U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSBA/2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ To _____
Commission File Number: 000-26903
booktech.com, inc.
------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0409153
- ------------------------------- --------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) ID. 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
(Former name and address, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 X No ___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock 18,905,748 Shares
------------ ------------------
$.00042 Par Value (Outstanding on March 31, 2000)
booktech.com, inc. and Subsidiary
INDEX TO FORM 10-QSBA/2
PREFATORY STATEMENT
PART I. FINANCIAL INFORMATION
ITEM 1--Financial Statements:
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 (As Restated) and 1999 ............... 3
Condensed Consolidated Balance Sheets as of March 31, 2000
(As Restated) and December 31, 1999 .............................. 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 (As Restated) and 1999 ............... 5
Notes to Unaudited Condensed Consolidated Financial Statements ..... 6
ITEM 2--Management's Discussion and Analysis ................................ 12
PART II. OTHER INFORMATION
ITEM 2--Changes in Securities and Use of Proceeds. .......................... 14
ITEM 4--Submission of Matters to A Vote of Security Holders ................. 14
ITEM 6--Exhibits and Reports on Form 8-K .................................... 14
Signatures .................................................................. 15
Exhibit Index. .............................................................. 16
Prefatory Statement
to Form 10-QSBA/2
Amending Form 10-QSB A/1 for quarter ended March 31, 2000
This interim Report on Form 10-QSBA/2 is being filed as a result of the
Company's (as defined herein) restatement of its Condensed Consolidated
Financial Statements as of and for the three months ended March 31, 2000 as
discussed in Note 8 to the Unaudited Condensed Consolidated Financial
Statements.
PART I. FINANCIAL INFORMATION
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31,
--------------------------
2000(1) 1999
----------- -----------
Net sales ........................................ $ 324,734 $ 359,960
Cost of sales .................................... 483,372 422,146
----------- -----------
Gross margin ............................ (158,638) (62,186)
----------- -----------
Operating expenses:
Selling, Marketing, and General and Administrative
(excluding stock-based compensation costs of
$247,414 in 2000) ............................. 960,836 292,849
Stock-based compensation ......................... 247,414 --
----------- -----------
Total operating expenses ................ 1,208,250 292,849
----------- -----------
Loss from operations ............................. (1,366,888) (355,035)
Interest expense to related parties .............. 57,858 40,169
Other interest expense ........................... 25,854 1,210
----------- -----------
Total interest expense .................. 83,712 41,379
----------- -----------
Net loss ......................................... $(1,450,600) $ (396,414)
=========== ===========
Net loss per share - basic and diluted ........... $ (.19) $ (.07)
=========== ===========
Shares used in computing basic and diluted net
loss per share ................................. 7,814,488 6,016,552
=========== ===========
(1) Restated. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, 2000(1) December 31, 1999
---------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 5,033,132 $ 82,753
Accounts receivable, less allowance for returns of $68,600
in 2000 and $91,700 in 1999 ............................... 167,976 228,466
Other current assets ........................................ 6,286 --
------------ ------------
Total current assets ........................................ 5,207,394 311,219
------------ ------------
PROPERTY AND EQUIPMENT, at cost ............................. 848,990 808,298
Accumulated depreciation .................................... (99,865) (73,928)
------------ ------------
Property and equipment, net ................................. 749,125 734,370
------------ ------------
ACQUIRED TECHNOLOGY AND PATENT APPLICATION .................. 993,103 --
DEPOSITS .................................................... 25,200 25,200
------------ ------------
TOTAL ....................................................... $ 6,974,822 $ 1,070,789
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of loans from related parties ............... $ 456,276 $ 2,953,759
Current portion of other long-term debt ..................... 445,837 437,838
Accounts payable ............................................ 820,435 1,282,385
Accrued merger costs ........................................ 187,426 --
Accrued interest expense to related parties 9,798 ........... 9,798 354,130
Other accrued expenses ...................................... 483,880 410,817
------------ ------------
Total current liabilities ................................... 2,403,652 5,438,929
------------ ------------
LONG-TERM DEBT .............................................. 100,185 591,824
------------ ------------
DEFERRED LEASE OBLIGATION ................................... 135,000 146,250
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Convertible preferred stock, Series A ....................... 897 --
Convertible preferred stock, Series B ....................... 462 --
Common stock ................................................ 7,940 760,000
Additional paid-in capital .................................. 11,570,820 --
Deferred compensation ....................................... (114,820) --
Treasury stock .............................................. -- (187,500)
Accumulated deficit ......................................... (7,129,314) (5,678,714)
------------ ------------
Total stockholders' equity (deficiency) ..................... 4,335,985 (5,106,214)
------------ ------------
TOTAL ....................................................... $ 6,974,822 $ 1,070,789
============ ============
(1) Restated. See Note 8
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
-------------------------------
2000(1) 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $(1,450,600) $ (396,414)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 25,937 10,171
Stock-based compensation .................................................. 247,414 --
Related party interest expense satisfied by issuing Convertible
Preferred Stock, Series A ................................................. 56,839 --
Change in assets and liabilities:
Accounts receivable ....................................................... 60,490 31,414
Other current assets ...................................................... (6,286) (5,622)
Deposits .................................................................. -- (1,200)
Accounts payable .......................................................... (461,950) (123,383)
Accrued expenses to related parties ....................................... -- 38,879
Other accrued expenses .................................................... 86,350 19,513
----------- -----------
Net cash used in operating activities ............................ (1,441,806) (426,642)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment ................................... (20,268)
Payment of merger costs ................................................... (401,000) --
----------- -----------
Net cash used in investing activities ............................ (421,268) (615)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans from related parties .................................. 317,951 460,000
Repayments of loans to related parties .................................... (434) (1,227)
Proceeds from other debt financings ....................................... 1,500,000 --
Repayments of other debt financings ....................................... -- (12,901)
Decrease in long-term debt obligation ..................................... (4,064) --
Net proceeds from issuance of common stock ................................ 5,000,000 --
----------- -----------
Net cash provided from financing activities ...................... 6,813,453 445,872
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 4,950,379 18,615
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................ 82,753 16,413
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................. $ 5,033,132 $ 35,028
=========== ===========
(1) Restated. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
booktech.com, inc. and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business - booktech.com, inc., a Nevada corporation
(the "Company"), is a digital and on-demand publisher of custom textbooks,
also known as coursepacks, which are distributed primarily through college
bookstores. The Company is organized as one segment reporting to the chief
operating decision-maker.
Basis of Presentation - The accompanying financial statements are unaudited
and 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 $1,450,600 and $396,414 in the three-month periods ended March
31, 2000 and 1999, respectively. Prior to the merger, as defined in Note 2,
the Company's operating losses and working capital needs were funded
principally by loans from its stockholders. The Company expects that it
will continue to incur losses as it continues its activities pursuant to
the current business plan, particularly those related to sales, marketing
and content development. These factors, among other things, raise
substantial doubt about the Company's ability 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 4,
at March 31, 2000, 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
profitable 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.
2. MERGER TRANSACTION
On March 31, 2000, EG Acquisitions Corporation, a Nevada corporation, the
wholly owned sole subsidiary of the Company merged (the "Merger") with and
into booktech.com, inc., a Massachusetts corporation ("booktechMass"),
pursuant to an Agreement and Plan of Merger dated March 31, 2000 (the
"Merger Agreement"). Following the Merger, the business to be conducted by
the Company was the business conducted by booktechMass prior to the Merger.
In conjunction with the Merger, the Company which was formerly known as
Ebony & Gold Ventures, Inc., changed its name to "booktech.com, inc."
Pursuant to the terms of the Merger Agreement the merger involved the
following transactions: (a) the Company issued 7,520,690 shares of its
authorized but unissued common stock (the "Common Stock") and 1,100,000
shares of its authorized but unissued Series B Preferred Stock to the
former stockholders of booktechMass in exchange for the 25,000 shares of
common stock of booktechMass issued and outstanding as of the effective
time of the Merger, (b) Certain debt and accrued interest totaling
$3,216,171 owed by booktechMass to related parties was converted into
2,135,301 shares of the Company's Series A Preferred Stock, (c) the Company
sold to certain investors (the "Purchasers") 4,666,667 shares of its common
stock and warrants to purchase 833,333 shares of common stock in a private
placement 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. The Company received net cash proceeds of
5,000,000 from this transaction at the time of the Merger, and (d) 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 its common stock.
At the time of the Merger, the common and preferred shares issued to the
former stockholders of booktechMass represented a majority of the Company's
voting stock, enabling them to continue having voting and operating control
of the Company. The Merger has been accounted for as a capital transaction
and was treated as a reverse acquisition as the stockholders of
booktechMass received a larger portion of the voting interests in the
combined enterprise. Estimated costs of the Merger were $588,426, which
have been reflected as a reduction to additional paid-in capital.
The Company is obligated to file a registration statement to register
5,111,667 shares of common stock by July 31, 2000 and an additional
registration statement to register 1,928,823 shares of common stock within
six (6) months of the effective date of the first registration statement or
within 30 days of the exercise, in whole or in part, by Verus Investments
Holdings Inc. of its warrant to purchase 833,333 shares of Common Stock.
6
Since the accounting applied differs from the legal form of the Merger, the
Company's financial information for periods prior to the Merger represent
the financial results of booktechMass.
Pro Forma Disclosure - The following table presents the unaudited pro forma
results of operations for the three months ended March 31, 2000 and 1999
assuming the Merger had occurred on January 1, 1999, the beginning of the
earliest period presented in the accompanying Condensed Consolidated
Statements of Operations. These pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of what would
have occurred had the Merger occurred at that date or of results which may
occur in the future.
Three Months Ended March 31,
----------------------------
2000 1999
----------- -----------
Net sales ................................... $ 324,734 $ 359,960
Loss from operations ........................ (1,366,888) (355,035)
Net loss .................................... (1,392,742) (357,203)
Net loss attributable to common
stockholders .............................. (1,456,801) (421,262)
Net loss per common share ................... $ (.08) $ (.02)
Shares used in computing net loss per
common share............................... 18,739,081 17,062,529
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Consolidated Financial Statements (Unaudited) - The Condensed
Consolidated Financial Statements furnished herein are unaudited and in the
opinion of management, reflect all adjustments which are of a normal
recurring nature, necessary to fairly state the Company's financial
position, cash flows and the results of operations for the periods
presented and have been prepared on a basis substantially consistent with
the audited financial statements as of and for the five month period ended
December 31,1999. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America for annual
periods have been condensed or omitted. Accordingly, these unaudited
Condensed Consolidated Financial Statements should be read in conjunction
with the Company's annual financial statements included in a Form 8-K filed
with the Securities and Exchange Commission on April 4, 2000. The operating
results for the interim periods presented are not necessarily indicative of
the expected performance for the entire year.
Principles of Consolidation - As described in Note 2, the Company completed
a merger on March 31, 2000 that has been accounted for as a reverse
acquisition. Accordingly, the Company's consolidated financial statements
for periods prior to March 31, 2000 represent those of its subsidiary,
booktechMass, which is considered to be the acquirer for accounting
purposes. The condensed consolidated balance sheet as of March 31, 2000
includes the accounts of the Company and its wholly owned subsidiary after
the elimination of all significant intercompany balances.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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.
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 49% and 65% of net sales for the three-month
periods
7
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ended March 31, 2000 and 1999, respectively. This same customer accounted
for 54% and 77% of the accounts receivable at March 31, 2000 and December
31, 1999, respectively.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
cash deposited with banks and highly liquid debt securities with remaining
maturities of ninety days or less when purchased.
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. Estimated 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, aggregated $109,000 and $6,700,
respectively at March 31, 2000.
Impairment of Long-Lived Assets - Recoverability of intangible and other
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.
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.
Advertising - Advertising costs are expensed as incurred.
Stock-Based Compensation - The Company accounts for stock options granted
to employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees", and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation."
Equity instruments issued to non-employees are accounted for in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF")
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued To
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services". All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value
of the equity instrument issued, whichever is more reliably measurable. The
measurement date of the fair value of the equity instrument issued is the
earlier of the date on which the counterparty's performance is complete or
the date on which it is probable that performance will occur.
Income Taxes - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". 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
from a change in tax rate 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
8
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.
Comprehensive Income - Comprehensive income (loss) was equal to net income
(loss) for each period presented.
Earnings Per Share - The Company computes basic and diluted earnings (loss)
per share in accordance with SFAS No. 128, "Earnings Per Share". Basic
earnings per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period.
Basic and diluted net loss per common share are the same for all periods
presented, as potentially dilutive stock options, common stock warrants,
common stock issuable upon the conversion of the convertible preferred
stock and unvested restricted stock awards of 4,480,652 (none in 1999) have
been excluded from the calculation as their effect is antidilutive.
Future Adoption of Accounting Pronouncements - 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. The provisions of SFAS No. 133 are effective for periods
beginning after June 15, 2000. The Company is currently evaluating, and has
not determined, the effect, if any, SFAS No. 133 will have on the Company's
financial position and its results of operations. The Company will adopt
this accounting standard on January 1, 2001, as required.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenues in financial statements filed with the
Securities and Exchange Commission. The Company is currently evaluating,
and has not determined, the effect, if any, SAB No. 101 will have on the
Company's financial position and its results of operations. The Company
will adopt this accounting standard during the fourth quarter of 2000, as
required.
Reclassifications - Certain reclassifications have been made to the 1999
amounts to conform to the 2000 presentation.
Supplemental Cash Flow Information - The following table sets forth certain
supplemental cash flow information for the three-month periods ended March
31, 2000 and 1999:
2000 1999
---------- ------
Cash paid during the period for interest .............. $ -- $1,290
Non-Cash Activities
Conversion of related party loans and accrued
interest into preferred stock ..................... $3,216,171 --
Acquisition of technology and related patent
application with the issuance of Common Stock ..... 993,103 --
Equipment acquired through the issuance of a
note payable ...................................... 20,424 --
Costs incurred in conjunction with the reverse
merger ............................................ 187,426 --
Conversion of Verus Investments Holdings, Inc. notes
payable, advances and related accrued interest
into Common Stock ................................. 2,024,537 --
Liabilities to the former officers of Ebony & Gold
Ventures, Inc. forgiven in conjunction with the
reverse merger .................................... 17,564 --
9
4. LONG-TERM DEBT
Long-term debt consisted of the following at:
March 31, December 31,
2000 1999
--------- ----------
Advance under line of credit ................ $ 95,539 $ 95,539
Small Business Administration loans ......... 94,818 94,818
Supplier equipment promissory note .......... 231,254 231,254
Capital lease obligations ................... 103,987 108,051
Ford Motor Credit Company ................... 20,424 --
Purchasers notes payable .................... -- 500,000
--------- ----------
546,022 1,029,662
Less current portion ...................... (445,837) (437,838)
--------- ----------
Long-term debt .............................. $ 100,185 $ 591,824
========= ==========
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% at March 31, 2000 and December 31, 1999) plus 2%, and borrowings
outstanding are collateralized by substantially all of the Company's
tangible assets. In April 2000, the Company repaid the line in full,
including the related accrued interest, with the proceeds from the sale of
Common Stock issued in conjunction with the Merger. The line of credit was
then cancelled.
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). 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 merger with Ebony & Gold Ventures, Inc. and 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 included within current long-term debt in
the accompanying consolidated balance sheets at March 31, 2000 and December
31, 1999. In April 2000, the Company repaid the SBA Loan, including the
related accrued interest, with the proceeds from the sale of Common Stock
issued in conjunction with the Merger.
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). At December 31, 1999, the Company was in default of the promissory
note. Accordingly, the note has been classified and included within current
long-term debt in the accompanying consolidated balance sheets at March 31,
2000 and December 31, 1999. In April 2000, the Company repaid the note,
including the related accrued interest, with the proceeds from the sale of
Common Stock issued in conjunction with the Merger.
Capital lease obligations - The Company leases certain equipment under
noncancelable leases expiring at various dates through 2004. At March 31,
2000, future minimum lease payments (excluding interest) totaled $103,987,
of which $19,189 is due within the next twelve (12) months and included
within current long-term debt in the accompanying condensed consolidated
balance sheet at March 31, 2000.
Ford Motor Credit Company - On March 2, 2000, the Company financed the
purchase of a motor vehicle. The loan is due in 48 monthly installments of
$435, including interest at an annual rate of 0.9%, with a final maturity
on April 15, 2004.
10
4. LONG-TERM DEBT (Continued)
Purchasers' Notes Payable - On December 3 and 20, 1999, the Company
obtained two promissory notes in the amounts of $250,000 each, bearing an
annual interest rate of 8%, from the Purchasers, including Verus
Investments Holdings, Inc. of the 4,666,667 shares of the Company's Common
Stock. Subsequent to December 31, 1999, the Purchasers loaned an additional
$1.5 million to the Company. The entire principal and accrued interest was
converted into the Company's Common Stock on March 31, 2000 in conjunction
with the Merger. In the event the merger did not occur, the note and
related accrued interest were convertible into the Company's Common Stock.
Accordingly, the $500,000 note was classified as a long-term liability at
December 31, 1999.
5. STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock -- At March 31, 2000, the Company had authorized 54,523,810
shares of $.00042 par value common stock, of which 18,905,748 shares were
issued and outstanding and 5,000,000 shares are reserved for issuance
pursuant to the Company's 2000 Stock Option Plan. At December 31, 1999,
booktechMass had authorized 200,000 shares of no par value common stock, of
which 28,000 shares were issued and 25,000 shares were outstanding.
Preferred Stock -- At March 31, 2000, the Company had authorized 5,000,000
shares of Preferred Stock which is issuable in one or more series. At March
31, 2000, the Company had issued and outstanding 2,135,301 shares of
$.00042 par value Series A Convertible Preferred Stock (the "Series A")
with a liquidation preference of approximately $3.2 million and 1,100,000
shares of $.00042 par value Series B Convertible Preferred Stock (the
"Series B"). The liquidation preference on the Series A will be increased
for any accrued, but unpaid, dividends. In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary,
the holders of the Series B have a liquidation preference over any
distribution to any securities junior to the Series B and to the Company's
common stock equal to the original issue price, as determined by the
Company's Board of Directors.
Holders of the Series A have the right and option to convert the preferred
shares into shares of common stock at any time. The Series A is convertible
into common stock at a rate of three and one-half (3 1/2) shares of Series
A for one (1) share of common stock. This initial conversion rate is
subject to future adjustment for stock splits, stock dividends,
combinations and other similar events. The holders of the Series A are
entitled to vote together with the holders of the common stock acting as a
single class. Each set of three and one half (3 1/2) shares of Series A
shall have one vote. Dividends on the Series A accrue at the rate of eight
per cent (8%) of the liquidation preference per share per annum, and are
payable annually in additional shares of common stock.
The Series B is junior to the Series A. Within the first year of issuance,
the holders of the Series B have the right to convert their shares into
common stock at an initial rate of one (1) share of Series B for each share
of common stock. This initial conversion rate will be adjusted for future
stock splits, stock dividends, combinations or other similar events. All
outstanding shares of Series B will automatically convert into the
Company's common stock, at the applicable conversion rate, on March 31,
2001. The Series B holders are entitled to vote together with the holders
of the common stock acting as a single class and each share of Series B
shall have six (6) votes. The Series B has no dividend rights.
Warrants -- In connection with the Merger (Note 2), the Company issued
warrants to purchase 833,333 shares of the Company's common stock at $1.50
per share. The warrants are exercisable 120 days after the merger date
(March 31, 2000) and expire on March 31, 2002.
Stock Option Plan -- The Company's 2000 Stock Option Plan provides for the
issuance of nonqualified and incentive stock options to employees,
consultants and directors to purchase up to 5,000,000 shares of common
stock. Options vest and become exercisable over a four year period and
expire in ten years.
During the three months ended March 31, 2000, the Company granted options
to purchase 1,425,738 shares of its common stock at a weighted-average
exercise price of $.65 per share to its employees. In addition, in
connection with the Merger on March 31, 2000, the Company adjusted the
number and exercise price of certain unexercised options. These adjustments
were accounted for in accordance with EITF No. 90-9, "Changes to Fixed
Employee Stock Option Plans as a Result of Equity Restructuring". Certain
options granted during the three months ended March 31, 2000 include a
cashless exercise feature allowing the grantee to exercise the option and
to utilize the appreciation in the value of the common stock as payment for
the shares received. The Company also granted 339,081 restricted stock
awards to certain employees during the three months ended March 31, 2000
and recorded compensation expense of $75,000.
As discussed in Note 3, the Company accounts for stock options granted to
employees and non-employee directors in accordance with APB No. 25. Under
APB No. 25, compensation expense is recorded when fixed award options are
granted with exercise prices at less than the fair value of the common
stock on the date of grant. Options with a cashless exercise feature are
accounted for as variable award options. Variable award options are subject
to remeasurement criteria and could result in additional future
compensation expense until such time as the options are either exercised,
forfeited or expired without exercise.
The Company recorded stock-based compensation expense of $247,414 during
the three months ended March 31, 2000 relating to the outstanding options
and restricted stock awards. Additional stock-based compensation expense
will be recorded in the future as the deferred compensation of $114,820 at
March 31, 2000 is amortized to expense, and as the variable award options
are remeasured at each future reporting date.
6. COMMITMENTS
Consulting Agreement -- In connection with the merger, (Note 2), the
Company entered into a consulting arrangement with Verus International Ltd.
The consulting agreement requires payments of $15,000 per month for a
period of two years. The consulting agreement is terminable by either party
for cause with five (5) days written notice. Additionally Verus
International Ltd. may terminate the agreement without cause upon five days
written notice.
Services Agreement -- In March 1999, the Company entered into an agreement
with Xerox Corporation ("Xerox") to provide reproduction services. The term
of the agreement is 60 months and initially included base payment increases
over the term of the agreement. For financial statement reporting purposes,
the Company has recognized the aggregate expenses associated with the
agreement using the straight-line method resulting in deferred credits of
approximately $180,000 being reported in each of the accompanying condensed
consolidated balance sheets. The agreement was renegotiated in May 2000 and
the monthly payment was set at $74,523 for the remaining term of the
agreement. Subsequent to March 31, 2000, an executive of Xerox joined the
Company's Board of Directors.
11
7. TRANSACTIONS WITH RELATED PARTIES
Stockholders' Notes Payable - The Company has been financed principally by
loans from stockholders. In conjunction with the Merger on March 31, 2000,
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
three months ended March 31, 2000 and the year ended December 31, 1999,
respectively) were converted into 2,135,301 shares of Series A preferred
stock.
On March 31, 2000, the Company received $317,951 in advances from a
shareholder. The $317,951 was repaid on April 3, 2000 following completion
of the Merger.
On March 31, 2000, the Company entered into a consulting arrangement with
Verus International Ltd., an affiliate of a Company shareholder (Note 6).
On March 31, 2000, pursuant to the terms of the Merger Agreement, certain
related party loans and accrued interest totaling $3,216,171 owed by the
Company were converted into 2,135,301 shares of Series A Preferred Stock.
The Company also sold to certain investors (the "Purchasers") 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 Investments Holdings Inc.
One member of the Company's Board of Directors serves in an executive
capacity with the holder of the equipment supplier promissory notes.
On April 7, 2000, the Company repaid $148,123 in principal and accrued
interest on loans from stockholders using a portion of the proceeds
received from the sale of the Common Stock in conjunction with the Merger.
8. RESTATEMENT
Subsequent to the issuance of the Company's Condensed Consolidated
Financial Statements as of and for the three month period ended March 31,
2000 included within Form 10-QSBA/1 filed on August 11, 2000, the Company's
management determined that (1) the stock-based compensation expense for the
three months ended March 31, 2000, (2) the number of shares outstanding at
March 31, 2000, (3) the weighted-average number of shares outstanding for
the three months ended March 31, 2000 was incorrect due to certain equity
awards not being considered in the preparation of the Company's interim
financial statement and (4) the value assigned to the acquired technology
and patent application was in excess of the consideration given. As a
result, the accompanying Condensed Consolidated Financial Statements as of
and for the three month period ended March 31, 2000 have been restated from
the amounts previously reported on Form 10-QSBA/1 to reflect the
appropriate accounting and reporting of the aforementioned items. The
significant effects of the restatement are as follows:
As
Previously
Reported As Restated
----------- -----------
At March 31, 2000
Acquired technology and patent application $ 2,068,965 $ 993,103
Common stock 7,798 7,940
Additional paid-in capital 12,701,832 11,570,820
Deferred compensation -- (114,820)
Accumulated deficit (7,299,142) (7,129,314)
Number of shares outstanding 18,566,667 18,905,748
For the three months ended March 31
Stock-based compensation expense $ 417,242 $ 247,414
Loss from operations (1,536,716) (1,366,888)
Net loss (1,620,428) (1,450,600)
Net loss per share - basic and diluted (0.21) (0.19)
Shares used in computing basic and diluted
net loss per common share 7,643,423 7,814,488
9. NET LOSS PER SHARE
A reconciliation of net loss and weighted-average common shares outstanding
for purposes of calculating basic and diluted net income per share is as
follows for the three months ended March 31:
2000 1999
----------- ----------
NUMERATOR:
Net loss .................................. $(1,450,600) $ (396,414)
Preferred stock dividends.................. -- --
----------- ----------
Net loss attributable to common
stockholders ............................ $(1,450,600) $ (396,414)
----------- ----------
DENOMINATOR:
Weighted average number of common shares
outstanding:
Common stock .......................... 7,814,488 6,016,552
Effect of potentially dilutive common
shares............................... -- --
----------- ----------
Total............................. 7,814,488 6,016,552
----------- ----------
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Safe Harbor Statement
Certain statements in this Form 10-QSBA/2, including information set forth under
Item 2 Management's Discussion and Analysis contain 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
accompanying Condensed Consolidated Financial Statements for the periods
specified and the associated notes.
Restatement of Financial Statements
Subsequent to the issuance of the Company's Condensed Consolidated Financial
Statements as of and for the three month period ended March 31, 2000 included
within Form 10-QSBA/1 filed on August 11, 2000, the Company's management
determined that (1) the stock-based compensation expense for the three months
ended March 31, 2000, (2) the number of shares outstanding at March 31, 2000,
(3) the weighted-average number of shares outstanding for the three months ended
March 31, 2000 was incorrect due to certain equity awards not being considered
in the preparation of the Company's interim financial statements, and (4) the
value assigned to the acquired technology and patent application was in excess
of the consideration given. As a result, the Company's Condensed Consolidated
Financial Statements as of and for the three month period ended March 31, 2000
have been restated from the amounts previously reported on Form 10-QSBA/1 to
reflect the appropriate accounting and reporting of the aforementioned items.
The significant effects of the restatement are disclosed in Note 8 to the
Unaudited Condensed Consolidated Financial Statements. The following discussions
give rise to the restated amounts.
Overview
As described in Note 2 to the Condensed 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 Merger was was accounted
for as a capital transaction and was treated as a reverse acquisition, the
historical financial results of the Company are those of booktechMass.
The Company is a digital and on-demand publisher of custom textbooks, also known
as coursepacks, which are distributed primarily through college bookstores. The
Company is 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 its products and the need
to obtain adequate additional financing necessary to fund future operations.
The Company's business is highly seasonable in nature. More than 75% of its
revenues are generated in the third and fourth quarters of its fiscal year since
that period includes the traditional educational publishing selling season.
Operating losses have historically been greater in the first and second quarters
during a period when publishing revenues are at their lowest levels. See Note 3
to the accompanying Unaudited Condensed Consolidated Financial Statements,
"Concentration of Credit Risk and Major Customers Information."
Results of Operations - Three Months Ended March 31, 2000 and 1999
Net sales were $324,734 in 2000 compared to $359,960 in 1999. Lower net sales of
$35,194 were principally due to lower volume associated with one customer,
Barnes & Noble College Bookstores, which accounted for approximately 49% and 65%
of the total net sales in 2000 and 1999, respectively. No other single customer
represented 10% or more of sales during 2000 or 1999.
Cost of sales were $483,372, or 148.9% of net sales, in 2000 compared to
$422,146, or 117.3% of net sales, in 1999. The higher cost of sales percentage
in 2000 was primarily due to an increase in certain fixed production costs as
the Company expands its capacity in anticipation of increased sales levels, and
to higher average copyright fees due to the mix of coursepacks sold.
Selling, Marketing, and General and Administrative expenses (excluding
stock-based compensation costs) increased to $960,836 from $292,849 in 1999 due
to compensation and facility costs associated with the increase in the number of
employees hired by the Company to: (1) attempt to build market share in higher
education and research and identify new markets for the Company's products; (2)
develop the Company's e-commerce portal to meet the demand for customized
learning materials; and (3) expand the Company's digital library of educational
content.
Stock-based compensation expense of $247,414 in 2000 represents costs relating
to stock options and restricted stock awards. Additional stock-based
compensation expense will be recorded in the future as the unvested stock
options and restricted stock awards become vested, and as the variable award
options are remeasured at each future reporting date until the options are
exercised, forfeited or expire unexercised. There were no stock-based
compensation costs in 1999.
13
Interest expense increased to $83,712 in 2000 from $41,379 in 1999 due to higher
average borrowing levels and an increase in the prime interest rate. 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 during the three months ended March 31, 2000 and 1999 will not require
an outlay of cash.
The net loss increased to $1,450,600 in 2000 from $396,414 in 1999, primarily
due to expenditures made to position the Company for future growth and to the
stock-based compensation costs.
Financial Condition, Liquidity and Capital Resources
To meet its financing needs, the Company has primarily depended upon loans from
stockholders and Directors and sales of its Common Stock. Other sources of
financing have included bank debt and credit from suppliers. The Company has
generally not been in compliance with the provisions contained in certain of its
long-term debt agreements, and accordingly, the amounts outstanding under these
agreements have been classified as a current liability. As such, the Company has
generally operated from a negative working capital position.
In conjunction with the Merger, the Company (1) refinanced $2,815,000 of
stockholder and director loans plus $401,171 in related accrued interest with
the issuance of 2,135,301 shares of Series A Preferred Stock; (2) purchased new
technology and a related patent application with the issuance of 1,379,310
shares of common stock; and (3) sold 4,666,667 shares of common stock and
warrants to purchase 833,333 shares of its Common Stock for an aggregate
purchase price of $7 million, including conversion of the notes payable and
advances owed to Verus Investments Holdings Inc. As a result, the Company had a
cash balance of $5,033,132 and a positive working capital of $2,803,742 at March
31, 2000.
In April 2000, the Company repaid $906,670 in outstanding debt, plus accrued
interest, using a portion of the proceeds received from the sale of the Common
Stock. The repayments included $466,074 of principal and accrued interest due to
related parties.
Unless the Company can generate a significant level of on-going revenue and
attain adequate profitability in the near-term, it will be necessary to seek
additional sources of equity or debt financing. Although the Company has been
successful in raising financing in the past, there can be no assurance that any
additional financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing when needed will
have a material adverse effect on the Company, requiring the Company to
significantly curtail or possibly cease its operations. In addition, any
additional equity financing may involve substantial dilution to the interests of
the Company's then existing stockholders.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board 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. The provisions of SFAS No. 133 are effective for periods
beginning after June 15, 2000. The Company is currently evaluating, and has not
determined, the effect, if any, SFAS No. 133 will have on the Company's
financial position and its results of operations. The Company will adopt this
accounting standard on January 1, 2001, as required.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements filed with the Securities and
Exchange Commission. The Company is currently evaluating, and has not
determined, the effect, if any, SAB No. 101 will have on the Company's financial
position and its results of operations. The Company will adopt this accounting
standard during the fourth quarter of 2000, as required.
14
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In conjunction with the Merger, the Company sold 4,666,667 shares of its common
stock at $1.50 per share pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and warrants to purchase 833,333 shares of Common Stock for an
aggregate purchase price of $7 million including conversion of the notes payable
and advances owed to Verus Investments Holdings, Inc. The Purchasers also
received warrants to purchase an additional 833,333 shares of the Company's
common stock at an exercise price of $1.50 per share. The proceeds from the sale
will be used for working capital and general corporate or other purposes as the
Company may determine from time to time in its discretion.
In addition, in connection with the Merger, the Company purchased technology and
a related patent application from Virtuosity Press LLC, a Delaware Limited
Liability Company, in exchange for 1,379,310 shares of the Company's Common
Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders of booktech.com, inc. on March 7, 2000 duly
adjourned and reconvened on March 30, 2000, stockholders holding approximately
80% of the common shares outstanding approved the following matters: (i) a
change of name from Ebony & Gold Ventures, Inc., to "booktech.com, inc."; (ii)
the authorization of a class of Preferred Stock in such series and with such
rights, privileges and preferences as the Board of Directors may determine from
time to time; (iii) the increase of the number of the Company's authorized
Directors to seven (7); and (iv) the Company's 2000 Stock Option Plan.
Only stockholders of record at the close of business on February 25, 2000 (the
"Record Date") were entitled to notice of and to vote at the Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 2000 Stock Option Plan (The Plan is incorporated by reference to the
Schedule 14A Proxy Statement filed by booktech on February 28, 2000)
10.2 Oracle Software License and Services Agreement
10.3 Oracle Time & Materials Contract Student Portal Development
10.4 Oracle Time & Materials Contract Fast Forward ERP Development
10.5 Oracle time & Materials Contract Professor Portal Development
10.6 Consulting Agreement with Verus International Ltd.
11.1 Computation of Net Loss Per Common Share
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on April 4, 2000, which reported
that EG Acquisitions Corporation, a Nevada corporation, a wholly owned
subsidiary of the Company, merged with and into booktechMass, pursuant to
an Agreement and Plan of Merger dated March 31, 2000 between EG
Acquisitions Corporation, the Company, and booktechMass. Following the
Merger, the business of the Company was the business conducted by
booktechMass prior to the Merger. In conjunction with the Merger, the
Company changed its name to "booktech.com, inc."
The registrant filed a report on Form 8-K on May 15, 2000 which reported
that the Company appointed Deloitte & Touche LLP as its independent
auditors.
The registrant filed a report on Form 8-K on June 16, 2000 which reported
that the purchase of a patent application with shares of the Company's
common stock should not have been reported within the Condensed
Consolidated Statement of Cash Flows contained in the Company's Form 10-QSB
for the period ended March 31, 2000.
15
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, thereunto duly authorized.
July 2, 2001 booktech.com, inc.
/S/ TED BERNHARDT
---------------------------
Ted Bernhardt
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
EXHIBIT INDEX
Exhibit Description
- ------- -----------
10.1 2000 Stock Option Plan (Incorporated by reference)
10.2 Oracle Software License and Service Agreement
10.3 Oracle Time and Materials Contract Student Portal Development
10.4 Oracle Time and Materials Contract Fast Forward ERP Development
10.5 Oracle Time and Materials Contract Professor Portal Development
10.6 Consulting Agreement with Verus International Ltd.
11.1 Computation of Net Loss Per Common Share