<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
FORM 10-QSB
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 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 small business issuer as specified in its charter)
Nevada 88-0409153
------ ----------
(State or other jurisdiction of (IRS Employer ID. No.)
incorporation or organization)
42 Cummings Park, Woburn, Massachusetts 01801
---------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 933-5400
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 18,806,965 Shares
------------ -----------------
$.00042 Par Value (Outstanding on November 14, 2000)
<PAGE>
booktech.com, inc. and Subsidiary
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1--Financial Statements:
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2000
and 1999............................................................................................. 3
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2000
and 1999............................................................................................. 4
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999..................... 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000
and 1999............................................................................................. 6
Notes to Unaudited Condensed Consolidated Financial Statements........................................... 7
ITEM 2--Management's Discussion and Analysis................................................................................ 15
PART II. OTHER INFORMATION
ITEM 6--Exhibits and Reports on Form 8-K.................................................................................... 19
Signatures.................................................................................................................. 20
Exhibit Index............................................................................................................... 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------
2000 1999
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<S> <C> <C>
Net sales................................................................. $ 1,019,108 $ 866,774
Cost of sales............................................................. 905,462 774,580
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Gross margin.................................................... 113,646 92,194
Operating expenses:
Selling, marketing and general and administrative (excluding
stock-based compensation costs of $402,143 in 2000)................ 1,764,532 506,424
Stock-based compensation................................................ 402,143 --
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Total operating expenses........................................ 2,166,675 506,424
------------ -----------
Loss from operations...................................................... (2,053,029) (414,230)
Interest expense to related parties....................................... 3,055 63,677
Other interest expense.................................................... 37,670 15,487
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Total interest expense.......................................... 40,725 79,164
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Interest income........................................................... 3,618 --
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Net loss.................................................................. (2,090,136) (493,394)
Accrued dividends on preferred stock...................................... 65,483 --
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Net loss applicable to common stockholders................................ $ (2,155,619) $ (493,394)
============ ===========
Net loss applicable to common stockholders per share - basic
and diluted.......................................................... $ (0.12) $ (0.08)
============ ===========
Shares used in computing basic and diluted net loss per share............. 18,274,079 6,016,552
============ ===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
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<S> <C> <C>
Net sales................................................................. $ 1,511,851 $ 1,288,660
Cost of sales............................................................. 1,739,877 1,470,601
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Gross margin.................................................... (228,026) (181,941)
Operating expenses:
Selling, marketing and general and administrative (excluding
stock-based compensation costs of $832,135 in 2000)................... 4,299,292 1,216,139
Stock-based compensation................................................. 832,135 --
------------ ------------
Total operating expenses........................................ 5,131,427 1,216,139
------------ ------------
Loss from operations...................................................... (5,359,453) (1,398,080)
Interest expense to related parties....................................... 60,913 154,360
Other interest expense.................................................... 78,021 23,117
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Total interest expense.......................................... 138,934 177,477
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Interest income........................................................... 30,297 102
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Net loss.................................................................. (5,468,090) (1,575,455)
Accrued dividends on preferred stock...................................... 130,254 --
------------ ------------
Net loss applicable to common stockholders................................ $ (5,598,344) $ (1,575,455)
============ ============
Net loss applicable to common stockholders per share - basic
and diluted............................................................ $ (0.37) $ (0.26)
============ ============
Shares used in computing basic and diluted net loss per share............. 15,018,865 6,016,552
============ ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 133,589 $ 82,753
Accounts receivable, less allowance for returns of $100,000 in
2000 and $92,000 in 1999................................................... 735,184 228,466
Inventory...................................................................... 13,378 --
Other current assets........................................................... 72,450 --
------------ -----------
Total current assets....................................................... 954,601 311,219
PROPERTY AND EQUIPMENT, at cost................................................. 4,258,965 808,298
Accumulated depreciation........................................................ (236,226) (73,928)
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Property and equipment, net................................................ 4,022,739 734,370
INTANGIBLE ASSETS, NET.......................................................... 3,064,602 --
DEPOSITS AND OTHER ASSETS....................................................... 355,500 25,200
------------ -----------
TOTAL...................................................................... $ 8,397,442 $ 1,070,789
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $ 812,911 $ 437,838
Notes payable to related parties............................................... 600,000 2,953,759
Accounts payable............................................................... 3,513,813 1,282,385
Accrued payroll and other expense.............................................. 592,803 410,817
Accrued interest expense to related parties.................................... -- 354,130
------------ -----------
Total current liabilities.................................................. 5,519,527 5,438,929
LONG-TERM DEBT.................................................................. 86,337 591,824
OTHER LONG-TERM LIABILITIES..................................................... 112,500 146,250
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Convertible preferred stock, Series A.......................................... 897 --
Convertible preferred stock, Series B.......................................... 462 --
Common stock................................................................... 7,899 760,000
Additional paid-in capital..................................................... 13,816,624 --
Treasury stock ................................................................ -- (187,500)
Accumulated deficit............................................................ (11,146,804) (5,678,714)
------------ -----------
Total stockholders' equity (deficiency)................................... 2,679,078 (5,106,214)
------------ -----------
TOTAL...................................................................... $ 8,397,442 $ 1,070,789
============ ===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE>
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................................... $ (5,468,090) $ (1,575,455)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................. 196,630 50,173
Stock-based compensation....................................................... 832,135 --
Related party interest expense satisfied by issuing Convertible
Preferred Stock, Series A.................................................... 56,839 --
Change in assets and liabilities:
Accounts receivable, net..................................................... (506,718) (333,485)
Inventory.................................................................... (13,378) --
Other current assets......................................................... (72,450) (25,236)
Deposits and other assets.................................................... (330,300) (25,200)
Accounts payable............................................................. 379,777 (137,144)
Accrued payroll and other expense............................................ 206,523 96,086
Accrued expenses to related parties.......................................... (9,798) 152,667
Other long-term liabilities.................................................. (33,750) 157,500
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Total................................................................. 705,510 (64,639)
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Net cash used in operating activities................................. (4,762,580) (1,640,094)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment........................................ (1,029,700) (19,922)
Payment of merger costs........................................................ (588,426) --
------------ ------------
Net cash used in investing activities................................. (1,618,126) (19,922)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans from related parties....................................... 817,951 1,570,000
Repayments of loans to related parties......................................... (456,710) (18,000)
Proceeds from other debt financings............................................ 1,500,000 230,917
Repayments of other debt financings............................................ (429,699) --
Net proceeds from issuance of common stock..................................... 5,000,000 --
------------ ------------
Net cash provided from financing activities .......................... 6,431,542 1,782,917
------------ ------------
NET INCREASE IN CASH AND EQUIVALENTS.............................................. 50,836 122,901
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................... 82,753 16,413
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $ 133,589 $ 139,314
============ ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
6
<PAGE>
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 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 $5,468,090 and
$1,575,455 in the nine months ended September 30, 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 shareholders.
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 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 8, 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 obtain
additional financing or refinancing, generate sufficient cash flow through
increased net sales to meet its obligations on a timely basis, comply with its
financing agreements, 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
shareholders 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 for an aggregate purchase price of $7,000,000, including conversion
of the notes payable, advances and accrued interest owed to Verus International,
Ltd. (at the time of the Merger, the Company received net cash proceeds of
$5,000,000 from this transaction); 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 retain voting and operating control of the
Company. Accordingly, the Merger has been accounted for as a capital transaction
and treated as a reverse acquisition as the shareholders of booktechMass
received a larger portion of the voting interests in the combined enterprise.
Therefore, for accounting purposes, booktechMass is deemed to have acquired the
Company. Estimated costs of the Merger were $588,426, which have been reflected
as a reduction to additional paid-in capital.
7
<PAGE>
Under the terms of the Merger Agreement, the Company was required to
use its best efforts 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 Investment Holdings Ltd. of its warrant
to purchase 833,333 shares of common stock. The Company expects to file the
initial registration statement for the shares of common stock during the fourth
quarter of 2000, subject to consummation of certain financing transactions
currently under consideration.
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 nine months ended September 30, 2000 and
1999 assuming the merger had occurred on January 1, 2000 and 1999, respectively.
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.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
2000 1999
---- ----
<S> <C> <C>
Net Sales................................................. $ 1,511,851 $ 1,288,660
Loss from operations...................................... (5,359,453) (1,415,269)
Net loss.................................................. (5,407,177) (1,442,168)
Net loss applicable to common stockholders................ (5,601,490) (1,636,482)
Net loss applicable to common stockholders per
share - basic and diluted............................. $ (0.30) $ (.10)
Shares used in computing basis and diluted net loss
per common share...................................... 18,619,934 17,062,529
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quarterly Condensed Consolidated Financial Statements - The Company has
prepared the accompanying Condensed Consolidated Financial Statements. In the
opinion of management, the Condensed Consolidated Financial Statements furnished
herein reflect all adjustments, which in the opinion of management 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 interim 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.
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 33% and 76% of net sales for the three months ended September 30, 2000 and
1999, respectively, and 32% and 57% of net sales for the nine months ended
September 30, 2000 and 1999, respectively. This same customer accounted for 43%
and 77% of the accounts receivable at September 30, 2000 and December 31, 1999,
respectively.
8
<PAGE>
Inventory - Inventory stated at the lower of cost (determined on a
first in first out basis) or market.
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 ranges of useful lives are as follows:
Years
-----
Computer software.....................................3
Office and computer equipment.........................3-5
Furniture and fixtures................................7
Leasehold improvements................................1-5
Vehicles..............................................5
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
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<S> <C> <C>
Computer software............................ $ 2,647,799 $ 314,491
Office and computer equipment................ 1,233,645 263,241
Furniture and fixtures....................... 229,642 149,934
Leasehold improvements....................... 80,963 80,632
Vehicles..................................... 66,916 --
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Total property and equipment............ 4,258,965 808,298
Less accumulated depreciation and
amortization............................. (236,226) (73,928)
----------- ------------
Property and equipment, net.............. $ 4,022,739 $ 734,370
=========== ============
</TABLE>
The Company has adopted statement of Position ("SOP") No. 98-1 which
requires computer software costs associated with internal use software to be
charged to operations as incurred until certain capitalization criteria are met.
The Company had $2,596,075 of computer software and related installation costs
at September 30, 2000, which are included in property and equipment in the
accompanying balance sheet, but were not yet placed in service. Accordingly, no
depreciation or amortization was recorded on these assets during the three and
nine months ended September 30, 2000.
Intangible Assets - Intangible assets are recorded at cost and are
amortized on a straight-line basis over their estimated useful life.
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.
Comprehensive Income - Comprehensive loss was equal to net loss for
each period presented.
9
<PAGE>
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 applicable to
common stockholders by the weighted average number of common shares outstanding
during the period. Dividends on the Series A Preferred Stock, which are payable
in additional shares of common stock, have been accrued at the rate of 8% per
annum in determining the net loss applicable to common stockholders.
Basic and diluted loss per common share are the same for all periods
presented, as potentially dilutive stock options of 367,433 in 2000 and 344,828
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 adoption of SFAS No. 133 is not expected to have a material effect
on the company's financial position or the results of its operations, as the
company has not utilized such instruments to date. 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 nine-month periods ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
2000 1999
------ ------
<S> <C> <C>
Cash paid during the period for interest................................................. $ 24,898 $ 38,550
Non-Cash Financing 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....................................................................... 2,068,965 --
Conversion of Verus International, Ltd. notes payable, advances and related
accrued interest into common stock................................................. 2,024,537 --
Property and equipment acquired through the issuance of debt and trade
credit............................................................................. 2,625,967 --
Customer list of Copytron, Inc. acquired through the issuance of debt, trade
credit and common stock............................................................ 824,969 --
Liabilities to the former officers of Ebony & Gold Ventures, Inc. forgiven in
conjunction with the reverse merger................................................. 17,564 --
Conversion of related party loans and accrued interest into common stock............... -- 500,000
Conversion of accounts payable into long-term debt..................................... -- 406,514
</TABLE>
10
<PAGE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------ ------
<S> <C> <C>
Acquired technology and patent application........... $ 2,068,965 $ --
Customer list of Copytron, Inc....................... 1,029,969 --
----------- ------------
3,098,934 --
Less accumulated amortization................... (34,332) --
----------- ------------
Intangible assets, net............................... $ 3,064,602 $ --
=========== ============
</TABLE>
Acquired Technology and Patent Application - In conjunction with the
Merger, the Company purchased technology and a related patent application from
Virtuosity Press LLC in exchange for 1,379,310 shares of common stock (Note 2).
The Company has not received approval of the patent. Accordingly, no
amortization of the asset has been recorded in the accompanying Condensed
Consolidated Financial Statements as of September 30, 2000. When approval of the
patent is received, the Company will determine the useful life of the patent,
and begin amortization of the purchase cost on a straight-line basis over the
useful life.
Customer List of Copytron, Inc. - On August 2, 2000, the Company
purchased the customer list of Copytron, Inc. ("Copytron") for an initial cost
of $1.0 million, including $100,000 payable in cash, $200,000 in promissory
notes and the balance payable in shares of its common stock. Accordingly, the
Company issued 238,298 shares of its common stock with an aggregate fair market
value of $700,000 at closing pursuant to the purchase agreement. Additional
shares of the Company's common stock will be issued on August 1, 2001 and 2002
if the revenues generated from the customer list exceed certain levels. The
customer list and related assets are being amortized on a straight-line basis
over an estimated useful life of 5 years.
5. LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------ ------
<S> <C> <C>
Computer equipment promissory notes............. $ 780,954 $ --
Capital lease obligations....................... 99,964 108,051
Ford Motor Credit Company....................... 18,330 --
Purchasers notes payable........................ -- 500,000
Equipment supplier promissory note.............. -- 231,254
Advance under line of credit.................... -- 95,539
Small Business Administration loans............. -- 94,818
---------- ----------
899,248 1,029,662
Less current portion..................... (812,911) (437,838)
---------- ----------
Long-term debt................................ $ 86,337 $ 591,824
========== ==========
</TABLE>
Computer Equipment Promissory Notes - During the nine months ended
September 30, 2000, the Company financed the purchase of $790,750 in computer
hardware and software through the issuance of promissory notes with a final
maturity of June 2002. Monthly payments are $36,906, which include interest at
9.4% per annum. The promissory notes are collateralized by all the assets
purchased by the notes. The Company is in arrears and is accordingly in default
on certain provisions of these notes. Accordingly, the Company has classified
these notes within the current portion of long-term debt in the accompanying
condensed consolidated September 30, 2000 balance sheet.
Capital lease obligations - The Company leases certain equipment under
noncancelable leases expiring at various dates through 2004. Of the total future
minimum lease payments, approximately $26,450 is due within the next twelve (12)
months and included within the current portion of long-term debt in the
accompanying condensed consolidated September 30, 2000 balance sheet.
11
<PAGE>
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.
Purchasers Notes Payable - During 1999, the Company obtained two
promissory notes from Verus International, LTD. ("Verus") in the amounts of
$250,000 each, bearing an annual interest rate of 8%. The notes payable,
advances and accrued interest were converted into the Company's common stock on
March 31, 2000 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. At December 31, 1999, the Company was in default of
the promissory note. Accordingly, the note has been classified and included
within the current portion of long-term debt in the accompanying condensed
consolidated balance sheet at 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.
Line of Credit - The Company had a line of credit which allowed borrowings
up to $100,000. In April 2000, the Company repaid the line in full, including
the related accrued interest, with the proceeds from the sale of the common
stock issued in conjunction with the Merger, and the line of credit was
cancelled.
Small Business Administration Loans - In April 2000, the Company repaid
the loans in full, including the related accrued interest, with the proceeds
from the sale of common stock issued in conjunction with the Merger.
6. STOCK-BASED COMPENSATION
On August 31, 2000, the Company engaged an outside financial advisor to
provide assistance relating to corporate finance and other financial services
matters, particularly assistance in its efforts to secure additional financing.
In addition to a retainer of $15,000, the Company granted 200,000 warrants to
the financial advisor to purchase its common stock for $2.875 per share. The
Company recorded stock-based compensation costs of $402,143 in connection with
the issuance of these warrants.
On May 31, 2000, the Company awarded 2,000 restricted shares of its common
stock and granted options to purchase 4,000 shares of its common stock to two
members of the Board of Directors. The Company recorded compensation expense of
$12,750 in connection with the common stock awards during the three months ended
June 30, 2000.
In connection with the Merger (Note 2), the Company granted 344,828
options to purchase its common stock at $0.29 per share which was less than the
fair market value of the common stock at the time of the grant. The Company
recorded compensation expense of $417,242 on March 31, 2000 relating to these
options.
7. COMMITMENTS AND CONTINGENCIES
In connection with the purchase of the customer list on August 2, 2000
(Note 4), the Company is required to issue additional shares of common stock on
August 2, 2001 and 2002, up to a maximum fair market value of $150,000 on each
date, if the revenues generated from the customer list and related assets for
the 12 month periods ended August 1, 2001 and August 1, 2002 exceed $700,000 and
$1.3 million , respectively. In addition, the Company also entered into a
two-year consulting agreement (extendable for a third year at the option of the
Company) with a principal of Copytron. The agreement provides for annual cash
compensation of $50,000.
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 (5) days written notice. Amounts due under this
agreement at September 30, 2000 totaled $45,000 and are included in accounts
payable in the accompanying condensed consolidated balance sheet.
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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 the services expense over cash payments
since the inception of the agreement. Deferred credits of $157,500 and $180,000
are recorded within the balance sheets at September 30, 2000 and December 31,
1999, respectively. One member of the Company's Board of Directors serves in an
executive capacity at the service provider.
8. TRANSACTIONS WITH RELATED PARTIES
Stockholders' Notes Payable - The Company has been financed principally
by loans from shareholders.
During the quarter ended September 30, 2000, Verus International, Ltd.
has provided an additional $500,000 of interim financing to the Company to fund
its working capital needs. The loan carries interest at a rate of 8% per annum.
On August 2, 2000, in connection with its purchase of the customer list
(Note 4), the Company issued a promissory note to Copytron for $200,000, of
which $100,000 was outstanding at September 30, 2000. The promissory note was
due in full on October 9, 2000. The promissory note is collateralized by the
customer list. The Company paid $25,000 against the obligation due on October 9,
2000 and the $75,000 balance remains unpaid as of November 14, 2000.
Accordingly, the Company is in default under the promissory note.
On March 31,2000 the company received $317,951 in advances from a
shareholder. During the nine months ended September 30,2000, the Company repaid
$466,508 in principal and accrued interest on loans from shareholders, including
the $317,951 received on March 31, 2000, using a portion of the proceeds from
the sale of the common stock in conjunction with the Merger.
On March 31, 2000, pursuant to the terms of the Merger Agreement, the
Company sold to certain investors 4,666,667 shares of its common stock and
warrants to purchase 833,333 shares of its common stock for an aggregate
purchase price of $7,000,000 including conversion of the notes payable, advances
and accrued interest owed to Verus International, Ltd.
In conjunction with the Merger, a total of $2,815,000 in loans from
shareholders plus the related accrued interest of $401,171 (including $57,858
and $210,734 expensed during the years ended December 31, 2000 and 1999,
respectively) were converted into 2,135,301 shares of Series A preferred stock.
On March 31, 2000, the Company entered into a consulting arrangement with
Verus International, Ltd., one of its shareholders. See purchase notes payable
as described in Note 5.
One member of the Company's Board of Directors serves in an executive
capacity with a service provider. See equipment supplier note as described in
Note 5.
9. LEGAL PROCEEDINGS
On September 29, 2000 Advisex Technologies, LLC filed a complaint
against booktech.com, inc. in Middlesex Superior Court for breach of terms
of their contracts with Advisex in the amount of $408,000. On October 6, 2000
booktech.com, inc. paid $124,000 to Advisex. On October 11, 2000 Advisex
Technologies, LLC allowed an extension through November 29, 2000 for
booktech.com, inc. to file a response to the complaint.
10. SUBSEQUENT EVENT
From October 1, 2000 through November 13, 2000, Verus International
Ltd. loaned an additional $450,000 in interim financing to the Company to fund
its working capital needs. The note carries interest at a rate of 8% per annum.
*******
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Safe Harbor Statement
Certain statements in this Form 10-QSB, including information set forth
under Item 2 Management's Discussion and Analysis, contains trend analysis and
other "forward-looking statements." These statements relate to future events or
other future financial performance, and are identified by terminology such as
"may", "will", "should", "expects", "anticipates", "plans", "intends",
believes", "estimates", or "continues" or the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results could differ materially from those set forth in the forward-looking
statements. Moreover, this discussion and analysis should be read in conjunction
with the accompanying condensed consolidated financial statements for the
periods specified and the associated notes. Further reference should be made to
the our audited financial statements as of December 31, 1999 and for the five
months then ended.
Overview
As described in Note 2 to the Unaudited 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 transaction as been
accounted for as a capital transaction and treated as a reverse acquisition, our
historical financial results prior to the Merger are those of booktechMass.
We are a digital and on-demand publisher of custom textbooks, also known
as coursepacks, which are distributed primarily through college bookstores. We
are subject to a number of risks similar to those of other companies in an early
stage of development. Principal among these risks are dependencies on key
individuals, competition from other substitute products and larger companies,
the successful development and marketing of its products and the need to obtain
adequate additional financing necessary to fund our operations.
Our business is highly seasonal in nature. More than 75% of our revenues
are normally generated in the third and fourth quarters of the fiscal year since
that period includes the traditional educational publishing selling season.
Accordingly, our operating losses have generally been greater in the first and
second quarters during a period when publishing revenues are at their lowest
levels. See Note 3 to the accompanying Unaudited Condensed Consolidated
Financial Statements, "Concentration of Credit Risk and Major Customer
Information."
The discussion below assumes we can continue to do business on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in our financial
statements, we incurred net losses of $5,468,090 and $1,575,455 during the nine
months ended September 30, 2000 and 1999, respectively. Moreover, at September
30, 2000 and December 31, 1999, our current liabilities of $5,519,527 and
$5,438,929, respectively, exceeded our current assets by $4,564,926 and
$5,127,710, respectively, and a majority of our accounts payable at September
30, 2000 are beyond the normal payment terms. As discussed in Note 5 and 8, the
Company was in default on certain provisions of its loan agreements. We are
currently seeking additional financing to fund our operations. We can give no
assurance that we will be able to secure new financing in an amount that is
required or on terms that are acceptable to us. These factors, among others,
raise substantial doubt about our ability to continue as a going concern.
Our financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
we be unable to continue as a going concern. Our continuation as a going concern
is dependent upon our ability to obtain additional financing, generate
sufficient cash flow to meet our obligations on a timely basis, comply with the
terms of our financing agreements, and to ultimately attain profitability.
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Results of Operations - Three Months Ended September 30, 2000 and 1999
Net sales increased 17.6% to $1,019,108 in 2000 from $866,774 in 1999
due to new business associated with our acquisition of the customer list from
Copytron, Inc. ("Copytron"). One customer accounted for 33% and 76% of net sales
for the three months ended September 30, 2000 and 1999, respectively. No other
single customer represented 10% or more of sales during 2000 or 1999.
Cost of sales were $905,462, or 88.8% of net sales, in 2000 compared to
$774,580 or 89.4% of net sales, in 1999. The cost of sales percentage in 2000 is
comparable to the prior year period.
Selling, marketing, and general and administrative expenses (excluding
stock-based compensation) increased 248.4 % to $1,764,532 in 2000 from $506,424
in 1999 due primarily to higher compensation and related benefits and facility
costs associated with an increase in the number of employees we hired to: (a)
build market share in higher education; (b) research and identify new markets
for our products; (c) develop for launch our e-commerce portal to meet the
demand for customized learning materials; and (d) expand our digital library of
educational content. Legal and accounting expenses also increased due to the
costs normally associated with being a public company.
Stock-based compensation costs of $402,143 in 2000 represent the fair
market value of the 200,000 common stock warrants granted to an outside
financial advisor assisting us in our current efforts to secure additional
financing. There were no stock-based compensation costs in 1999.
Interest expense decreased to $40,725 in 2000 from $79,164 in 1999
primarily due to lower debt levels resulting from the conversion of $2,815,000
of related party debt in conjunction with the Merger and to the repayment of
approximately $886,409 in debt during the nine months ended September 30, 2000.
Interest income was $3,618 in 2000 due to higher cash balances. There was
no interest income in 1999.
Due to the uncertainty that exists regarding the future realization of
our tax net operating loss carryforwards, we have not recorded a net tax asset.
The net loss increased to $2,090,136 in 2000 from $493,394 in 1999,
primarily due to higher selling, marketing and general and administrative
expenses and to the stock-based compensation costs.
Results of Operations - Nine Months Ended September 30, 2000 and 1999
Net sales increased 17.3% to $1,511,851 in 2000 from $1,288,660 in 1999
primarily due to new business associated with our acquisition of the customer
list from Copytron. One customer accounted for 32% and 57% of net sales for the
nine months ended September 30, 2000 and 1999, respectively. No other single
customer represented 10% or more of sales during 2000 or 1999.
Cost of sales were $1,739,877, or 115.1% of net sales, in 2000 compared
to $1,470,601, or 114.1% of net sales, in 1999. The higher cost of sales in 2000
was primarily due to an increase in certain fixed production costs as we
continue to expand our capacity in anticipation of increased sales levels.
Selling, marketing, and general and administrative expenses (excluding
stock-based compensation) increased 253.5% to $4,299,292 in 2000 from $1,216,139
in 1999 due primarily to higher compensation and related benefits and facility
costs associated with an increase in the number of employees we hired to: (a)
build market share in higher education; (b) research and identify new markets
for our products; (c) develop for launch our e-commerce portal to meet the
demand for customized learning materials; and (d) expand our digital library of
educational content. Legal and accounting expenses also increased due to the
costs normally associated with being a public company.
Stock-based compensation costs of $832,135 in 2000 primarily represent
the excess of the fair value of our common stock over the exercise price of
certain stock option grants awarded in conjunction with the Merger and to the
fair value of the common stock warrants granted to an outside financial advisor
assisting us in our current efforts to secure new financing. There were no
stock-based compensation costs in 1999.
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Interest expense decreased to $138,934 in 2000 from $177,477 in 1999
primarily due to lower debt levels resulting from the conversion of $2,815,000
of the related party debt in conjunction with the Merger and to the repayment of
approximately $886,409 in debt during the nine months September 30, 2000.
Due to the uncertainty that exists regarding the future realization of
our tax net operating loss carryforwards, we have not recorded a net tax asset.
The net loss increased to $5,468,090 in 2000 from $1,575,455 in 1999
primarily due to higher selling, marketing and general and administrative
expenses and to the stock-based compensation costs.
Financial Condition, Liquidity and Capital Resources
To meet our financing needs, we have depended primarily upon loans from
our stockholders and directors and sales of our common stock. We have also
issued common stock to finance the purchase certain assets and granted common
stock awards to employees and non-employees as consideration for their services.
Other sources of financing have included trade credit from suppliers and bank
debt.
As shown in our financial statements, we incurred net losses of
$5,468,090 and $1,575,455 during the nine months ended September 30, 2000 and
1999, respectively and our cash balance at September 30, 2000 was $133,589. Our
current liabilities at September 30, 2000 and December 31, 1999 of $5,519,527
and $5,438,929, respectively, exceeded our current assets at those dates by
$4,564,926 and $5,127,710, respectively. Moreover, a majority of our accounts
payable at September 30, 2000 were beyond their normal payment terms. As
discussed in notes 5 and 8 the Company was in default on certain provisions of
its loan agreements. Accordingly, we are currently seeking additional financing
to fund our operations.
Until new financing can be secured on a more permanent basis, we will
require interim financing. Verus International. Ltd., one of our stockholders,
has provided $950,000 in interim financing over the past three months, including
$500,000 advanced during the quarter ended September 30, 2000 which is included
in the accompanying Condensed Consolidated Balance Sheet.
During the nine months ended September 30, 2000, our property and
equipment increased by $3.5 million, primarily due to the purchase of a new
management information system. Approximately, $2.6 million of the computer
software and related installation costs were not yet placed in service as of
September 30, 2000. The total $3.5 million of property and equipment purchases
was financed as follows: $.8 million in debt, $1.7 million in accounts payable
and $1.0 million in cash.
On August 2, 2000, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Copytron, an unrelated entity, to purchase a customer
list for a maximum cost of $1,300,000. The terms of the agreement require cash
payments of $300,000, payable in four installments with the last installment of
$100,000 due on October 9, 2000, and the $1.0 million balance of the purchase
price to be paid through the issuance of three tranches of our common stock.
Given our financial position, we paid $25,000 on October 9, 2000 as a partial
payment on the last installment of $100,000. The $75,000 owing on that last
installment remains unpaid as of November 14, 2000. Accordingly, we are in
default under the terms of the promissory note. On August 2, 2000, we issued
238,298 shares of newly issued common stock with an aggregate value of
approximately $700,000 as payment of the first tranche under the Agreement. We
will issue additional shares of common stock on August 2, 2001 and 2002, with
each issuance having a then current fair market value of up to $150,000. The
additional shares issued on August 2, 2001 and 2002 will be a function of sales
in each year. For example, between $700,000 and $1,300,000 in annual sales we
will award $25,000 worth of common stock for every $100,000 in sales. If the
value of our common stock declines on the first and second anniversaries of the
closing, we will be required under the Agreement to make additional cash payment
or to issue additional shares of common stock.
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In conjunction with the Merger, the Company (a) refinanced $2,815,000
of shareholder and director loans plus $401,171 in related accrued interest by
the issuance of 2,135,301 shares of Series A Preferred Stock; (b) purchased new
technology and a related patent application with the issuance of 1,379,310
shares of common stock; and (c) sold 4,666,667 shares of common stock 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,
advances and accrued interest owed to Verus International, Ltd.
As described above, we are currently seeking additional sources of
equity or debt financing to fund our operations. Although we have been
successful in raising financing in the past, there can be no assurance that any
additional financing will be available to us on commercially reasonable terms,
or at all. Furthermore, we can provide no assurance that our stockholders will
continue to provide additional financing on either an interim or permanent
basis. Any inability to obtain the necessary additional financing will have a
material adverse effect on us, requiring us to significantly curtail or possibly
cease our operations. In addition, any additional equity financing may involve
substantial dilution to the interests of the our then existing shareholders.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The provisions of SFAS No. 133 are
effective for periods beginning after June 15, 2000. The adoption of SFAS No.
133 is not expected to have a material effect on the company's financial
position or the results of its operations, as the company has not utilized such
instruments to date. 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.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On September 29, 2000 Advizex Technologies, LLC filed a complaint
against booktech.com, inc. in Middlesex Superior Court for breach of the terms
of their contracts with Advizex in the amount of $408,000. On October 6, 2000
booktech.com, inc. paid $124,000 to Advizex. On October 11, 2000 Advizex
Technologies, LLC allowed an extension through November 29, 2000 for
booktech.com, inc. to file a response to the complaint.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11. Computation of Net Loss Per Common Share
27. Financial Data Schedules
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on August 17, 2000,
which reported that the Company purchased the customer list of
Copytron, Inc. for a maximum purchase price of $1.3 million. The
Company is in the process of preparing an amendment to correct
statements made in item 2 that audited financial statements of Copytron
were required.
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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.
November 17, 2000 booktech.com, inc.
/S/ ___________________________________
Ted Bernhardt
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
Exhibit Description
------- -----------
11. Computation of Net Loss Per Common Share
27. Financial Data Schedules
20
