<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 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 88-040915
---------- ------------
(State or other jurisdiction of (IRS Employer ID. No.)
incorporation or organization)
42 Cummings Park, Woburn, Massachusetts 01581
---------------------------------------- --------
(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 18,566,667 Shares
------------ ------------------
$.00042 Par Value (Outstanding on March 31, 2000)
<PAGE>
booktech.com, inc. and Subsidiary
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
ITEM 1--Financial Statements:
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999........................ 2
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999........................................... 3
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999........................ 4
Notes to Condensed Consolidated Financial Statements................ 5
ITEM 2--Management's Discussion and Analysis................................ 11
PART II. OTHER INFORMATION
ITEM 2--Changes in Securities and Use of Proceeds........................... 13
ITEM 6--Exhibits and Reports on Form 8-K.................................... 13
Signatures.................................................................. 14
Exhibit Index............................................................... 15
<PAGE>
PART I. FINANCIAL INFORMATION
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------------- -----------
<S> <C> <C>
Net sales............................................................... $ 324,734 $ 359,960
Cost of sales........................................................... 483,372 446,526
----------- -----------
Gross margin.................................................. (158,638) (86,566)
Operating expenses:
Selling and marketing................................................. 42,961 12,694
General and administrative (excluding stock-based
compensation costs of $417,242 in 2000)........................... 910,392 445,168
Stock-based compensation.............................................. 417,242 --
----------- -----------
Total operating expenses...................................... 1,370,595 457,862
----------- -----------
Loss from operations.................................................... (1,529,233) (544,428)
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................................................................ $(1,612,945) $ (585,807)
=========== ===========
Net loss per share - basic and diluted.................................. $ (.21) $ (.08)
==== ====
Shares used in computing basic and diluted net loss per share........... 7,643,423 6,896,552
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 5,033,132 $ 82,753
Accounts receivable, less allowance for returns of $68,610 in
2000 and $91,732 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........................................ (112,266) (73,928)
------------- -----------
Property and equipment, net................................ 736,724 734,370
ACQUIRED TECHNOLOGY AND PATENT APPLICATION. 2,068,965 --
DEPOSITS ....................................................... 25,200 25,200
------------- -----------
TOTAL ................................................... $ 8,038,283 $ 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.................... 9,798 354,130
Other accrued expenses......................................... 463,996 410,817
------------- -----------
Total current liabilities.................................. 2,383,768 5,438,929
LONG-TERM DEBT.................................................. 100,185 591,824
OTHER LONG-TERM LIABILITIES..................................... 135,000 146,250
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Convertible preferred stock, Series A.......................... 21,353 --
Convertible preferred stock, Series B.......................... 462 --
Common stock................................................... 7,798 760,000
Additional paid-in capital..................................... 12,681,376 --
Treasury stock................................................. -- (187,500)
Accumulated deficit............................................ (7,291,659) (5,678,714)
------------- -----------
Total stockholders' equity (deficiency)................... 5,419,330 (5,106,214)
------------- -----------
TOTAL ................................................... $ 8,038,283 $ 1,070,789
============= ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $ (1,612,945) $ (585,807)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................ 38,338 10,171
Stock-based compensation............................................. 417,242 --
Loss on disposal of equipment....................................... -- --
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) 80,496
Accrued expenses to related parties................................ 56,839 38,879
Other accrued expenses............................................. 77,716 5,028
------------ -----------
Total adjustments........................................ 182,389 159,166
------------ -----------
Net cash used in operating activities.................... (1,430,556) (426,641)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment.............................. (40,692) (615)
Acquisition of technology and patent application.................... (2,068,965) --
Payment of merger costs............................................. (401,000) --
Proceeds from sale of fixed assets................................... -- --
------------ -----------
Net cash used in investing activities....................... (2,510,657) (615)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans from related parties............................ 317,951 460,000
Repayments of loans to related parties.............................. (434) --
Proceeds from other debt financings................................. 20,424 --
Repayments of other debt financings................................. -- (14,129)
Increase (decrease) in long-term debt obligation.................... (4,064) --
Increase (decrease) in other long-term liabilities.................. (11,250) --
Net proceeds from issuance of common and preferred stock............ 8,568,965 --
------------ ------------
Net cash provided from financing activities................. 8,891,592 445,871
------------ ------------
NET INCREASE (DECREASE) IN CASH AND 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
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
booktech.com, inc. and Subsidiary
NOTES TO 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 organizes itself 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
$1,612,945 and $585,807 in the three-month periods ended March 31, 2000
and 1999, respectively, and $7,291,659 cumulative since inception. The
Company's operating losses and working capital needs have been funded
principally by loans from its stockholders. 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 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 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. 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. The
Company also sold to certain investors (the "Purchasers") 4,666,667 shares
of its Common Stock for an aggregate purchase price of $7,000,000 including
conversion of the notes payable and advances owed to Verus Investment
Holdings. In addition, the Company purchased technology and a related
patent application from Virtuosity Press LLC, a Delaware Limited Liability
Company ("Virtuosity"), in exchange for 1,379,310 shares of 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 obtain voting and operating control
of the Company. Accordingly, the Merger has been accounted for as a reverse
acquisition as the stockholders 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.
5
<PAGE>
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 (Unaudited) - 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.
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
------------- -----------
<S> <C> <C>
Revenue.............................................. $ 324,734 $ 359,960
Loss from operations................................. (1,529,233) (544,428)
Net loss............................................. (1,555,087) (546,596)
Net loss applicable to Common Stockholders........... (1,619,146) (610,655)
Net loss per common share............................ $ (.09) $ (.04)
Shares used in computing net loss per common share... 18,566,667 17,062,529
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Quarterly Condensed Consolidated Financial Statements - The
Company, without audit, has prepared the accompanying condensed
consolidated financial statements. In the opinion of management, these
unaudited interim 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 and its
subsidiary'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 at December 31,1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles for annual periods have been condensed or omitted. Accordingly,
these unaudited interim condensed consolidated financial statements should
be read in conjunction with the Company's annual financial statements for
the fiscal year ended December 31, 1999 as reported on Form 8-K filed with
the Securities and Exchange Commission on April 4, 2000.
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 consolidated balance sheets as of March 31, 2000
and financial statements for periods subsequent to March 31, 2000 include
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 generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Some of the
areas where estimates are utilized include allowances for doubtful accounts
and returns, certain accrued expenses, and the valuation allowance on
deferred tax assets. Actual results could differ from those estimates.
Concentration of Credit Risk and Major Customer Information - Financial
instruments that potentially expose the Company to concentrations of credit
risk include cash and accounts receivable. The Company performs ongoing
credit evaluations of its customers and does not require collateral. In
addition, the Company maintains allowances for potential credit losses, and
such losses, in the aggregate, have not exceeded management expectations.
One customer accounted for 70% and 65% of net sales for the three-month
periods
6
<PAGE>
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 Equivalents - Cash and 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. Ranges of useful lives are
as follows:
Years
------
Furniture and fixtures 7
Office and computer equipment 5
Leasehold improvements 1-5
Computer software 3
The cost and related accumulated amortization of leased office and
computer equipment, which have been capitalized, aggregate $109,000 and
$6,700 at March 31, 2000, respectively.
Impairment of Long-Lived Assets - Recoverability of long-lived assets
is determined periodically by comparing the forecasted, undiscounted net
cash flows of the operations to which the assets relate to their carrying
amounts, including associated intangible assets of such operations.
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 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 of
a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company records a valuation allowance against net deferred tax
assets if, based upon the available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income and when temporary
7
<PAGE>
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 loss per common share are the same for all periods
presented, as potentially dilutive stock options of 344,828 in 2000 (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," which the
Company is required to adopt effective January 1, 2001. SFAS No. 133 will
require the Company to record all derivatives on the balance sheets at fair
value. The impact of SFAS No. 133 on the Company's financial statements
will depend on a variety of factors, including future interpretative
guidance from the FASB and the future level of derivative instruments and
hedging activities. The Company is currently evaluating the effects from
adopting SFAS No. 133 to its financial statements.
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:
<TABLE>
<CAPTION>
2000 1999
---------- -------
<S> <C> <C>
Cash paid during the period for interest............................... $ -- $ 1,290
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 --
Costs incurred in conjunction with the reverse merger................ 588,426 --
Conversion of Verus Investment Holdings notes payable, advances
and related accrued interest into Common Stock..................... 2,024,537 --
Stock-based compensation............................................. 417,242 --
Liabilities forgiven by the former officers of Ebony & Gold Ventures,
Inc. in conjunction with the reverse merger........................ 17,564 --
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
4. LONG-TERM DEBT
Long-term debt consisted of the following at:
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
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 --
Versus Capital notes payable........................... -- 500,000
--------- ---------
546,022 1,029,662
Less current portion (445,837) (437,838)
--------- ----------
Long-term debt $ 100,185 $ 591,824
========= ==========
</TABLE>
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. The line of credit expires on December 4, 2000. 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.
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 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 line in full, 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 $406,940 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 consolidated balance sheets 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.
9
<PAGE>
Purchasers' Notes Payable - On December 3 and 20, 1999, the Company
obtained two promissory notes from the Purchasers including Verus Investment
Holdings of the 4,666,667 shares in the amounts of $250,000 each, bearing an
annual interest rate of 8%. 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. Accordingly, the $500,000 note has been
classified as a long-term liability at December 31, 1999.
5. 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 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 received $317,951 in advances from a
shareholder. The $317,951 was repaid on April 3, 2000 following completion of
the Merger.
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.
10
<PAGE>
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 transaction as been
accounted for 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.
Results of Operations - Three Months Ended March 31, 2000 and 1999
Net sales were $324,734 in 2000 compared to $359,960 in 1999 as higher
returns and allowances in 2000 offset an approximate 10% growth in gross sales.
The higher returns and allowance expense was due to tighter enforcement of the
Company's 90-day return policy. Returns and allowances are expected to return to
a more normal level in the future. The 10% growth in gross sales was due to the
Company's high customer retention rate and to new business. Sales to one
customer, Barnes & Noble College Bookstores, Inc., accounted for approximately
70% 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
$446,526, or 124.0% 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 and marketing expenses increased to $42,961 in 2000 from $12,694
in 1999 as management builds market share in higher education and continues to
research and identify new markets for the Company's products.
General and administrative expenses (excluding stock-based compensation
costs) increased to $910,392 in 2000 from $445,168 in 1999 due to additional
investments: (1) to develop and launch the Company's e-commerce portal to meet
the demand for customized learning materials; and (2) to expand the Company's
digital library of educational content.
Stock-based compensation costs of $417,242 in 2000 relate to general and
administrative activities, and primarily represent the excess of the fair value
of the Company's common stock (the "Common Stock") over the exercise price of
certain stock option grants awarded in conjunction with the Merger. There were
no stock-based compensation costs in 1999.
11
<PAGE>
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 $1,612,945 in 2000 from $585,807 in 1999,
primarily due to investments to position the Company for future growth and to
the stock-based compensation costs.
Financial Condition, Liquidity and Capital Resources
From inception through March 31, 2000, the Company incurred cumulative
net losses of $7,291,659, including $1,612,945 during the three months ended
March 31, 2000. The Company has historically experienced cash flow difficulties
primarily because its expenses have exceeded its revenues.
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 generally been classified as a current liability. As such, the
Company has generally operated from a negative working capital position. At
December 31, 1999, the Company's current liabilities of $5,438,929 exceeded its
current assets by $5,127,710.
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 for a net
purchase price of $6,411,574 including conversion of the notes payable and
advances owed to Verus Investment Holdings. After giving effect to these
transactions, the Company had a cash balance of $5,033,132 and a positive
working capital of $2,823,626 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.
Management believes the $5,911,574 in net proceeds from the issuance of the
Common Stock will be adequate to fund the Company's operations for at least the
next twelve (12) months. In addition, the Company has an available line of
credit of $100,000, which expires on December 4, 2000.
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 past financing, 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 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.
12
<PAGE>
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, for a net purchase price of $6,411,574 including conversion
of the notes payable and advances owed to Verus Investment Holdings. 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 net
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedules
(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."
13
<PAGE>
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.
May 31, 2000 booktech.com, inc.
/S/ TED BERNHARDT
----------------------------
Ted Bernhardt
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedules
15
