whereby all accrued interest and unpaid principal would be due. In October
1998, the Company refinanced the term loans with another term loan in the
amount of $50,000 due October 31, 1999. Interest on the $50,000 term loan
was charged at the bank's prime rate (8.5% at July 31, 1999) plus 2% and
borrowings outstanding were collateralized by substantially all of the
Company's assets. The outstanding balance at July 31, 1999 was $12,500 and
the term loans were paid in full during the five-month period ended December
31, 1999.
Small Business Administration Loans - On December 14, 1996, the Company
obtained three Small Business Administration ("SBA") loans in the amounts of
$30,200, $30,200 and $42,300, which are due on December 14, 2011 and have
monthly payments of $231, $231 and $323, respectively, including interest at
4%, collateralized by the assets of the Company and guaranteed by a Company
shareholder (subordinated to the line of credit and term loans).
The SBA loans prohibit the Company, without prior written consent from the
SBA, from repurchasing capital stock, declaring or paying any dividends or
consolidating or merging with another company. The Company did not obtain
SBA approval prior to its purchase of treasury stock during the year ended
July 31, 1998 and, as such, is in violation of the terms of the SBA loans.
Accordingly, such loans have been classified and are included within current
portion of long-term debt on the balance sheets at December 31, 1999, July
31, 1999 and July 31, 1998.
Equipment Supplier Promissory Note - On April 15, 1999, the Company
converted $406,514 of amounts due to an equipment supplier into a promissory
note due December 15, 1999. Monthly payments are $47,940, which includes
interest at 14.5%. The promissory note is collateralized by substantially
all of the assets of the Company (subordinated to the line of credit and
term loans). At December 31, 1999, the Company was in default of the
promissory note as the Company had not made payments within the prescribed
time frame. The note has been classified as a current liability in the
accompanying 1999 balance sheets.
Verus Capital Notes Payable - On December 3, and 20, 1999, the Company
obtained two promissory notes from Verus Capital Corp. in the amounts of
$250,000, each bearing an annual interest rate of 8%. The principal and
interest will convert into approximately 333,333 shares of common stock of
the combined company upon completion of the pending merger of the Company
(see Note 9). In the event that the merger does not occur, the note and
interest due will convert into approximately 1,667 shares of the Company's
common stock. Accordingly, the note has been classified as a long-term
liability.
-11-
5. LONG-TERM DEBT (CONTINUED)
Future principal maturities of the Company's debt obligations, exclusive of
the Verus Capital Corp. notes payable, at December 31, 1999 are as follows:
Equipment
Line of Supplier SBA Capital
Credit Note Loans Leases Total
2000 $ 95,539 $ 231,254 $ 94,818 $ 16,227 $ 437,838
2001 - - - 24,695 24,695
2002 - - - 26,774 26,774
2003 - - - 27,492 27,492
2004 - - - 12,863 12,863
-------- --------- -------- --------- ---------
Total $ 95,539 $ 231,254 $ 94,818 $ 108,051 $ 529,662
======== ========= ======== ========= =========
6. RELATED PARTIES
Loans From Related Parties - Loans from related parties consist of the
following at:
December 31, July 31,
1999 1999 1998
Shareholders' notes payable $ 2,953,759 $ 3,316,466 $ 1,826,602
Employee notes payable - 10,000 10,000
---------- ----------- -----------
2,953,759 3,326,466 1,836,602
Less current portion (2,953,759) (3,202,500) (1,713,343)
---------- ----------- -----------
Long-term debt $ - $ 123,966 $ 123,259
========== =========== ===========
-12-
6. RELATED PARTIES (CONTINUED)
Shareholders' Notes Payable - The Company has been financed principally by
loans from shareholders. At August 1, 1997, approximately $667,000 was owed
to shareholders through the issuance of notes payable. During the year ended
July 31, 1998, the Company obtained $1,190,000 by issuing promissory notes
to seven shareholders. The promissory notes carried an annual interest rate
ranging from 8% to 8.25%, and the principal and accrued interest were
payable six months from the time the line was issued. Unpaid principal is
converted into a new loan agreement, extending the original loan an
additional six months, bearing the original interest rate. During the year
ended July 31, 1998, the Company obtained an additional $1,510,000 by
issuing promissory notes to eight shareholders. During the five-month period
ended December 31, 1999, the Company obtained $150,000 by issuing promissory
notes to three shareholders. On September 30, 1999, seven shareholders
converted $500,000 of outstanding notes payable into 5,000 shares of common
shares at $100 per share. At December 31, 1999, the shareholders' notes
payable totaling $2,953,759 mature at various dates through June 2000.
Employee Note Payable - In 1997, the Company issued a $10,000 promissory
note to an employee of the Company. The promissory note carried an annual
interest rate of 8%, and the principal and accrued interest were payable six
months from the time the note was issued. At the maturity date, unpaid
principal was converted into a new loan agreement, extending the original
loan an additional six months, bearing the original interest rate. During
the five-month period ended December 31, 1999, the employee note payable was
paid in full.
7. INCOME TAXES
The Company's net deferred tax assets consisted of the following:
December 31, July 31,
1999 1999 1998
Deferred tax assets/liabilities:
Net operating losses $ 2,091,000 $ 1,742,000 $ 940,000
Accounts receivable 37,000 5,000 4,000
Fixed assets (8,000) 8,000 4,000
Accrued interest 146,000 102,000 37,000
Accrued vacation 14,000 - -
----------- ----------- ---------
2,280,000 1,857,000 985,000
Less valuation allowance (2,280,000) (1,857,000) (985,000)
----------- ----------- ---------
Deferred tax assets, net $ - $ - $ -
=========== =========== =========
The future availability of the Company's deferred tax assets may be
significantly limited as a result of changes in Company ownership. In
addition, because of the Company's limited operating history and losses
incurred to date, management has provided a 100% allowance against the
Company's net deferred tax assets. The increase in the Company's valuation
allowance for the periods presented results principally from the increase to
the Company's deferred tax assets related to the operating losses. The
federal net operating loss carryforwards of approximately $5,200,000 expires
at various dates between 2011 and 2020.
-13-
8. SHAREHOLDERS' DEFICIENCY
Treasury Stock - On January 30, 1998, the Company purchased 3,000 shares of
the Company's common stock at $62.50 per share in the aggregate amount of
$187,500.
Stock Split - On May 28, 1998, the Board of Directors (the "Board") and the
shareholders of the Company approved the issuance of an additional 153,846
shares for each existing share of common stock in the form of a stock
dividend. The number of additional shares issued was 7,000 common shares.
All share and share data reflect the stock split.
Stock Option Grant - In June 1999, the Company granted a nonqualified stock
option to an executive of the Company which permits the executive to
purchase up to 1,000 shares of common stock at a per share price of $100.
The option vested over six months and expires in 36 months. At December 31,
1999, the option is fully vested and exercisable and has a remaining
contractual life of 2.37 years.
Pro Forma Disclosures - As discussed in Note 1, the Company accounts for its
stock-based awards to employees using the intrinsic value method in
accordance with APB No. 25, "Accounting for Stock Issued to Employees," and
its related interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma information had the Company adopted the fair value
method. For purposes of the pro forma disclosures, the Company estimated the
fair value of option on the grant date using the Black-Scholes option
pricing model with the following weighted-average assumptions: expected life
of three years; risk-free interest rates of 5.47% in 1999; expected
volatility of 40.7% in 1999 and no dividends during the expected term. The
Company's calculations are based on a single option valuation approach, and
forfeitures are recognized as they occur. The estimated fair value of the
award was $33.61 per share. If the computed fair value of the 1999 award had
been amortized to expense over the vesting period of the award, pro forma
net loss would have been as follows for the five-month period ended December
31, 1999 and the year ended July 31, 1999, respectively.
Five-Month
Period Ended Year Ended
December 31, 1999 July 31, 1999
Net loss:
As reported $ (1,000,646) $ (2,182,431)
Pro forma (1,025,854) (2,190,833)
Loss per share (basic and diluted):
As reported (46) (109)
Pro forma (47) (110)
-14-
9. SUBSEQUENT EVENT
On January 18, 2000, the Company signed a letter of intent to enter into a
merger agreement with a company controlled by Verus International Ltd. (the
"Acquiror"). Pursuant to the letter of intent, the shareholders of the
Company will receive shares of the Acquiror in return for 100% of the common
stock of the Company. The Acquiror is a "shell" corporation with no
substantial operations, and simultaneous with the merger, the Acquiror will
be capitalized with $7,000,000 in the form of cash and notes receivable from
the Company. In the event that the merger does not occur, the Verus Capital
Corp. note payable (Note 5) will convert into common stock of the Company.
In anticipation of the expected merger, Verus Capital Corp. has funded the
Company an additional $1,500,000 through the issuance of notes subsequent to
December 31, 1999. Pursuant to the letter of intent, fees totaling $85,000
will be payable by the Company if the Company terminates the letter of
intent for reasons other than nonperformance of other parties.
* * * * * *
-15-
PRO FORMA FINANCIAL INFORMATION
EBONY & GOLD VENTURES, INC. AND BOOKTECH.COM, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Effective March , 2000 E&G Acquisitions Corporation, a Nevada corporation
("Merger-Sub"), a wholly owned subsidiary of Ebony & Gold Ventures, Inc., a
Nevada corporation (the "Company"), merged (the "Merger") with and into
booktech.com, inc. a Massachusetts corporation ("booktech"), pursuant to an
agreement and plan of merger dated March , 2000 (the "Merger Agreement").
Following the Merger, the business to be conducted by the Company will be the
business conducted by booktech prior to the Merger. In conjunction with the
Merger, the Company changed its name to booktech.com, inc. In connection with
the Merger, in March 2000, the Company sold 4,666,667 additional $.00042 par
value shares of common stock to investors in a private placement transaction,
generating net proceeds of approximately $7.0 million. The accompanying
unaudited pro forma balance sheet as of December 31, 1999, presents the
financial position of the Company and booktech, assuming the Merger had been at
that date. The unaudited pro forma statement of operations for the five months
ending December 31, 1999 and for the year ended July 31, 1999, reflects the
Merger as if it had been consummated on August 1, 1998.
The Company acquired 100% of the outstanding shares of booktech through the
issuance of 7,520,690 $.00042 par value shares of its authorized but unissued
common stock, in exchange for 21,810 shares of booktech's common stock and
1,100,000 shares of the Company's $.00042 par value Series B Preferred Stock in
exchange for 3,190 shares of booktech's common stock. Pursuant to the Merger,
$3,216,171 of related party notes owed by booktech to certain investors, was
converted into 2,135,301 shares of $.00042 par value, Series A Preferred stock
of the Company. In addition, the Company acquired technology and a patent
application Virtuosity Press LLC, a Delaware Limited Liability company
("Virtuosity"), through the issuance of 1,379,310 shares of $.01 par value
common Stock. As a result of the Merger, the former booktech stockholders
collectively acquired approximately 53.4% of the outstanding voting securities
(by vote) of the Company following the Merger.
The pro forma financial information does not purport to be indicative of the
results which would have actually have been obtained had such transactions been
completed as of the assumed dates and for the periods presented or which may be
obtained in the future.
BASIS OF PRESENTATION
In the Merger, the Company acquired all of the outstanding shares of booktech
through the issuance of 7,520,690 shares of the Company's $.00042 par value
common stock in exchange for 21,810 shares of booktech's common stock and the
issuance of 1,100,000 shares of the Company's $.00042 par value Series B
Preferred Stock in exchange for 3,190 shares of booktech's common stock. The
Merger will be accounted for as a reverse acquisition. The historical results of
booktech will become the historical results of the Company. The shares issued by
the Company in the Merger are valued at $1.50 per share, the value of the common
shares sold in the private placement transaction consummated in connection with
the Merger.
The unaudited pro forma balance sheet combines the balance sheets of the Company
and booktech as of December 31, 1999, assuming that the Merger had been
completed at that date. In the period from December 31, 1999 to the merger date,
the value of the amounts owed to related parties increased due to the accruing
of interest. The unaudited pro forma balance sheet assumes that the value of the
amounts owed to related parties at December 31, 1999 was converted at the date
of the merger. The unaudited pro forma balance sheet further assumes that the
Series A Preferred Stock shares issued at the time of the merger were issued at
December 31, 1999.
The unaudited pro forma statement of operations for the five-month period ended
December 31, 1999 and the twelve-month year ending July 31, 1999 reflect the
merger. The unaudited pro form statements of operations do not include any pro
forma adjustments relating to the amortization of the acquired technology
and patent application. If the patent application is approved by the U.S. Patent
Office, the patent will be amortized over five years.
The historical balance sheets and statements of operations as of and for the
year ended December 31, 1999, used in the preparation of the pro forma financial
statements have been derived from the respective audited financial statements of
the Company and booktech.
BOOKTECH.COM,INC. AND EBONY & GOLD VENTURES INC
UNAUDITED PRO FORMA BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1999
booktech.com,inc. Ebony & Gold Pro Forma
12/31/99 12/31/99 Adjustments Combined
-------- -------- ----------- --------
ASSETS
Cash and equivalents $ 82,753 $ -- (a) $ 6,500,000 $ 6,260,723
(e) (322,030)
Accounts receivable 228,466 -- -- 228,466
------------ -------- ------------ ------------
Total current assets 311,219 -- 6,177,970 6,489,189
Property and equipment - net 734,370 -- -- 734,370
Acquired technology and patent application -- -- (c) 2,068,965 2,068,965
Deposits 25,200 -- -- 25,200
------------ -------- ------------ ------------
Total $ 1,070,789 $ -- $ 8,246,935 $ 9,317,724
============ ======== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Short-term debt to related parties $ 2,953,759 $ -- (d) $ (2,815,000) $ 15,500
(e) (123,259)
Accrued expenses to related parties 354,130 (d) (344,556) 9,574
Accounts payable 1,282,385 -- -- 1,282,385
Accrued expenses 410,817 -- (e) (8,415) 402,402
Accrued merger expenses -- (i) 200,000 200,000
Current portion of long-term debt 437,838 17,564 (f) (17,564) 247,482
------------ --------- ------------
(e) (190,356)
------------
Total current liabilities 5,438,929 17,564 (3,108,794) 2,157,343
LONG TERM DEBT 591,824 (a) (500,000) 91,824
OTHER LIABILITIES 146,250 146,250
TOTAL LIABILITIES $ 6,177,003 (3,608,794) 2,568,209
Common stock $ 760,000 2,100 (a) 1,960 7,798
(b) (756,841)
(c) 579
Series A Preferred (d) 21,353 21,353
Series B Preferred (b) 462 462
Additional paid-in capital -- -- (a) 6,998,040 12,771,411
(b) 756,379
(e) 2,068,386
(d) 3,138,206
(f) 17,564
(g) (187,500)
(h) (19,664)
--
Treasury stock (187,500) (g) 187,500 --
Accumulated Deficit (5,678,714) (19,664) (h) 19,664 (5,878,714)
------------ ------- ------------
(i) (200,000)
Total stockholders' equity (deficiency) (5,106,214) (17,564) 12,046,085 6,922,307
------------ ------- ------------ ------------
Total liabilities and stockholders'
equity (deficiency) $ 1,070,789 $ -- $ 8,437,291 $ 9,317,724
============ ======== ============ ============
Series A Dividends
BALANCE SHEET ADJUSTMENTS
(a) Reflects the Company's receipt of $6,500,000 of proceeds from a private
placement and the conversion of $500,000 of advances into 4,666,667 shares
of $.00042 par value common stock in March 2000.
(b) Issuance of 7,520,690 shares of the Company's $.00042 par value common
stock and 1,100,000 shares of the Company's $.00042 par value Series B
preferred stock for booktech common stock
(c) Reflects the purchase of the acquired technology and patent application by
the Company by issuing 1,379,310 shares of $.00042 common stock.
(d) Reflects the conversion of short-term debt, and accrued interest, to
related parties in exchange for 2,135,301 shares of $.01 Series A
Preferred stock of the Company.
(e) Reflects the payment of related party and other obligations, including
accrued interest, at the time of merger.
(f) To eliminate the amounts owed to Ebony & Gold officers
(g) Adjustment to eliminate Treasury Stock.
(h) To eliminate Ebony & Gold's deficit accumulated during development stage.
(i) To reflect estimated merger costs.
BOOKTECH.COM, INC. AND EBONY & GOLD VENTURES, INC.
--------------------------------------------------
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
-------------------------------------------
FOR THE FIVE-MONTHS PERIOD ENDED DECEMBER 31, 1999
--------------------------------------------------
Ebony & Gold Pro Forma
booktech.com, inc. Ventures, Inc. Adjustments Pro Forma
NET SALES $ 1,024,866 $ - $ - $1,024,866
COST OF SALES 1,027,223 - - 1,027,223
------------- ------------- ---------- -----------
GROSS MARGIN (2,357) - - (2,357)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 919,034 17,214 936,248
-------------- ------------- ---------- -----------
LOSS FROM OPERATIONS (921,391) (17,214) - (938,605)
-------------- ------------- ---------- -----------
INTEREST EXPENSE:
Interest expense from related parties 83,422 - (82,705) {p} 717
Other 42,327 - (1,513) {p} 40,814
-------------- ------------- ---------- -----------
Total interest expense 125,749 - (84,218) 41,531
OTHER EXPENSE 13,506 - - 13,506
-------------- ------------- ---------- -----------
NET LOSS $ (1,060,646) $ (17,214) $ 84,218 $ (993,642)
============== ============= ========== ===========
NET LOSS PER SHARE (Basic and diluted) $ (46.10) $ (0.01) $ (0.05)
============== ============= ===========
SHARES USED IN COMPUTING NET LOSS
PER SHARE 23,007 2,100,000 16,443,660 18,566,667
============== ============= ========== ===========
BOOKTECH.COM, INC. AND EBONY & GOLD VENTURES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1999
Ebony & Gold Pro Forma
booktech.com, inc. Ventures, Inc. Adjustments Pro Forma
NET SALES $ 1,328,813 $ -- $ -- $ 1,328,813
COST OF SALES 1,578,308 -- -- 1,578,308
------------ ------------ ------------ ------------
GROSS MARGIN (249,495) -- -- (249,495)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,718,300 350 1,718,650
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,967,795) (350) -- (1,968,145)
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest expense from related parties 209,795 -- (207,305) {p} 2,490
Other 4,841 -- (3,792) {p} 1,049
------------ ------------ ------------ ------------
Total interest expense 214,636 -- (211,097) 3,539
OTHER EXPENSE -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (2,182,431) $ (350) $ 211,097 $ (1,971,684)
============ ============ ============ ============
NET LOSS PER SHARE (Basic and diluted) $ (109.12) $ (0.00) $ (0.11)
============ ============ ============
SHARES USED IN COMPUTING NET LOSS
PER SHARE 20,000 2,100,000 16,446,667 18,566,667
============ ============ ============ ============
INCOME STATEMENT ADJUSTMENTS
Reflects the business combination accounted for as a reverse merger, which
is in effect a restatement of historical income statements as if the
combination had been consummated on August 1, 1998. The unaudited pro
forma income statements do not include any pro forma adjustments relating
to the amortization of the acquired technology and patent application.
(p) To adjust for interest expense owed on related party and other
obligations for the year ended July 31, 1999 and the five months
period ended December 31, 1999 converted to preferred stock pursuant
to the merger agreement.