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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSBA/1
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period From _____ To _____
Commission File Number: 000-26903
booktech.com, inc.
-------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0409153
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(State or other jurisdiction of (IRS Employer ID. No.)
incorporation or organization)
42 Cummings Park, Woburn, Massachusetts 01801
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (781) 933-5400
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(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
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$.00042 Par Value (Outstanding on March 31, 2000)
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booktech.com, inc. and Subsidiary
INDEX TO FORM 10-QSB A/1
PREFATORY STATEMENT
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1--Financial Statements:
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 (As Restated).............. 3
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999(As Restated).................................. 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (As Restated).............. 5
Notes to Condensed Consolidated Financial Statements.................... 6
ITEM 2--Management's Discussion and Analysis.................................... 12
PART II. OTHER INFORMATION
ITEM 2--Changes in Securities and Use of Proceeds............................... 14
ITEM 4--Submission of Matters to A Vote of Security Holders .................... 14
ITEM 6--Exhibits and Reports on Form 8-K........................................ 14
Signatures...................................................................... 15
Exhibit Index................................................................... 16
</TABLE>
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Prefatory Statement
to Form 10-QSB A/1
Amending Form 10-QSB for quarter ended March 31, 2000
This interim Report on Form 10-QSB/A is being filed as a result of the
Company's (as defined herein) restatement of its Condensed Consolidated
Financial Statements for the three months ended March 31, 2000 and 1999 and as
of March 31, 2000 as are fully discussed in Note 8 to the Condensed Consolidated
Financial Statements.
PART I. FINANCIAL INFORMATION
booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 (1) 1999 (1)
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<S> <C> <C>
Net sales............................................................... $ 324,734 $ 359,960
Cost of sales........................................................... 483,372 422,146
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Gross margin.................................................. (158,638) (62,186)
Operating expenses:
Selling, Marketing, and General and Administrative (excluding stock-based
compensation costs of $417,242 in 2000)........................... 960,836 292,849
Stock-based compensation.............................................. 417,242 --
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Total operating expenses...................................... 1,378,078 292,849
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Loss from operations.................................................... (1,536,716) (355,035)
Interest expense to related parties..................................... 57,858 40,169
Other interest expense.................................................. 25,854 1,210
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Total interest expense........................................ 83,712 41,379
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Net loss................................................................ $(1,620,428) $ (396,414)
=========== ===========
Net loss per share - basic and diluted.................................. $ (.21) $ (.07)
==== ====
Shares used in computing basic and diluted net loss per share........... 7,643,423 6,016,552
========= =========
</TABLE>
(1) Restated. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
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booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, 2000(1) December 31, 1999
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<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 $91,700 in 1999................................... 167,976 228,466
Other current assets............................................ 6,286 --
------------- ----------
Total current assets....................................... 5,207,394 311,219
PROPERTY AND EQUIPMENT, at cost................................. 848,990 808,298
Accumulated depreciation........................................ (99,865) (73,928)
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Property and equipment, net................................ 749,125 734,370
ACQUIRED TECHNOLOGY AND PATENT APPLICATION 2,068,965 --
DEPOSITS ....................................................... 25,200 25,200
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TOTAL ................................................... $ 8,050,684 $ 1,070,789
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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......................................... 483,880 410,817
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Total current liabilities.................................. 2,403,652 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.......................... 897 --
Convertible preferred stock, Series B.......................... 462 --
Common stock................................................... 7,798 760,000
Additional paid-in capital..................................... 12,701,832 --
Treasury stock................................................. -- (187,500)
Accumulated deficit............................................ (7,299,142) (5,678,714)
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Total stockholders' equity (deficiency)................... 5,411,847 (5,106,214)
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TOTAL ................................................... $ 8,050,684 $ 1,070,789
============= ===========
</TABLE>
(1) Restated. See Note 8
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
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booktech.com, inc. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 (1) 1999 (1)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $ (1,620,428) $ (396,414)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................ 25,937 10,171
Stock-based compensation............................................. 417,242 --
Related party interest expense satisfied by issuing Convertible
Preferred Stock, Series A.......................................... 56,839 --
Change in assets and liabilities:
Accounts receivable ............................................... 60,490 31,414
Other current assets............................................... (6,286) (5,622)
Deposits........................................................... -- (1,200)
Accounts payable................................................... (461,950) (123,383)
Accrued expenses to related parties................................ -- 38,879
Other accrued expenses............................................. 86,350 19,513
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Total adjustments........................................ 178,622 (30,228)
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Net cash used in operating activities.................... (1,441,806) (426,642)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment.............................. (20,268) (615)
Payment of merger costs.............................................. (401,000) --
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Net cash used in investing activities....................... (421,268) (615)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans from related parties............................ 317,951 460,000
Repayments of loans to related parties.............................. (434) (1,227)
Proceeds from other debt financings................................. 1,500,000 --
Repayments of other debt financings................................. -- (12,901)
Decrease in long-term debt obligation............................... (4,064) --
Net proceeds from issuance of common stock.......................... 5,000,000 --
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Net cash provided from financing activities.................. 6,813,453 445,872
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NET INCREASE IN CASH AND CASH EQUIVALENTS............................... 4,950,379 18,615
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 82,753 16,413
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CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 5,033,132 $ 35,028
============ ============
</TABLE>
(1) Restated. See Note 8.
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
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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
$1,620,428 and $396,414 in the three-month periods ended March 31, 2000 and
1999, respectively. Prior to the merger, as defined in Note 2, the
Company's operating losses and working capital needs were funded
principally by loans from its stockholders. The Company expects that it
will continue to incur losses as it continues its activities pursuant to
the current business plan, particularly those related to sales, marketing
and content development. These factors, among 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 merger involved the
following transactions: (a) the Company issued 7,520,690 shares of its
authorized but unissued common stock (the "Common Stock") and 1,100,000
shares of its authorized but unissued Series B Preferred Stock to the
former stockholders of booktechMass in exchange for the 25,000 shares of
common stock of booktechMass issued and outstanding as of the effective
time of the Merger, (b) Certain debt and accrued interest totaling
$3,216,171 owed by booktechMass to related parties was converted into
2,135,301 shares of the Company's Series A Preferred Stock, (c) the Company
sold to certain investors (the "Purchasers") 4,666,667 shares of its Common
Stock and Warrants to purchase 833,333 shares of Common Stock for an
aggregate purchase price of $7,000,000 including conversion of the notes
payable, advances and accrued interest owed to Verus International Ltd. 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 continue having voting and
operating control of the Company. Accordingly, the Merger has been
accounted under the purchase method 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.
The Company is obligated to file a registration statement to register
6,030,504 shares of common stock by July 31, 2000 and an additional
registration statement to register 1,398,077 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.
6
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Since the accounting applied differs from the legal form of the Merger,
the Company's financial information for periods prior to the Merger
represent the financial results of booktechMass.
Pro Forma Disclosure - The following table presents the unaudited
pro forma results of operations for the three months ended March 31, 2000
and 1999 assuming the Merger had occurred on January 1, 1999, the beginning
of the earliest period presented in the accompanying Unaudited 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>
Three Months Ended March 31,
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2000 1999
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<S> <C> <C>
Net sales............................................ $ 324,734 $ 359,960
Loss from operations................................. (1,536,716) (355,035)
Net loss............................................. (1,562,570) (357,203)
Net loss applicable to Common Stockholders........... (1,626,629) (421,262)
Net loss per common share............................ $ (.09) $ (.02)
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, has prepared the accompanying Unaudited Condensed Consolidated
Financial Statements. In the opinion of management, the Unaudited 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 unaudited 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.
Principles of Consolidation - As described in Note 2, the Company
completed a merger on March 31, 2000 that has been accounted for as a
reverse acquisition. Accordingly, the Company's consolidated financial
statements for periods prior to March 31, 2000 represent those of its
subsidiary, booktechMass, which is considered to be the acquirer for
accounting purposes. The condensed consolidated balance sheet as of
March 31, 2000 includes the accounts of the Company and its wholly owned
subsidiary after the elimination of all significant intercompany balances.
Use of Estimates - The preparation of financial statements in
conformity with 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 49% and 65% of net sales for the three-month
periods
7
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ended March 31, 2000 and 1999, respectively. This same customer accounted
for 54% and 77% of the accounts receivable at March 31, 2000 and December
31, 1999, respectively.
Cash and Cash Equivalents - Cash and cash equivalents include
cash on hand, cash deposited with banks and highly liquid debt securities
with remaining maturities of ninety days or less when purchased.
Property and Equipment - Property and equipment are recorded at cost.
Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the various classes
of assets or lease terms, whichever is shorter. Estimated useful lives are
as follows:
Years
------
Furniture and fixtures 7
Office and computer equipment 5
Leasehold improvements 1-5
Computer software 3
The cost and related accumulated amortization of leased office and
computer equipment, which have been capitalized, aggregated $109,000 and
$6,700, respectively at March 31, 2000.
Impairment of Long-Lived Assets - Recoverability of 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
granted to employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees", and complies with the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation."
Equity instruments issued to non-employees are accounted for in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued To Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services". All transactions in which goods or services
are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable. The measurement date of the fair value of the equity instrument
issued is the earlier of the date on which the counterparty's performance
is complete or the date on which it is probable that performance will
occur.
Income Taxes - The Company accounts for income taxes under SFAS No.
109, "Accounting for Income Taxes". Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences and carryforwards are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
from a change in tax rate is recognized in income in the period that
includes the enactment date.
The Company records a valuation allowance against net deferred tax
assets if, based upon the available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income and when temporary
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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 367,433 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." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. The provisions of SFAS No. 133 are effective for
periods beginning after June 15, 2000. The Company is currently evaluating,
and has not determined, the effect, if any, SFAS No. 133 will have on the
Company's financial position and its results of operations. The Company will
adopt this accounting standard on January 1, 2001, as required.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 provides guidance on the recognition,
presentation and disclosure of revenues in financial statements filed with
the Securities and Exchange Commission. The Company is currently
evaluating, and has not determined, the effect, if any, SAB No. 101 will
have on The Company's financial position and its results of operations. The
Company will adopt this accounting standard during the fourth quarter of
2000, as required.
Reclassifications - Certain reclassifications have been made to the
1999 amounts to conform to the 2000 presentation.
Supplemental Cash Flow Information - The following table sets forth
certain supplemental cash flow information for the three-month periods
ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash paid during the period for interest............................... $ -- $ 1,290
Non-Cash Activities
Conversion of related party loans and accrued interest into
preferred stock.................................................... $ 3,216,171 --
Acquisition of technology and related patent application with the
issuance of Common Stock........................................... 2,068,965 --
Equipment acquired through the issuance of a note payable............ 20,424 --
Costs incurred in conjunction with the reverse merger................ 187,426 --
Conversion of Verus International Ltd. notes payable, advances
and related accrued interest into Common Stock..................... 2,024,537 --
Stock-based compensation............................................. 417,242 --
Liabilities to the former officers of Ebony & Gold Ventures,
Inc. forgiven in conjunction with the reverse merger............... 17,564 --
</TABLE>
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<TABLE>
<CAPTION>
4. LONG-TERM DEBT
Long-term debt consisted of the following at:
March 31, December 31,
2000 1999
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<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 --
Purchasers 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. In April 2000, the Company repaid the line in full, including the
related accrued interest, with the proceeds from the sale of Common Stock issued
in conjunction with the Merger. The line of credit was then cancelled.
Small Business Administration Loans - On December 14, 1996, the Company
obtained three Small Business Administration ("SBA") loans in the amounts of
$30,200, $30,200 and $42,300, which are due on December 14, 2011 and have
monthly payments of $231, $231 and $323, respectively, including interest at 4%,
collateralized by the assets of the Company and guaranteed by a Company
shareholder (subordinated to the line of credit). The SBA loans prohibit the
Company, without prior written consent from the SBA, from repurchasing capital
stock, declaring or paying any dividends or consolidating or merging with
another company. The Company did not obtain SBA approval prior to its merger
with Ebony & Gold Ventures, Inc. and its purchase of treasury stock during the
year ended July 31, 1998 and, as such, is in violation of the terms of the SBA
loans. Accordingly, such loans have been classified and included within current
long-term debt in the accompanying consolidated balance sheets at March 31, 2000
and December 31, 1999. In April 2000, the Company repaid the SBA Loan, including
the related accrued interest, with the proceeds from the sale of Common Stock
issued in conjunction with the Merger.
Equipment Supplier Promissory Note - On April 15, 1999, the Company
converted $406,514 of amounts due to an equipment supplier into a promissory
note due December 15, 1999. Monthly payments are $47,940, which includes
interest at 14.5%. The promissory note is collateralized by substantially all of
the assets of the Company (subordinated to the line of credit). At December 31,
1999, the Company was in default of the promissory note. Accordingly, the note
has been classified and included within current long-term debt in the
accompanying consolidated balance sheets at March 31, 2000 and December 31,
1999. In April 2000, the Company repaid the note, including the related accrued
interest, with the proceeds from the sale of Common Stock issued in conjunction
with the Merger.
Capital lease obligations - The Company leases certain equipment under
noncancelable leases expiring at various dates through 2004. At March 31, 2000,
future minimum lease payments (excluding interest) totaled $103,987, of which
$19,189 is due within the next twelve (12) months and included within current
long-term debt in the accompanying condensed consolidated balance sheet at
March 31, 2000.
Ford Motor Credit Company - On March 2, 2000, the Company financed the
purchase of a motor vehicle. The loan is due in 48 monthly installments of $435,
including interest at an annual rate of 0.9%, with a final maturity on April 15,
2004.
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Purchasers' Capital Notes Payable - On December 3 and 20, 1999, the
Company obtained two promissory notes in the amounts of $250,000 each, bearing
an annual interest rate of 8%, from the Purchasers, including Verus
International Ltd., of the 4,666,667 shares of the Company's Common Stock.
Subsequent to December 31, 1999, the Purchasers loaned an additional $1.5
million to the Company. The entire principal and accrued interest was converted
into the Company's Common Stock on March 31, 2000 in conjunction with the
Merger. In the event the merger did not occur, the note and related accrued
interest were convertible into the Company's Common Stock. Accordingly, the
$500,000 note was classified as a long-term liability at December 31, 1999.
5. STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock -- At March 31, 2000, the Company had authorized
54,523,810 shares of $.00042 par value common stock, of which 18,566,667 shares
were issued and outstanding and 5,000,000 shares are reserved for issuance
pursuant to the Company's 2000 Stock Option Plan. At December 31, 1999,
booktechMass had authorized 200,000 shares of no par value common stock, of
which 28,000 shares were issued and 25,000 shares were outstanding.
Preferred Stock -- At March 31, 2000, the Company had authorized
5,000,000 shares of Preferred Stock which is issuable in one or more series. At
March 31, 2000, the Company had issued and outstanding 2,135,301 shares of
$.00042 par value Series A Convertible Preferred Stock (the "Series A") with a
liquidation preference of $3,216,171 and 1,100,000 shares of $.00042 par value
Series B Convertible Preferred Stock (the "Series B") with a liquidation
preference of $1,650,000. The liquidation preference on the Series A will be
increased for any accrued, but unpaid, dividends.
Holders of the Series A have the right and option to convert the
preferred shares into shares of common stock at any time. The Series A is
convertible into common stock at a rate of three and one-half (3 1/2) shares of
Series A for one (1) share of common stock. This initial conversion rate is
subject to future adjustment for stock splits, stock dividends, combinations and
other similar events. The holders of the Series A are entitled to vote together
with the holders of the common stock acting as a single class. Each set of three
and one half (3 1/2) shares of Series A shall have one vote. Dividends on the
Series A accrue at the rate of eight per cent (8%) of the liquidation preference
per share per annum, and are payable annually in additional shares of common
stock.
The Series B is junior to the Series A. Within the first year of
issuance, the holders of the Series B have the right to convert their shares
into common stock at an initial rate of one (1) share of Series B for each share
of common stock. This initial conversion rate will be adjusted for future stock
splits, stock dividends, combinations or other similar events. All outstanding
shares of Series B will automatically convert into the Company's common stock,
at the applicable conversion rate, on March 31, 2001. The Series B holders are
entitled to vote together with the holders of the common stock acting as a
single class and each share of Series B shall have six (6) votes. The Series B
has no dividend rights.
Warrants -- In connection with the Merger (Note 2), the Company issued
833,333 warrants to purchase 833,333 shares of the Company's common stock at
$1.50 per share. The warrants are exercisable 120 days after the merger date
(March 31, 2000) and expire on March 31, 2002.
Stock Option Plan -- The Company's 2000 Stock Option Plan provides for
the issuance of nonqualified and incentive stock options to employees,
consultants and directors to purchase up to 5,000,000 shares of common stock at
exercise prices not less than the fair market value at the date of grant as
determined by the Company's Board of Directors. Options vest and become
exercisable over a four year period and expire in ten years.
6. COMMITMENTS
In connection with the merger, (Note 2), the Company entered into a
consulting arrangement with Verus International Ltd. The consulting agreement
requires payments of $15,000 per month for a period of two years. The consulting
agreement is terminable by either party for cause with five (5) days written
notice. Additionally Verus International Ltd. may terminate the agreement
without cause upon five days written notice.
7. TRANSACTIONS WITH RELATED PARTIES
Stockholders' Notes Payable - The Company has been financed principally
by loans from stockholders. In conjunction with the Merger on March 31, 2000, a
total of $2,815,000 in loans from stockholders plus the related accrued interest
of $401,171 (including $57,858 and $210,734 expensed during the three months
ended March 31, 2000 and the year ended December 31, 1999, respectively) were
converted into 2,135,301 shares of Series A preferred stock.
On March 31, 2000, the Company received $317,951 in advances from a
shareholder. The $317,951 was repaid on April 3, 2000 following completion of
the Merger.
On March 31, 2000, the Company entered into a consulting arrangement
with Verus International Ltd., one of its shareholders (Note 6.).
On March 31, 2000, pursuant to the terms of the Merger Agreement,
certain related party loans and accrued interest totaling $3,216,171 owed by
the Company were converted into 2,135,301 shares of Series A Preferred Stock.
The Company also sold to certain investors (the "Purchasers") 4,666,667
shares of its Common Stock and Warrants to purchase 833,333 shares of its
Common Stock for an aggregate purchase price of $7,000,000 including
conversion of the notes payable, advances and accrued interest owed to Verus
International Ltd.
On April 7, 2000, the Company repaid $148,123 in principal and accrued
interest on loans from stockholders using a portion of the proceeds received
from the sale of the Common Stock in conjunction with the Merger.
8. RESTATEMENT
Subsequent to the issuance of the Company's condensed consolidated financial
statements as of and for the three month periods ended March 31, 2000 and 1999,
the Company's management determined that (1) the Company's acquisition of
technology and a related patent application from Virtuosity, by issuing common
stock of the Company to Virtuosity, should not have been recorded as a cash
transaction in the Company's condensed consolidated statements of cash flows,
(2) certain expenses and other transactions were recorded in the incorrect
period or were recorded under the incorrect financial statement captions and (3)
the calculation of the weighted-average shares outstanding for the three month
period ending March 31, 1999 was incorrect. As a result, the Company's condensed
consolidated financial statements as of and for the three month periods ended
March 31, 2000 and 1999 have been restated from the amounts previously reported
to reflect the appropriate reporting of the aforementioned items. The
significant effects of the restatement are as follows:
<TABLE>
<CAPTION>
3/31/2000 3/31/1999
As As
Previously Previously
Reported As Restated Reported As Restated
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
At March 31, 2000
Property and equipment, net $ 736,724 $ 749,125
Other accrued expenses 463,996 483,880
Convertible preferred stock, Series A 21,353 897
Additional paid-in-capital 12,681,376 12,701,832
Accumulated deficit (7,291,659) (7,299,142)
For the three months ended March 31
Cost of sales 483,372 483,372 $ 446,526 $ 422,146
Selling and marketing 42,961 -- 12,694 --
General and administrative (excluding
stock-based compensation costs of $417,242 in 2000) 910,392 -- 445,168 --
Selling, marketing, general and administrative (excluding
stock-based compensation costs of $417,242 in 2000) -- 960,836 -- 292,849
Loss from operations (1,529,233) (1,536,716) (544,428) (355,035)
Net loss (1,612,945) (1,620,428) (585,807) (396,414)
Net loss per share - basic and diluted 0.21 0.21 0.08 0.07
Cash Flows from Operating Activities (1,430,556) (1,441,806) (426,641) (426,642)
Cash Flows from Investing Activities (2,510,657) (421,268) (615) (615)
Cash Flows from Financing Activities 8,891,592 6,813,453 445,871 445,872
Weighted-average shares outstanding 7,643,423 7,643,423 6,896,552 6,016,552
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Safe Harbor Statement
Certain statements in this Form 10-QSBA/1, 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.
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 has 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.
The Company's business is highly seasonable in nature. More than 75% of
its revenues are generated in the third and fourth quarters of its fiscal year
since that period includes the traditional educational publishing selling
season. Operating losses have historically been greater in the first and second
quarters during a period when publishing revenues are at their lowest levels.
See Note 3 to the accompanying Unaudited Condensed Consolidated Financial
Statements, "Concentration of Credit Risk and Major Customers Information."
Results of Operations - Three Months Ended March 31, 2000 and 1999
Net Sales were $324,734 in 2000 compared to $359,960 in 1999. Lower net
sales of $35,194 were principally due to lower volume associated with one
customer, Barnes & Noble College Bookstores, which accounted for approximately
49% and 65% of the total net sales in 2000 and 1999, respectively. No other
single customer represented 10% or more of sales during 2000 or 1999.
Cost of sales were $483,372, or 148.9% of net sales, in 2000 compared to
$422,146, or 117.3% of net sales, in 1999. The higher cost of sales percentage
in 2000 was primarily due to an increase in certain fixed production costs as
the Company expands its capacity in anticipation of increased sales levels, and
to higher average copyright fees due to the mix of coursepacks sold.
Selling, Marketing, and General and Administrative expenses (excluding
stock-based compensation costs) increased to $960,836 from $292,849 in 1999 due
to compensation and facility costs associated with the increase in the number of
employees hired by the Company to: (1) attempt to build market share in higher
education and research and identify new markets for the Company's products; (2)
develop for launch the Company's e-commerce portal to meet the demand for
customized learning materials; and (3) expand the Company's digital library of
educational content.
Stock-based compensation costs of $417,242 in 2000 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.
12
<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 $1,620,428 in 2000 from $396,414 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
To meet its financing needs, the Company has primarily depended upon loans
from stockholders and Directors and sales of its Common Stock. Other sources of
financing have included bank debt and credit from suppliers. The Company has
generally not been in compliance with the provisions contained in certain of its
long-term debt agreements, and accordingly, the amounts outstanding under these
agreements have been classified as a current liability. As such, the Company
has generally operated from a negative working capital position.
In conjunction with the Merger, the Company (1) refinanced $2,815,000 of
stockholder and director loans plus $401,171 in related accrued interest with
the issuance of 2,135,301 shares of Series A Preferred Stock; (2) purchased new
technology and a related patent application with the issuance of 1,379,310
shares of Common Stock; and (3) sold 4,666,667 shares of Common Stock and
Warrants to purchase 833,333 shares of its Common Stock for an aggregate
purchase price of $7 million, including conversion of the notes payable and
advances owed to Verus International Ltd. As a result, the Company had a cash
balance of $5,033,132 and a positive working capital of $2,803,742 at March 31,
2000.
In April 2000, the Company repaid $906,670 in outstanding debt, plus
accrued interest, using a portion of the proceeds received from the sale of the
Common Stock. The repayments included $466,074 of principal and accrued interest
due to related parties.
Unless the Company can generate a significant level of on-going revenue and
attain adequate profitability in the near-term, it will be necessary to seek
additional sources of equity or debt financing. Although the Company has been
successful in raising financing in the past, there can be no assurance that any
additional financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing when needed will
have a material adverse effect on the Company, requiring the Company to
significantly curtail or possibly cease its operations. In addition, any
additional equity financing may involve substantial dilution to the interests of
the Company's then existing stockholders.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The provisions of SFAS No. 133 are effective for periods
beginning after June 15, 2000. The Company is currently evaluating, and has not
determined, the effect, if any, SFAS No. 133 will have on the Company's
financial position and its results of operations. The Company will adopt this
accounting standard on January 1, 2001, as required.
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements filed with the Securities and
Exchange Commission. The Company is currently evaluating, and has not
determined, the effect, if any, SAB No. 101 will have on the Company's financial
position and its results of operations. The Company will adopt this accounting
standard during the fourth quarter of 2000, as required.
Restatement of Financial Statements
Subsequent to the issuance of the Company's Condensed Consolidated
Financial Statements as of and for the three month periods ended March 31, 2000
and 1999, the Company's management determined that (1) the Company's acquisition
of technology and a related patent application from Virtuosity, by issuing
common stock of the Company to Virtuosity, should not have beeen recorded as a
cash transaction in the Company's Condensed Consolidated Statements of Cash
Flows, (2) certain expenses and other transactions were recorded in the
incorrect period or were recorded under the incorrect financial statement
caption and (3) the calculation of the weighted-average shares outstanding for
the three month period ending March 31, 1999 was incorrect. As a result, the
Company's Condensed Consolidated Financial Statements as of and for the three
month periods ended March 31, 2000 and 1999 have been restated from the amounts
previously reported to reflect the appropriate reporting of the aforementioned
items. The signficiant effects of the restatement are disclosed in Note 8 to
the Condensed Consolidated Financial Statements.
13
<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, and Warrants to purchase 833,333 shares of Common Stock for
an aggregate purchase price of $7 million including conversion of the notes
payable and advances owed to Verus International Ltd. The Purchasers also
received warrants to purchase an additional 833,333 shares of the Company's
Common Stock at an exercise price of $1.50 per share. The proceeds from the sale
will be used for working capital and general corporate or other purposes as the
Company may determine from time to time in its discretion.
In addition, in connection with the Merger, the Company purchased
technology and a related patent application from Virtuosity Press LLC, a
Delaware Limited Liability Company, in exchange for 1,379,310 shares of the
Company's Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders of booktech on March 7, 2000 duly
adjourned and reconvened on March 30, 2000, stockholders holding approximately
80% of the common shares outstanding approved the following matters: (i) a
change of name from Ebony & Gold Ventures, Inc., to "booktech.com, inc."; (ii)
the authorization of a class of Preferred Stock in such series and with such
rights, privileges and preferences as the Board of Directors may determine from
time to time; (iii) the increase of the number of the Company's authorized
Directors to seven (7); and (iv) the Company's 2000 Stock Option Plan.
Only stockholders of record at the close of business on February 25, 2000
(the "Record Date") were entitled to notice of and to vote at the Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
10.1 2000 Stock Option Plan (The Plan is incorporated by reference to the Schedule 14A
Proxy Statement filed by booktech on February 28, 2000)
10.2 Oracle Software License and Services Agreement
10.3 Oracle Time & Materials Contract Student Portal Development
10.4 Oracle Time & Materials Contract FastForward ERP Development
10.5 Oracle time & Materials Contract Professor Portal Development
10.6 Consulting Agreement with Verus International Ltd.
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedules
</TABLE>
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on April 4, 2000,
which reported that EG Acquisitions Corporation, a Nevada corporation,
a wholly owned subsidiary of the Company, merged with and into
booktechMass, pursuant to an Agreement and Plan of Merger dated March
31, 2000 between EG Acquisitions Corporation, the Company, and
booktechMass. Following the Merger, the business of the Company was the
business conducted by booktechMass prior to the Merger. In conjunction
with the Merger, the Company changed its name to "booktech.com, inc."
The registrant filed a report on Form 8-K on May 15, 2000
which reported that the Company appointed Deloitte & Touche LLP as
its independent auditors.
The registrant filed a report on Form 8-K on June 16, 2000
which reported that the purchase of a patent application with shares of
the Company's common stock should not have been reported within the
Unaudited Condensed Consolidated Statement of Cash Flows contained in
the Company's Form 10-QSB for the period ending March 31, 2000.
14
<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.
August 10, 2000 booktech.com, inc.
/S/ TED BERNHARDT
----------------------------
Ted Bernhardt
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
10.1 2000 Stock Option Plan (Incorporated by reference)
10.2 Oracle Software License and Service Agreement
10.3 Oracle Time and Materials Contract Student Portal Development
10.4 Oracle Time and Materials Contract Fast Foward ERP Development
10.5 Oracle Time and Materials Contract Professor Portal Development
10.6 Consulting Agreement with Verus International Ltd.
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedules
